Chapter 5: Merchandising & Inventory Systems

CHAPTER 5 — PRACTICE WORKSHEET

Merchandising & Inventory Systems · work it on paper, then check yourself

Try every exercise on paper BEFORE you check the answers. The attempt is where it sticks.

The exercises

1. Exercise 1 — Perpetual purchase entries

Northgate Traders buys merchandise under the perpetual system. Terms 2/10, n/30, FOB shipping point.

a
Bought $6,000 of merchandise on account.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Paid $200 freight on the incoming goods (FOB shipping point).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
c
Returned $1,000 of damaged goods to the supplier.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
d
Paid the $5,000 balance within the discount period (2%).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

2. Exercise 2 — Discount math

Compute the early-payment discount and cash paid under each credit term.

a
Terms 2/10, n/30 on a $5,000 balance — the discount if paid in time
b
…and the cash paid
c
Terms 1/10, n/30 on a $10,000 balance — the discount
d
Terms 3/15, n/45 on a $4,000 balance — the cash paid

3. Exercise 3 — Perpetual sale (two entries)

Northgate sells merchandise costing $5,400 to a customer for $9,000 on account.

a
Record the sale (the revenue entry).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Record the cost of the goods sold.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

4. Exercise 4 — Sales return, then collection with a discount

The customer from Exercise 3 returns $1,000 of goods (which cost $600), then pays the rest within the 2% discount period.

a
Record the return (the revenue side).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Record the return (the cost side — goods come back).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
c
Collected the remaining $8,000 within the discount period (2%).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

5. Exercise 5 — FOB terms and freight

Decide who pays the freight and which account records it.

a
Goods shipped FOB shipping point — who pays the freight?
a) The buyer b) The seller
b
Goods shipped FOB destination — who pays the freight?
a) The buyer b) The seller
c
Under perpetual, the buyer's freight-in on incoming goods is debited to:
a) Inventory b) Sales Revenue c) Cost of Goods Sold d) Freight-Out
d
The seller's cost to ship goods out to customers (freight-out) is:
a) Added to Inventory b) An operating expense c) A contra-revenue d) Ignored

6. Exercise 6 — Inventory shrinkage

Cedarwood Market's perpetual records show Inventory of $60,000, but the year-end physical count is only $58,000.

a
The inventory shrinkage to record
b
Record the adjusting entry for the shrinkage.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

7. Exercise 7 — Net sales

Harborview Merchandising reports Sales Revenue $220,000; Sales Returns and Allowances $12,000; Sales Discounts $8,000.

a
Net sales

8. Exercise 8 — Gross profit and the gross profit rate

Harborview's net sales are $200,000 and cost of goods sold is $120,000.

a
Gross profit
b
Gross profit rate as a percent (whole number)

9. Exercise 9 — Multi-step income statement

Harborview: Sales Revenue $220,000; Sales Returns and Allowances $12,000; Sales Discounts $8,000; Cost of Goods Sold $120,000; operating expenses of Salaries $32,000, Rent $9,000, Freight-Out $4,000, Utilities $5,000.

a
Net sales
b
Gross profit
c
Total operating expenses
d
Income from operations (= net income, no other items)

10. Exercise 10 — Multi-step with other revenues and expenses

Crestwood Supply: net sales $300,000; cost of goods sold $190,000; operating expenses $70,000. Other items: interest revenue $5,000; interest expense $8,000; loss on disposal of equipment $2,000.

a
Gross profit
b
Income from operations
c
Net income (after the other revenues and expenses)

11. Exercise 11 — Determine the missing amounts

Summit Goods' income statement is partly blank: Sales Revenue $100,000; Sales Returns and Allowances $5,000; Cost of Goods Sold $60,000; net income $15,000 (no other items).

a
Net sales
b
Gross profit
c
Operating expenses (work backward from net income)

12. Exercise 12 — Closing a merchandiser

Riverbend Merchandising's year-end temporary accounts: Sales Revenue $240,000; Sales Returns and Allowances $10,000; Sales Discounts $6,000; Cost of Goods Sold $140,000; Salaries and Wages Expense $40,000; Rent Expense $12,000; Freight-Out $5,000.

a
Close Sales Revenue to Income Summary.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Total of the debit-balance temporaries to close (Sales Returns + Sales Discounts + COGS + Salaries + Rent + Freight-Out)
c
Close those accounts to Income Summary (one debit to Income Summary, six credits).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
d
Net income (Income Summary balance now closed to capital)

