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Chapter 5: Q33E (page 306)

Clink Electric uses the periodic inventory system. Clink reported the following selected amounts at May 31, 2018:

Merchandise Inventory, June 1, 2017 \( 16,000 Freight In \) 6,000

Merchandise Inventory, May 31, 2018 21,500 Net Sales Revenue 138,000

Purchases 81,000 Common Stock 32,000

Purchase Discounts 3,000 Retained Earnings 17,000

Purchase Returns and Allowances 6,600

Compute the following for Clink:

a. Cost of goods sold.

b. Gross profit.

Short Answer

Expert verified

(a) The cost of goods sold of the company is $65,900.

(b) Gross profit of the company is $72,100.

Step by step solution

01

Meaning of Profit

In accounting, the term profit denotes excess revenues over the expenses. It is computed by taking the difference betweenrevenues generated in one accounting period and expensesincurred to generate such revenues.

02

Computation of cost of goods sold

Particulars

Amounts ($)

Opening inventory

16,000

Add: Net purchases (Working Note)

71,400

Less: Closing inventory

(21,500)

Cost of goods sold

$65,900

Working Note:

Computation of Net purchases:

Net Purchases=Purchases-Purchase returns and allowances-Purchase discounts=$81,000-$6,600-$3,000=$71,400

03

Computation of gross profit

Gross Profit=Net Sales Revenue-Cost of Goods Sold=$138,000-$65,900=$72,100

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Most popular questions from this chapter

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

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(7,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)100 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, \(1,600. Cost of goods, \)640. FOB destination.

11 Sold merchandise inventory to Graceland Corporation, \(10,800, on account, terms of 1/10, n/EOM. Cost of goods, \)5,400. FOB shipping point.

12 Paid freight bill of \(60 on January 10 sale.

13 Sold merchandise inventory to Cabbell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.

14 Paid the amount owed on account from January 4, less return and discount.

17 Received defective inventory as a sales return from the January 13 sale, \)600. Cost of goods, \(300.

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 3/10, n/30, FOB destination.

20 Received cash from Graceland Corporation, less discount.

26 Paid amount owed on account from January 18, less discount.

28 Received cash from Cabbell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, \(11,600, FOB shipping point. Freight in paid to shipping company, \)240.

Under the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.

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

Is an adjusting entry needed for inventory shrinkage when using the periodic inventory system? Explain.

On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was \(80,000 with a cost of \)48,000. Journalize the adjusting entries needed to account for the estimated returns.
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