Problem Set B 281

e. The store reports sales taxes payable of $5,000 in its adjusted trial balance. Explain why it
does not report any sales taxes expense.
f. What is meant by the term “operating cycle” and which accounts in the trial balance comprise
Harry’s Haberdashery’s operating cycle?

LO8 PROBLEM 6.3B

P Shown below is information from the financial reports of Jill’s Department Stores for the past few
Trend Analysis
T years.

2011 2010 2009

Net sales (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,240 $8,810 $8,140
Number of stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 122 115
Square feet of selling space (in millions) . . . . . . . . . . . . . . . . . . 6.0 5.7 5.1
Average net sales of comparable stores (in millions) . . . . . . . . . $ 70.2 $ 72.3 $ 75.0

Instructions
a. Calculate the following statistics for Jill’s Department Stores (round all computations to one
decimal place):
1. The percentage change in net sales from 2009 to 2010 and 2010 to 2011. Hint: The per-
centage change is computed by dividing the dollar amount of the change between years
by the amount of the base year. For example, the percentage change in net sales from
2009 to 2010 is computed by dividing the difference between 2010 and 2009 net sales by
the amount of 2009 net sales, or ($8,810 ⫺ $8,140) ⫼ $8,140 ⫽ 8.2% increase.
2. The percentage change in net sales per square foot of selling space from 2009 to 2010
and 2010 to 2011.
3. The percentage change in comparable store sales from 2009 to 2010 and 2010 to 2011.
b. Evaluate the sales performance of Jill’s Department Stores.

LO3 PROBLEM 6.4B

P Mary’s TV uses a perpetual inventory system. The following are three recent merchandising trans-
Comparison of Net
C actions:
Cost and Gross Price
C
LO6 Mar. 6 Purchased eight TVs from Whosa Industries on account. Invoice price, $350 per unit,
Methods
M
for a total of $2,800. The terms of purchase were 2/10, n/30.
Mar. 11 Sold two of these televisions for $600 cash.
Mar. 16 Paid the account payable to Whosa Industries within the discount period.

Instructions
a. Prepare journal entries to record these transactions assuming that Mary’s records purchases of
merchandise at:
1. Net cost
2. Gross invoice price
b. Assume that Mary’s did not pay Whosa Industries within the discount period but instead paid
the full invoice price on April 6. Prepare journal entries to record this payment assuming that
the original liability had been recorded at:
1. Net cost
2. Gross invoice price
c. Assume that you are evaluating the efficiency of Mary’s bill-paying procedures. Which
accounting method—net cost or gross invoice price—provides you with the most useful infor-
mation? Explain.

LO3 PROBLEM 6.5B

P The following is a series of related transactions between Hip Pants and Sleek, a chain of retail
M
Merchandising clothing stores:
LO6 Transactions
T
Oct. 12 Hip Pants sold Sleek 300 pairs of pants on account, terms 1/10, n/30. The cost of these
pants to Hip Pants was $20 per pair, and the sales price was $60 per pair.
Oct. 15 Wings Express charged $50 for delivering this merchandise to Sleek. These charges
were split evenly between the buyer and the seller and were paid immediately in cash.
282 Chapter 6 Merchandising Activities

Oct. 16 Sleek returned four pairs of pants to Hip Pants because they were the wrong size. Hip
Pants allowed Sleek full credit for this return.
Oct. 22 Sleek paid the remaining balance due to Hip Pants within the discount period.
Both companies use a perpetual inventory system.

Instructions
a. Record this series of transactions in the general journal of Hip Pants. (The company records
sales at gross sales price.)
b. Record this series of transactions in the general journal of Sleek. (The company records pur-
chases of merchandise at net cost and uses a Transportation-in account to record transporta-
tion charges on inbound shipments.)
c. Sleek does not always have enough cash on hand to pay for purchases within the discount
period. However, it has a line of credit with its bank, which enables Sleek to easily borrow
money for short periods of time at an annual interest rate of 12 percent. (The bank charges
interest only for the number of days until Sleek repays the loan.) As a matter of general policy,
should Sleek take advantage of 1/10, n/30 cash discounts even if it must borrow the money to do
so at an annual rate of 12 percent? Explain fully—and illustrate any supporting computations.

LO2 PROBLEM 6.6B

P Queen Enterprises is a furniture wholesaler. Queen hired a new accounting clerk on January 1 of
Correcting Errors—
C the current year. The new clerk does not understand accrual accounting and recorded the transac-
Recording of
R tions below based on when cash receipts and disbursements changed hands rather than when the
LO3 transaction occurred. Queen uses a perpetual inventory system, and its accounting policy calls for
Merchandising
M
Transactions
T inventory purchases to be recorded net of any discounts offered.
LO6 Jan. 7 Paid Hardwoods Forever Inc. $4,900 for furniture that it received on December 20.
(This purchase was recorded as a debit to Inventory and a credit to Accounts Payable
on December 20 of last year, but the accounting clerk ignores that fact.)
Dec. 23 Received furniture from Koos Hoffwan Co. for $10,000; terms 2/10, n/30.
Dec. 26 Sold furniture to Beige Chipmunk Inc. for $15,000; terms 1/10, n/30. The cost of the
furniture to Queen was $12,250.

Instructions
a. As a result of the accounting clerk’s errors, compute the amount by which the following
accounts are overstated or understated:
1. Accounts Receivable
2. Inventory
3. Accounts Payable
4. Sales
5. Cost of Goods Sold
b. Compute the amount by which net income is overstated or understated.
c. Prepare a single journal entry to correct the errors that the accounting clerk has made. (Assume
that Queen has yet to close its books for the current year.)
d. Assume that Queen has already closed its books for the current year. Make a single journal
entry to correct the errors that the accounting clerk has made.
e. Assume that the ending inventory balance is correctly stated based on adjustments resulting
from a physical inventory count. (Cost of Goods Sold was debited or credited based on the
inventory adjustment.) Assume that Queen has already closed its books for the current year,
and make a single journal entry to correct the errors that the accounting clerk has made.

LO1 PROBLEM 6.7B

P Computer Resources Inc. is a computer retailer. Computer Resources began operations in Decem-
A
Accrual Accounting, ber of the current year and engaged in the following transactions during that month. Computer
Cash Flow, and Fair
C Resources uses a perpetual inventory system.
LO3
Value
V
Dec. 5 Purchased $100,000 of computer equipment, terms n/30.
LO6 Dec. 12 Sold $100,000 of computer equipment, terms n/30. The cost of the equipment sold is
$50,000.
Dec. 26 Purchased $200,000 of computer equipment, terms n/30.