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Merchandising Exercises Answers PDF

The document discusses solutions to exercises related to merchandising accounting. Exercise 1 identifies perpetual and periodic inventory systems. Exercise 3 further explains that a perpetual system continuously updates inventory quantities and costs, while a periodic system only determines cost of goods sold at period end. Exercise 11 provides an example income statement for a company showing sales revenue, cost of goods sold, operating expenses, and profit.

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4K views

Merchandising Exercises Answers PDF

The document discusses solutions to exercises related to merchandising accounting. Exercise 1 identifies perpetual and periodic inventory systems. Exercise 3 further explains that a perpetual system continuously updates inventory quantities and costs, while a periodic system only determines cost of goods sold at period end. Exercise 11 provides an example income statement for a company showing sales revenue, cost of goods sold, operating expenses, and profit.

Uploaded by

HamzaFathi
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Merchandising Exercises answers (Chapter 5)

Exercise 1 Solution
1. perpetual

2. periodic or perpetual

3. perpetual

4. perpetual

Exercise 2 Solution

2. Salaries expense

4. Depreciation

6. Advertising expense

8. Insurance expense

10. Rent Expense

Exercise 3 Solution

In a perpetual inventory system, the company keeps detailed records of each inventory purchase
and sale. This system continuously shows the quantity and cost of the inventory that should be
on hand for every item. In a periodic inventory system, companies do not keep detailed inventory
records of the goods on hand throughout the period. Instead, the cost of goods sold is determined
only at the end of the accounting period.

Exercise 4 Solution

Hints and Action Plan


 Purchases of goods for resale are recorded in the asset account Merchandise Inventory.
 Examine freight terms to determine which company pays the freight charges
 Freight charges paid by the purchaser increase the cost of the merchandise inventory
 The Merchandise Inventory account is reduced by the cost of merchandise returned
 Calculate purchase discounts usng the net amount owing
 Reduce the Merchandise

Exercise 6 Solution

1. S

2. B
3. B

4. S

5. B

6. B

Exercise 7 Solution

1. Q

2. P

3. Q

4. P

5. Q

Exercise 8 Solution

a)
Jun 1 Inventory ................................................................................ 4,500
Accounts Payable (18 × $250) ........................................ 4,500

8 Accounts Payable ................................................................... 500


Inventory ......................................................................... 500

10 No entry freight paid by the seller.

11 Accounts Payable ................................................................... 200


Inventory ......................................................................... 200

15 Inventory ................................................................................ 20,700


Accounts Payable (92 × $225) ........................................ 20,700

18 Accounts Payable ($4,500 – $500 – $200)............................. 3,800


Cash ................................................................................. 3,800

20 Accounts Payable ................................................................... 20,700


Inventory ($20,700 × 2%) ............................................... 414
Cash ................................................................................. 20,286

b) Inventory balance is determined as $4,500 – $500 – $200 + $20,700 – $414 = $24,086.


Exercise 9 Solution

Jun 2 Accounts Receivable .............................................................. 6,930


Sales ................................................................................ 6,930
To record sales of merchandise to the Motor Inn.
($7,700 × 10% quantity discount = $770 quantity
discount)
($7,700 – $770 quantity discount = $6,930)
Cost of Goods Sold (70 × $50)............................................... 3,500
Inventory ......................................................................... 3,500

5 Cash ........................................................................................ 5,500


Sales ................................................................................ 5,500
To record cash sales.
Cost of Goods Sold (50 × $50)............................................... 2,500
Inventory ......................................................................... 2,500

8 Sales Returns and Allowances ................................................ 495


Accounts Receivable ....................................................... 495

15 Cash ........................................................................................ 6,435


Accounts Receivable ....................................................... 6,435
To record collection. ($6,930 – $495 = $6,435)

Exercise 10 Solution

a)
Jun 1 Accounts Receivable .............................................................. 4,500
Sales (18 × $250)............................................................. 4,500
Cost of Goods Sold................................................................. 1,710
Inventory (18 × $95) ....................................................... 1,710

8 Sales Returns and Allowances ............................................... 500


Accounts Receivable ....................................................... 500

10 Freight-out .............................................................................. 85
Cash ................................................................................. 85

11 Sales Returns and Allowances ............................................... 200


Accounts Receivable ....................................................... 200

15 Accounts Receivable .............................................................. 20,700


Sales (92 × $225)............................................................. 20,700
Cost of Goods Sold................................................................. 8,740
Inventory (92 × $95) ....................................................... 8,740
18 Cash ($4,500 – $500 – $200) ................................................. 3,800
Accounts Receivable ....................................................... 3,800

20 Cash ........................................................................................ 20,286


Sales Discount ($20,700 × 2%) .............................................. 414
Accounts Receivable ...................................................... 20,700

b) Net Sales is determined as:


Sales ........................................................................................................ $25,200
Less: Sales discounts............................................................................... $414
Sales returns and allowances ........................................................... 700 (1,114)
Net Sales ................................................................................................. $24,086

Exercise 11 Solution

KINGBRIDGE RANGE COMPANY


Income Statement
Year Ended December 31, 2017

Sales revenue
Sales ................................................................................................. $2,650,000
Less: Sales returns and allowances................................................ $50,000
Sales discounts ..................................................................... 30,000 80,000
Net sales ........................................................................................... 2,570,000
Cost of goods sold ................................................................................... 1,800,000
Gross profit ............................................................................................. 770,000
Operating expenses
Salaries and wages ........................................................................... $300,000
Other operating expenses ................................................................. 150,000
Total operating expenses ........................................................... 450,000
Profit ....................................................................................................... $ 320,000

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