13. Exercise 13 — Correcting entries (merchandising)

Fix each posted error for Vantage Retail (perpetual system).

a
Freight-in of $210 on incoming merchandise was debited to Freight-Out instead of Inventory (Cash was credited correctly). Record the correcting entry.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
A $180 purchase of merchandise was debited to Supplies instead of Inventory (Accounts Payable was credited correctly). Record the correcting entry.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

14. Exercise 14 — Periodic purchase entries

Maple Ridge Supply uses the PERIODIC system. Terms 2/10, n/30.

a
Bought $6,000 of merchandise on account.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Paid $200 freight on the incoming goods.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
c
Returned $1,000 of goods to the supplier.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
d
Paid the $5,000 balance within the discount period (2%).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense

15. Exercise 15 — Periodic cost-of-goods-sold schedule

Maple Ridge (periodic): Beginning inventory $25,000; Purchases $140,000; Purchase Returns and Allowances $6,000; Purchase Discounts $4,000; Freight-In $5,000; ending inventory (physical count) $30,000.

a
Net purchases
b
Cost of goods available for sale
c
Cost of goods sold

16. Exercise 16 — Fill in the COGS schedule

Brooke Hanson (periodic): Beginning inventory $20,000; Purchases $100,000; Purchase Returns and Allowances $5,000; Purchase Discounts $3,000; Freight-In $4,000; ending inventory $18,000.

a
Net purchases
b
Cost of goods available for sale
c
Cost of goods sold

17. Exercise 17 — Perpetual vs. periodic: same transaction

For each transaction, choose the correct PERIODIC-system entry (how it differs from perpetual).

a
Buy merchandise on account — the periodic entry debits:
a) Supplies b) Inventory c) Purchases d) Cost of Goods Sold
b
A return of merchandise to a supplier — the periodic entry credits:
a) Sales Returns and Allowances b) Cash c) Inventory d) Purchase Returns and Allowances
c
When goods are SOLD under periodic, the cost of goods sold is:
a) Not recorded until period end b) Debited to Purchases c) Ignored entirely d) Recorded with a second entry, as under perpetual
d
Freight on incoming goods under periodic is debited to:
a) Inventory b) Freight-In c) Freight-Out d) Cost of Goods Sold

18. Exercise 18 — Single-step check

Using Crestwood's figures — net sales $300,000; interest revenue $5,000; cost of goods sold $190,000; operating expenses $70,000; interest expense $8,000; loss on disposal $2,000.

a
Total revenues and gains (net sales + interest revenue)
b
Total expenses and losses (COGS + operating expenses + interest expense + loss)
c
Net income (single-step: revenues − expenses)

19. Exercise 19 — Comprehensive perpetual month (capstone)

Ironwood Hardware Store uses the PERPETUAL system. It began March with Cash $6,000 and Owner's Capital $6,000. Journalize the March transactions, then prepare the income statement through gross profit.

a
Mar 1 — Purchased merchandise on account from Calder Wholesale $5,000, terms 2/10, n/30.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
b
Mar 3 — Sold merchandise on account $2,400, terms 1/10, n/30 (record the sale).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
c
Mar 3 — Record the cost of the goods sold ($1,500).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
d
Mar 5 — Received credit from Calder Wholesale for merchandise returned $400.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
e
Mar 9 — Received collection in full on the Mar 3 sale, less the 1% discount.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
f
Mar 10 — Paid Calder Wholesale in full, less the 2% discount (on the $4,600 balance).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
g
Mar 11 — Purchased supplies for cash $500.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
h
Mar 12 — Purchased merchandise for cash $1,800.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
i
Mar 15 — Received a $200 refund for poor-quality merchandise on the cash purchase.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
j
Mar 17 — Purchased merchandise from Delta Distributors $1,600, FOB shipping point, terms 2/10, n/30.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
k
Mar 19 — Paid $120 freight on the Mar 17 purchase (FOB shipping point).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
l
Mar 24 — Sold merchandise for cash $3,600 (record the sale).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
m
Mar 24 — Record the cost of the goods sold ($2,200).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
n
Mar 25 — Purchased merchandise from Harbor Inc. $700, FOB destination, terms 2/10, n/30.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
o
Mar 27 — Paid Delta Distributors in full, less the 2% discount.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
p
Mar 29 — Refunded cash customers $80 for defective merchandise (record the return).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
q
Mar 29 — The returned goods (fair value $40) go back into inventory.
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
r
Mar 31 — Sold merchandise on account $1,200, terms n/30 (record the sale).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
s
Mar 31 — Record the cost of the goods sold ($700).
Accounts available: Cash · Accounts Receivable · Inventory · Supplies · Prepaid Insurance · Equipment · Accounts Payable · Notes Payable · Owner's Capital · Owner's Drawings · Income Summary · Sales Revenue · Sales Returns and Allowances · Sales Discounts · Cost of Goods Sold · Freight-Out · Purchases · Purchase Returns and Allowances · Purchase Discounts · Freight-In · Salaries and Wages Expense · Rent Expense · Insurance Expense · Utilities Expense · Interest Revenue · Interest Expense
t
Net sales for March
u
Cost of goods sold for March
v
Gross profit for March

