EXERCISE 5–1 (LO1)
Consider the following information of Jones Corporation over four years:
|Cost of Goods Sold||?||6,840||6,160||?|
|Gross Profit Percentage||?||?||?||22%|
- Calculate the missing amounts for each year.
- What does this information indicate about the company?
EXERCISE 5–2 (LO2)
Reber Corp. uses the perpetual inventory system. Its transactions during July 2015 are as follows:
|July 6||Purchased $600 of merchandise on account from Hobson Corporation for terms 1/10, net 30.|
|9||Returned $200 of defective merchandise.|
|15||Paid the amount owing to Hobson.|
Required: Prepare journal entries to record the above transactions for Reber Corp.
EXERCISE 5–3 (LO2,3,4)
Horne Inc. and Sperling Renovations Ltd. both sell goods and use the perpetual inventory system. Horne Inc. had $3,000 of merchandise inventory at the start of its fiscal year, January 1, 2015. During the 2015, Horne Inc. had the following transactions:
|May 5||Horne sold $4,000 of merchandise on account to Sperling Renovations Ltd., terms 2/10, net 30. Cost of merchandise to Horne from its supplier was $2,500.|
|7||Sperling returned $500 of merchandise received in error which Horne returned to inventory; Horne issued a credit memo. Cost of merchandise to Horne was $300.|
|15||Horne received the amount due from Sperling Renovations Ltd.|
A physical count and valuation of Horne's Merchandise Inventory at May 31, the fiscal year-end, showed $700 of goods on hand.
Required: Prepare journal entries to record the above transactions and adjustment:
- In the records of Horne Inc.
- In the records of Sperling Renovations Ltd.
EXERCISE 5–4 (LO2,3) Recording Purchase and Sales Transactions
Below are transactions for March, 2016 for AngieJ Ltd.:
|March 1||Purchased $25,000 of merchandise on account for terms 2/10, n30.|
|March 3||Sold merchandise to a customer for $5,000 for terms 1/10, n30. (Cost $2,600)|
|March 4||Customer from March 3 returned $200 of some unsuitable goods which were returned to inventory. (Cost $100)|
|March 5||Purchased $15,000 of merchandise from a supplier for cash and arranged for shipping, fob shipping point.|
|March 6||Paid $200 for shipping on the March 5 purchase.|
|March 7||Contacted the supplier from March 5 regarding $2,000 of merchandise with some minor damages. Supplier agreed to reduce the price and offered an allowance of $500 cash, which was accepted.|
|March 8||Sold $25,000 of merchandise for terms 1.5/10, n30. (Cost $13,000). Agreed to pay shipping costs for the goods sold to the customer.|
|March 9||Shipped the goods sold on March 8 to customer, fob destination for $500 cash. (Hint: Shipping costs paid to ship merchandise sold to a customer is an operating expense.)|
|March 11||Paid for fifty percent of the March 1 purchase to the supplier.|
|March 13||Collected the account owing from the customer from March 3.|
|March 15||Purchased office supplies on account for $540 for terms 1/10, n30.|
|March 18||Ordered merchandise inventory from a supplier totalling $15,000. Goods to be shipped on April 10, fob shipping point.|
|March 20||Collected $6,010 cash from an account owing from two months ago. The early payment discount had expired.|
|March 25||Paid for the March 15 purchase.|
|March 27||Sold $12,500 of merchandise inventory for cash (Cost $5,000).|
|March 31||Paid the remaining of the amount owing from the March 1 purchase.|
Required: Prepare the journal entries, if any, for AngieJ Ltd.
