Idea Transcript
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appendix C Periodic Inventory Systems for Merchandising Businesses In this text, we emphasize the perpetual inventory system of accounting for purchases and sales of merchandise. Not all merchandise businesses, however, use perpetual inventory systems. For example, some managers/owners of small merchandise businesses, such as locally owned hardware stores, may feel more comfortable using manually kept records. Because a manual perpetual inventory system is timeconsuming and costly to maintain, the periodic inventory system is often used in these cases.
Merchandise Transactions in a Periodic Inventory System In a periodic inventory system, the revenues from sales are recorded when sales are made in the same manner as in a perpetual inventory system. However, no attempt is made on the date of sale to record the cost of the merchandise sold. Instead, the merchandise inventory on hand at the end of the period is counted. This physical inventory is then used to determine (1) the cost of merchandise sold during the period and (2) the cost of merchandise on hand at the end of the period. In a periodic inventory system, purchases of inventory are recorded in a purchases account rather than in a merchandise inventory account. No attempt is made to keep a detailed record of the amount of inventory on hand at any given time. The purchases account is normally debited for the amount of the invoice before considering any purchases discounts. Purchases discounts are normally recorded in a separate purchases discounts account.1 The balance of this account is reported as a deduction from the amount initially recorded in Purchases for the period. Thus, the purchases discounts account is viewed as a contra (or offsetting) account to Purchases. Purchases returns and allowances are recorded in a similar manner as purchases discounts. A separate account is used to keep a record of the amount of purchases returns and allowances during a period. Purchases returns and allowances are reported as a deduction from the amount initially recorded as Purchases. Like Purchases Discounts, the purchases returns and allowances account is a contra (or offsetting) account to Purchases. When merchandise is purchased FOB shipping point, the buyer is responsible for paying the freight charges. In a periodic inventory system, freight charges paid when purchasing merchandise FOB shipping point are debited to Transportation In, Freight In, or a similarly titled account. To illustrate the recording of merchandise transactions in a periodic system, we will use the following selected transactions for Taylor Co. We will also explain how the transaction would have been recorded under a perpetual system. June 5.
Purchased $30,000 of merchandise on account from Owen Clothing, terms 2/10, n/30. Purchases Accounts Payable—Owen Clothing
30,000 30,000
Under the perpetual inventory system, such purchases would be recorded in the merchandise inventory account at their cost, $30,000. 1Some
businesses prefer to credit the purchases account. If this alternative is used, the balance of the purchases account will be a net amount—the total purchases less the total purchases discounts for the period.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses June 8.
Returned merchandise purchased on account from Owen Clothing on June 5, $500. Accounts Payable—Owen Clothing Purchases Returns and Allowances
500 500
Under the perpetual inventory system, returns would be recorded as a credit to the merchandise inventory account at their cost of $500. June 15.
Paid Owen Clothing for purchase of June 5, less return of $500 and discount of $590 [($30,000 $500) 2%]. Accounts Payable—Owen Clothing Cash Purchases Discounts
29,500 28,910 590
Under a perpetual inventory system, a purchases discount account is not used. Instead the merchandise inventory account is credited for the amount of the discount, $590. June 18.
Sold merchandise on account to Jones Co., $12,500, 1/10, n/30. The cost of the merchandise sold was $9,000. Accounts Receivable—Jones Co. Sales
12,500 12,500
The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale. June 21.
Received merchandise returned on account from Jones Co., $4,000. The cost of the merchandise returned was $2,800. Sales Returns and Allowances Accounts Receivable—Jones Co.
4,000 4,000
The entry to record the sales return is the same under both systems. In addition, the cost of the merchandise returned would be debited to the merchandise inventory account and credited to the cost of merchandise sold account under the perpetual inventory system. June 22.
Purchased merchandise from Norcross Clothiers, $15,000, terms FOB shipping point, 2/15, n/30, with prepaid transportation charges of $750 added to the invoice. Purchases Transportation In Accounts Payable—Norcross Clothiers
15,000 750 15,750
This entry is similar to the June 5 entry for the purchase of merchandise. Since the transportation terms were FOB shipping point, the prepaid freight charges of $750 must be added to the invoice cost of $15,000. Under the perpetual inventory system, the purchase is recorded in the merchandise inventory account at the cost of $15,750 (invoice price plus transportation). June 28.
