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Accounting Principles Manual

Giovanni Company

Solution:

Journal Entry

Brief Exercises

Date

Account Titles and Explanations

statement. Determine the missing amounts.

(a)
(b)
(c)

$75000
$108000
?

Cost of
Goods Sole
?
$70000
$71900

Gross
Profit
$28600
?
$99600

(b) Gross Profit = Sales Cost of Goods Sold


= $108000 $70000
= $38000 [Ans.]
Operating Expenses = Gross Profit Net Income
= $38000 $29500
= $8500 [Ans.]
(c) Sales = Cost of Goods Sold Gross Profit
= $71900 + $99600
= $171500 [Ans.]
Net Income = Gross Profit Operating Expenses
= $99600 $39500
= $60100 [Ans.]

The End
BE52 Giovanni Company buys merchandise on account from Gordon
Company. The selling price of the goods is $780, and the cost of the goods is
$560. Both companies use perpetual inventory systems. Journalize the
transaction on the books of both companies.

Account Titles and Explanations

Ref. Debit

Accounts Receivable
Sales
(To record goods sold on account.)
Cost of Goods Sold
Merchandise Inventory
(To record cost of goods sold.)

Solution: (a) Cost of Goods Sold = Sales Gross Profit

Operating expenses = Gross Profit Net Income


= $28600 $10800
= $17800 [Ans.]

780

Journal Entries

Net
Income
$10800
$29500
?

= $75000 $28600
= $43500 [Ans.]

Credit

780

Gordon Company
Date

Operating
Expenses
?
?
$39500

Ref. Debit

Merchandise Inventory
Accounts Payable
(To record goods purchased on account.)

BE51 Presented below are the components in Clearwater Companys income


Sales

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Chapter 5 (Brief Exercises)

Credit

780
780
560
560

The End
BE53 Prepare the journal entries to record the following transactions on
Benson Companys books using a perpetual inventory system.
(a) On March 2, Benson Company sold $800000 of merchandise to
Edgebrook Company, terms 2/10, n/30. The cost of the merchandise
sold was $620000.
(b) On March 6, Edgebrook Company returned $120000 of the
merchandise purchased on March 2 because it was defective. The cost
of the returned merchandise was $90000.
(c) On March 12, Benson Company received the balance due from
Edgebrook Company.

Solution:

Benson Company
Journal Entries
(Perpetual Inventory System)

No Date
Account Titles and Explanations
(a) March 2 Accounts Receivable
Sales
(To record goods sold on account.)
Cost of Goods Sold
Merchandise Inventory
(To record cost of goods sold.)
(b) March 6 Sales Return and Allowance
Accounts Receivable
(To record goods returned from customer.)
Merchandise Inventory

Ref. Debit

Credit

800000
800000
620000
620000
120000
120000
90000

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Accounting Principles Manual


90000

BE56 At year-end the perpetual inventory records of Salsa Company showed


merchandise inventory of $98000. The company determined, however, that its
actual inventory on hand was $96800. Record the necessary adjusting entry.

666400
13600
680000

The End

Solution:

Salsa Company
Adjusting Journal Entry

Date

Account Titles and Explanations

Dec.
31

Cost of Goods Sold


Merchandise Inventory (98000
96800)
(To adjust ending merchandise inventory.)

BE54 From the information in BE 5 3, prepare the journal entries to record


these transactions on Edgebrook Companys books under a perpetual
inventory system.

Solution:
No

Date

(a) March 2 Merchandise Inventory


Accounts Payable
(To record goods purchased on account.)
(b) March 6 Accounts Payable
Merchandise Inventory
(To record goods returned to supplier.)
(c) March 12 Accounts Receivable (800000 120000)
Merchandise Inventory (680000 2%)
Cash (680000 13600)
(To record paid cash to supplier less discount.)

Ref. Debit

Credit

1200
1200

The End
BE57 Orlaida Company has the following merchandise account balance:

Edgebrook Company
Journal Entries
(Perpetual Inventory System)
Account Titles and Explanations

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Chapter 5 (Brief Exercises)

Cost of Goods Sold


(To record returned merchandise inventory.)
(c) March Cash (680000 13600)
12
Sales Discounts (680000 2%)
Accounts Receivable (800000 120000)
(To record received cash from customers less
discount.)

Ref. Debit Credit


800000
800000
120000
120000
680000
13600
666400

The End

Sales $192000, Sales Discounts $2000, Cost of Goods Sold $105000, and
Merchandise Inventory $40000. Prepare the entries to record the closing of
these items to Income Summary.

Orlaida Company

Solution:

Closing Journal Entries

Date

Account Titles and Explanations

Ref.

Debit

Credit

Dec
31

Sales
192000
Income Summary
192000
(To close revenue account.)
Dec
Income Summary
107000
31
Cost of Goods Sold
105000
Sales Discounts
2000
(To close expense accounts.)
Note: Ending balance of Merchandise Inventory is considered as an asset account,
which is not to be closed.

BE55 Piccola Company provides the following information for the month

The End

ended October 31, 2005: Sales on credit $280000, cash sales $100000, sales
discount $13000, sales returns and allowance $21000. Prepare the sales
revenues section of the income statement based on this information.