Answers

Part of the free Accounting 1 course — Chapter 5: Merchandising & Inventory Systems

ANSWERS — do not read these until you have finished

1. Exercise 1 — Perpetual purchase entries

a
Account Debit Credit
Inventory 6,000
Accounts Payable 6,000
Perpetual: purchases go into Inventory. Debit Inventory 6,000; credit Accounts Payable 6,000.
b
Account Debit Credit
Inventory 200
Cash 200
Freight-in is part of the cost of inventory: debit Inventory 200; credit Cash 200.
c
Account Debit Credit
Accounts Payable 1,000
Inventory 1,000
Debit Accounts Payable 1,000; credit Inventory 1,000.
d
Account Debit Credit
Accounts Payable 5,000
Inventory 100
Cash 4,900
Discount = 2% × 5,000 = 100. Debit Accounts Payable 5,000; credit Inventory 100; credit Cash 4,900.

Account	Debit	Credit
Inventory	6,000
Accounts Payable		6,000

Account	Debit	Credit
Inventory	200
Cash		200

Account	Debit	Credit
Accounts Payable	1,000
Inventory		1,000

Account	Debit	Credit
Accounts Payable	5,000
Inventory		100
Cash		4,900

Solution: Dr Inventory 6,000 / Cr A/P 6,000. Dr Inventory 200 / Cr Cash 200. Dr A/P 1,000 / Cr Inventory 1,000. Dr A/P 5,000 / Cr Inventory 100 / Cr Cash 4,900.

2. Exercise 2 — Discount math

a
100
2% × 5,000 = 100.
b
4,900
5,000 − 100 = 4,900.
c
100
1% × 10,000 = 100.
d
3,880
Discount 3% × 4,000 = 120; cash = 4,000 − 120 = 3,880.

Solution: 2/10 on 5,000: disc 100, pay 4,900. 1/10 on 10,000: disc 100. 3/15 on 4,000: pay 3,880.

3. Exercise 3 — Perpetual sale (two entries)

a
Account Debit Credit
Accounts Receivable 9,000
Sales Revenue 9,000
Debit Accounts Receivable 9,000; credit Sales Revenue 9,000.
b
Account Debit Credit
Cost of Goods Sold 5,400
Inventory 5,400
Debit Cost of Goods Sold 5,400; credit Inventory 5,400.

Account	Debit	Credit
Accounts Receivable	9,000
Sales Revenue		9,000

Account	Debit	Credit
Cost of Goods Sold	5,400
Inventory		5,400

Solution: 1) Dr Accounts Receivable 9,000 / Cr Sales Revenue 9,000. 2) Dr Cost of Goods Sold 5,400 / Cr Inventory 5,400.

4. Exercise 4 — Sales return, then collection with a discount

a
Account Debit Credit
Sales Returns and Allowances 1,000
Accounts Receivable 1,000
Debit Sales Returns and Allowances 1,000; credit Accounts Receivable 1,000.
b
Account Debit Credit
Inventory 600
Cost of Goods Sold 600
Debit Inventory 600; credit Cost of Goods Sold 600.
c
Account Debit Credit
Cash 7,840
Sales Discounts 160
Accounts Receivable 8,000
Discount 2% × 8,000 = 160. Debit Cash 7,840; debit Sales Discounts 160; credit Accounts Receivable 8,000.

