BE 166

Prepare the necessary journal entries on the books of Tri-State Carpet

Company to record the following transactions, assuming a perpetual inventory
system (you may omit explanations):
(a) Tri-State purchased $40,000 of merchandise on account, terms 2/10, n/30.
(b) Returned $4,000 of damaged merchandise for credit.
(c) Paid for the merchandise purchased within 10 days.
(a) Merchandise Inventory ........................................... 40,000
Accounts Payable ......................................... 40,000
(b) Accounts Payable .................................................. 4,000
Merchandise Inventory .................................. 4,000
(c) Accounts Payable ($40,000 – $4,000).................... 36,000
Merchandise Inventory ($36,000 × .02)......... 720
Cash ($36,000 – $720) ................................. 35,280
BE 167
Erving Company sold goods on account to Farley Enterprises with terms of 2/10,
n/30. The goods had a cost of $600 and a selling price of $900. Both Erving
and Farley use a perpetual inventory system. Record the sale on the books of
Erving and the purchase on the books of Farley.
Journal entry on Erving’s books:
Accounts Receivable.... ........................................... 900
Sales. ............................................................... 900
Cost of Goods Sold….. ........................................... . 600
Merchandise Inventory ..................................... 600
Journal entry on Farley’s books:
Merchandise Inventory ............................................ 900
Accounts Payable............................................. 900
BE 168
Manning Company sells merchandise on account for $2,000 to Tiger Company
with credit terms of 3/10, n/60. Tiger Company returns $200 of merchandise that
was damaged, along with a check to settle the account within the discount
period. What entry does Manning Company make upon receipt of the check and
the damaged merchandise?

Sales Returns and Allowances ................................ 200

Sales Discounts ($1,800 × .03) ............................. 54
Cash ($2,000 – $200 – $54) ........................ 1,746
Accounts Receivable ....................................... 2,000
BE 169
Ord Company uses a perpetual inventory system. During May, the following
transactions and events occurred.
May 13 Sold 6 motors at a cost of $44 each to Waller Brothers Supply
Company, terms 1/10, n/30. The motors cost Ord $25 each.
May 16 One defective motor was returned to Ord.
May 23 Received payment in full from Waller Brothers.
Instructions
Journalize the May transactions for Ord Company (seller) assuming that Ord
uses a perpetual inventory system. You may omit explanations.
May 13 Accounts Receivable .................................... 264
Sales ...................................................... 264
Cost of Goods Sold ....................................... 150
Merchandise Inventory ........................... 150
May 16 Sales Returns and Allowances ..................... 44
Accounts Receivable.............................. 44
Merchandise Inventory .................................. 25
Cost of Goods Sold ................................ 25
May 23 Cash ............................................................. 218
Sales Discounts ($220 × .01) ........................ 2
Accounts Receivable ($264 – $44) ......... 220

BE 172
During October, 2008, Katie’s Catering Company generated revenues of
$13,000. Sales discounts totalled $200 for the month. Expenses were as
follows: Cost of goods sold of $7,000 and operating expenses of $2,000.
Calculate (1) gross profit and (2) income from operations for the month.
Solution 172 (4 min.)
(1) Gross profit: $5,800 ($13,000 - $200 - $7,000)
(2) Income from operations: $3,800 ($5,800 - $2,000)
Ex. 178
On October 1, Taylor Bicycle Store had an inventory of 20 ten speed bicycles at
a cost of $200 each. During the month of October, the following transactions
occurred.

Oct. 4 Purchased 30 bicycles at a cost of $200 each from Mann Bicycle

Company, terms 2/10, n/30.
6 Sold 18 bicycles to Team America for $300 each, terms 2/10, n/30.
 7 Received credit from Mann Bicycle Company for the return of 2
defective bicycles.
13 Issued a credit memo to Team America for the return of a defective
bicycle.
14 Paid Mann Bicycle Company in full, less discount.
Instructions
Prepare the journal entries to record the transactions assuming the company
uses a perpetual inventory system.
Oct. 4 Merchandise Inventory .................................... 6,000
Accounts Payable..................................... 6,000
6 Accounts Receivable ....................................... 5,400
Sales ........................................................ 5,400
Cost of Goods Sold ......................................... 3,600
Merchandise Inventory ............................. 3,600
7 Accounts Payable ........................................... 400
Merchandise Inventory ............................. 400
13 Sales Returns and Allowances ........................ 300
Accounts Receivable ................................ 300
Merchandise Inventory .................................... 200
Cost of Goods Sold .................................. 200
14 Accounts Payable ($6,000 – $400) .................. 5,600
Cash ($5,600 ............................ 5,488
. 112
Ex. 179
On September 1, Snow Supply had an inventory of 15 backpacks at a cost of
$25 each. The company uses a perpetual inventory system. During September,
the following transactions and events occurred.
Sept. 4 Purchased 70 backpacks at $25 each from Jenks, terms 2/10, n/30.

