Chapter 5

Do it!
On September 5, De La Hoya Company buys merchandise on account from Purchase
Junot Diaz Company. The selling price of the goods is $1,500, and the cost to Transactions
Diaz Company was $800. On September 8, De La Hoya returns defective goods
with a selling price of $200. Record the transactions on the books of De La Hoya
Company. action plan
✔ Purchaser records goods
Solution at cost.
Sept. 5 Inventory 1,500 ✔ When goods are returned,
purchaser reduces Inventory.
Accounts Payable 1,500
(To record goods purchased on account)
8 Accounts Payable 200
Inventory 200
(To record return of defective goods)

Related exercise material: BE5-2, BE5-4, E5-2, E5-3, E5-4, and Do it! 5-1.
●
✔
[The Navigator]

Do it!
On September 5, De La Hoya Company buys merchandise on account from Junot Sales Transactions
Diaz Company. The selling price of the goods is $1,500, and the cost to Diaz Com-
pany was $800. On September 8, De La Hoya returns defective goods with a selling
price of $200 and a fair value of $30. Record the transactions on the books of Junot
Diaz Company. action plan
✔ Seller records both the
Solution sale and the cost of goods
sold at the time of the sale.
Sept. 5 Accounts Receivable 1,500
✔ When goods are returned,
Sales Revenue 1,500 the seller records the return
(To record credit sale) in a contra account, Sales
5 Cost of Goods Sold 800 Returns and Allowances,
Inventory 800 and reduces Accounts
Receivable. Any goods
(To record cost of goods sold on returned increase Inventory
account) and reduce Cost of Goods
8 Sales Returns and Allowances 200 Sold.
Accounts Receivable 200 ✔ Defective or damaged
(To record credit granted for receipt of inventory is recorded at fair
returned goods) value (scrap value).

8 Inventory 30
Cost of Goods Sold 30
(To record fair value of goods
returned)

Related exercise material: BE5-2, BE5-3, E5-3, E5-4, E5-5, and Do it! 5-2.
●
✔
[The Navigator]

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Do it!
Closing Entries The trial balance of Celine’s Sports Wear Shop at December 31 shows Inven-
tory $25,000, Sales Revenue $162,400, Sales Returns and Allowances $4,800, Sales
Discounts $3,600, Cost of Goods Sold $110,000, Rent Revenue $6,000, Freight-out
$1,800, Rent Expense $8,800, and Salaries and Wages Expense $22,000. Prepare
action plan the closing entries for the above accounts.
✔ Close all temporary Solution
accounts with credit balances
to Income Summary by
debiting these accounts.
The two closing entries are:
✔ Close all temporary Dec. 31 Sales Revenue 162,400
accounts with debit balances, Rent Revenue 6,000
except drawings, to Income Income Summary 168,400
Summary by crediting these (To close accounts with credit balances)
accounts.
31 Income Summary 151,000
Cost of Goods Sold 110,000
Sales Returns and Allowances 4,800
Sales Discounts 3,600
Freight-out 1,800
Rent Expense 8,800
Salaries and Wages Expense 22,000
(To close accounts with debit balances)

Related exercise material: BE5-5, BE5-6, E5-6, E5-7, E5-8, and Do it! 5-3.
●
✔
[The Navigator]

Do it!
Financial Statement You are presented with the following list of accounts from the adjusted trial bal-
Classifications ance for merchandiser Gorman Company. Indicate in which financial statement
and under what classification each of the following would be reported.
Accounts Payable Interest Payable
Accounts Receivable Inventory
Accumulated Depreciation—Buildings Land
Accumulated Depreciation—Equipment Notes Payable (due in 3 years)
Advertising Expense Owner’s Capital (beginning balance)
Buildings Owner’s Drawings
Cash Property Taxes Payable
Depreciation Expense Salaries and Wages Expense
Equipment Salaries and Wages Payable
Freight-out Sales Returns and Allowances
Gain on Disposal of Plant Assets Sales Revenue
Insurance Expense Utilities Expense
Interest Expense

