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Q4-4PSB

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Financial & Managerial Accounting
Found in: Page 218
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

Use the data for Barkley Company in Problem 4-3B to complete the following requirements.

Required

1. Prepare closing entries as of March 31, 2017 (the perpetual inventory system is used).

Analysis Component

2. In prior years, the company experienced a 5% returns and allowance rate on its sales, which means approximately 5% of its gross sales were eventually returned outright or caused the company to grant allowances to customers. Compute the ratio of sales returns and allowances divided by gross sales. How does this year’s ratio compare to the 5% ratio in prior years?

Answer

  1. Both sides of the journal totals $665,300.
  2. Sales return percentage is 6.01%.
See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Closing Entries

Closing entries, also known as retained earnings, are journal entries prepared for transferring the balance of temporary accounts to permanent accounts.

Step 2: Closing Entries

Date

Accounts and Explanation

Debit $

Credit $

31 Aug 2017

Sales

$332,650

Income summary

$332,650

31 Aug 2017

Income summary

277,475

Sales discount

5,875

Sales return and allowances

20,000

Cost of goods sold

115,600

Sales salaries expenses

44,500

Rent expenses – selling space

16,000

Store supplies expenses

3,850

Advertising expenses

26,000

Office salaries expenses

40,750

Rent expenses – office space

3,800

Office supplies expenses

1,100

31 Aug 2017

Income summary

55,175

Retained earnings

55,175

$665,300

$665,300

Step 3: Sales return percentage

The sales return percentage of the previous year reflects a good position than the current year because the sales return percentage of the previous year is less than the current year.

Most popular questions for Business-studies Textbooks

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.

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