340 Accounting Principles Manual Chapter 5 (Brief Exercises) 341

Solution: Giovanni Company

Journal Entry

Brief Exercises Dat Account Titles and Explanations

Merchandise Inventory
Ref
.
Debi
t
780
Credi
t

Accounts Payable 780

(To record goods purchased on account.)
BE5–1 Presented below are the components in Clearwater Company’s income Gordon Company
statement. Determine the missing amounts. Journal Entries
Sales Cost of Gross Operating Net Dat Account Titles and Ref Debi Credi
Goods Sole Profit Expenses Income Explanations . t t
(a) $75000 ? $28600 ? $10800 Accounts Receivable 780
(b) $108000 $70000 ? ? $29500 Sales 780
(c) ? $71900 $99600 $39500 ? (To record goods sold on account.)
Cost of Goods Sold 560
Solution: (a) Cost of Goods Sold = Sales – Gross Profit Merchandise Inventory 560
= $75000 – $28600 (To record cost of goods sold.)
= $43500 [Ans.]
The End
Operating expenses = Gross Profit – Net Income
= $28600 – $10800 BE5–3 Prepare the journal entries to record the following transactions on
= $17800 [Ans.] Benson Company’s books using a perpetual inventory system.
(a) On March 2, Benson Company sold $800000 of merchandise to
(b) Gross Profit = Sales – Cost of Goods Sold Edgebrook Company, terms 2/10, n/30. The cost of the merchandise
= $108000 – $70000 sold was $620000.
= $38000 [Ans.] (b) On March 6, Edgebrook Company returned $120000 of the
Operating Expenses = Gross Profit – Net Income merchandise purchased on March 2 because it was defective. The cost
= $38000 – $29500 of the returned merchandise was $90000.
= $8500 [Ans.] (c) On March 12, Benson Company received the balance due from
Edgebrook Company.
(c) Sales = Cost of Goods Sold – Gross Profit
= $71900 + $99600 Solution: Benson Company
= $171500 [Ans.] Journal Entries
Net Income = Gross Profit – Operating Expenses (Perpetual Inventory System)
= $99600 – $39500 No Date Account Titles and Explanations Ref Debit Credit
= $60100 [Ans.] .
The End (a) March 2 Accounts Receivable 800000
Sales 800000
BE5–2 Giovanni Company buys merchandise on account from Gordon (To record goods sold on account.)
Company. The selling price of the goods is $780, and the cost of the goods is Cost of Goods Sold 620000
$560. Both companies use perpetual inventory systems. Journalize the Merchandise Inventory 620000
transaction on the books of both companies. (To record cost of goods sold.)
(b) March 6 Sales Return and Allowance 120000
340 Accounting Principles Manual Chapter 5 (Brief Exercises) 341
Accounts Receivable 120000 Sales revenues: Amount Amount
(To record goods returned from customer.) Sales ($280000 + $100000) $380000
Merchandise Inventory 90000 Less: Sales return and allowance $21000
Cost of Goods Sold 90000 Sales discount 13000 $34000
(To record returned merchandise inventory.) Net sales $349000
(c) March Cash (680000 – 13600) 666400 The End
12 Sales Discounts (680000  2%) 13600 BE5–6 At year-end the perpetual inventory records of Salsa Company showed
Accounts Receivable (800000 – 120000) 680000 merchandise inventory of $98000. The company determined, however, that its
(To record received cash from customers less actual inventory on hand was $96800. Record the necessary adjusting entry.
discount.) Solution: Salsa Company
The End Adjusting Journal Entry
BE5–4 From the information in BE 5 – 3, prepare the journal entries to record Date Account Titles and Explanations Ref Debi Credi
these transactions on Edgebrook Company’s books under a perpetual . t t
inventory system. Dec. Cost of Goods Sold 1200
Solution: Edgebrook Company 31 Merchandise Inventory (98000 – 1200
Journal Entries 96800)
(Perpetual Inventory System) (To adjust ending merchandise inventory.)
N Date Account Titles and Explanations Ref Debit Credit The End
. BE5–7 Orlaida Company has the following merchandise account balance:
(a) March 2 Merchandise Inventory 800000 Sales $192000, Sales Discounts $2000, Cost of Goods Sold $105000, and
Accounts Payable 800000 Merchandise Inventory $40000. Prepare the entries to record the closing of
(To record goods purchased on account.) these items to Income Summary.
(b) March 6 Accounts Payable 120000 Solution: Orlaida Company
Closing Journal Entries