Sept. 6 Received credit of $150 for the return of 6 backpacks purchased on

Sept. 4 that were defective.
Sept. 9 Sold 40 backpacks for $35 each to McGill Books, terms 2/10, n/30.
Sept.13 Sold 15 backpacks for $35 each to Calvin Office Supply, terms n/30.
Sept.14 Paid Jenks in full, less discount.
Instructions
Journalize the September transactions for Snow Supply.
Sept. 4 Merchandise Inventory 1,750
Accounts Payable .................................. 1,750
Sept. 6 Accounts Payable ......................................... 150
Merchandise Inventory ........................... 150
Sept. 9 Accounts Receivable .................................... 1,400
Sales ...................................................... 1,400
Cost of Goods Sold ....................................... 1,000
Merchandise Inventory ........................... 1,000
Sept.13 Accounts Receivable .................................... 525
Sales ...................................................... 525
Cost of Goods Sold ....................................... 375
Merchandise Inventory ........................... 375
Sept.14 Accounts Payable ($1,750 – $150) ............... 1,600
Cash ($1,600 × .98) ............................... 1,568
Merchandise Inventory ($1,600 × .02) .... 32

Ex. 181
(a) Boden Company purchased merchandise on account from Office Suppliers
for $86,000, with terms of 2/10, n/30. During the discount period, Boden
returned some merchandise and paid $78,400 as payment in full. Boden
uses a perpetual inventory system. Prepare the journal entries that Boden
Company made to record:
(1) the purchase of merchandise.
(2) the return of merchandise.
(3) the payment on account.
(b) Boggs Company sold merchandise to Wilsey Company on account for
$73,000 with credit terms of ?/10, n/30. The cost of the merchandise sold
was $43,800. During the discount period, Wilsey Company returned $3,000
of merchandise and paid its account in full (minus the discount) by remitting
$69,300 in cash. Both companies use a perpetual inventory system.
Prepare the journal entries that Boggs Company made to record:
(1) the sale of merchandise.
(2) the return of merchandise.
(3) the collection on account.

(a) To compute the amount due after returns but before the discount, divide
$78,400 by .98 ............................................................. (100% – 2%).
$78,400 ÷ .98 = $80,000.
Subtract $80,000 from $86,000 to determine that $6,000 of merchandise
was returned.
(1) Merchandise Inventory .................................... 86,000
Accounts Payable..................................... 86,000
(2) Accounts Payable ........................................... 6,000
Merchandise Inventory ............................. 6,000
(3) Accounts Payable ........................................... 80,000
Merchandise Inventory ............................. 1,600
Cash......................................................... 78,400
(b) Wilsey Company returns $3,000 of merchandise and owes $70,000 to
Boggs Company.
$69,300 ÷ $70,000 = .99
100% – 99% = 1%
The missing discount percentage is 1%. $70,000 × 1% = $700 sales discount.
$70,000 – $700 = $69,300 cash received on account.
(1) Accounts Receivable ....................................... 73,000
Sales ........................................................ 73,000
Cost of Goods Sold ......................................... 43,800
Merchandise Inventory ............................. 43,800
(2) Sales Returns and Allowances ........................ 3,000
Accounts Receivable ................................ 3,000
Merchandise Inventory $3,000 × ($43,800 ÷ $73,000) 1,800
Cost of Goods Sold .................................. 1,800
(3) Cash ............................................................... 69,300
Sales Discounts .............................................. 700
Accounts Receivable ................................ 70,000
Ex. 182
Prepare the necessary journal entries to record the following transactions,
assuming Barone Company uses a perpetual inventory system.
(a) Purchased $30,000 of merchandise on account, terms 2/10, n/30.
(b) Returned $500 of damaged merchandise for credit.
(c) Paid for the merchandise purchased within 10 days.

