Chapter05SM.docx

1、Chapter05SMChapter 5Accounting for Merchandising OperationsQuestions 1. Additional accounts of a merchandising company likely include Merchandise Inventory, Sales (of goods), Cost of Goods Sold, Sales Discounts, and Sales Returns and Allowances (and possibly Delivery Expense). 2. Merchandising compa

2、nies report Merchandise Inventory on the balance sheet, service companies do not. Also, merchandising companies report both Sales (of goods) and Cost of Goods Sold on the income statement, while service companies do not. 3. A company can have a net loss if its expenses (absent cost of goods sold) ar

3、e greater than its gross profit from sales of merchandise. 4. A cash discount can be offered to encourage customers to promptly pay. This provides cash more quickly to the seller and avoids the costs of additional collection activitiesof course, the seller must perform a costs vs. benefits analysis

4、on the merits and terms of any cash discount offered to customers. 5. For a perpetual inventory system, inventory shrinkage is determined by taking a physical count of the inventory available at the end of a period and comparing that amount with the amount recorded in the Merchandise Inventory accou

5、nt. 6. Cash discounts are granted in return for early payment and reduce the amount paid below the negotiated price. Cash discounts are recorded in the accounting records (as a reduction of Merchandise Inventory). Trade discounts are deducted from the list or catalog price to determine the purchase

6、(negotiated) price. Trade discounts are not recorded in the accounting records. 7. Sales discount is a term used by a seller to describe a cash discount granted to a customer. Purchase discount is a term used by a purchaser to describe a cash discount received from a seller. (It is a matter of persp

7、ective: seller versus buyer.) 8. A manager is concerned about the quantity of its purchase returns because the company incurs costs in receiving, inspecting, identifying, and returning the merchandise. More returns create more expenses. By knowing more about returns, the manager can decide if they a

8、re a problem and how they can be minimized. 9. The sender (maker) of a debit memorandum records a debit in an account of the recipient; and the recipient records a credit in an account maintained for the sender.10. The single-step income statement format presents cost of goods sold and expenses in o

9、ne list, totals the list, and subtracts the total from net sales in one step. The multiple-step format presents intermediate totals, including gross profit (the difference between net sales and cost of goods sold) and sub-categories of expenses (often by key activities).11. Best Buy calls its invent

10、ory account “Merchandise Inventories.” A detailed calculation of cost of goods sold is not presented for Best Buy.12. Circuit City titles its cost of goods sold account “Cost of sales, buying, and warehousing.”13. RadioShack titles its cost of goods sold account “Cost of products sold.”14. Apple rep

11、orts a separate gross margin figure on its consolidated statement of income. Its 2006 gross profit is $5,598 (in $ millions).15. A buyer should attempt to negotiate the shipping terms FOB destination. In this case, title will pass after the goods are safely delivered to the buyers business and trans

12、portation charges will be the responsibility of the supplier (seller).Quick StudIESQuick Study 5-1 (10 minutes)Mar. 5 Merchandise Inventory 12,000 Accounts Payable 12,000 To record credit purchase (1,000 x $12). Mar. 7 Accounts Payable 600 Merchandise Inventory 600 Returned defective units (50/1,000

13、) x $12,000. Mar. 15 Accounts Payable 11,400 Cash 11,172 Merchandise Inventory* 228 Paid for purchase less cash discount *(12,000 - $600) x 2%.Quick Study 5-2 (10 minutes)Apr. 1 Accounts Receivable 5,000 Sales 5,000 To record credit sale. 1 Cost of Goods Sold 3,000 Merchandise Inventory 3,000 To rec

14、ord cost of credit sale. 4 Sales Returns and Allowances 1,000 Accounts Receivable 1,000 To record sales return. 4 Merchandise Inventory 600 Cost of Goods Sold 600 Restore cost of returned goods to inventory. 11 Cash 3,920 Sales Discounts* 80 Accounts Receivable 4,000 Received payment less cash disco

15、unt *($5,000 - $1,000) x 2%.Quick Study 5-3 (10 minutes)(a)(b)(c)(d)Sales $140,000$378,000$42,500$593,000Sales discounts (1,700)(6,000)(400)(2,500)Sales returns and allowances (9,000) (17,000) (3,400) (15,300)Net sales 129,300355,00038,700575,200Cost of goods sold (82,493)(222,230) (28,676)(451,532)

16、Gross profit $ 46,807$132,770$10,024$123,668Gross margin ratio:(Gross profit / Net sales) 36.2% 37.4% 25.9% 21.5%Interpretation of gross margin ratio for case a: The ratio of 36.2% implies that for each dollar in net sales the company earns 36.2 cents in gross profit. The company must still deduct o