Received $8,415 as payment on account from Jones Co., less return of June 21 and less discount of $85 [($12,500 $4,000) 1%]. Cash Sales Discounts Accounts Receivable—Jones Co.
8,415 85 8,500
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This entry is the same under the perpetual inventory system. June 29.
Received $19,600 from cash sales. The cost of the merchandise sold was $13,800. Cash Sales
19,600 19,600
The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale. The multiple-step income statement under the periodic inventory system is illustrated in Exhibit 1. The multiple-step income statement under a perpetual inventory system is similar, except that the cost of merchandise sold is reported as a single amount.
Chart of Accounts for a Periodic Inventory System Exhibit 2 is the chart of accounts for NetSolutions when a periodic inventory system is used. The periodic inventory accounts related to merchandising transactions are shown in color.
End-of-Period Procedures in a Periodic Inventory System The end-of-period procedures are generally the same for the periodic and perpetual inventory systems. In the remainder of this appendix, we will discuss the differences in procedures for the two systems that affect the work sheet, the adjusting entries, and the closing entries. As the basis for illustrations, we will use the data for NetSolutions, presented in Chapter 6.
Work Sheet The differences in the work sheet for a merchandising business that uses the periodic inventory system are highlighted in the work sheet for NetSolutions in Exhibit 3. As we illustrated earlier, accounts for purchases, purchases returns and allowances, purchases discounts, and transportation in are used in a periodic inventory system. Under the periodic inventory system, the merchandise inventory account, throughout the accounting period, shows the inventory at the beginning of the period. The merchandise inventory on January 1, 2007, $59,700, is a part of the merchandise available for sale. At the end of the period, the beginning inventory amount in the ledger is replaced with the ending inventory amount. To update the inventory account, two adjusting entries are used.2 The first adjusting entry transfers the beginning inventory balance to Income Summary. This entry, shown below, has the effect of increasing the cost of merchandise sold and decreasing net income. Dec. 31
2Another
Income Summary Merchandise Inventory
59,700 59,700
method of updating the merchandise inventory account at the end of the period is called the closing method. This method adjusts the merchandise inventory through the use of closing entries. This method may not be appropriate for use in computerized accounting systems. Since the financial statements are the same under both methods and since computerized accounting systems are used by most businesses, the closing method is not illustrated.
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•Exhibit 1
Multiple-Step Income Statement—Periodic Inventory System
NetSolutions Income Statement For the Year Ended December 31, 2007 Revenue from sales: $720,185 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,140 Less: Sales returns and allowances . . . . . . . . . . 5,790 11,930 Sales discounts . . . . . . . . . . . . . . . . . . . . . $708,255 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of merchandise sold: $ 59,700 Merchandise inventory, January 1, 2007 . . . . . $521,980 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Purchases returns and allowances . . . . . . $9,100 11,625 Purchases discounts . . . . . . . . . . . . . . . . . 2,525 $510,355 Net purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 17,400 Add transportation in . . . . . . . . . . . . . . . . . . . . $527,755 Cost of merchandise purchased . . . . . . . . . . . . $587,455 Merchandise available for sale . . . . . . . . . . . . . . . Less merchandise inventory, December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . Cost of merchandise sold . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Selling expenses: Sales salaries expense . . . . . . . . . . . . . . . . . Advertising expense . . . . . . . . . . . . . . . . . . Depreciation expense—store equipment . . . Miscellaneous selling expense . . . . . . . . . . Total selling expenses . . . . . . . . . . . . . . . Administrative expenses: Office salaries expense . . . . . . . . . . . . . . . . Rent expense . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense—office equipment . . . Insurance expense . . . . . . . . . . . . . . . . . . . . Office supplies expense . . . . . . . . . . . . . . . . Miscellaneous administrative expense . . . . Total administrative expenses . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . Income from operations . . . . . . . . . . . . . . . . . . . . Other income and expense: Rent revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,150 525,305 $182,950
