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Chapter 5: Q13SE (page 297)

Journalize the following sales transactions for King Company. Explanations are not required.

Apr. 1 King Company sold merchandise inventory for \(150. The cost of the inventory was \)90. The customer paid cash. King Company was running a promotion and the customer received a \(20 award at the time of sale that can be used at a future date on any King Company merchandise.

May 15 The customer uses the \)20 award when purchasing merchandise inventory for \(30. The cost of the inventory was \)18. The customer paid cash.

Short Answer

Expert verified

Answer

The total of debits and credits is$318.

Step by step solution

01

Meaning of Sales Allowances

In accounting, sales allowances refer to the price reduction facility provided by the business entities to their customers. Such allowances are theexpensesand arededucted from the sales revenues generated by the businesses.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Apr 1

Cash

150

Sales revenue

150

Apr 1

Cost of goods sold

90

Merchandise inventory

90

Apr 1

Sales allowance

20

Accounts receivable

May 15

Accounts payable

30

Sales revenue

30

May 15

Cost of goods sold

18

Merchandise inventory

18

May 15

Cash

10

Accounts receivable

10

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Most popular questions from this chapter

What is inventory shrinkage? Describe the adjusting entry that would be recorded to account for inventory shrinkage.

Lawrence Appliances had the following purchase transactions. Journalize all necessary transactions using the periodic inventory system. Explanations are not required.

Sep. 4 Purchased inventory of \(6,900 on account from Max Appliance Wholesale, an appliance wholesaler. Terms were 3/15, n/30, FOB shipping point.

4 Paid freight charges, \)480.

10 Returned \(300 of inventory to Max.

17 Paid Max Appliance Wholesale, less return, and discount.

20 Purchased inventory of \)3,900 from MY Appliance, an appliance wholesaler. Terms were 1/10, n/45, FOB destination.

22 Received a $400 allowance from MY Appliance for damaged but usable goods.

29 Paid MY Appliance, less allowance and discount.

Journalize the following transactions that occurred in September 2018 for Aquamarines. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Aquamarines estimates sales returns at the end of each month.

Sep. 3 Purchased merchandise inventory on account from Sharpner Wholesalers, \(5,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)85 on September 3 purchase.

4 Purchased merchandise inventory for cash of \(1,600.

6 Returned \)1,300 of inventory from the September 3 purchase.

8 Sold merchandise inventory to Herman Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,565.

9 Purchased merchandise inventory on account from Tucker Wholesalers, \(6,000. Terms 3/10, n/30, FOB destination.

10 Made payment to Sharpner Wholesalers for goods purchased on September 3, less return and discount.

12 Received payment from Herman Company, less discount.

13 After negotiations, I received a \)500 allowance from Tucker Wholesalers.

15 Sold merchandise inventory to Jerome Company, \(2,800, on account. Terms n/EOM. Cost of goods, \)1,200.

22 Made payment, less allowance, to Tucker Wholesalers for goods purchased on September 9.

23 Jerome Company returned \(200 of the merchandise sold on September 15. Cost of goods, \)80.

25 Sold merchandise inventory to Small for \(1,800 on account that cost \)738. Terms of 3/10, n/30 was offered, FOB shipping point. As a courtesy to Small, $40 of freight was added to the invoice, for which Aquamarines paid cash.

29 Received payment from Small, less discount.

30 Received payment from Jerome Company, less return.

Jeana’s Furniture’s unadjusted Merchandise Inventory account at year-end is \(69,000. The physical count of inventory came up with a total of \)67,600. Journalize the adjusting entry needed to account for inventory shrinkage.

Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement:

PARTY-TIME T-SHIRTS

Income Statement

Year Ended December 31, 2017

Net Sales Revenue \(350,000

Cost of Goods Sold 210,000

Gross Profit 140,000

Operating Expenses:

Selling Expense 40,000

Administrative Expense 25,000

Net Income \)75,000

Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to \(100,000 during 2018.

a. Hildebrand believes he should advertise more heavily. He believes additional advertising costing \)20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately.

b. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for \(40 each; Party-Time can mark these dresses up 100% and sell them for \)80. Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year.

Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan.
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