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Chapter 5: Q8SE (page 296)
Jeana’s Furniture’s unadjusted Merchandise Inventory account at year-end is \(69,000. The physical count of inventory came up with a total of \)67,600. Journalize the adjusting entry needed to account for inventory shrinkage.
Answer
Inventory shrinkage expense for the company is$1,400.
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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. |
Match the accounting terms with the corresponding definitions.
1. Credit Terms a. The cost of the merchandise inventory that the business has sold to customers.
2. FOB Destination b. An amount granted to the purchaser as an incentive to keep goods that are not “as ordered.”
3. Invoice c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.
4. Cost of Goods Sold d. A situation in which the buyer takes ownership (title) at the delivery destination point.
5. Purchase Allowance e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.
6. FOB Shipping Point f. A discount that businesses offer to purchasers as an incentive for early payment.
7. Wholesaler g. A situation in which the buyer takes title to the goods after the goods leave the seller’s place of business.
8. Purchase Discount h. The terms of purchase or sale as stated on the invoice.
9. Retailer i. A seller’s request for cash from the purchaser.
The unadjusted trial balance for Tuttle Electronics Company follows:
TUTTLE ELECTRONICS COMPANY
Unadjusted Trial Balance
October 31, 2018
Balance
Account Title Debit Credit
Cash \(4,200
Accounts Receivable 33,800
Merchandise Inventory 45,700
Office Supplies 5,700
Equipment 129,500
Accumulated Depreciation-Equipment \)37,200
Accounts Payable 15,600
Unearned Revenue 13,400
Notes Payable, long-term 53,000
Common Stock 48,000
Retained Earnings 6,700
Dividends 27,000
Sales Revenue 300,300
Cost of Goods Sold 171,600
Salaries Expense (Selling) 26,000
Rent Expense (Selling) 15,400
Salaries Expense (Administrative) 4,800
Utilities Expense (Administrative) 10,500
Total \(474,200 \)474,200
Requirements
1. Journalize the adjusting entries using the following data:
a. Interest revenue accrued, \(550.
b. Salaries (Selling) accrued, \)2,800.
c. Depreciation Expense—Equipment (Administrative), \(1,295.
d. Interest expense accrued, \)1,500.
e. A physical count of inventory was completed. The ending Merchandise Inventory should have a balance of \(45,300.
f. Tuttle estimates that approximately \)6,200 of merchandise sold will be returned with a cost of $2,480.
2. Prepare Tuttle Electronics’s adjusted trial balance as of October 31, 2018.
3. Prepare Tuttle Electronics’s multi-step income statement for year ended October 31, 2018.
Click Computers has the following transactions in July related to the purchase of merchandise inventory.
July 1 Purchase of \(20,500 worth of computers on account, terms of 2/10, n/30.
3 Return of \)4,000 of the computers to the vendor.
9 Payment made on the account.
Journalize the purchase transactions for Click Computers assuming the company uses the perpetual inventory system.
How is gross profit calculated, and what does it represent?
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