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Chapter 5: Q26E (page 303)

Emerson St. Book Shop鈥檚 unadjusted Merchandise Inventory at June 30, 2018 was \(5,200. The cost associated with the physical count of inventory on hand on June 30, 2018, was \)4,900. In addition, Emerson St. Book Shop estimated approximately \(1,000 of merchandise sold will be returned with a cost of \)400.

Requirements

1. Journalize the adjustment for inventory shrinkage.

2. Journalize the adjustment for estimated sales returns.

Short Answer

Expert verified

The inventory shrinkage expense of the company is$300.

Step by step solution

01

Meaning of Adjusting Entries

In accounting practice, adjusting entries are recorded in the books at the end of an accounting period. Adjusting entries are passed after drafting thetrial balance, and it facilitates the business entities to reflect theirrevenues and expenses correctly.

02

Preparation of adjustment entry for inventory shrinkage

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Jun 30

Cost of goods sold (5200-4900)

300

Merchandise inventory

300

(To record the inventory shrinkage)

03

Preparation of adjustment entry for estimated sales returns

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Jun 30

Sales revenue

1,000

Refunds payable

1,000

(To record the refunds payable)

Jun 30

Estimated returns inventory

400

Cost of goods sold

400

(To record the cost of goods sold)

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Most popular questions from this chapter

The unadjusted trial balance for Tuttle Electronics Company follows:

TUTTLE ELECTRONICS COMPANY

Unadjusted Trial Balance

October 31, 2018

Balance

Account Title Debit Credit

Cash \(4,200

Accounts Receivable 33,800

Merchandise Inventory 45,700

Office Supplies 5,700

Equipment 129,500

Accumulated Depreciation-Equipment \)37,200

Accounts Payable 15,600

Unearned Revenue 13,400

Notes Payable, long-term 53,000

Common Stock 48,000

Retained Earnings 6,700

Dividends 27,000

Sales Revenue 300,300

Cost of Goods Sold 171,600

Salaries Expense (Selling) 26,000

Rent Expense (Selling) 15,400

Salaries Expense (Administrative) 4,800

Utilities Expense (Administrative) 10,500

Total \(474,200 \)474,200

Requirements

1. Journalize the adjusting entries using the following data:

a. Interest revenue accrued, \(550.

b. Salaries (Selling) accrued, \)2,800.

c. Depreciation Expense鈥擡quipment (Administrative), \(1,295.

d. Interest expense accrued, \)1,500.

e. A physical count of inventory was completed. The ending Merchandise Inventory should have a balance of \(45,300.

f. Tuttle estimates that approximately \)6,200 of merchandise sold will be returned with a cost of $2,480.

2. Prepare Tuttle Electronics鈥檚 adjusted trial balance as of October 31, 2018.

3. Prepare Tuttle Electronics鈥檚 multi-step income statement for year ended October 31, 2018.

Crazy Cookies earned net sales revenue of \(66,000,000 in 2018. The cost of goods sold was \)39,600,000, and net income reached $7,000,000, the company鈥檚 highest ever. Compute the company鈥檚 gross profit percentage for 2018.

When granting a sales allowance is there a return of merchandise inventory from the customer? Describe the journal entry(ies) that would be recorded.

Journalize the following transactions that occurred in September 2018 for Cardinal. Assume Cardinal uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Sep. 3 Purchased merchandise inventory on account from Sherry Wholesalers, \(4,000. Terms 1/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)75 on September 3 purchase.

4 Purchased merchandise inventory for cash of \(1,900.

6 Returned \)1,100 of inventory from September 3 purchase.

8 Sold merchandise inventory to Houston Company, \(5,500, on account. Terms 3/15, n/35. Cost of goods, \)2,365.

9 Purchased merchandise inventory on account from Tarin Wholesalers, \(12,000. Terms 3/10, n/30, FOB destination.

10 Made payment to Sherry Wholesalers for goods purchased on September 3, less return and discount.

13 After negotiations, received a \)200 allowance from Tarin Wholesalers.

15 Sold merchandise inventory to Java Company, \(3,300, on account. Terms 2/10, n/EOM. Cost of goods, \)1,320.

22 Made payment, less allowance, to Tarin Wholesalers for goods purchased on September 9.

25 Sold merchandise inventory to Smecker for \(1,900 on account that cost \)722. Terms of 1/10, n/30 were offered, FOB shipping point. As a courtesy to Smecker, $85 of freight was added to the invoice for which cash was paid by Cardinal.

28 Received payment from Houston Company.

29 Received payment from Smecker, less discount.

30 Received payment from Java Company.

Journalize the following transactions that occurred in February 2018 for Oceanic. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Oceanic estimates sales returns at the end of each month.

Feb. 3 Purchased merchandise inventory on account from Silton Wholesalers, \(5,200. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)70 on February 3 purchase.

4 Purchased merchandise inventory for cash of \(1,500.

6 Returned \)900 of inventory from February 3 purchase.

8 Sold merchandise inventory to Herenda Company, \(5,600, on account. Terms 3/15, n/35. Cost of goods, \)2,352.

9 Purchased merchandise inventory on account from Teddy Wholesalers, \(7,000. Terms 1/10, n/30, FOB destination.

10 Made payment to Silton Wholesalers for goods purchased on February 3, less return and discount.

12 Received payment from Herenda Company, less discount.

13 After negotiations, received a \)500 allowance from Teddy Wholesalers.

15 Sold merchandise inventory to Jordon Company, \(3,400, on account. Terms n/EOM. Cost of goods, \)1,496.

22 Made payment, less allowance, to Teddy Wholesalers for goods purchased on February 9.

23 Jordon Company returned \(1,000 of the merchandise sold on February 15. Cost of goods, \)440.

25 Sold merchandise inventory to Smith for \(1,700 on account that cost \)663. Terms of 2/10, n/30 were offered, FOB shipping point. As a courtesy to Smith, $70 of freight was added to the invoice for which cash was paid by Oceanic.

27 Received payment from Smith, less discount.

28 Received payment from Jordon Company, less return.
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