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Chapter 5: Q5-5RQ (page 294)
How is gross profit calculated, and what does it represent?
Gross profit is the difference between the net sales revenues earned by a business concern and the cost of goods sold.
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Howie Jewelers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.
Jun. 20 Purchased inventory of \(5,100 on account from Sanders Diamonds, a jewelry importer. Terms were 2/15, n/45, FOB shipping point.
20 Paid freight charges, \)400.
Jul. 4 Returned \(600 of inventory to Sanders.
14 Paid Sanders Diamonds, less return.
16 Purchased inventory of \)3,500 on account from Southboro Diamonds, a jewelry importer. Terms were 2/10, n/EOM, FOB destination.
18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.
24 Paid Southboro Diamonds, less allowance, and discount.
Match the accounting terms with the corresponding definitions.
1. Credit Terms a. The cost of the merchandise inventory that the business has sold to customers.
2. FOB Destination b. An amount granted to the purchaser as an incentive to keep goods that are not 鈥渁s ordered.鈥�
3. Invoice c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.
4. Cost of Goods Sold d. A situation in which the buyer takes ownership (title) at the delivery destination point.
5. Purchase Allowance e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.
6. FOB Shipping Point f. A discount that businesses offer to purchasers as an incentive for early payment.
7. Wholesaler g. A situation in which the buyer takes title to the goods after the goods leave the seller鈥檚 place of business.
8. Purchase Discount h. The terms of purchase or sale as stated on the invoice.
9. Retailer i. A seller鈥檚 request for cash from the purchaser.
Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.
Requirements
1. Journalize The Textbook Store鈥檚 October 2018 transactions.
2. Journalize Piranha.com鈥檚 October 2018 transactions. The company estimates sales returns at the end of each month.
Journalize the following transactions that occurred in November 2018 for Julie鈥檚 Fun World. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Julie鈥檚 Fun World estimates sales returns at the end of each month.
Nov. 4 Purchased merchandise inventory on account from Vera Company, \(5,000. Terms 3/10, n/EOM, FOB shipping point.
6 Paid freight bill of \)100 on November 4 purchase
8 Returned half the inventory purchased on November 4 from Vera Company.
10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)400. FOB destination.
11 Sold merchandise inventory to Geary Corporation, \(11,100, on account, terms of 2/10, n/EOM. Cost of goods, \)6,105. FOB shipping point.
12 Paid freight bill of \(20 on November 10 sale.
13 Sold merchandise inventory to Caldwell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.
14 Paid the amount owed on account from November 4, less return and discount.
17 Received defective inventory as a sales return from the November 13 sale, \)500. Cost of goods, \(275.
18 Purchased inventory of \)3,600 on account from Rainman Corporation. Payment terms were 2/10, n/30, FOB destination.
20 Received cash from Geary Corporation, less discount.
26 Paid amount owed on account from November 18, less discount.
28 Received cash from Caldwell Company, less return.
29 Purchased inventory from Sandra Corporation for cash, \(12,300, FOB shipping point. Freight in paid to shipping company, \)170.
Consider the following transactions for Toys and More:
May 8 Toys and More buys \(113,300 worth of MegoBlock toys on account with credit terms of 2/10, n/60.
12 Toys and More returns \)11,250 of the merchandise to MegoBlock due to damage during shipment.
15 Toys and More paid the amount due, less the return and discount.
Requirements
1. Journalize the purchase transactions. Explanations are not required.
2. In the final analysis, how much did the inventory cost Toys and More?
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