(a) Merchandise Inventory ............................................ 30,000

Accounts Payable ........................................... 30,000
(b) Accounts Payable ................................................... 500
Merchandise Inventory .................................... 500
(c) Accounts Payable ($30,000 – $500)........................ 29,500
Merchandise Inventory ($29,500 × .02) ........... 590
Cash ($29,500 – $590) .................................... 28,910

Ex. 183
Prepare the necessary journal entries to record the following transactions,
assuming Moran Company uses a perpetual inventory system.
(a) Moran sells $50,000 of merchandise, terms 1/10, n/30. The merchandise
cost $30,000.
(b) The customer in (a) returned $5,000 of merchandise to Moran. The
merchandise returned cost $3,000.
(c) Moran received the balance due within the discount period.

(a) Accounts Receivable ............................................. 50,000

 Sales ............................................................... 50,000
Cost of Goods Sold ................................................ 30,000
Merchandise Inventory ............................. 30,000

(b) Sales Returns and Allowances............................... 5,000

Accounts Receivable ....................................... 5,000
Merchandise Inventory ........................................... 3,000
Cost of Goods Sold ......................................... 3,000

(c) Cash ($45,000 – $450)........................................... 44,550

Sales Discounts ($45,000 × .01) ............................ 450
Accounts Receivable 45,000

E5-2B Information related to Grey Co. is presented below.

1. On April 5, purchased merchandise from Never Company for $25,000 terms
2/10,
net/30, FOB shipping point.
2. On April 6 paid freight costs of $700 on merchandise purchased from Never.
3. On April 7, purchased equipment on account for $29,000.
4. On April 8, returned damaged merchandise to Never Company and was
granted a $3,000 credit for returned merchandise.
5. On April 15 paid the amount due to Never Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Grey
Co. under a perpetual inventory system.
(b) Assume that Grey Co. paid the balance due to Never Company on May 4
instead of April 15. Prepare the journal entry to record this payment.
E5-3B On September 1, Chen Business Supply had an inventory of 40
calculators at a cost of $18 each. The company uses a perpetual inventory
system. During September, the following transactions occurred.
Sept. 6 Purchased 70 calculators at $20 each from Markowitz Co. for cash.
9 Paid freight of $70 on calculators purchased from Markowitz Co.
10 Returned 2 calculators to Markowitz Co. for $42 credit (including freight)
because they did not meet specifications.
12 Sold 40 calculators costing $21 (including freight) for $34 each to Karl Book
Store, terms n/30.
14 Granted credit of $34 to Karl Book Store for the return of one calculator that
was not ordered.
20 Sold 20 calculators costing $21 (including freight) for $35 each to Sayed’s
Card Shop, terms n/30.
Instructions
Journalize the September transactions
E5-4B On June 10, Rothlisberger Company purchased $12,000 of merchandise
from Lester Company, FOB shipping point, terms 2/10, n/30. Rothlisberger pays
the freight costs of $500 on June 11. Damaged goods totaling $700 are returned
to Lester for credit on June 12. The fair value of these goods is $300. On June
19, Rothlisberger pays Lester Company in full, less the purchase discount. Both
companies use a perpetual inventory system.
Instructions
(a) Prepare separate entries for each transaction on the books of Rothlisberger
Company.
(b) Prepare separate entries for each transaction for Lester Company. The
merchandise purchased by Rothlisberger on June 10 had cost Powell $7,200.
E5-5B Presented below are transactions related to Sweetwood Company.
1. On December 3, Sweetwood Company sold $400,000 of merchandise to
Reyes Co., terms 2/10, n/30, FOB shipping point. The cost of the merchandise
sold was $240,000.
2. On December 8, Reyes Co. was granted an allowance of $20,000 for
merchandise purchased on December 3.
3. On December 13, Sweetwood Company received the balance due from
Reyes Co.
Instructions
(a) Prepare the journal entries to record these transactions on the books of
Sweetwood Company using a perpetual inventory system.
(b) Assume that Sweetwood Company received the balance due from Reyes
Co. on January 2 of the following year instead of December 13. Prepare the
journal entry to record the receipt of payment on January 2.
E5-6B The adjusted trial balance of Grimmett Company shows the following
data pertaining to sales at the end of its fiscal year October 31, 2017: Sales
Revenue $940,000, FreightOut $20,000, Sales Returns and Allowances
$31,000, and Sales Discounts $18,000.
Instructions
(a) Prepare the sales revenues section of the income statement.
(b) Prepare separate closing entries for (1) sales, and (2) the contra accounts to
sales

