Distinguish between cash discounts and trade discounts for purchases. Is the amount of a trade discount on purchased merchandise recorded in the accounts?
The following are the basis of difference:
The reduced price negotiated between the buyer and seller is known as a trade discount. Such a discount is generally given to increase the market share by maintaining a relationship with the buyer.
The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.
|Unadjusted Trial Balance|
|January 31, 2017|
Accumulated depreciation – store equipment
Sales return and allowance
Cost of goods sold
Depreciation expenses – store equipment
Store supplies expense
Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system.
1. Prepare adjusting journal entries to reflect each of the following:
a. Store supplies still available at fiscal year-end amount to $1,750.
b. Expired insurance, an administrative expense, for the fiscal year is $1,400.
c. Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.
d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,900 of inventory is still available at fiscal year-end.
2. Prepare a multiple-step income statement for fiscal year 2017 that begins with gross sales and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
3. Prepare a single-step income statement for fiscal year 2017.
4. Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2017. (Round ratios to two decimals.)
Prepare journal entries to record the following merchandising transactions of Cabela’s, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable—Boden.)
July 1 Purchased merchandise from Boden Company for $6,000 under credit terms of 1∕15, n∕30, FOB shipping point, invoice dated July 1.
2 Sold merchandise to Creek Co. for $900 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated July 2. The merchandise had cost $500.
3 Paid $125 cash for freight charges on the purchase of July 1.
8 Sold merchandise that had cost $1,300 for $1,700 cash.
9 Purchased merchandise from Leight Co. for $2,200 under credit terms of 2∕15, n∕60, FOB destination, invoice dated July 9.
11 Received a $200 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.
12 Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
16 Paid the balance due to Boden Company within the discount period.
19 Sold merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2∕15, n∕60, FOB shipping point, invoice dated July 19.
21 Issued a $100 credit memorandum to Art Co. for an allowance on goods sold on July 19.
24 Paid Leight Co. the balance due, net of discount.
30 Received the balance due from Art Co. for the invoice dated July 19, net of discount.
31 Sold merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated July 31.
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 3∕10, n∕60 and an invoice price of $24,000. The merchandise had cost Mesa $16,000. Assume that both buyer and seller use a perpetual inventory system and the gross method.
1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.
The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2017, unadjusted trial balance of Emiko Co. Use these account balances along with the additional information to journalize (a) adjusting entries and (b) closing entries. Emiko Co. uses a perpetual inventory system.
Prepaid selling expenses
Sales return and allowances
Cost of goods sold
Sales salaries expenses
Accrued sales salaries amount to $1,700. Prepaid selling expenses of $3,000 have expired. A physical count of year-end merchandise inventory shows $28,700 of goods still available.
94% of StudySmarter users get better grades.Sign up for free