Use the data for Barkley Company in Problem 4-3B to complete the following requirements.
1. Prepare closing entries as of March 31, 2017 (the perpetual inventory system is used).
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?
Closing entries, also known as retained earnings, are journal entries prepared for transferring the balance of temporary accounts to permanent accounts.
Accounts and Explanation
31 Aug 2017
31 Aug 2017
Sales return and allowances
Cost of goods sold
Sales salaries expenses
Rent expenses – selling space
Store supplies expenses
Office salaries expenses
Rent expenses – office space
Office supplies expenses
31 Aug 2017
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.
Use the data for Valley Company in Problem 4-3A to complete the following requirements.
1. Prepare closing entries as of August 31, 2017 (the perpetual inventory system is used).
2. In prior years, the company experienced a 4% returns and allowance rate on its sales, which means approximately 4% 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 4% ratio in prior years?
Identify whether each description best applies to a periodic or a perpetual inventory system.
a. Updates the inventory account only at period-end.
b. Requires an adjusting entry to record inventory shrinkage.
c. Markedly increased in frequency and popularity in business within the past decade.
d. Records cost of goods sold each time a sales transaction occurs.
e. Provides more timely information to managers.
BTN 4-4 You are the financial officer for Music Plus, a retailer that sells goods for home entertainment needs. The business owner, Vic Velakturi, recently reviewed the annual financial statements you prepared and sent you an e-mail stating that he thinks you overstated net income. He explains that although he has invested a great deal in security, he is sure shoplifting and other forms of inventory shrinkage have occurred, but he does not see any deduction for shrinkage on the income statement. The store uses a perpetual inventory system.
Prepare a brief memorandum that responds to the owner’s concerns.
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.
94% of StudySmarter users get better grades.Sign up for free