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Chapter 5: Q5-5RQ (page 294)
How is gross profit calculated, and what does it represent?
Gross profit is the difference between the net sales revenues earned by a business concern and the cost of goods sold.
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Kingston Tires received the following invoice from a supplier (Fields Distribution, Inc.):
Requirements
1. Journalize the transaction required by Kingston Tires on September 23, 2018. Do not round numbers to the nearest whole dollar. Assume tires are purchased on account.
2. Journalize the return on Kingston’s books on September 28, 2018, of the D39–X4 Radials, which were ordered by mistake. Do not round numbers to the nearest whole dollar.
3. Journalize the payment on October 1, 2018, to Fields Distribution, Inc. Do not round numbers to the nearest whole dollar.
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.
On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was \(80,000 with a cost of \)48,000. Journalize the adjusting entries needed to account for the estimated returns.
What are the two types of inventory accounting systems? Briefly describe each.
Journalize the following sales transactions for Straight Shot Archery using the periodic inventory system. Explanations are not required. The company estimates sales returns and allowances at the end of each month.
Aug. 1 Sold \(6,500 of equipment on the account; credit terms are 1/10, n/30.
8 Straight Shot received payment from the customer on the amount due from August 1, less the discount.
15 Sold \)3,100 of equipment on the account; credit terms are n/45, FOB destination.
15 Straight Shot paid \(90 on freight out.
20 Straight Shot negotiated a \)500 allowance on the goods sold on August 15.
24 Received payment from the customer on the amount due from August 15, less the allowance.
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