EXERCISE 5–5 (LO2,3) Recording Purchase and Sales Transactions
Below are the April, 2016 sales for Beautort Corp.
|April 1||Purchased $15,000 of merchandise for cash.|
|April 3||Sold merchandise to a customer for $8,000 cash. (Cost $4,600)|
|April 5||Purchased $10,000 of merchandise from a supplier for terms 1/10, n30.|
|April 7||Returned $2,000 of damaged merchandise inventory from April 5 back to the supplier. Supplier will repair the items and return them to their own inventory.|
|April 8||Sold $8,000 of merchandise for terms 2/10, n30. (Cost $4,000). Agreed to pay shipping costs for the goods sold to the customer.|
|April 9||Shipped the goods sold on April 8 to customer, fob shipping point for $500 cash. (Hint: Shipping costs paid to ship merchandise sold to a customer is not an inventory cost.)|
|April 10||Customer from April 3 returned $1,000 of unsuitable goods which were returned to inventory. (Cost $400). Amount paid was refunded.|
|April 10||Agreed to give customer from April 8 sale a sales allowance of $200.|
|April 12||Purchased inventory on account for $22,000 for terms 1/10, n30.|
|April 15||Paid amount owing for purchases on April 5.|
|April 16||Paid $600 for shipping on the April 12 purchase.|
|April 18||Collected $5,000 cash, net of discount, for the customer account owing from April 8.|
|April 27||Paid for the April 12 purchase.|
|April 27||Sold $20,000 of merchandise inventory for cash (Cost $10,000).|
Required: Prepare the journal entries, if any, for Beautort Corp. Round final entry amounts to the nearest whole dollar.
EXERCISE 5–6 (LO5)
The following information is taken from the records of Smith Corp. for the year ended June 30, 2015:
|Cost of Goods Sold||50,000|
|Depreciation Expense – Equipment||500|
|Office Salaries Expense||3,000|
|Rent Expense – Office||1,000|
|Rent Expense – Store||1,500|
|Sales Salaries Expense||2,000|
|Sales Returns and Allowances||2,000|
- Prepare a classified multi-step income statement for the year ended June 30, 2015. Assume an income tax rate of 20%.
- Compute the gross profit percentage, rounding to two decimal places.
EXERCISE 5–7 (LO4) Calculating Inventory and Cost of Goods Sold
Below is a table that contains two important calculations that link together to determine net income/(loss):
|Inventory, opening balance||$ 10,000||$ 53,000||?||168,540||50,562|
|Total goods available for sale||?||212,000||2,247,200||?||657,306|
|Less: ending inventory||15,000||?||842,700||556,180||100,000|
|Cost of goods sold||?||132,500||?||?||?|
|Less: cost of goods sold||?||?||?||?||?|
|Less: operating expenses||12,000||?||275,000||?||?|
|Gross profit/sales (%)||?||?||?||?||?|
Required: Calculate the missing account balances using the relationships between these accounts. Percentage can be rounded to the nearest two decimal places.
EXERCISE 5–8 (LO6)
Refer to the information in EXERCISE 5–6.
- Prepare all closing entries. Assume cash dividends totalling $2,000 were declared during the year and recorded as a debit to Dividends Declared and a credit to Cash.
- Calculate the June 30, 2015 post-closing balance in Retained Earnings assuming a beginning balance of $18,000.
EXERCISE 5–9 (LO7 Appendix)
Consider the information for each of the following four companies.
|Opening Inventory||$ ?||$ 184||$ 112||$ 750|
|Cost of Goods Available for Sale||1,940||534||?||6,620|
|Cost of Goods Sold||?||?||?||5,740|
Required: Calculate the missing amounts.
EXERCISE 5–10 (LO7 Appendix)
The following data pertain to Pauling Inc.
|Purchases Returns and Allowances||20|
Ending inventory amounts to $440.
Required: Calculate cost of goods sold.
EXERCISE 5–11 (LO7 Appendix)
The following information is taken from the records of four different companies in the same industry:
|Cost of Goods Available for Sale||320||?||190||?|
|Cost of Goods Sold||?||100||130||60|
|Gross Profit percentage||?||?||?||?|
- Calculate the missing amounts.
- Which company seems to be performing best? Why?