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Chapter 5: Q5-25RQ (page 294)
What account is debited when recording a purchase of inventory when using a periodic inventory system?
The purchase account is debited when recording a purchase of inventory while using aperiodic inventory system.
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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?
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
Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae’s brother started his own drilling company and persuaded Rae to “loan” him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well encountered problems and the pipe was still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. “Send me over 80 joints of 5-inch pipe tomorrow, and I’ll get them back to you ASAP,” said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a “no-exception” report.
Requirements
1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?
2. How would this kind of action affect the financial performance of the company?
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.
Question: Journalize the following transactions that occurred in January 2018 for Mike’s Amusements. Assume Mike’s uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.
Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(5,000. Terms 1/10, n/EOM, FOB shipping point.
6 Paid freight bill of \)150 on January 4 purchase.
8 Returned half the inventory purchased on January 4 from Vanderbilt Company.
10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)440. FOB destination.
11 Sold merchandise inventory to Gilmore Corporation, \(10,100, on account, terms of 3/10, n/EOM. Cost of goods, \)5,555. FOB shipping point.
12 Paid freight bill of \(30 on January 10 sale.
13 Sold merchandise inventory to Cadet Company, \)8,800, on account, terms of 3/10, n/45. Cost of goods, \(4,400. FOB shipping point.
14 Paid the amount owed on account from January 4, less return and discount.
18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 1/10, n/30, FOB destination.
20 Received cash from Gilmore Corporation, less discount.
26 Paid amount owed on account from January 18, less discount.
28 Received cash from Cadet Company.
29 Purchased inventory from Silk Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)240.
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