$ 56,230 10,860 3,100 630 $ 70,820 $ 21,020 8,100 2,490 1,910 610 760 34,890 105,710 $ 77,240 $
600 2,440
1,840 $ 75,400
After the first adjusting entry has been recorded and posted, the balance of the merchandise inventory account is zero. The second adjusting entry records the cost of the merchandise on hand at the end of the period by debiting Merchandise Inventory. Since the merchandise inventory at December 31, 2007, $62,150, is subtracted from the cost of merchandise available for sale in determining the cost of
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•Exhibit 2
Chart of Accounts—Periodic Inventory System
Balance Sheet Accounts 110 111 112 115 116 117 120 123 124
Income Statement Accounts
100 Assets Cash Notes Receivable Accounts Receivable Merchandise Inventory Office Supplies Prepaid Insurance Land Store Equipment Accumulated Depreciation— Store Equipment Office Equipment Accumulated Depreciation— Office Equipment
410 411 412
400 Revenues Sales Sales Returns and Allowances Sales Discounts
210 211 212 215
200 Liabilities Accounts Payable Salaries Payable Unearned Rent Notes Payable
523 529 530 531 532
310 311 312
300 Owner’s Equity Chris Clark, Capital Chris Clark, Drawing Income Summary
533 534 539
500 Costs and Expenses Purchases Purchases Returns and Allowances Purchases Discounts Transportation In Sales Salaries Expense Advertising Expense Depreciation Expense—Store Equipment Transportation Out Miscellaneous Selling Expense Office Salaries Expense Rent Expense Depreciation Expense—Office Equipment Insurance Expense Office Supplies Expense Misc. Administrative Expense
610
600 Other Income Rent Revenue
710
700 Other Expense Interest Expense
125 126
510 511 512 513 520 521 522
merchandise sold, Income Summary is credited. This credit has the effect of decreasing the cost of merchandise available for sale during the period, $587,455, by the cost of the unsold merchandise. The second adjusting entry is shown below. Dec. 31
Merchandise Inventory Income Summary
62,150 62,150
After the second adjusting entry has been recorded and posted, the balance of the merchandise inventory account is the amount of the ending inventory. The accounts for Merchandise Inventory and Income Summary after both entries have been posted would appear in T account form as follows: Merchandise Inventory 2007 Jan. 1 Beginning inventory Dec. 31 Ending inventory
59,700 62,150
Dec. 31 Beginning inventory
59,700
Income Summary Dec. 31 Beginning inventory
59,700
Dec. 31 Ending inventory
62,150
No separate adjusting entry can be made for merchandise inventory shrinkage in a periodic inventory system. This is because no perpetual inventory records are available to show what inventory should be on hand at the end of the period.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
•Exhibit 3
Work Sheet—Periodic Inventory System
NetSolutions Work Sheet For the Year Ended December 31, 2007
Account Title
Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Dr.
Dr.
Dr.
Dr.
Cash
52,950
Accounts Receivable
91,080
Merchandise Inventory
59,700
Cr.
Cr.
(b) 62,150 (a)59,700
Cr.
Cr.
Dr.
52,950
52,950
91,080
91,080
62,150
62,150
Office Supplies
1,090
(c)
610
480
480
Prepaid Insurance
4,560
(d) 1,910
2,650
2,650 20,000
Land
20,000
20,000
Store Equipment
27,100
27,100 2,600
Accum. Depr.—Store Equipment Office Equipment
2,230
(f) 2,490
Salaries Payable
(g) 1,140 2,400 (h)
Unearned Rent
153,800
Chris Clark, Capital Chris Clark, Drawing
600
25,000
Notes Payable (final payment, 2017)
4,720
4,720
22,420
22,420
1,140
1,140
1,800
1,800
25,000
25,000 153,800
153,800
18,000
18,000
18,000 (a)59,700
Income Summary
(b)62,150
59,700
720,185
Sales
5,700 15,570
15,570 22,420
Accounts Payable
62,150
59,700
6,140
6,140
Sales Discounts
5,790
5,790
5,790
521,980
521,980
521,980
6,140
Purchases Returns & Allowances
9,100
9,100
Purchases Discounts
2,525
2,525
Transportation In
17,400
Sales Salaries Expense
55,450
Advertising Expense
10,860
(g)
(e) 3,100
Depr. Expense—Store Equipment 630
Miscellaneous Selling Expense Office Salaries Expense
780
(g)
20,660
360
8,100
9,100 2,525
17,400
17,400
60,030
60,030
10,860
10,860
3,100
3,100
630
630
21,020
21,020
8,100
8,100
Depr. Expense—Office Equipment
(f) 2,490
2,490
2,490
Insurance Expense
(d) 1,910
1,910
1,910
Office Supplies Expense
(c)
610
610
Rent Expense
610
760
Misc. Administrative Expense
(h) 2,440
Interest Expense
940,260
760
760
Rent Revenue
2,440 940,260
131,700
600
600
600
131,700 1,009,140 1,009,140
2,440 719,160
794,560
289,980
214,580
794,560
289,980
289,980
75,400
75,400
Net Income
794,560
Beginning merchandise inventory, $59,700. Ending merchandise inventory, $62,150. Office supplies used, $610 ($1,090 $480). Insurance expired, $1,910. Depreciation of store equipment, $3,100.
