On May I. Sam Company sold $5,000 of inventory to Bob Company. The sale was made
ID: 2401474 • Letter: O
Question
On May I. Sam Company sold $5,000 of inventory to Bob Company. The sale was made on account and Sam granted Bob credit terms of 2/10. n/30. The inventory cost Sam Company $3,000. On May 3, Bob returned $1,000 of the inventory to Sam. (The inventory returned by Bob cost Sam $600.) On May 9, Bob paid Sam in full for the amount due.
1. What journal entry will Sam record on May 3 if the perpetual inventory system is used?
A) debit Merchandise Inventory, $600; credit Cost of Goods Sold, $600.
B) debit Sales, $1,000; credit Accounts Receivable, $1,000.
C) debit Sales, $1,000; credit Cash, $1,000.
D) debit Sales Returns and Allowances, $1,000; credit Accounts Receivable, $1,000.
E) debit Sales Returns and Allowances, $1,000; credit Cash, $1,000.
2. What journal entry will Bob record on May 9 if the periodic inventory system is used?
A) debit Accounts Payable, $4,000; credit Cash, $4,000.
B) debit Accounts Payable, $5,000; credit Cash, $5,000.
C) debit Accounts Payable, $4,000; credit Merchandise Inventory, $80; credit Cash, $3,920.
D) debit Accounts Payable, $4,000; credit Purchase Discounts; $80, credit Cash, $3,920
E) debit Accounts Payable, $4,000; credit Purchase Returns and Allowances, $80; credit Cash, $3,920.
3. What journal entry will Bob record on May 9 if the perpetual inventory system is used?
A) debit Accounts Payable, $4,000; credit Cash, $4,000.
B) debit Accounts Payable, $5,000; credit Cash, $5,000.
C) debit Accounts Payable, $4,000; credit Merchandise Inventory, $80; credit Cash, $3,920.
D) debit Accounts Payable, $4,000; credit Purchase Discounts; $80, credit Cash, $3,920
E) debit Accounts Payable, $4,000; credit Purchase Returns and Allowances, $80; credit Cash, $3,920.
4. What journal entry will Sam record on May 9?
A) debit Cash, $4,000; credit Accounts Receivable; $4,000.
B) debit Cash, $5,000; credit Accounts Receivable, $5,000.
C) debit Cash, $3,920; debit Sales, $80; credit Accounts Receivable, $4,000.
D) debit Cash, $3,920; debit Sales Discounts, $80; credit Accounts Receivable, $4,000.
E) debit Cash, $3,920; debit Sales Returns and Allowances, $80; credit Accounts Receivable, $4,000.
Use the following information to answer the next 6 questions:
The following selected information is taken from the books of the Rick Company
Cash
2,500
Sales
15,000
Accounts receivable
3,000
Purchases returns and allowances
400
Purchases
9,000
Purchases discounts
300
Sales returns and allowances
150
Accounts Payable
3,000
Sales discounts
350
Allowance for Doubtful Accounts
400
Inventory, 1/1/2007
3,000
Selling expense
400
Inventory, 12/31/2007
2,000
. Administrative expense
600
Transportation - out
300
Bad Debt Expense
200
Transportation- in
200
Rent expense
1,000
Dividends
1,500
Insurance expense
500
5. Net Sales for the period is:
6. Cost of net purchases for the period is:
7. Cost of Goods Available for Sale for the period is:
8. Cost of Goods Sold for the period is:
9. Gross Profit for the period is:
10. Net Income for the period is:
Cash
2,500
Sales
15,000
Accounts receivable
3,000
Purchases returns and allowances
400
Purchases
9,000
Purchases discounts
300
Sales returns and allowances
150
Accounts Payable
3,000
Sales discounts
350
Allowance for Doubtful Accounts
400
Inventory, 1/1/2007
3,000
Selling expense
400
Inventory, 12/31/2007
2,000
. Administrative expense
600
Transportation - out
300
Bad Debt Expense
200
Transportation- in
200
Rent expense
1,000
Dividends
1,500
Insurance expense
500
Explanation / Answer
Answers
Q1). (a) Debit Merchandise inventory , $600 ; credit cost of goods sold , $600
Q2). (d) Debit Accounts payable, $4000 ; credit purchase discount $80 ; credit cash $3920.
Q3). (d) Debit Accounts payable , $4000 ; credit purchase discounts , $80 ; credit cash , $3920
Q4). (d) Debit cash , $3920 ; debit sales discount , $80 ; credit accounts receivable $4000
Q5). Net sales = Gross sales - sales discount- sales return & allowances
net sales = $15000 - $350 - $150 = $ 14500
Q6). Net purchases = Gross purchases - purchase discount - purchase return
net purchases = $ 9000 - $ 300 - $ 400 = $ 8300
Q8). Cost of goods sold = opening inventory + purchases - closing inventory
COGS = $3000 + $8300 - $2000 = $ 9300
Q7). Cost of goods available for sale = cost of goods sold + closing inventory
= $9300 + $ 2000 = $ 11300
even transportation in is also included = $11300 + $ 200 = $11500
Q9). Gross profit = net sales - cost of goods sold
gross profit = $ 14500 - $ 9300 = $ 5200
Q10). Net income = Gross profit + operating income - operating expense
net income = $5200 + dividends received - selling expense - administration expense - bad debts - rent expense - Insurance expense - transportation in - transportation out
net income = $ 5200 + $ 1500 - $ 400 - $ 600 - $200 - $1000 - $500 - $200 - $ 300 = $ 3500
Note: Dividends is assumed as dividend received.
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