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Chapter 5: Q33E (page 306)

Clink Electric uses the periodic inventory system. Clink reported the following selected amounts at May 31, 2018:

Merchandise Inventory, June 1, 2017 \( 16,000 Freight In \) 6,000

Merchandise Inventory, May 31, 2018 21,500 Net Sales Revenue 138,000

Purchases 81,000 Common Stock 32,000

Purchase Discounts 3,000 Retained Earnings 17,000

Purchase Returns and Allowances 6,600

Compute the following for Clink:

a. Cost of goods sold.

b. Gross profit.

Short Answer

Expert verified

(a) The cost of goods sold of the company is $65,900.

(b) Gross profit of the company is $72,100.

Step by step solution

01

Meaning of Profit

In accounting, the term profit denotes excess revenues over the expenses. It is computed by taking the difference betweenrevenues generated in one accounting period and expensesincurred to generate such revenues.

02

Computation of cost of goods sold

Particulars

Amounts ($)

Opening inventory

16,000

Add: Net purchases (Working Note)

71,400

Less: Closing inventory

(21,500)

Cost of goods sold

$65,900

Working Note:

Computation of Net purchases:

Net Purchases=Purchases-Purchase returns and allowances-Purchase discounts=$81,000-$6,600-$3,000=$71,400

03

Computation of gross profit

Gross Profit=Net Sales Revenue-Cost of Goods Sold=$138,000-$65,900=$72,100

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Most popular questions from this chapter

Ocean Life Boat Supply uses the periodic inventory method. The adjusted trial balance of Ocean Life Boat Supply at December 31, 2018, follows:

Requirements

1. Journalize the required closing entries at December 31, 2018. Assume ending Merchandise Inventory is $54,300.

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 Ocean Life’s net income or net loss?

Journalize the following sales transactions for Austin Mall. Assume Austin Mall uses the gross method to record sales revenue. Explanations are not required.

Jan. 4 Sold \(10,000 of antiques on account, credit terms are 1/15, n/30. Cost of goods is \)5,000.

20 Austin Mall received payment from the customer on the amount due from Jan. 4.

20 Sold \(5,200 of antiques on account, credit terms are 1/10, n/45, FOB destination. Cost of goods is \)2,600.

20 Austin Mall paid $120 on freight out.

29 Received payment from the customer on the amount due from Jan. 20, less the discount.

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

Nov. 4 Purchased merchandise inventory on account from Vera Company, \(5,000. Terms 3/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)100 on November 4 purchase

8 Returned half the inventory purchased on November 4 from Vera Company.

10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)400. FOB destination.

11 Sold merchandise inventory to Geary Corporation, \(11,100, on account, terms of 2/10, n/EOM. Cost of goods, \)6,105. FOB shipping point.

12 Paid freight bill of \(20 on November 10 sale.

13 Sold merchandise inventory to Caldwell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.

14 Paid the amount owed on account from November 4, less return and discount.

17 Received defective inventory as a sales return from the November 13 sale, \)500. Cost of goods, \(275.

18 Purchased inventory of \)3,600 on account from Rainman Corporation. Payment terms were 2/10, n/30, FOB destination.

20 Received cash from Geary Corporation, less discount.

26 Paid amount owed on account from November 18, less discount.

28 Received cash from Caldwell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, \(12,300, FOB shipping point. Freight in paid to shipping company, \)170.

Match the accounting terminology to the definitions.

1. Cost of Goods Sold

a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

2. Perpetual inventory system

b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.

3. Vendor

c. Excess of Net Sales Revenue over Cost of Goods Sold.

4. Periodic inventory system

d. The cost of merchandise inventory that the business has sold to customers.

5. Operating expenses

e. The individual or business from whom a company purchases goods.

6. Gross profit

f. An inventory system that keeps a running computerized record of merchandise inventory.

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.
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