Account	Debit	Credit
Sales Returns and Allowances	1,000
Accounts Receivable		1,000

Account	Debit	Credit
Inventory	600
Cost of Goods Sold		600

Account	Debit	Credit
Cash	7,840
Sales Discounts	160
Accounts Receivable		8,000

Solution: Return: Dr Sales Returns and Allowances 1,000 / Cr A/R 1,000; Dr Inventory 600 / Cr COGS 600. Collection: Dr Cash 7,840 / Dr Sales Discounts 160 / Cr A/R 8,000.

5. Exercise 5 — FOB terms and freight

a
The buyer
FOB shipping point: the buyer owns the goods once shipped and pays the freight.
b
The seller
FOB destination: the seller owns them until delivery and pays the freight.
c
Inventory
Freight-in is part of the cost of the inventory (perpetual → debit Inventory).
d
An operating expense
Freight-Out (delivery expense) is an operating expense of the seller.

Solution: FOB shipping point → buyer pays (freight-in → Inventory). FOB destination → seller pays (freight-out → operating expense).

6. Exercise 6 — Inventory shrinkage

a
2,000
60,000 − 58,000 = 2,000.
b
Account Debit Credit
Cost of Goods Sold 2,000
Inventory 2,000
Debit Cost of Goods Sold 2,000; credit Inventory 2,000 to bring records down to the count.

Account	Debit	Credit
Cost of Goods Sold	2,000
Inventory		2,000

Solution: Shrinkage 2,000. Debit Cost of Goods Sold 2,000; Credit Inventory 2,000.

7. Exercise 7 — Net sales

a
200,000
220,000 − 12,000 − 8,000 = 200,000.

Solution: Net sales = 220,000 − 12,000 − 8,000 = 200,000.

8. Exercise 8 — Gross profit and the gross profit rate

a
80,000
200,000 − 120,000 = 80,000.
b
40
80,000 ÷ 200,000 = 0.40 = 40%.

Solution: Gross profit 80,000; gross profit rate 40%.

9. Exercise 9 — Multi-step income statement

a
200,000
220,000 − 12,000 − 8,000 = 200,000.
b
80,000
200,000 − 120,000 = 80,000.
c
50,000
32,000 + 9,000 + 4,000 + 5,000 = 50,000.
d
30,000
80,000 − 50,000 = 30,000.

Solution: Net sales 200,000; gross profit 80,000; operating expenses 50,000; income from operations / net income 30,000.

10. Exercise 10 — Multi-step with other revenues and expenses

a
110,000
300,000 − 190,000 = 110,000.
b
40,000
110,000 − 70,000 = 40,000.
c
35,000
40,000 + interest revenue 5,000 − interest expense 8,000 − loss 2,000 = 35,000.

Solution: Gross profit 110,000; income from operations 40,000; net income 35,000.

11. Exercise 11 — Determine the missing amounts

a
95,000
100,000 − 5,000 = 95,000.
b
35,000
95,000 − 60,000 = 35,000.
c
20,000
Gross profit 35,000 − net income 15,000 = operating expenses 20,000.

Solution: Net sales 95,000; gross profit 35,000; operating expenses 20,000.

12. Exercise 12 — Closing a merchandiser

a
Account Debit Credit
Sales Revenue 240,000
Income Summary 240,000
Debit Sales Revenue 240,000; credit Income Summary 240,000.
b
213,000
10,000 + 6,000 + 140,000 + 40,000 + 12,000 + 5,000 = 213,000.
c
Account Debit Credit
Income Summary 213,000
Sales Returns and Allowances 10,000
Sales Discounts 6,000
Cost of Goods Sold 140,000
Salaries and Wages Expense 40,000
Rent Expense 12,000
Freight-Out 5,000
Debit Income Summary 213,000; credit each of the six accounts.
d
27,000
240,000 − 213,000 = 27,000.

Account	Debit	Credit
Sales Revenue	240,000
Income Summary		240,000

Account	Debit	Credit
Income Summary	213,000
Sales Returns and Allowances		10,000
Sales Discounts		6,000
Cost of Goods Sold		140,000
Salaries and Wages Expense		40,000
Rent Expense		12,000
Freight-Out		5,000

Solution: Close Sales Revenue 240,000 in; close 213,000 of debit-balance temporaries out; net income 27,000 to Owner's Capital.

13. Exercise 13 — Correcting entries (merchandising)

a
Account Debit Credit
Inventory 210
Freight-Out 210
Move the 210 out of Freight-Out (credit it) and into Inventory (debit it).
b
Account Debit Credit
Inventory 180
Supplies 180
Move the 180 out of Supplies (credit it) and into Inventory (debit it).