62,150 720,185
720,185
Sales Returns and Allowances Purchases
(f) Depreciation of office equipment, $2,490. (g) Salaries accrued but not paid (sales salaries, $780; office salaries, $360), $1,140. (h) Rent earned from amount received in advance, $600.
Cr.
27,100 5,700
(e) 3,100
15,570
Accum. Depr.—Office Equipment
(a) (b) (c) (d) (e)
Balance Sheet
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One disadvantage of the periodic inventory system is that inventory shrinkage cannot be measured.3
Completing the Work Sheet After all of the necessary adjustments have been entered on the work sheet, the work sheet is completed in the normal manner. An exception to the usual practice of extending only account balances is Income Summary. Both the debit and credit amounts for Income Summary are extended to the Adjusted Trial Balance columns. Extending both amounts aids in the preparation of the income statement because the debit adjustment (the beginning inventory of $59,700) and the credit adjustment (the ending inventory of $62,150) are reported as part of the cost of merchandise sold. The purchases, purchases discounts, purchases returns and allowances, and transportation in accounts are extended to the Income Statement Columns of the work sheet, since they are used in computing the cost of merchandise sold. You should note that the two merchandise inventory amounts in Income Summary are extended to the Income Statement columns. After all of the items have been extended to the statement columns, the four columns are totaled and the net income or net loss is determined.
Financial Statements The financial statements for NetSolutions are essentially the same under both the perpetual and periodic inventory systems. The main difference is that the cost of goods is reported as a single amount under the perpetual system. Exhibit 1 illustrates the manner in which cost of merchandise sold is reported in a multiple-step income statement when the periodic inventory system is used.4
Adjusting and Closing Entries The adjusting entries are the same under both inventory systems, except for merchandise inventory. As indicated previously, two adjusting entries for beginning and ending merchandise inventory are necessary in a periodic inventory system. The closing entries differ in the periodic inventory system in that there is no cost of merchandise sold account to be closed to Income Summary. Instead, the purchases, purchases discounts, purchases returns and allowances, and transportation in accounts are closed to Income Summary.5 To illustrate, the adjusting and closing entries under a periodic inventory system for NetSolutions are shown at the top of the following pages.
3Any
inventory shrinkage that does exist is part of the cost of merchandise sold and is reported on the income statement, since a smaller ending inventory is deducted from other merchandise available for sale. 4The single-step income statement would be the same for both the perpetual and the periodic inventory systems. 5The balance of Income Summary, after the merchandise inventory adjustments and the first two closing entries have been posted, is the net income or net loss for the period.
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JOURNAL Date
Post. Ref.
Debit
Adjusting Entries
1 2
Description
Page 16
2007
Dec. 31
3
1
Income Summary Merchandise Inventory
312 115
59 7 0 0 00
Merchandise Inventory Income Summary
115 312
62 1 5 0 00
Office Supplies Expense Office Supplies
534 116
6 1 0 00
Insurance Expense Prepaid Insurance
533 117
1 9 1 0 00
Depreciation Expense––Store Equip. Accumulated Depr.––Store Equip.
