Exam 5: Merchandising Operations and the Accounting Cycle

Following is a random list of accounts with normal balances for the Lexis Merchandising as of December 31, 2019. All adjusting entries have been made. Closing entries have not been made. K. Lexis, Capital \ 159,000 Land 80,000 Sales discounts 18,000 Supplies expense 9,000 Interest revenue 14,000 Mortgage payable 80,000 Cash 22,000 Accounts receivable 34,000 Unearned service revenue 11,000 Salary expense 23,000 Accounts payable 36,000 Accumulated amort-building 17,000 Equipment 46,000 Prepaid insurance 8,000 Interest expense 6,000 K. Lexis, Withdrawals 15,000 Sales revenue 285,000 Interest receivable 5,000 Inventory 28,000 Accumulated amort-equipment 12,000 Insurance expense 21,000 Salary payable 6,000 Supplies 4,000 Cost of goods sold 156,000 Sales returns \& allowances 13,000 Amortization expense-building 8,000 Amortization expense-equipment 8,000 Interest payable 14,000 Utilities expense 8,000 Delivery expense 7,000 Building 115,000 Prepare a multi-step income statement for Lexis Merchandising for the year ended December 31, 2019

Tobermory Merchandising had the following transactions during May: May 5 Purchased $2,700 of merchandise on account, terms 3/15 n/60, FOB shipping point. 9 Paid transportation cost on the May 5 purchase, $250. 10 Returned $400 of defective merchandise purchased on May 5. 15 Paid for the May 5 purchase, less the return and the discount. Required: Assuming the periodic inventory system is used, prepare the journal entries to record the above transactions.

To update the inventory records for the sale of merchandise under a perpetual inventory system, the entry would include a:

Romeo Merchandising had the following transactions in June. Prepare journal entries for these transactions assuming Romeo uses a periodic inventory system. June 2 Romeo received an $18,000 invoice from one of its suppliers. Terms were 2/10 n/30, FOB shipping point. Romeo paid the freight bill amounting to $2,000. 4 Romeo returned $2,500 of the merchandise billed on June 2 because it was defective. 5 Romeo sold $8,000 of merchandise on account, terms 3/15 n/30. 10 Romeo paid the invoice dated June 2, less the return and the discount. 15 A customer returned $2,500 of merchandise sold on June 5. 19 Romeo received payment on the remaining amount due from the sale of June 5, less the return and the discount.

A merchandiser received payment in full after the expiration of the discount period on a $3,000 sales invoice, terms 3/15 n/30. The journal entry would include a:

When the seller is liable for the shipping costs, the payment for the freight in the seller's accounts is recorded with a debit to:

Quantity discounts offered by suppliers for large shipments of inventory are always recorded separately.

Michelin Jewellers completed the following transactions. Michelin Jewellers uses the perpetual inventory system. On April 2, Michelin sold $9,000 of merchandise to a customer on account with terms of 3/15, n/30. Michelin's cost of the merchandise sold was $5,500. On April 4, the customer reported damaged goods and Michelin granted a $1,000 sales allowance. On April 10, Michelin received payment from the customer. Which of the following entries correctly records the cash receipt on Michelin's books?

In a perpetual inventory system, the closing entries include a credit to the Inventory account in an amount that equals the ending inventory, and a debit to the Inventory account in an amount that equals the beginning inventory.

In a periodic inventory system, purchase returns and allowances and purchase discounts are considered contra liability accounts.

To update the inventory records for the sale of merchandise on account under a periodic inventory system, the entry would include:

Purchase discounts normally have a credit balance.

Table 5-4 The following data is for the Atlantis Merchandising, which uses a periodic inventory system: Sales revenue \ 600,000 Interest revenue 12,000 Freight in 42,000 Beginning inventory 77,000 Purchase discounts 19,000 Sales reburns and allowances 33,000 Operating expenses 77,000 Interest expense 9,000 Ending inventory 81,000 Purchases 415,000 Sales discounts 35,000 Omar Atlantis, Withdrawals 71,000 Purchase returns and allowances 39,000 -Refer to Table 5-4. The operating income for Atlantis Merchandising is:

Alpha Company had $45,000 in beginning inventory and $80,000 in ending inventory. Cost of goods sold for the period was $25,000. The inventory turnover is:

Which accounts are affected in the closing process under a periodic inventory system?

Table 5-6 The following are transactions for Latest Fashions for the month of June. $\text {June 2 Purchased \$ 2,000 of inventory under terms \(1 / 10 , \mathrm { n } / 60\) and \(\mathrm { FOB }\) shipp ing point from Trendy}$ $\text {Manufacturing. The merchandise had cost Trendy \$ 1,800.}$ $\text {June 7 Returned defective merchandise to Trendy Manufacturing with invoice price of \$ 400.}$ $\text {June 8 Paid the freight charges on the purchase from Trendy Manufacturing in cash for \$ 100.}$ $\text {June 9 Sold merchandise to New Miss Store on account for \$ 5,000 with terms \(2 / 15 , \mathrm { n } / 60 \mathrm { FOB }\) }$ $\text {shipping point. Cost of the merchandise sold was \$ 4,000.}$ $\text {June 10 Paid Trendy Manufacturing the balance on account.}$ $\text {June 12 Granted sales allowance of \$ 300 to New Miss Store for defective merchandise.}$ $\text {June 23 Collected balance owed from New Miss Store.}$ -Refer to table 5-6. Prepare the journal entries for New Miss Store for the transactions listed, assuming that New Miss Store uses a periodic inventory system.

FOB shipping point means that the title to the goods passes to the purchaser upon receipt of the goods and the seller is responsible for the cost of the freight.

Under a perpetual inventory system, the adjusting entry to account for inventory shrinkage would include a:

The adjusting entry to record inventory shrinkage would include a debit to the cost of goods sold account in a periodic inventory system.

Expenses other than cost of goods sold, that are incurred in the entity's major line of business are called: