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Chapter 5: Q5-4RQ (page 265)
What is the Cost of Goods Sold (COGS), and where is it reported?
The cost of goods sold is the cost of goods that has been sold to the customers by a business, and the same is reported in the income statement.
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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
Requirements
1. Prepare Camilia Communication’s statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.
2. Prepare Camilia Communication’s classified balance sheet at July 31, 2018. Use the report format.
Journalize the following transactions that occurred in February 2018 for Oceanic. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Oceanic estimates sales returns at the end of each month.
Feb. 3 Purchased merchandise inventory on account from Silton Wholesalers, \(5,200. Terms 2/15, n/EOM, FOB shipping point.
4 Paid freight bill of \)70 on February 3 purchase.
4 Purchased merchandise inventory for cash of \(1,500.
6 Returned \)900 of inventory from February 3 purchase.
8 Sold merchandise inventory to Herenda Company, \(5,600, on account. Terms 3/15, n/35. Cost of goods, \)2,352.
9 Purchased merchandise inventory on account from Teddy Wholesalers, \(7,000. Terms 1/10, n/30, FOB destination.
10 Made payment to Silton Wholesalers for goods purchased on February 3, less return and discount.
12 Received payment from Herenda Company, less discount.
13 After negotiations, received a \)500 allowance from Teddy Wholesalers.
15 Sold merchandise inventory to Jordon Company, \(3,400, on account. Terms n/EOM. Cost of goods, \)1,496.
22 Made payment, less allowance, to Teddy Wholesalers for goods purchased on February 9.
23 Jordon Company returned \(1,000 of the merchandise sold on February 15. Cost of goods, \)440.
25 Sold merchandise inventory to Smith for \(1,700 on account that cost \)663. Terms of 2/10, n/30 were offered, FOB shipping point. As a courtesy to Smith, $70 of freight was added to the invoice for which cash was paid by Oceanic.
27 Received payment from Smith, less discount.
28 Received payment from Jordon Company, less return.
What financial statement is merchandise inventory reported on, and in what section?
What would the credit terms of “2/10, n/EOM” mean?
Describe FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?
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