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Solution action plan
✔ Review the major
Financial sections of the income
Account Statement Classification statement, sales revenues,
cost of goods sold, operating
Accounts Payable Balance sheet Current liabilities expenses, other revenues and
Accounts Receivable Balance sheet Current assets gains, and other expenses
Accumulated Depreciation— Balance sheet Property, plant, and and losses.
Buildings equipment ✔ Add net income and
Accumulated Depreciation— Balance sheet Property, plant, and investments to beginning
capital and deduct drawings
Equipment equipment to arrive at ending capital in
Advertising Expense Income statement Operating expenses the owner’s equity statement.
Buildings Balance sheet Property, plant, and ✔ Review the major
equipment sections of the balance sheet,
Cash Balance sheet Current assets income statement, and
owner’s equity statement.
Depreciation Expense Income statement Operating expenses
Equipment Balance sheet Property, plant, and
equipment
Freight-out Income statement Operating expenses
Gain on Disposal of Income statement Other revenues and
Plant Assets gains
Insurance Expense Income statement Operating expenses
Interest Expense Income statement Other expenses and
losses
Interest Payable Balance sheet Current liabilities
Inventory Balance sheet Current assets
Land Balance sheet Property, plant, and
equipment
Notes Payable Balance sheet Long-term liabilities
Owner’s Capital Owner’s equity Beginning balance
statement
Owner’s Drawings Owner’s equity Deduction section
statement
Property Taxes Payable Balance sheet Current liabilities
Salaries and Wages Expense Income statement Operating expenses
Salaries and Wages Payable Balance sheet Current liabilities
Sales Returns and Allowances Income statement Sales revenues
Sales Revenue Income statement Sales revenues
Utilities Expense Income statement Operating expenses

Related exercise material: BE5-7, BE5-8, BE5-9, E5-9, E5-10, E5-12, E5-13, E5-14, and Do it! 5-4.
●
✔
[The Navigator]

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 COMPREHENSIVE

Do it!
The adjusted trial balance columns of Falcetto Company’s worksheet for the year
ended December 31, 2012, are as follows.
Debit Credit
Cash 14,500 Accumulated Depreciation–– 18,000
Accounts Receivable 11,100 Equipment
Inventory 29,000 Notes Payable 25,000
Prepaid Insurance 2,500 Accounts Payable 10,600
Equipment 95,000 Owner’s Capital 81,000
Owner’s Drawings 12,000 Sales Revenue 536,800
Sales Returns and Allowances 6,700 Interest Revenue 2,500
Sales Discounts 5,000 673,900
Cost of Goods Sold 363,400
Freight-out 7,600
Advertising Expense 12,000
Salaries and Wages Expense 56,000
Utilities Expense 18,000
Rent Expense 24,000
Depreciation Expense 9,000
Insurance Expense 4,500
Interest Expense 3,600
673,900

Instructions
action plan Prepare a multiple-step income statement for Falcetto Company.
✔ Remember that the key
components of the income
Solution to Comprehensive Do it!
statement are net sales, cost
of goods sold, gross profit,
total operating expenses, and FALCETTO COMPANY
net income (loss). Report Income Statement
these components in the For the Year Ended December 31, 2012
right-hand column of the
income statement. Sales revenues
✔ Put nonoperating items Sales revenue $536,800
after income from Less: Sales returns and allowances $ 6,700
operations. Sales discounts 5,000 11,700
Net sales 525,100
Cost of goods sold 363,400
Gross profit 161,700
Operating expenses
Salaries and wages expense 56,000
Rent expense 24,000
Utilities expense 18,000
Advertising expense 12,000
Depreciation expense 9,000
Freight-out 7,600
Insurance expense 4,500
Total operating expenses 131,100
Income from operations 30,600
Other revenues and gains
Interest revenue 2,500
Other expenses and losses
Interest expense 3,600 1,100
Net income $ 29,500

●
✔
[The Navigator]
This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Do it! Review
Do it! 5-1 On October 5, Bouldin Company buys merchandise on account from McClinton Record transactions of
Company. The selling price of the goods is $5,000, and the cost to McClinton Company is $3,100. purchasing company.
On October 8, Bouldin returns defective goods with a selling price of $650 and a fair value of (SO 2), AP
$100. Record the transactions on the books of Bouldin Company.

Do it! 5-2 Assume information similar to that in Do it! 5-1. That is: On October 5, Bouldin Record transactions of selling
Company buys merchandise on account from McClinton Company. The selling price of the goods company.
is $5,000, and the cost to McClinton Company is $3,100. On October 8, Bouldin returns defective (SO 3), AP
goods with a selling price of $650 and a fair value of $100. Record the transactions on the books
of McClinton Company.

