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Chapter 5: Q26E (page 303)

Emerson St. Book Shop’s unadjusted Merchandise Inventory at June 30, 2018 was \(5,200. The cost associated with the physical count of inventory on hand on June 30, 2018, was \)4,900. In addition, Emerson St. Book Shop estimated approximately \(1,000 of merchandise sold will be returned with a cost of \)400.

Requirements

1. Journalize the adjustment for inventory shrinkage.

2. Journalize the adjustment for estimated sales returns.

Short Answer

Expert verified

The inventory shrinkage expense of the company is$300.

Step by step solution

01

Meaning of Adjusting Entries

In accounting practice, adjusting entries are recorded in the books at the end of an accounting period. Adjusting entries are passed after drafting thetrial balance, and it facilitates the business entities to reflect theirrevenues and expenses correctly.

02

Preparation of adjustment entry for inventory shrinkage

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Jun 30

Cost of goods sold (5200-4900)

300

Merchandise inventory

300

(To record the inventory shrinkage)

03

Preparation of adjustment entry for estimated sales returns

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Jun 30

Sales revenue

1,000

Refunds payable

1,000

(To record the refunds payable)

Jun 30

Estimated returns inventory

400

Cost of goods sold

400

(To record the cost of goods sold)

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Most popular questions from this chapter

The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:

Requirements

1. Journalize the required closing entries at March 31, 2018.

2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts, and calculate their ending balances.

3. How much was Quality Office’s net income or net loss?

What is a merchandiser, and what is the name of the merchandise that it sells?

Journalize the following transactions for Soul Art Gift Shop. Explanations are not required.

Feb. 3 Purchased \(3,300 of merchandise inventory under terms 3/10, n/EOM, and FOB shipping point.

7 Returned \)900 of defective merchandise purchased on February 3.

9 Paid freight bill of \(400 on February 3 purchase.

10 Sold merchandise inventory on account for \)4,700. Payment terms were 2/15, n/30. These goods cost the company $2,350.

12 Paid amount owed on credit purchase of February 3, less the return and the discount.

28 Received cash from February 10 customer in full settlement of their debt.

Journalize the following sales transactions for Paul Sportswear. Explanations are not required.

Aug. 1 Paul sold \(66,000 of women’s sportswear on account, credit terms are 2/10, n/30. Cost of goods is \)33,000. Paul uses the gross method to record sales revenue.

25 Paul receives payment from the customer on the amount due.

Journalize the following transactions that occurred in June 2018 for Daley Company. Assume Daley uses the periodic inventory system. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Daley estimates sales returns at the end of each month.

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

4 Paid freight bill of \)42 on June 3 purchase.

4 Purchased merchandise inventory for cash of \(1,100.

6 Returned \)200 of inventory from June 3 purchase.

8 Sold merchandise inventory to Henrich Company, \(4,400, on account. Terms 2/15, n/35.

9 Purchased merchandise inventory on account from Tex Wholesalers, \)4,600. Terms 1/10, n/30, FOB destination.

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

12 Received payment from Henrich Company, less discount.

13 After negotiations, received a \(300 allowance from Tex Wholesalers.

15 Sold merchandise inventory to Jarvis Company, \)1,500, on account. Terms n/EOM.

22 Made payment, less allowance, to Tex Wholesalers for goods purchased on June 9.

23 Jarvis Company returned \(100 of the merchandise sold on June 15.

25 Sold merchandise inventory to Smith for \)700 on account. Terms of 3/10, n/30 was offered, FOB shipping point.

29 Received payment from Smith, less discount.

30 Received payment from Jarvis Company, less return.
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