Merchandise Inventory 120000 Date Account Titles and Ref Debit Credit
(To record goods returned to supplier.) Explanations .
(c) March 12 Accounts Receivable (800000 – 120000) 680000 Dec Sales 192000
Merchandise Inventory (680000  2%) 13600 31 Income Summary 192000
Cash (680000 – 13600) 666400 (To close revenue account.)
(To record paid cash to supplier less discount.) Dec Income Summary 107000
The End 31 Cost of Goods Sold 105000
BE5–5 Piccola Company provides the following information for the month Sales Discounts 2000
ended October 31, 2005: Sales on credit $280000, cash sales $100000, sales (To close expense accounts.)
discount $13000, sales returns and allowance $21000. Prepare the sales Note: Ending balance of Merchandise Inventory is considered as an asset account,
revenues section of the income statement based on this information. which is not to be closed.
The End
Solution: Piccola Company BE5–8 Explain where each of the following items would appear on (1) a
Income Statement multiple-step income statement, and on (2) a single-step income statement: (a)
For the Month Ended October 31, 2005. gain on sale of equipment, (b) casualty loss from vandalism, and (c) cost of
goods sold.
Solution: (1) Multi-Step Income Statement:
Item Section
340 Accounting Principles Manual Chapter 5 (Brief Exercises) 341
(a) Gain on sale of equipment Other revenues and gains Sales revenues: Amount Amount
(b) Casualty loss from vandalism Other expenses and losses Sales $………
(c) Cost of goods sold Cost of goods sold Less: Sales return and allowance …..….
(2) Single-Step Income Statement: Net sales $………..
Item Section Less: Cost of goods sold:
(a) Gain on sale of equipment Revenues Purchase $400000
(b) Casualty loss from vandalism Expenses Less: Purchase Returns and Allowances (11000)
(c) Cost of goods sold Expenses 389000
Less: Purchase Discounts 8000
The End (a) Net Purchase 381000
BE5–9 Assume Jose Company has the following account balances: Sales Add: Freight-in 16000
$506000, Sales Returns and Allowance $15000, Cost of Goods Sold $350000, (b) Cost of goods purchased $397000
Selling Expenses $70000, and Administrative Expense $40000. Compute the Answers:(a) Net purchase = Tk 381000, (b)Cost of goods purchased = Tk 397000.
following: (a) net sales, (b) gross profit, and (c) income from operations. The End
Solution: Jose Company BE5–11 Assume the same information as in BE5-10 and also that E. Guard
Income Statement Company has beginning inventory of $60000, ending inventory of $90000, and
For the Period Ended ……... net sales of $630000. Determine the amounts to be reported for cost of goods
Sales revenues: Amount Amount sold and gross profit.
Sales $506000
Less: Sales return and allowance 15000
Solution: E. Guard Company
(a) Net sales $491000 Income Statement
Less: Cost of goods sold: For the Period Ended ……...
Cost of goods sold (350000) Amount Amount Amount
(b) Gross profit 141000 Sales revenues:
Net sales $630000
Less: Operating expenses: Less: Cost of goods sold:
Selling expenses $70000 Beginning inventory $60000
Administrative expenses 40000 (110000) Purchase $400000
(c) Income from operation $31000 Less: Purchase Returns and Allowances (11000)
Answers: (a) Net sales = Tk 491000, (b) Gross profit = Tk 141000, 389000
(c) Income from operation = Tk 31000 Less: Purchase Discounts 8000
The End Net Purchase 381000
BE5–10 Assume that E. Guard Company uses a periodic inventory system and Add: Freight-in 16000
has these account balances: Purchases $400000; Purchase Returns and Cost of goods purchased 397000
Allowances $11000; Purchase Discounts $8000; and Freight-in 16000. Cost of goods available for sale 457000
Determine net purchases and cost of goods purchased. Less: Ending inventory (90000)
Solution: E. Guard Company (a) Cost of Goods Sold (367000)
Income Statement (b) Gross profit $263000
For the Period Ended ……... Answers: (a) Cost of goods sold = Tk 367000.
(b) Gross profit = Tk 263000.
The End
BE5–12 Prepare the journal entries to record these transaction on H. Hunt
Company’s books using a periodic inventory system.
340 Accounting Principles Manual Chapter 5 (Brief Exercises) 341
(a) On March 2, H. Hunt Company purchased $900000 of merchandise from B. (c) Sales: Trial balance credit column; Adjusted trial balance credit column; and
Streisand Company, terms 2/10, n/30. Income statement credit column.
(b) On March 6, H. Hunt Company returned $130000 of merchandise
(d) Cost of goods sold: Trial balance debit column; Adjusted trial balance debit
purchased on March 2 because it was defective.
column; and Income statement debit column.
(c) On March 12, H. Hunt Company paid the balance due to B. Streisand
Company. The End
Solution: H. Hunt Company
Journal Entries
(Periodic Inventory System)
N Date Account Titles and Explanations Ref Debit Credit
.
(a) March 2 Purchases 900000
Accounts Payable 900000
(To record goods purchased on account.)
(b) March 6 Accounts Payable 130000
Purchases 130000

Coming Soon!!!
(To record goods purchased on account.)
(c) March 12 Accounts Receivable (900000 – 130000) 770000
Purchase Discounts (770000  2%) 15400
Cash (770000 – 15400) 754600
(To record paid cash to supplier less discount.)
The End
BE5–13 Presented below is the format of the work sheet presented in the

EASY
chapter.
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

ACCOUNTING
Indicate where the following items will appear on the work sheet: (a) Cash, (b)
Merchandise Inventory, (c) Sales, (d) Cost of goods sold.
Example:
Cash: Trial balance debit column; Adjusted trial balance debit column; and
Balance sheet debit column.

THEORIES
Solution:
(a) Cash: Trial balance debit column; Adjusted trial balance debit column; and
Balance sheet debit column.
(b) Merchandise Inventory: Trial balance debit column; Adjusted trial balance debit
column; and Balance sheet debit column.
340 Accounting Principles Manual Chapter 5 (Brief Exercises) 341

BY M.
SHAMIM