P5-1C Gagliardo Book Warehouse distributes hardcover books to retail stores

and extends credit terms of 2/10, n/30 to all of its customers. At the end of May,
Gagliardo’s inventory consisted of 240 books purchased at $1,200. During the
month of June the following merchandising transactions occurred.
June 1 Purchased 180 books on account for $5 each from Garrison Publishers,
FOB destination, terms 2/10, n/30. The appropriate party also made a cash
payment of $50 for the freight on this date.
3 Sold 120 books on account to Books-R-Us for $10 each.
6 Received $50 credit for 10 books returned to Garrison Publishers.
9 Paid Garrison Publishers in full, less discount.
15 Received payment in full from Books-R-Us.
17 Sold 150 books on account to Binder Books for $10 each.
20 Purchased 120 books on account for $5 each from Reading Publishers, FOB
destination, terms 2/15, n/30. The appropriate party also made a cash payment
of $50 for the freight on this date.
24 Received payment in full from Binder Books.
26 Paid Reading Publishers in full, less discount.
28 Sold 110 books on account to Read-n-Weep Bookstore for $10 each.
30 Granted Read-n-Weep Bookstore $150 credit for 15 books returned costing
$75.

Instructions
Journalize the transactions for the month of June for Gagliardo Book Warehouse
using a perpetual inventory system.

P5-2C Bluestem Hardware Store completed the following merchandising

transactions in the month of May. At the beginning of May, the ledger of
Bluestem showed Cash of $10,000 and Owner’s Capital of $10,000.
May 1 Purchased merchandise on account from Ming Wholesale Supply $9,000,
terms 2/10, n/30.
2 Sold merchandise on account $4,500, terms 1/10, n/30. The cost of the
merchandise sold was $3,100.
5 Received credit from Ming Wholesale Supply for merchandise returned $600.
9 Received collections in full, less discounts, from customers billed on sales of
$4,000 on May 2.
10 Paid Ming Wholesale Supply in full, less discount.
11 Purchased supplies for cash $900.
12 Purchased merchandise for cash $2,700.
15 Received refund for poor quality merchandise from supplier on cash
purchase $230.
17 Purchased merchandise from Longwell Distributors $3,000, FOB shipping
point, terms 2/10, n/30.
19 Paid freight on May 17 purchase $250.
24 Sold merchandise for cash $6,200. The merchandise sold had a cost of
$4,600.
25 Purchased merchandise from Duffy Inc. $1,000, FOB destination, terms 2/10,
n/30.
27 Paid Longwell Distributors in full, less discount.
29 Made refunds to cash customers for defective merchandise $100. The
returned merchandise had a scrap value of $20.
31 Sold merchandise on account $2,600, terms n/30. The cost of the
merchandise sold was $1,820.
Instructions
(a) Journalize the transactions using a perpetual inventory system.
P5-4C Phil Woods, a former professional golf star, operates Phil’s Pro Shop at
Bahia Golf Course. At the beginning of the current season on April 1, the ledger
of Phil’s Pro Shop showed Cash $2,500, Inventory $3,500, and Owner’s Capital
$6,000. The following transactions were completed during April.
Apr. 5 Purchased golf bags, clubs, and balls on account from Lopez Co. $1,500,
FOB shipping point, terms 2/10, n/60.
7 Paid freight on Lopez purchase $80.
9 Received credit from Lopez Co. for merchandise returned $100.
10 Sold merchandise on account to members $1,100, terms n/30. The
merchandise sold had a cost of $810.
12 Purchased golf shoes, sweaters, and other accessories on account from
Penguin Sportswear $860, terms 1/10, n/30.
14 Paid Lopez Co. in full, less discount.
17 Received credit from Penguin Sportswear for merchandise returned $60.
20 Made sales on account to members $700, terms n/30. The cost of the
merchandise sold was $490.
21 Paid Penguin Sportswear in full, less discount.
27 Granted an allowance to members for clothing that did not fit properly $40.
30 Received payments on account from members $1,000.
Instructions
(a) Journalize the April transactions using a perpetual inventory system

E5-9B Presented below is information for Oakley Company for the month of
March 2017.
Cost of goods sold Rent expense
$212,000 $ 32,000
Freight-out Sales discounts
7,000 8,000
Insurance expense Sales returns and
6,000 13,000
Salaries and wages allowances
53,000 360,000
expense Sales revenue
Instructions
(a) Prepare a multiple-step income statement.
(b) Compute the gross profit rate.

E5-10B In its income statement for the year ended December 31, 2017, Krueger
Company reported the following condensed data.
Operating expenses $647,000 Interest revenue 20,000
Cost of goods sold 922,000 Loss on disposal of equipment 7,000
Interest expense 49,000 Net sales 1,650,000

Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement