Chap 5 Accounting for Merchandising Operations

1. Fill in the blanks (a) through (g) for the Morrison Company for each of the income
statements for years 1, 2, and 3.

Morrison Company
Income Statements
For the years ended December
Year 2 Year 2 Year 3
31
Sales $7,500 $10,000 (f)
Cost of goods sold
Merchandise inventory (beginning) (a) 375 750
Total cost of merchandise purchases 2,400 3,625 4,875
Merchandise inventory (ending) (b) 750 625
Cost of goods sold 2,770 (d) 5,000
Gross profit (c) 6,750 5,200
Operating expenses 3,750 3,750 (g)
Net income $980 (e) $ 2,500

2. Serene Spa Sales uses the perpetual inventory system and the gross method of accounting
for purchases and sales, and had the following transactions during August.

Aug 1 Sold merchandise on credit for $5,000, terms 3/10, n/30. The items sold had a
cost of $3,500.
3 Purchased merchandise for cash, $2,720.
4 Purchased merchandise on credit for $2,600, terms 1/20, n/30.
5 Issued a credit memorandum for $3,000 to a customer who returned
merchandise purchased July 20. The returned items had a cost of $2,010.
10 Received payment for merchandise sold August 1.
15 Received a credit memorandum from the seller for the return of defective
merchandise purchased on August 4 for $600.
18 Paid freight charges of $200 for merchandise ordered last month. (FOB
shipping point)
23 Paid for the merchandise purchased August 4 less the portion that was
returned.
24 Sold merchandise on credit for $7,000, terms 2/10, n/30. The items had a cost
of $4,900.
31 Received payment for merchandise sold on August 24.

Required: Prepare the general journal entries to record these transactions.

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3. Following is the year-end adjusted trial balance for Fred's Corner Grocery for the current
year:
Fred’s Corner Grocery
Adjusted Trial Balance
December 31
Dr. Cr.
Cash…………………………………………………….. $67,500
Accounts receivable…………………………………… 46,000
Merchandise inventory………………………………… 60,000
Store supplies…………………………………………. 800
Accounts payable……………………………………… 16,000
Salaries payable……………………………………….. 850
F. Brewster, Capital…………………………………….. 125,630
F. Brewster, Withdrawals…………………………… 45,000
Sales…………………………………………………….. 550,000
Sales returns & allowances…………………………… 4,500
Sales discounts………………………………………… 4,250
Cost of goods sold..……………………………………. 382,450
Sales salaries expense………………………………… 44,000
Advertising expense……………………………………. 8,150
Store salaries expense………………………………... 24,325
Store supplies expense……………………………… 450
Interest expense……………………………………… 5,055
Totals…………………………………………………….. $692,480 $692,480

Prepare the closing entries at December 31 for the current year.

4. At its fiscal year-end of June 30, Kendall Wholesale's general ledger shows the following
selected account balances. Kendall Wholesale uses the perpetual inventory system.

Merchandise Inventory $60,000

Sales 940,000
Sales discounts 16,000
Sales returns and allowances 8,000
Cost of goods sold 456,000

A physical count of its June 30 year-end inventory discloses that the cost of the merchandise
inventory still available is $58,160.

Prepare the entry to record any inventory shrinkage.