BE58 Explain where each of the following items would appear on (1) a

Solution:

Piccola Company
Income Statement
For the Month Ended October 31, 2005.
Sales revenues:
Amount Amount
Sales ($280000 + $100000)
$380000
Less: Sales return and allowance
$21000
Sales discount
$34000
13000
Net sales
$349000

The End

multiple-step income statement, and on (2) a single-step income statement: (a)


gain on sale of equipment, (b) casualty loss from vandalism, and (c) cost of
goods sold.

Solution: (1) Multi-Step Income Statement:


Item
(a) Gain on sale of equipment
(b) Casualty loss from vandalism
(c) Cost of goods sold

Section
Other revenues and gains
Other expenses and losses
Cost of goods sold

(2) Single-Step Income Statement:


Item
(a) Gain on sale of equipment
(b) Casualty loss from vandalism
(c) Cost of goods sold

Section
Revenues
Expenses
Expenses

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Accounting Principles Manual


The End

BE59 Assume Jose Company has the following account balances: Sales
$506000, Sales Returns and Allowance $15000, Cost of Goods Sold $350000,
Selling Expenses $70000, and Administrative Expense $40000. Compute the
following: (a) net sales, (b) gross profit, and (c) income from operations.

Solution:

Jose Company

The End
BE511 Assume the same information as in BE5-10 and also that E. Guard
Company has beginning inventory of $60000, ending inventory of $90000, and
net sales of $630000. Determine the amounts to be reported for cost of goods
sold and gross profit.

Solution:

Income Statement
For the Period Ended ...
Sales revenues:
Amount
Sales
$506000
Less: Sales return and allowance
15000
(a) Net sales
Less: Cost of goods sold:
Cost of goods sold
(b) Gross profit

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Chapter 5 (Brief Exercises)

E. Guard Company
Income Statement
For the Period Ended ...
Amount

Amount

Amount

Amount

Sales revenues:
$491000
(350000)
141000

Less: Operating expenses:


Selling expenses
$70000
Administrative expenses
40000
(110000)
(c) Income from operation
$31000
Answers: (a) Net sales = Tk 491000, (b) Gross profit = Tk 141000,
(c) Income from operation = Tk 31000
The End
BE510 Assume that E. Guard Company uses a periodic inventory system and
has these account balances: Purchases $400000; Purchase Returns and
Allowances $11000; Purchase Discounts $8000; and Freight-in 16000.
Determine net purchases and cost of goods purchased.

Net sales
Less: Cost of goods sold:
Beginning inventory
Purchase
Less: Purchase Returns and Allowances
Less: Purchase Discounts
Net Purchase
Add: Freight-in
Cost of goods purchased
Cost of goods available for sale
Less: Ending inventory
(a) Cost of Goods Sold
(b) Gross profit
Answers: (a) Cost of goods sold = Tk 367000.
(b) Gross profit = Tk 263000.

$630000
$400000
(11000)
389000
8000
381000
16000

$60000

397000
457000
(90000)
(367000)
$263000

E. Guard Company

The End

Income Statement

BE512 Prepare the journal entries to record these transaction on H. Hunt

For the Period Ended ...


Sales revenues:
Amount Amount
Sales
$
Less: Sales return and allowance
...
Net sales
$..
Less: Cost of goods sold:
Purchase
$400000
Less: Purchase Returns and Allowances
(11000)
389000
Less: Purchase Discounts
8000
(a) Net Purchase
381000
Add: Freight-in
16000
(b) Cost of goods purchased $397000
Answers:(a) Net purchase = Tk 381000, (b)Cost of goods purchased = Tk 397000.

Companys books using a periodic inventory system.


(a) On March 2, H. Hunt Company purchased $900000 of merchandise from B.
Streisand Company, terms 2/10, n/30.
(b) On March 6, H. Hunt Company returned $130000 of merchandise
purchased on March 2 because it was defective.
(c) On March 12, H. Hunt Company paid the balance due to B. Streisand
Company.

Solution:

Solution:
No

Date

H. Hunt Company
Journal Entries
(Periodic Inventory System)
Account Titles and Explanations

(a) March 2 Purchases


Accounts Payable

Ref. Debit Credit


900000
900000

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Accounting Principles Manual

(To record goods purchased on account.)


(b) March 6 Accounts Payable
Purchases
(To record goods purchased on account.)
(c) March 12 Accounts Receivable (900000 130000)
Purchase Discounts (770000 2%)
Cash (770000 15400)
(To record paid cash to supplier less discount.)

Chapter 5 (Brief Exercises)


130000
130000
770000
15400
754600

The End
BE513 Presented below is the format of the work sheet presented in the
chapter.
Trial Balance
Dr.
Cr.

Adjustments
Dr.
Cr.

Adjusted
Trial Balance
Dr.
Cr.

Income
Statement
Dr. Cr.

Balance Sheet
Dr.
Cr.

Indicate where the following items will appear on the work sheet: (a) Cash, (b)
Merchandise Inventory, (c) Sales, (d) Cost of goods sold.
Example:
Cash: Trial balance debit column; Adjusted trial balance debit column; and
Balance sheet debit column.

Solution:
(a) Cash: Trial balance debit column; Adjusted trial balance debit column; and
Balance sheet debit column.

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(b) Merchandise Inventory: Trial balance debit column; Adjusted trial balance debit
column; and Balance sheet debit column.
(c) Sales: Trial balance credit column; Adjusted trial balance credit column; and
Income statement credit column.
(d) Cost of goods sold: Trial balance debit column; Adjusted trial balance debit
column; and Income statement debit column.

The End

341

BY M.
SHAMIM