Do it! 5-3 The trial balance of Ogilvy’s Boutique at December 31 shows Inventory $21,000, Prepare closing entries for a
Sales Revenue $156,000, Sales Returns and Allowances $4,000, Sales Discounts $3,000, Cost of merchandising company.
Goods Sold $92,400, Interest Revenue $5,000, Freight-out $1,500, Utilities Expense $7,400, and (SO 4), AP
Salaries and Wages Expense $19,500. Prepare the closing entries for Ogilvy.

Do it! 5-4 Richard Company is preparing its multiple-step income statement, owner’s equity Classify financial statement
statement, and classified balance sheet. Using the column heads Account, Financial Statement, and accounts.
Classification, indicate in which financial statement and under what classification each of the (SO 5), AP
following would be reported.
Account Financial Statement Classification
Accounts Payable
Accounts Receivable
Accumulated Depreciation—
Buildings
Cash
Casualty Loss from Vandalism
Cost of Goods Sold
Depreciation Expense
Equipment
Freight-out
Insurance Expense
Interest Payable
Inventory
Land
Notes Payable (due in 5 years)
Owner’s Capital (beginning balance)
Owner’s Drawings
Property Taxes Payable
Salaries and Wages Expense
Salaries and Wages Payable
Sales Returns and Allowances
Sales Revenue
Unearned Rent Revenue
Utilities Expense

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Problems: Set B
Journalize purchase and sales P5-1B Jeremy’s Book Warehouse distributes hardcover books to retail stores and extends
transactions under a perpetual credit terms of 2/10, n/30 to all of its customers. At the end of May, Jeremy’s inventory consisted
inventory system. of books purchased for $1,800. During June, the following merchandising transactions occurred.
(SO 2, 3), AP
June 1 Purchased books on account for $1,600 from Davies Publishers, FOB destination,
terms 2/10, n/30. The appropriate party also made a cash payment of $50 for the
freight on this date.
3 Sold books on account to Reading Rainbow for $2,500. The cost of the books sold was
$1,440.
6 Received $100 credit for books returned to Davies Publishers.
9 Paid Davies Publishers in full, less discount.
15 Received payment in full from Reading Rainbow.
17 Sold books on account to Lapidus Books for $1,800. The cost of the books sold was
$1,080.
20 Purchased books on account for $1,500 from Fahey Publishers, FOB destination, terms
2/15, n/30. The appropriate party also made a cash payment of $50 for the freight on
this date.
24 Received payment in full from Lapidus Books.
26 Paid Fahey Publishers in full, less discount.
28 Sold books on account to Carlyle Bookstore for $1,400. The cost of the books sold was
$850.
30 Granted Carlyle Bookstore $120 credit for books returned costing $72.
Jeremy’s Book Warehouse’s chart of accounts includes the following: No. 101 Cash, No. 112
Accounts Receivable, No. 120 Inventory, No. 201 Accounts Payable, No. 401 Sales Revenue, No.
412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.
Instructions
Journalize the transactions for the month of June for Jeremy’s Book Warehouse using a per-
petual inventory system.
Journalize, post, and prepare a P5-2B Boone Hardware Store completed the following merchandising transactions in the
partial income statement. month of May. At the beginning of May, the ledger of Boone showed Cash of $5,000 and Owner’s
(SO 2, 3, 5, 6), AP Capital of $5,000.
May 1 Purchased merchandise on account from Adewale’s Wholesale Supply $4,200, terms
2/10, n/30.
2 Sold merchandise on account $2,100, terms 1/10, n/30. The cost of the merchandise
sold was $1,300.
5 Received credit from Adewale’s Wholesale Supply for merchandise returned $300.
9 Received collections in full, less discounts, from customers billed on sales of $2,100 on
May 2.
10 Paid Adewale’s Wholesale Supply in full, less discount.
11 Purchased supplies for cash $400.
12 Purchased merchandise for cash $1,400.
15 Received refund for poor quality merchandise from supplier on cash purchase $150.
17 Purchased merchandise from Agbaje Distributors $1,300, FOB shipping point, terms
2/10, n/30.
19 Paid freight on May 17 purchase $130.
24 Sold merchandise for cash $3,200. The merchandise sold had a cost of $2,000.
25 Purchased merchandise from Somerhalder, Inc. $620, FOB destination, terms 2/10,
n/30.
27 Paid Agbaje Distributors in full, less discount.
29 Made refunds to cash customers for defective merchandise $70. The returned mer-
chandise had a fair value of $30.
31 Sold merchandise on account $1,000 terms n/30. The cost of the merchandise sold was
$560.
Boone Hardware’s chart of accounts includes the following: No. 101 Cash, No. 112 Accounts
Receivable, No. 120 Inventory, No. 126 Supplies, No. 201 Accounts Payable, No. 301 Owner’s
Capital, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts,
and No. 505 Cost of Goods Sold.
This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Instructions
(a) Journalize the transactions using a perpetual inventory system.
(b) Enter the beginning cash and capital balances and post the transactions. (Use J1 for the jour-
nal reference.)
(c) Prepare an income statement through gross profit for the month of May 2012. (c) Gross profit $2,379
P5-3B The Akinnuoye Store is located in midtown Madison. During the past several years, net Prepare financial statements
income has been declining because of suburban shopping centers. At the end of the company’s and adjusting and closing
fiscal year on November 30, 2012, the following accounts appeared in two of its trial balances. entries.
(SO 4, 5), AN