522 124
3 1 0 0 00
Depreciation Expense––Office Equip. Accumulated Depr.––Office Equip.
532 126
2 4 9 0 00
Sales Salaries Expense Office Salaries Expense Salaries Payable
520 530 211
7 8 0 00 3 6 0 00
Unearned Rent Rent Revenue
212 610
6 0 0 00
4
31
6
7
31
9
10
31
12
13
31
15
16
31
18
19
31
21 22
25
20 21
1 1 4 0 00 22 23
23 24
17
2 4 9 0 00 18
19 20
14
3 1 0 0 00 15
16 17
11
1 9 1 0 00 12
13 14
8
6 1 0 00 9
10 11
5
62 1 5 0 00 6
7 8
2
59 7 0 0 00 3
4 5
Credit
31
24
6 0 0 00 25
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
JOURNAL Date
Page 17 Post. Ref.
Debit
Credit
Closing Entries
1 2
Description
2007
Dec. 31
3 4 5 6
1
Sales Purchases Returns and Allowances Purchases Discounts Rent Revenue Income Summary
410 511 512 610 312
720 1 8 5 00 9 1 0 0 00 2 5 2 5 00 6 0 0 00
Income Summary Sales Returns and Allowances Sales Discounts Purchases Transportation In Sales Salaries Expense Advertising Expense Depreciation Exp.––Store Equip. Miscellaneous Selling Expense Office Salaries Expense Rent Expense Depreciation Exp.––Office Equip. Insurance Expense Office Supplies Expense Miscellaneous Administrative Exp. Interest Expense
312 411 412 510 513 520 521 522 529
659 4 6 0 00
Income Summary Chris Clark, Capital
312 310
75 4 0 0 00
Chris Clark, Capital Chris Clark, Drawing
310 311
18 0 0 0 00
2 3 4 5
732 4 1 0 00 6 7
7 8
31
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
530 531 532 533 534 539 710
11 12 13 14 15 16 17 18 19 20 21 22 23 25
75 4 0 0 00 26 27
27 29
9 10
24
31
26 28
8
6 1 4 0 00 5 7 9 0 00 521 9 8 0 00 17 4 0 0 00 56 2 3 0 00 10 8 6 0 00 3 1 0 0 00 6 3 0 00 21 0 2 0 00 8 1 0 0 00 2 4 9 0 00 1 9 1 0 00 6 1 0 00 7 6 0 00 2 4 4 0 00
24 25
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31
28
18 0 0 0 00 29
E xercises EXERCISE C-1 Purchases-related transactions—periodic inventory system
EXERCISE C-2 Sales-related transactions— periodic inventory system
Journalize entries for the following related transactions, assuming that Mountain Gallery, Inc. uses the periodic inventory system. a. Purchased $12,000 of merchandise from Yellowstone Co. on account, terms 2/10, n/30. b. Discovered that some of the merchandise was defective and returned items with an invoice price of $2,500, receiving credit. c. Paid the amount owed on the invoice within the discount period. d. Purchased $9,000 of merchandise from Glacier, Inc. on account, terms 1/10, n/30. e. Paid the amount owed on the invoice within the discount period. Journalize entries for the following related transactions, assuming that Aveda Company uses the periodic inventory system.
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July 6 Sold merchandise to a customer for $18,500, terms FOB shipping point, 2/10, n/30. 6 Paid the transportation charges of $420, debiting the amount to Accounts Receivable. 9 Issued a credit memorandum for $4,700 to the customer for merchandise returned. 16 Received a check for the amount due from the sale. EXERCISE C-3 Adjusting entries for merchandise inventory— periodic inventory system
Data assembled for preparing the work sheet for Meridian Co. for the fiscal year ended December 31, 2006, included the following: Merchandise inventory as of January 1, 2006 Merchandise inventory as of December 31, 2006
$475,000 $528,300
Journalize the two adjusting entries for merchandise inventory that would appear on the work sheet, assuming that the periodic inventory system is used. EXERCISE C-4 Identification of missing items from income statement—periodic inventory system
EXERCISE C-5 Multiple-step income statement—periodic inventory system Gross profit: $230,560
For (a) through (i), identify the items designated by “X” and “Y.” a. b. c. d. e. f. g. h. i.
