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Chapter 5: Q5-4RQ (page 265)
What is the Cost of Goods Sold (COGS), and where is it reported?
The cost of goods sold is the cost of goods that has been sold to the customers by a business, and the same is reported in the income statement.
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Triton Department Store uses a periodic inventory system. The adjusted trial balance of Triton Department Store at December 31, 2018, follows:
TRITON DEPARTMENT STORE
Adjusted Trial Balance
December 31, 2018
Balance
Account Title Debit Credit
Cash \(8,200
Accounts Receivable 84,600
Merchandise Inventory (beginning) 37,800
Office Supplies 850
Furniture 86,000
Accumulated Depreciation-Furniture \)18,500
Accounts Payable 29,400
Salaries Payable 2,300
Unearned Revenue 14,900
Notes Payable, long-term 36,000
Common Stock 60,000
Retained Earnings 22,850
Dividends 88,600
Sales Revenue 374,000
Purchases 295,000
Purchase Returns and Allowances 109,000
Purchase Discounts 6,400
Freight-In 300
Selling Expense 41,700
Administrative Expense 26,600
Interest Expense 3,700
Total \(673,350 \)673,350
Requirements
1. Prepare Triton Department Store鈥檚 multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,300.
2. Journalize Triton Department Store鈥檚 closing entries.
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.
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?
How is the net cost of inventory calculated?
What is freight out and how is it recorded by the seller?
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