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Q4-2PSB

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Financial & Managerial Accounting
Found in: Page 216
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Prepare journal entries to record the following merchandising transactions of Menards, which applies the perpetual inventory system and gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 3 in Accounts Payable—OLB.)

July 3 Purchased merchandise from OLB Corp. for $15,000 under credit terms of 1∕10, n∕30, FOB destination, invoice dated July 3.

7 Sold merchandise to Brill Co. for $11,500 under credit terms of 2∕10, n∕60, FOB destination, invoice dated July 7. The merchandise had cost $7,750.

10 Purchased merchandise from Rupert Co. for $14,200 under credit terms of 1∕10, n∕45, FOB shipping point, invoice dated July 10.

11 Paid $300 cash for shipping charges related to the July 7 sale to Brill Co.

12 Brill returned merchandise from the July 7 sale that had cost Menards $1,450 and been sold for $2,000. The merchandise was restored to inventory.

14 After negotiations with Rupert Co. concerning problems with the merchandise purchased on July 10, Menards received a credit memorandum from Rupert granting a price reduction of $1,200.

15 At OLB’s request, Menards paid $200 cash for freight charges on the July 3 purchase, reducing the amount owed to OLB.

17 Received balance due from Brill Co. for the July 7 sale less the return on July 12.

20 Paid the amount due Rupert Co. for the July 10 purchase less the price reduction granted on July 14.

21 Sold merchandise to Brown for $11,000 under credit terms of 1∕10, n∕30, FOB shipping point, invoice dated July 21. The merchandise had cost $7,000.

24 Brown requested a price reduction on the July 21 sale because the merchandise did not meet specifications. Menards sent Brown a credit memorandum for $1,000 toward the $11,000 invoice to resolve the issue.

30 Received Brown’s cash payment for the amount due from the July 21 sale less the price allowance from July 24.

31 Paid OLB Corp. the amount due from the July 3 purchase.

Answer

Both sides of the journal totals $119,900.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Sales Return and Allowance

Sales return and allowance account reports the value of goods that customers return due to a defect or any other valid reason.

Step 2: Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

3 July

Merchandise inventory

15,000

Account payable – OLB Corp.

15,000

7 July

Accounts receivables – Brill Co.

11,500

Sales revenue

11,500

Cost of goods sold

7,750

Merchandise inventory

7,750

10 July

Merchandise inventory

14,200

Accounts Payable – Rupert Co.

14,200

11 July

Merchandise inventory

300

Cash

300

12 July

Sales return and allowance

2,000

Accounts receivables – Brill Co.

2,000

Merchandise inventory

1,450

Cost of goods sold

1,450

14 July

Accounts payable

1,200

Merchandise inventory

1,200

15 July

Account payable – OLB

200

Cash

200

17 July

Cash

9,310

Discount allowed

190

Accounts receivables – Brill Co.

9,500

20 July

Accounts payable – Rupert Co.

13,000

Discount received

130

Cash

12,870

21 July

Accounts receivable – Brown Co.

11,000

Sales revenue

11,000

Cost of goods sold

7,000

Merchandise inventory

7,000

24 July

Sale return and allowance

1,000

Accounts receivables – Brown Co.

1,000

30 July

Cash

9,900

Discount allowed

100

Accounts receivables – Brown Co.

10,000

31 July

Accounts payable – OLB Corp.

14,800

Cash

14,800

$119,900

$119,900

Most popular questions for Business-studies Textbooks

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.

NELSON COMPANY
Unadjusted Trial Balance
January 31, 2017

Debit

Credit

Cash

$1,000

Merchandise inventory

12,500

Store supplies

5,800

Prepaid insurance

2,400

Store equipment

42,900

Accumulated depreciation – store equipment

$15,250

Account payable

10,000

Common stock

5,000

Retained earnings

27,000

Dividends

2,200

Sales

111,950

Sales discount

2,000

Sales return and allowance

2,200

Cost of goods sold

38,400

Depreciation expenses – store equipment

0

Salaries expenses

35,000

Insurance expense

0

Rent expense

15,000

Store supplies expense

0

Advertising expense

9,800

Total

$169,200

$169,200

Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system.

Required

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.)

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