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Q4-9E

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Financial & Managerial Accounting
Found in: Page 211
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 for the following merchandising transactions of Dollar Store assuming it uses a perpetual inventory system and the gross method.

Nov. 1 Dollar Store purchases merchandise for $1,500 on terms of 2∕5, n∕30, FOB shipping point, invoice dated November 1.

5 Dollar Store pays cash for the November 1 purchase.

7 Dollar Store discovers and returns $200 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund.

10 Dollar Store pays $90 cash for transportation costs for the November 1 purchase.

13 Dollar Store sells merchandise for $1,600 with terms n∕30. The cost of the merchandise is $800.

16 Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at $160 and cost $80; the items were not damaged and were returned to inventory.

Answer

Both credit and debit sides of the journal amount to $5,926 each.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Revenue Account

The income statement reports all the benefits generated from the sale of products or services in the revenue account, which is reported at the top of the income statement.

Step 2: Journal entries

Date

Accounts and Explanation

Debit $

Credit $

Nov. 1

Merchandise inventory

1,500

Account payable

1,500

Nov. 5

Accounts payable

1,500

Discount received

30

Cash

1,470

Nov. 7

Cash

196

Merchandise inventory

196

Nov. 10

Merchandise inventory

90

Cash

90

Nov. 13

Accounts receivable

1,600

Sales revenue

1,600

Cost of goods sold

800

Merchandise inventory

800

Nov. 16

Sales return and allowance

160

Accounts receivable

160

Merchandise inventory

80

Cost of goods sold

80

$5,926

$5,926

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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