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Chapter 5: Q6SE (page 296)

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.

Short Answer

Expert verified

Answer

The total of debits and credits for the Textbook Store is$61,200.

The total of debits and credits for Piranha.com is$97,920.

Step by step solution

01

Meaning of Journal Entries

The recording of business transactions in the tabular format is called journal entries. It follows thedual aspect concept of accountingand simultaneously reflects the transaction's debit and credit effect and chronologically records financial information.

02

Journal entries for The Textbook Store’s transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Oct 10

Merchandise inventory (3,500*$17)

59,500

Accounts payable

59,500

(To record the purchases)

Oct 13

Accounts payable (100*$17)

1,700

Merchandise inventory

1,700

(To record the return of damaged goods)

03

Journal entries for Piranha.com’s transactions

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Oct 10

Accounts receivable

59,500

Sales revenue

59,500

(To record the sales)

Oct 10

Cost of goods sold

35,700

Merchandise inventory

35,700

(To record the cost of goods sold)

Oct 13

Sales revenue

1,700

Accounts receivable

1,700

(To record the sales returns)

Oct 13

Merchandise inventory

1,020

Cost of goods sold

1,020

(To record the cost of goods returned)

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Most popular questions from this chapter

Journalize the following transactions for Soul Art Gift Shop. Explanations are not required.

Feb. 3 Purchased \(3,300 of merchandise inventory under terms 3/10, n/EOM, and FOB shipping point.

7 Returned \)900 of defective merchandise purchased on February 3.

9 Paid freight bill of \(400 on February 3 purchase.

10 Sold merchandise inventory on account for \)4,700. Payment terms were 2/15, n/30. These goods cost the company $2,350.

12 Paid amount owed on credit purchase of February 3, less the return and the discount.

28 Received cash from February 10 customer in full settlement of their debt.

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.

Consider the following transactions for Burlington Drug Store:

Feb. 2 Burlington buys \(23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.

4 Burlington pays a \)50 freight charge.

9 Burlington returns $5,200 of the merchandise due to damage during shipment.

14 Burlington paid the amount due, less return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Burlington Drug Store?

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

Prepare Camilia Communication鈥檚 multi-step income statement for the year ended July 31, 2018.

Match the accounting terminology to the definitions.

1. Cost of Goods Sold

a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

2. Perpetual inventory system

b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity鈥檚 major ongoing operations.

3. Vendor

c. Excess of Net Sales Revenue over Cost of Goods Sold.

4. Periodic inventory system

d. The cost of merchandise inventory that the business has sold to customers.

5. Operating expenses

e. The individual or business from whom a company purchases goods.

6. Gross profit

f. An inventory system that keeps a running computerized record of merchandise inventory.
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