Account	Debit	Credit
Inventory	210
Freight-Out		210

Account	Debit	Credit
Inventory	180
Supplies		180

Solution: 1) Debit Inventory 210; Credit Freight-Out 210. 2) Debit Inventory 180; Credit Supplies 180.

14. Exercise 14 — Periodic purchase entries

a
Account Debit Credit
Purchases 6,000
Accounts Payable 6,000
Periodic: debit Purchases (not Inventory) 6,000; credit Accounts Payable 6,000.
b
Account Debit Credit
Freight-In 200
Cash 200
Periodic: debit Freight-In 200; credit Cash 200.
c
Account Debit Credit
Accounts Payable 1,000
Purchase Returns and Allowances 1,000
Periodic: debit Accounts Payable 1,000; credit Purchase Returns and Allowances 1,000.
d
Account Debit Credit
Accounts Payable 5,000
Purchase Discounts 100
Cash 4,900
Periodic: debit Accounts Payable 5,000; credit Purchase Discounts 100; credit Cash 4,900.

Account	Debit	Credit
Purchases	6,000
Accounts Payable		6,000

Account	Debit	Credit
Freight-In	200
Cash		200

Account	Debit	Credit
Accounts Payable	1,000
Purchase Returns and Allowances		1,000

Account	Debit	Credit
Accounts Payable	5,000
Purchase Discounts		100
Cash		4,900

Solution: Dr Purchases 6,000 / Cr A/P 6,000. Dr Freight-In 200 / Cr Cash 200. Dr A/P 1,000 / Cr Purchase Returns and Allowances 1,000. Dr A/P 5,000 / Cr Purchase Discounts 100 / Cr Cash 4,900.

15. Exercise 15 — Periodic cost-of-goods-sold schedule

a
135,000
140,000 − 6,000 − 4,000 + 5,000 = 135,000.
b
160,000
Beginning 25,000 + net purchases 135,000 = 160,000.
c
130,000
160,000 − ending inventory 30,000 = 130,000.

Solution: Net purchases 135,000; goods available 160,000; cost of goods sold 130,000.

16. Exercise 16 — Fill in the COGS schedule

a
96,000
100,000 − 5,000 − 3,000 + 4,000 = 96,000.
b
116,000
20,000 + 96,000 = 116,000.
c
98,000
116,000 − 18,000 = 98,000.

Solution: Net purchases 96,000; goods available 116,000; cost of goods sold 98,000.

17. Exercise 17 — Perpetual vs. periodic: same transaction

a
Purchases
Periodic debits Purchases; perpetual would debit Inventory.
b
Purchase Returns and Allowances
Periodic credits Purchase Returns and Allowances; perpetual would credit Inventory.
c
Not recorded until period end
Periodic records only the sale during the period; COGS is computed at period end.
d
Freight-In
Periodic uses a Freight-In account; perpetual would add it to Inventory.

Solution: Periodic: buy → Purchases; return → Purchase Returns and Allowances; sale → no COGS entry until period end; freight in → Freight-In.

18. Exercise 18 — Single-step check

a
305,000
300,000 + 5,000 = 305,000.
b
270,000
190,000 + 70,000 + 8,000 + 2,000 = 270,000.
c
35,000
305,000 − 270,000 = 35,000 — the same as the multi-step result.

Solution: Total revenues 305,000 − total expenses 270,000 = net income 35,000.

