ACCT 201

In-Class Exercise
Chapter 5
PART 1
Review sild 33

1. What is the difference between Service Company and Merchandise Company?

Service company sell time and merchandise company sell goods to earn revenue

2. Describe merchandise activities and identify income components for a merchandising

company:
--Net sales - CGS = Gross profit
-Gross profit. - Expenses. = Net income

-Cost goods sold – Expense Account

-‘Debit ,Credit

3. How do you calculate income for Service Company?

Revenue – Expenses = net income

4. What is the difference between periodic inventory system and perpetual inventory
system?
Updates accounting records for purchases and sales of inventory only at the end of
period.
Analyze and record transactions for merchandise purchases using a perpetual system. Updates
accounting records for each purchase and each sale of inventory.

1. On November 2, Z-Mart purchased $500 of merchandise inventory for cash

2. On November 2, Z-Mart purchased $500 of merchandise inventory on account, credit

terms are 2/10, n/30
Explain the meaning of 2/10, n/30:

a. Purchase discounts: _______________________________________________

Entry:

Payment with in discount Period

3. On November 12, Z-Mart paid the amount due on the purchase of November 2.

Entry:
Payment after discount Period
4. What if, On December 2, Z-Mart paid the amount due on the purchase of November 2

5. On November 5, Z-Mart (buyer) issues a $30 debit memorandum for an allowance from
Trex for defective merchandise.

6. On December 2, Z-Mart paid the amount due on the purchase of November 2

QS 5-3  Merchandise accounts and computations  C2
Use the following information (in random order) from a merchandising company and
from a service company. Hint: Not all information may be necessary for the solutions.
a. For the merchandiser only, compute:
1. Goods available for sale. = Beginning inventory + purchases. = (CGAS)
2. Cost of goods sold. = CGAS- Ending inventory = CGS
3. Gross profit. Sales – CGS. = Gross profit

BEG inventory + purchase. = CGAS - Ending inventory = CGS

b. Compute net income for each company.

Kleiner Merchandising Company Krug Service Company
Accumulated Expenses $   12,500
depreciation $    700 Revenues 14,000
Beginning inventory 5,000 Cash 700
Ending inventory 1,700 Prepaid rent 800
Expenses 1,450 Accounts
Net purchases 3,900 payable       200
Net sales 9,500 Equipment 1,300

Cgas = Brg Inventory + purchase

5000. + 3900
=8900

CGS. = CGAS - End Inv

8900- 1700. = 7200

Gross = Net sales - CGS =. 9500. -7200 = 2246

KLIENER

Sales. – cgs = Gross profit – Owner expense. = Net income

9500- 7200= 2300- 1450= 850

KRUG
Revenues – Expenses
14000 – 12500
QS 5-4  Computing net invoice amounts  
Compute the amount to be paid for each of the four separate invoices assuming that all
invoices are paid within the discount period.
Merchandise (gross) Terms Merchandise (gross) Terms
a. $5,000 2/10, n/60 c. $75,000 1/10, n/30
b. $20,000 1/15, EOM d. $10,000 3/15, n/45
A = 4500 B=19800. C= 9500

D= 74200

QS 5-6  Recording purchases and discounts taken  

Prepare journal entries to record each of the following transactions. The company
records purchases using the gross method and a perpetual inventory system.

1. Aug. 1 Purchased merchandise with an invoice price of $60,000 and credit terms of
3/10, n/30.
2.      Aug 11 Paid supplier the amount owed from the August 1 purchase.
D C
August 1 MI 60000
Account payable 60000
August 11 AP 60000
CASH 58200

QS 5-7  Recording purchases and discounts missed  P1

Prepare journal entries to record each of the following transactions. The company
records purchases using the gross method and a perpetual inventory system.

1. Sept. 15 Purchased merchandise with an invoice price of $35,000 and credit terms of
2/5, n/15.
2.   Sept 29 Paid supplier the amount owed on the September 15 purchase.

Part 2
Chapter 5
Part 2
1. What is Purchase return?
Merchandise returned buy the purchaser to the supplier

2. What is Purchase allowance?

A price reduction to the buyer of defective or unacceptable merchandise.
3. On November 5, Z-Mart (buyer) issues a $30 debit memorandum for an allowance from Trex for
defective merchandise.

4. Z-Mart purchases $250 of merchandise on June 1 with terms 2/10, n/60. On June 3, Z-
Mart returns $50 of goods before paying the invoice. When Z-Mart pays on June 11, it
takes the 2% discount only on the $200 remaining balance

5. Shipping terms Ownership Good in Shipping paid

Transfers at transit owned by
by
FOB shipping Shipping Buyer Byer
point point Marchandise
inventory

Cash
FOB Destination Sellers Seller
destination delivery expense

Cash

6. Z-Mart purchased merchandise on terms of FOB shipping point. The transportation

charge is $75.

7. Accounting for Sales of Merchandise:

Each sales transaction for a seller of merchandise involves two parts:
-Revenue recorded (asset increased) from a customer.
-Cost of goods sold incurred (asset decreased) to a customer.
 8. Z-Mart sold $1,000 of merchandise on credit. The merchandise has a cost basis to Z-Mart
of $300

Revenue side Entry:

Cost side Entry:

9. Z-Mart completes a $1,000 credit sale with terms of 2/10, n/45.

10. Buyer pays within discount period:

11. Buyer pays after discount period:

Cash
Account receivable
Received