Sales (X Y) Net sales Purchases (X Y) Net purchases Net purchases X Cost of merchandise purchased Merchandise inventory (beginning) Cost of merchandise purchased X Merchandise available for sale X Cost of merchandise sold Net sales Cost of merchandise sold X Gross profit Operating expenses X X Y Operating expenses Income from operations X Y Net income
Selected data for Canyon Ferry Stores Company for the year ended December 31, 2006, are as follows: Merchandise inventory, January 1 Merchandise inventory, December 31 Purchases Purchases discounts Purchases returns and allowances
$
85,760 102,240 1,051,200 12,800 24,800
Sales Sales discounts Sales returns and allowances Transportation in
$1,288,000 10,400 13,920 36,000
Prepare a multiple-step income statement through gross profit for Canyon Ferry Stores Company for the current year ended December 31. EXERCISE C-6 Adjusting and closing entries—periodic inventory system
Selected account titles and related amounts appearing in the Income Statement and Balance Sheet columns of the work sheet of Southern Bell Company for the year ended December 31 are listed in alphabetical order as follows: Administrative Expenses Building Cash Connie Sorum, Capital Connie Sorum, Drawing Interest Expense Merchandise Inventory (1/1) Merchandise Inventory (12/31) Notes Payable Office Supplies
$ 72,000 312,500 58,500 433,080 40,000 2,500 300,000 275,000 25,000 10,600
Purchases Purchases Discounts Purchases Returns and Allowances Salaries Payable Sales Sales Discounts Sales Returns and Allowances Selling Expenses Store Supplies Transportation In
$ 820,000 14,000 9,000 4,220 1,450,000 18,000 32,000 240,200 7,700 21,300
All selling expenses have been recorded in the account entitled Selling Expenses, and all administrative expenses have been recorded in the account entitled Administrative Expenses. Assuming that Southern Bell Company uses the periodic inventory system, journalize (a) the adjusting entries for merchandise inventory and (b) the closing entries.
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Problems PROBLEM C-1 Sales-related and purchaserelated transactions— periodic inventory system
The following were selected from among the transactions completed by Infinet Shops, Inc., during November of the current year: Nov. 2. Purchased merchandise on account from Loftin Co., list price $24,000, trade discount 25%, terms FOB destination, 2/10, n/30. 8. Sold merchandise for cash, $8,100. 9. Purchased merchandise on account from Chestnut Co., $12,000, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $180 added to the invoice. 10. Returned $3,000 of merchandise purchased on November 2 from Loftin Co. 11. Sold merchandise on account to Fawcett Co., list price $2,500, trade discount 20%, terms 1/10, n/30. 12. Paid Loftin Co. on account for purchase of November 2, less return of November 10 and discount. 15. Sold merchandise on nonbank credit cards and reported accounts to the card company, American Express, $9,850. 19. Paid Chestnut Co. on account for purchase of November 9, less discount. 21. Received cash on account from sale of November 11 to Fawcett Co., less discount. 25. Sold merchandise on account to Clemons Co., $3,000, terms 1/10, n/30. 28. Received cash from American Express for nonbank credit card sales of November 15, less $380 service fee. 30. Received merchandise returned by Clemons Co. from sale on November 25, $1,700. Instructions Journalize the transactions for Infinet Shops, Inc., in a two-column general journal.