19. Exercise 19 — Comprehensive perpetual month (capstone)

a
Account Debit Credit
Inventory 5,000
Accounts Payable 5,000
Perpetual purchase: debit Inventory 5,000; credit Accounts Payable 5,000.
b
Account Debit Credit
Accounts Receivable 2,400
Sales Revenue 2,400
Debit Accounts Receivable 2,400; credit Sales Revenue 2,400.
c
Account Debit Credit
Cost of Goods Sold 1,500
Inventory 1,500
Debit Cost of Goods Sold 1,500; credit Inventory 1,500.
d
Account Debit Credit
Accounts Payable 400
Inventory 400
Debit Accounts Payable 400; credit Inventory 400.
e
Account Debit Credit
Cash 2,376
Sales Discounts 24
Accounts Receivable 2,400
Discount 1% × 2,400 = 24. Debit Cash 2,376; debit Sales Discounts 24; credit Accounts Receivable 2,400.
f
Account Debit Credit
Accounts Payable 4,600
Inventory 92
Cash 4,508
Balance = 5,000 − 400 = 4,600. Discount 2% × 4,600 = 92. Debit Accounts Payable 4,600; credit Inventory 92; credit Cash 4,508.
g
Account Debit Credit
Supplies 500
Cash 500
Debit Supplies 500; credit Cash 500 (supplies, not merchandise).
h
Account Debit Credit
Inventory 1,800
Cash 1,800
Debit Inventory 1,800; credit Cash 1,800.
i
Account Debit Credit
Cash 200
Inventory 200
Debit Cash 200; credit Inventory 200 (reduces the cost of goods on hand).
j
Account Debit Credit
Inventory 1,600
Accounts Payable 1,600
Debit Inventory 1,600; credit Accounts Payable 1,600.
k
Account Debit Credit
Inventory 120
Cash 120
Freight-in on FOB shipping point goods: debit Inventory 120; credit Cash 120.
l
Account Debit Credit
Cash 3,600
Sales Revenue 3,600
Debit Cash 3,600; credit Sales Revenue 3,600.
m
Account Debit Credit
Cost of Goods Sold 2,200
Inventory 2,200
Debit Cost of Goods Sold 2,200; credit Inventory 2,200.
n
Account Debit Credit
Inventory 700
Accounts Payable 700
FOB destination: the seller pays the freight, so the buyer records only the purchase. Debit Inventory 700; credit Accounts Payable 700.
o
Account Debit Credit
Accounts Payable 1,600
Inventory 32
Cash 1,568
Discount 2% × 1,600 = 32. Debit Accounts Payable 1,600; credit Inventory 32; credit Cash 1,568.
p
Account Debit Credit
Sales Returns and Allowances 80
Cash 80
Debit Sales Returns and Allowances 80; credit Cash 80.
q
Account Debit Credit
Inventory 40
Cost of Goods Sold 40
Restore the returned goods at fair value: debit Inventory 40; credit Cost of Goods Sold 40.
r
Account Debit Credit
Accounts Receivable 1,200
Sales Revenue 1,200
Debit Accounts Receivable 1,200; credit Sales Revenue 1,200.
s
Account Debit Credit
Cost of Goods Sold 700
Inventory 700
Debit Cost of Goods Sold 700; credit Inventory 700.
t
7,096
Sales 7,200 (2,400 + 3,600 + 1,200) − sales returns 80 − sales discounts 24 = 7,096.
u
4,360
1,500 + 2,200 + 700 − 40 (goods restocked on the Mar 29 return) = 4,360.
v
2,736
Net sales 7,096 − cost of goods sold 4,360 = 2,736.

Account	Debit	Credit
Inventory	5,000
Accounts Payable		5,000

Account	Debit	Credit
Accounts Receivable	2,400
Sales Revenue		2,400

Account	Debit	Credit
Cost of Goods Sold	1,500
Inventory		1,500

Account	Debit	Credit
Accounts Payable	400
Inventory		400

Account	Debit	Credit
Cash	2,376
Sales Discounts	24
Accounts Receivable		2,400

Account	Debit	Credit
Accounts Payable	4,600
Inventory		92
Cash		4,508

Account	Debit	Credit
Supplies	500
Cash		500

Account	Debit	Credit
Inventory	1,800
Cash		1,800

Account	Debit	Credit
Cash	200
Inventory		200

Account	Debit	Credit
Inventory	1,600
Accounts Payable		1,600

Account	Debit	Credit
Inventory	120
Cash		120

Account	Debit	Credit
Cash	3,600
Sales Revenue		3,600

Account	Debit	Credit
Cost of Goods Sold	2,200
Inventory		2,200

Account	Debit	Credit
Inventory	700
Accounts Payable		700

Account	Debit	Credit
Accounts Payable	1,600
Inventory		32
Cash		1,568

Account	Debit	Credit
Sales Returns and Allowances	80
Cash		80

Account	Debit	Credit
Inventory	40
Cost of Goods Sold		40

Account	Debit	Credit
Accounts Receivable	1,200
Sales Revenue		1,200

Account	Debit	Credit
Cost of Goods Sold	700
Inventory		700

Solution: Full month journalized under perpetual. Income statement through gross profit: net sales 7,096 (sales 7,200 − returns 80 − discounts 24); cost of goods sold 4,360; gross profit 2,736.

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