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Chapter 5: Q5-18RQ (page 294)
What is inventory shrinkage? Describe the adjusting entry that would be recorded to account for inventory shrinkage.
Inventory shrinkage refers to an expense that reducesthe inventory values of the business entities.
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Journalize the following transactions for Santa Fe Art Gift Shop. Assume Santa Fe uses the gross method to record sales revenue. Explanations are not required.
Feb. 3 Purchased \(2,800 of merchandise inventory on account under terms 3/10, n/EOM and FOB shipping point.
7 Returned \)700 of defective merchandise purchased on February 3.
9 Paid freight bill of \(400 on February 3 purchase.
10 Sold merchandise inventory on account for \)4,800. Payment terms were 1/15, n/30. These goods cost the company $2,400.
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 Sierra Tractors. Explanations are not required.
June 5 Sierra sold \(20,000 of inventory on account, credit terms are 4/10, n/30. Cost of goods is \)10,000. Sierra uses the gross method to record sales revenue.
12 Sierra receives payment from the customer on the amount due, less the discount.
Macarthy Landscape Supply’s selected accounts as of December 31, 2018, follow. Compute the gross profit percentage for 2018.
Selling Expenses $ 12,900
Interest Revenue 900
Net Sales Revenue 134,700
Cost of Goods Sold 114,000
Administrative Expenses 10,200
Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.
Requirements
1. Journalize The Textbook Store’s October 2018 transactions.
2. Journalize Piranha.com’s October 2018 transactions. The company estimates sales returns at the end of each month.
When granting a sales allowance is there a return of merchandise inventory from the customer? Describe the journal entry(ies) that would be recorded.
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