PROBLEM C-2 Sales-related and purchaserelated transactions— periodic inventory system
The following were selected from among the transactions completed by Copra Sentry Company during July of the current year: July 3. Purchased merchandise on account from Swanson Co., list price $60,000, trade discount 30%, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $1,200 added to the invoice. 4. Purchased merchandise on account from Lambert Co., $8,000, terms FOB destination, 1/10, n/30. 7. Sold merchandise on account to Walsh Co., list price $12,000, trade discount 20%, terms 2/10, n/30. 9. Returned merchandise purchased on July 4 from Lambert Co., $1,300. 13. Paid Swanson Co. on account for purchase of July 3, less discount. 14. Paid Lambert Co. on account for purchase of July 4, less return of July 9 and discount. 17. Received cash on account from sale of July 7 to Walsh Co., less discount. 19. Sold merchandise on nonbank credit cards and reported accounts to the card company, American Express, $7,450. 22. Sold merchandise on account to Wu Co., $4,420, terms 2/10, n/30. 24. Sold merchandise for cash, $4,350. 25. Received merchandise returned by Wu Co. from sale on July 22, $1,610. 31. Received cash from American Express for nonbank credit card sales of July 19, less $290 service fee. Instructions Journalize the transactions for Copra Sentry Co. in a two-column general journal.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
PROBLEM C-3 Sales-related and purchaserelated transactions for seller and buyer—periodic inventory system
The following selected transactions were completed during May between Simkins Company and Burk Co.: May 6. Simkins Company sold merchandise on account to Burk Co., $18,500, terms FOB destination, 2/15, n/eom. 6. Simkins Company paid transportation costs of $600 for delivery of merchandise sold to Burk Co. on May 6. 10. Simkins Company sold merchandise on account to Burk Co., $15,750, terms FOB shipping point, n/eom. 11. Burk Co. returned merchandise purchased on account on May 6 from Simkins Company, $5,500. 14. Burk Co. paid transportation charges of $300 on May 10 purchase from Simkins Company. 17. Simkins Company sold merchandise on account to Burk Co., $30,000, terms FOB shipping point, 1/10, n/30. Simkins prepaid transportation costs of $1,750, which were added to the invoice. 21. Burk Co. paid Simkins Company for purchase of May 6, less discount and less return of May 11. 27. Burk Co. paid Simkins Company on account for purchase of May 17, less discount. 31. Burk Co. paid Simkins Company on account for purchase of May 10. Instructions Journalize the May transactions for (1) Simkins Company and for (2) Burk Co.
PROBLEM C-4 Preparation of work sheet, financial statements, and adjusting and closing entries—periodic inventory system
1. Net income: $222,950
The accounts and their balances in the ledger of Sunshine Sports Co. on December 31, 2006, are as follows: Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Store Supplies Office Supplies Store Equipment Accumulated Depreciation— Store Equipment Office Equipment Accumulated Depreciation— Office Equipment Accounts Payable Salaries Payable Unearned Rent Note Payable (final payment, 2013) Sherri Vogel, Capital Sherri Vogel, Drawing Income Summary Sales Sales Returns and Allowances
$ 28,000 142,500 200,000 9,700 4,250 2,100 132,000 40,300 50,000 17,200 56,700 — 1,200 100,000 159,600 40,000 — 960,000 11,900
Sales Discounts Purchases Purchases Returns and Allowances Purchases Discounts Transportation In Sales Salaries Expense Advertising Expense Depreciation Expense— Store Equipment Store Supplies Expense Miscellaneous Selling Expense Office Salaries Expense Rent Expense Insurance Expense Depreciation Expense— Office Equipment Office Supplies Expense Miscellaneous Administrative Expense Rent Revenue Interest Expense
$ 7,100 500,000 10,100 4,900 11,200 81,400 45,000 — — 1,600 44,000 26,000 — — — 1,650 — 11,600
The data needed for year-end adjustments on December 31 are as follows: Merchandise inventory on December 31 Insurance expired during the year . . . . . Supplies on hand on December 31: Store supplies . . . . . . . . . . . . . . . . . . Office supplies . . . . . . . . . . . . . . . . . . Depreciation for the year: Store equipment . . . . . . . . . . . . . . . . Office equipment . . . . . . . . . . . . . . . . Salaries payable on December 31: Sales salaries . . . . . . . . . . . . . . . . . . . Office salaries . . . . . . . . . . . . . . . . . . Unearned rent on December 31 . . . . . .
....................... .......................
$215,000 4,800
....................... .......................
1,300 750
....................... .......................
7,500 3,800
....................... ....................... .......................
$4,000 2,000
6,000 400
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
C-13
Instructions 1. Prepare a work sheet for the fiscal year ended December 31, listing all accounts in the order given. 2. Prepare a multiple-step income statement. 3. Prepare a statement of owner’s equity. 4. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $10,000. 5. Journalize the adjusting entries. 6. Journalize the closing entries.
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