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Chapter 5: Q5-17RQ (page 294)
What is freight out and how is it recorded by the seller?
Freight-out should be reported in theincome statement of the seller.
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Rocky RV Center鈥檚 accounting records include the following accounts at December 31, 2018.
Cost of Goods Sold \( 372,000 Accumulated Depreciation鈥擝uilding \) 38,000
Accounts Payable 16,000 Cash 47,000
Rent Expense 26,000 Sales Revenue 636,500
Building 113,000 Depreciation Expense鈥擝uilding 13,000
Common Stock 115,000 Dividends 58,000
Retained Earnings 83,100 Interest Revenue 14,000
Merchandise Inventory 239,600
Notes Receivable 34,000
Requirements
1. Journalize the required closing entries for Rocky.
2. Determine the ending balance in the Retained Earnings account.
Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae鈥檚 brother started his own drilling company and persuaded Rae to 鈥渓oan鈥� him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well encountered problems and the pipe was still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. 鈥淪end me over 80 joints of 5-inch pipe tomorrow, and I鈥檒l get them back to you ASAP,鈥� said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a 鈥渘o-exception鈥� report.
Requirements
1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?
2. How would this kind of action affect the financial performance of the company?
Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:
Cash \( 2,900 Cost of Goods Sold \) 18,700
Selling Expenses 1,400 Equipment, net 9,500
Accounts Payable 4,300 Accrued Liabilities 1,800
Common Stock 4,365 Net Sales Revenue 29,200
Notes Payable, long-term 500 Accounts Receivable 3,200
Merchandise Inventory 1,100 Interest Expense 65
Administrative Expenses 3,300
Requirements
1. Prepare Camilia Communication鈥檚 statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.
2. Prepare Camilia Communication鈥檚 classified balance sheet at July 31, 2018. Use the report format.
Taylor Department Store uses a periodic inventory system. The adjusted trial balance of Taylor Department Store at December 31, 2018, follows:
TAYLOR DEPARTMENT STORE
Adjusted Trial Balance
December 31, 2018
Balance
Account Title Debit Credit
Cash \(7,900
Accounts Receivable 85,300
Merchandise Inventory (beginning) 37,600
Office Supplies 300
Furniture 83,000
Accumulated Depreciation-Furniture \)18,500
Accounts Payable 28,500
Salaries Payable 2,900
Unearned Revenue 14,500
Notes Payable, long-term 32,000
Common Stock 20,000
Retained Earnings 45,400
Dividends 89,000
Sales Revenue 380,800
Purchases 284,000
Purchase Returns and Allowances 110,000
Purchase Discounts 7,000
Freight-In 100
Selling Expense 42,900
Administrative Expense 26,300
Interest Expense 3,200
Total \(659,600 \)659,600
Requirements
1. Prepare Taylor Department Store鈥檚 multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,700.
2. Journalize Taylor Department Store鈥檚 closing entries.
What are the two journal entries involved when recording the sale of inventory when using the perpetual inventory system?
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