274 Chapter 6 Merchandising Activities

LO6 EXERCISE 6.10

E Golf World sold merchandise to Mulligans for $10,000, offering terms of 1/15, n/30. Mulligans
Cash Discounts
C paid for the merchandise within the discount period. Both companies use perpetual inventory
systems.
a. Prepare journal entries in the accounting records of Golf World to account for this sale and the
subsequent collection. Assume the original cost of the merchandise to Golf World had been
$6,500.
b. Prepare journal entries in the accounting records of Mulligans to account for the purchase and
subsequent payment. Mulligans records purchases of merchandise at net cost.
c. Assume that, because of a change in personnel, Mulligans failed to pay for this merchandise
within the discount period. Prepare the journal entry in the accounting records of Mulligans to
record payment after the discount period.

LO8 EXERCISE 6.11

E This selected information is from recent annual reports of the two largest retail pharmaceutical
E
Evaluating companies in the United States. (Dollar amounts are stated in billions.)
Performance

Walgreen Rite Aid

Company Corporation
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63.3 $26.3
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? 19.3
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ?
Gross profit margin (or rate) . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.8% ?%
Total square feet of selling space . . . . . . . . . . . . . . . . . . . . . . . 79 million 49 million
Sales per square foot of selling space . . . . . . . . . . . . . . . . . . . ? ?

a. Fill in the missing amounts and percentages. (Round all amounts to one decimal place.)
b. On the basis of the information provided above, do you expect Walgreen or Rite Aid to be more
profitable and why?

LO3 EXERCISE 6.12

E Sky Probe sells state-of-the-art telescopes to individuals and organizations interested in studying
C
Comparison of the solar system. At December 31 last year, the company’s inventory amounted to $250,000. Dur-
through
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hrough
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Inventory Systems
In ing the first week of January this year, the company made only one purchase and one sale. These
LO5 transactions were as follows:
Jan. 2 Sold one telescope costing $90,000 to Central State University for cash, $117,000.
Jan. 5 Purchased merchandise on account from Lunar Optics, $50,000. Terms, net 30 days.
a. Prepare journal entries to record these transactions assuming that Sky Probe uses the perpetual
inventory system. Use separate entries to record the sales revenue and the cost of goods sold
for the sale on January 2.
b. Compute the balance of the Inventory account on January 7.
c. Prepare journal entries to record the two transactions, assuming that Sky Probe uses the peri-
odic inventory system.
d. Compute the cost of goods sold for the first week of January assuming use of a periodic inven-
tory system. Use your answer to part b as the ending inventory.
e. Which inventory system do you believe that a company such as Sky Probe would probably
use? Explain your reasoning.

LO4 EXERCISE 6.13

E Mountain Mabel’s is a small general store located just outside of Yellowstone National Park.
T
The Periodic Inventory The store uses a periodic inventory system. Every January 1, Mabel and her husband close the
S
System store and take a complete physical inventory while watching the Rose Bowl Parade on televi-
LO5
sion. The inventory balance on January 1 of the prior year was $6,240, and the inventory balance