17、ther expenses that it incurs in running the business when computing net income.Quick Study 5-4 (10 minutes)July 31 Cost of Goods Sold 1,400 Merchandise Inventory 1,400 To adjust for shrinkage based on physical count $42,000 - $40,600.Quick Study 5-5 (10 minutes)July 31 Sales 275,300 Income Summary 2

18、75,300 To close temporary accounts with credit balances.July 31 Income Summary 193,200 Sales Discounts 5,200 Sales Returns and Allowances 7,600 Cost of Goods Sold* 116,400 Depreciation Expense 12,000 Salaries Expense 45,000 Miscellaneous Expenses 7,000 To close temporary accounts with debit balances

19、. (*$115,000 + $1,400 from QS 5-4)Quick Study 5-6 (10 minutes)Acid-test ratio = ($3,000 + $5,580) / ($11,500 + $1,700) = 0.65Explanation of acid-test ratio: The acid-test ratio is used to evaluate (reflect on) the liquidity of a company. It helps in determining whether a company will be able to meet

20、 its current obligations as they come due with its most liquid assets. In this case, the company only has 65 cents available in quick assets to pay $1.00 in current liabilities as they come due. An acid-test ratio less than one usually suggests some concern and encourages further analysis of liquidi

21、ty.Quick Study 5-7 (10 minutes)Similarities: Both the acid-test ratio and current ratio are used to assess liquidity. Both ratios are computed with current liabilities as the denominator. Differences: The current ratio includes current assets in the numerator. The acid-test ratio includes current as

22、sets less inventories and prepaids in its numerator (leaving cash & equivalents, current receivables, and short-term investments).Comparison and Description: Compared with the current ratio, the acid-test ratio is a more stringent test of a companys ability to meet its current obligations. The acid-

23、test ratio is more stringent as it does not assume a company relies on prepaids and inventory to pay current liabilities. This is because prepaids and inventory assets are not generally available to satisfy current obligations.Quick Study 5-8A (5 minutes)a. Perpetual inventory systemb. Perpetual inv

24、entory systemc. Perpetual inventory systemd. Perpetual inventory systeme. Periodic inventory systemQuick Study 5-9A (10 minutes)Mar. 5 Purchases 12,000 Accounts Payable 12,000 To record credit purchase (1,000 x $12). 7 Accounts Payable 600 Purchases Returns & Allowances 600 Returned defective units

25、(50/1,000) x $12,000. 15 Accounts Payable 11,400 Cash 11,172 Purchases Discounts* 228 Paid for purchase less cash discount * ($12,000 - $600) x 2%.Quick Study 5-10A (10 minutes)Apr. 1 Accounts Receivable 5,000 Sales 5,000 To record credit sale. 4 Sales Returns and Allowances 1,000 Accounts Receivabl

26、e 1,000 To record sales return. 11 Cash 3,920 Sales Discounts* 80 Accounts Receivable 4,000 Received payment less cash discount *($5,000 - $1,000) x 2%.ExercisesExercise 5-1 (30 minutes)Apr. 2 Merchandise Inventory 5,900 Accounts PayableJohns 5,900 Purchased merchandise on credit. 3 Merchandise Inve

27、ntory 330 Cash 330 Paid shipping charges on purchased merchandise. 4 Accounts PayableJohns 900 Merchandise Inventory 900 Returned unacceptable merchandise. 17 Accounts PayableJohns 5,000 Merchandise Inventory* 100 Cash 4,900 *($5,900 - $900) x 2% Paid balance (less 2%) within discount period. 18 Mer

28、chandise Inventory 12,250 Accounts PayableWilliam 12,250 Purchased merchandise on credit. 21 Accounts PayableWilliam 3,250 Merchandise Inventory 3,250 Received an allowance on purchase. 28 Accounts PayableWilliam 9,000 Merchandise Inventory* 180 Cash 8,820 *($12,250 - $3,250) x 2% Paid balance (less

29、 2%) within discount period.Exercise 5-2 (30 minutes)1. BUYER- Fortuna Company Credit Purchase Merchandise Inventory 30,000 Accounts Payable 30,000 Purchased merchandise on credit. Cash Payment Accounts Payable 30,000 Merchandise Inventory* 600 Cash 29,400 Paid account payable within 2% discount per

30、iod. *$30,000 x 2%2. SELLER Lemar Company Credit Sale Accounts Receivable 30,000 Sales 30,000 Sold merchandise on account. Cost of Goods Sold 20,100 Merchandise Inventory 20,100 To record cost of sale. Cash Collection Cash 29,400 Sales Discounts 600 Accounts Receivable 30,000 Collected account receivable.3. Amount borrowed to pay with discount $29,400.00 Annual rate of interest x 8% Interest per year $ 2,352.00 Interest per day ($2,352.00 / 365 days) $ 6.44 Savings from discount taken $ 600.00 Interest paid on 50-day loan (50 days x $6.44) (322.19) Net savings from borrowing to pay in di