Unadjusted Adjusted Unadjusted Adjusted

Accounts Payable $ 25,200 $ 25,200 Notes Payable $ 37,000 $ 37,000
Accounts Receivable 30,500 30,500 Owner’s Capital 101,700 101,700
Accumulated Depr.—Equip. 34,000 45,000 Owner’s Drawings 10,000 10,000
Cash 26,000 26,000 Prepaid Insurance 10,500 3,500
Cost of Goods Sold 507,000 507,000 Property Tax Expense 2,500
Freight-out 6,500 6,500 Property Taxes Payable 2,500
Equipment 146,000 146,000 Rent Expense 15,000 15,000
Depreciation Expense 11,000 Salaries and Wages Expense 96,000 96,000
Insurance Expense 7,000 Sales Revenue 700,000 700,000
Interest Expense 6,400 6,400 Sales Commissions Expense 6,500 11,000
Interest Revenue 8,000 8,000 Sales Commissions Payable 4,500
Inventory 29,000 29,000 Sales Returns and Allowances 8,000 8,000
Utilities Expense 8,500 8,500

Instructions
(a) Prepare a multiple-step income statement, an owner’s equity statement, and a classified bal- (a) Net income $29,100
ance sheet. Notes payable are due in 2015. Owner’s capital $120,800
(b) Journalize the adjusting entries that were made. Total assets $190,000
(c) Journalize the closing entries that are necessary.
P5-4B Ben Borke, a former disc golf star, operates Ben’s Discorama. At the beginning of the Journalize, post, and prepare a
current season on April 1, the ledger of Ben’s Discorama showed Cash $1,800, Inventory $2,500, trial balance.
and Owner’s Capital $4,300. The following transactions were completed during April. (SO 2, 3, 4), AP
Apr. 5 Purchased golf discs, bags, and other inventory on account from Innova Co. $1,200,
FOB shipping point, terms 2/10, n/60.
7 Paid freight on the Innova purchase $50.
9 Received credit from Innova Co. for merchandise returned $100.
10 Sold merchandise on account for $900, terms n/30. The merchandise sold had a cost of
$540.
12 Purchased disc golf shirts and other accessories on account from Lightning Sports-
wear $670, terms 1/10, n/30.
14 Paid Innova Co. in full, less discount.
17 Received credit from Lightning Sportswear for merchandise returned $70.
20 Made sales on account for $610, terms n/30. The cost of the merchandise sold was
$370.
21 Paid Lightning Sportswear in full, less discount.
27 Granted an allowance to members for clothing that was flawed $20.
30 Received payments on account from customers $900.

The chart of accounts for the store includes the following: No. 101 Cash, No. 112 Accounts
Receivable, No. 120 Inventory, No. 201 Accounts Payable, No. 301 Owner’s Capital, No. 401
Sales Revenue, No. 412 Sales Returns and Allowances, and No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions. (Use J1
for the journal reference.)
(c) Prepare a trial balance on April 30, 2012. (c) Total debits $5,810
This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 Determine cost of goods sold *P5-5B At the end of Cortez Department Store’s fiscal year on November 30, 2012, these
and gross profit under periodic accounts appeared in its adjusted trial balance.
approach.
(SO 6, 7), AP Freight-in $ 7,500
Inventory 40,000
Purchases 585,000
Purchase Discounts 6,300
Purchase Returns and Allowances 2,700
Sales Revenue 1,000,000
Sales Returns and Allowances 20,000

Additional facts:
1. Merchandise inventory on November 30, 2012, is $52,600.
2. Cortez Department Store uses a periodic system.

