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Chapter 5: Q31RQ (page 295)
Describe the calculation of cost of goods sold when using the periodic inventory system.
Answer
The cost of goods sold is computed by considering theopening inventory, net purchases, and closing inventory.
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What are the two types of inventory accounting systems? Briefly describe each.
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.
The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:
Interest Revenue \( 400 Accounts Payable \) 17,700
Merchandise Inventory 45,000 Accounts Receivable 38,200
Notes Payable, long-term 54,000 Accumulated Depreciation—Equipment 37,700
Salaries Payable 2,800 Common Stock 30,000
Net Sales Revenue 298,000 Retained Earnings 5,380
Rent Expense (Selling) 15,100 Dividends 25,000
Salaries Expense (Administrative) 2,000 Cash 7,100
Office Supplies 6,500 Cost of Goods Sold 154,960
Unearned Revenue 13,100 Equipment 132,000
Interest Expense 2,100 Interest Payable 1,700
Depreciation Expense—Equipment (Administrative) 1,320
Rent Expense (Administrative) 7,100
Utilities Expense (Administrative) 4,600 Salaries Expense (Selling) 6,000
Delivery Expense (Selling) 3,800 Utilities Expense (Selling) 10,000
Requirements
1. Prepare a single-step income statement.
2. Prepare a multi-step income statement.
3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Farm Quality achieve this goal? Show your calculations
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.
D & T Printing Supplies’ accounting records include the following accounts at December 31, 2018.
Purchases \( 185,200 Accumulated Depreciation—Building \) 21,000
Accounts Payable 7,700 Cash 18,100
Rent Expense 8,600 Sales Revenue 257,800
Building 42,800 Depreciation Expense—Building 4,700
Common Stock 55,000 Dividends 26,500
Retained Earnings 30,400 Interest Expense 1,900
Merchandise Inventory,
Beginning 119,000 Merchandise Inventory,
Ending 102,100
Notes Payable 11,300 Purchase Returns and Allowances 20,700
Purchase Discounts 2,900
Requirements
1. Journalize the required closing entries for D & T Printing Supplies assuming that D & T uses the periodic inventory system.
2. Determine the ending balance in the Retained Earnings account.
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