ACCT 2301 CHAPTER 4 HANDOUT
MERCHADISING BUSINESS
I) Inventory transactions: A is the seller and B is the buyer.
1) A sold 2000 books @ $8 each with a cash discount term of 1|10 n|15 FOB destination
on 10|1|2003.The cost per book for A is $3.
2) B paid $200 to the trucker for transportation of books on 10|2|2003.
3) B returned 100 books and issued a debit memorandum to A on 10|3|2003.
4) B paid in full on 10|8|2003.
Record the transactions in A”s and B”s books under perpetual inventory and periodic
inventory systems.
Suppose in item 4, B paid in full on 10|14|2003.Will your journal entry be the same?
II) Calculate cost of goods sold under periodic inventory system:
Inventory on 12|31| 2001 is $12000,inventory on 12|31|2002 is $15000.Purchases during
2002 are $80000,purchse returns and allowances are $3000,purchase discounts are $2000
and transportation-in is $5000.
III) Effect of inventory error on the financial statements:
Ending inventory on 12|31|2001 is under stated by $ 20000.What is its effect on income
statement, capital statement or retained earning statement and balance sheet?
IV) Use the following information to do the adjusting entries and closing entries at the
end of the year for a merchandising business:
a) Unadjusted Trial Balance - Perpetual Inventory System-All Other Assets-$40000,
Inventory-$16000, Capital-$ 20000,Sales-$200000, Cost of Goods Sold$114000,All Other Expenses-$50000.
The Cycle count of Inventory showed shrinkage of $1000.
b) Unadjusted Trial Balance –Periodic Inventory System-All Other Assets$40000,Inventory-$10000, Capital-$20000,Sales-$200000,Purchases-120000, All
Other Expenses-$50000.
The Physical Count of Inventory on 12/31/X1 is $15000.
5)Calculate current ratio,acid test ratio and days sales in account receivable
based on the following information on 12|31|X1:sales-$100000,sales returns
and allowances-$2000,sales discount-$8000,purchases-$60000,prepaid
insurance$6000,office supplies-$5000,purchase returns and
allowances$1000,accounts receivable on 1|1|X1 $25000 and on 12|31|X1
$28000,allowance for uncollectible accounts on 1|1|X1 is $3000 and on
12|31|X1 is 4000,short term investments are $25000,accounts payable$15000,salary payable-$8000,cash on hand-$10000,equipment-$60000,land$12000,building-$55000,inventory-$16000,current portion of long term
loan-$20000.