Instructions
Gross profit $409,100 Prepare an income statement through gross profit for the year ended November 30, 2012.

Calculate missing amounts and *P5-6B Rodriguez Inc. operates a retail operation that purchases and sells home entertainment
assess profitability. products. The company purchases all merchandise inventory on credit and uses a periodic inven-
(SO 6, 7), AN tory system. The Accounts Payable account is used for recording inventory purchases only; all
other current liabilities are accrued in separate accounts. You are provided with the following
selected information for the fiscal years 2009 through 2012, inclusive.

2009 2010 2011 2012

Income Statement Data
Sales revenue $55,000 $ (e) $47,000
Cost of goods sold (a) 13,800 14,300
Gross profit 38,300 35,200 (i)
Operating expenses 34,900 (f) 28,600
Net income $ (b) $ 2,500 $ (j)
Balance Sheet Data
Inventory $7,200 $ (c) $ 8,100 $ (k)
Accounts payable 3,200 3,600 2,500 (l)
Additional Information
Purchases of merchandise
inventory on account $14,200 $ (g) $13,200
Cash payments to suppliers (d) (h) 13,600

Instructions
(c) $4,700 (a) Calculate the missing amounts.
(g) $17,200 (b) Sales declined over the 3-year fiscal period, 2010–2012. Does that mean that profitability
(i) $32,700 necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio
for each fiscal year to help support your answer. (Round to one decimal place.)

Journalize, post, and prepare *P5-7B At the beginning of the current season on April 1, the ledger of Ilana Pro Shop showed
trial balance and partial income Cash $3,000; Inventory $4,000; and Owner’s Capital $7,000. These transactions occurred during
statement using periodic April 2012.
approach.
(SO 7), AP Apr. 5 Purchased golf bags, clubs, and balls on account from Zuleikha Co. $1,200, FOB ship-
ping point, terms 2/10, n/60.
7 Paid freight on Zuleikha Co. purchases $50.
9 Received credit from Zuleikha Co. for merchandise returned $100.
10 Sold merchandise on account to members $600, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Libby Sports-
wear $450, terms 1/10, n/30.
14 Paid Zuleikha Co. in full.
17 Received credit from Libby Sportswear for merchandise returned $50.
20 Made sales on account to members $600, terms n/30.

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

https://www.coursehero.com/file/11181960/ch05/
 21 Paid Libby Sportswear in full.
27 Granted credit to members for clothing that had flaws $35.
30 Received payments on account from members $600.

The chart of accounts for the pro shop includes Cash, Accounts Receivable, Inventory, Accounts
Payable, Owner’s Capital, Sales Revenue, Sales Returns and Allowances, Purchases, Purchase
Returns and Allowances, Purchase Discounts, and Freight-in.

Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T accounts, enter the beginning balances in the ledger accounts and post the April
transactions.
(c) Prepare a trial balance on April 30, 2012. (c) Tot. trial
(d) Prepare an income statement through gross profit, assuming merchandise inventory on hand balance $8,376
at April 30 is $4,824. Gross profit $465

Continuing Cookie Chronicle

(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 4.)
CCC5 Because Natalie has had such a successful first few months, she is considering oth-
er opportunities to develop her business. One opportunity is the sale of fine European mix-
ers. The owner of Kzinski Supply Company has approached Natalie to become the ex-
clusive U.S. distributor of these fine mixers in her state. The current cost of a mixer is
approximately $525 (U.S.), and Natalie would sell each one for $1,050. Natalie comes to you for
advice on how to account for these mixers.
Go to the book’s companion website, www.wiley.com/go/global/weygandt, to see the completion
of this problem.

This study source was downloaded by 100000863287996 from CourseHero.com on 04-03-2023 23:28:08 GMT -05:00

Powered by TCPDF (www.tcpdf.org)

https://www.coursehero.com/file/11181960/ch05/