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Chapter 5: Q5-12RQ (page 294)
How is the net cost of inventory calculated?
The net cost of inventory includes the beginning inventory, the purchases made during the year, and the closing inventory.
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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.
The records of Grade A Beef Company list the following selected accounts for the quarter ended September 30, 2018:
Interest Revenue \( 900 Accounts Payable \) 17,000
Merchandise Inventory 46,300 Accounts Receivable 33,500
Notes Payable, long-term 47,000 Accumulated Depreciation— Equipment 36,500
Salaries Payable 2,600 Common Stock 38,000
Net Sales Revenue 294,000 Retained Earnings 3,610
Rent Expense (Selling) 16,700 Dividends 15,000
Salaries Expense (Administrative) 2,500 Cash 7,300
Office Supplies 5,800 Cost of Goods Sold 161,700
Unearned Revenue 13,800 Equipment 131,000
Interest Expense 2,300 Interest Payable 900
Depreciation Expense—Equipment (Administrative) 1,310
Rent Expense (Administrative) 7,400
Utilities Expense (Administrative) 4,500 Salaries Expense (Selling) 5,000
Delivery Expense (Selling) 3,100 Utilities Expense (Selling) 10,900
Requirements
1. Prepare a single-step income statement.
2. Prepare a multi-step income statement.
3. J. Douglas, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Grade A Beef achieve this goal? Show your calculations
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. |
Comparing periodic and perpetual inventory systems
For each statement below, identify whether the statement applies to the periodic inventory system, the perpetual inventory system, or both.
a. Normally used for relatively inexpensive goods.
b. Keeps a running computerized record of merchandise inventory.
c. Achieves better control over merchandise inventory.
d. Requires a physical count of inventory to determine the quantities on hand.
e. Uses bar codes to keep up-to-the-minute records of inventory.
Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:
Cash \( 2,900 Cost of Goods Sold \) 18,700
Selling Expenses 1,400 Equipment, net 9,500
Accounts Payable 4,300 Accrued Liabilities 1,800
Common Stock 4,365 Net Sales Revenue 29,200
Notes Payable, long-term 500 Accounts Receivable 3,200
Merchandise Inventory 1,100 Interest Expense 65
Administrative Expenses 3,300
Prepare Camilia Communication’s multi-step income statement for the year ended July 31, 2018.
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