258 CHAPTER 5
>
Accounting for Merchandising Operations
(SO7)C *21. Ina periodic system, purchases of inventory are recorded in the Purchases account. Whyare purchasesof supplies or equipment not also recorded in the Purchases
*22. In a periodic inventory system, closing entries are post- (SO 7)
ed to the Merchandise Inventory account. Whatis the
purposeof these entries?
account?
Brief Exercises
Calculate missing amountsin
determining net income.
(SO 1) AP
BE5—1 The componentsin the income statements of companiesA, B, C, and D follow. Determine
the missing amounts.
Goods Sold
Company A
Company B
$250,000
108,000
$150,000
70,000
Company D
(g)
71,900
Company C
Calculate balance in inventory
control account.
(SO 2) AP
Calculate inventory balances.
(SO 2) AP
Record purchase
transactions—perpetual
system.
(SO 2) AP
Cost of
Sales
75,000
Gross
Operating
Profit.
$
(e)
Net
Expenses
Income
(a)
(c)
$40,000
(d)
$
(h)
39,500
31,500
(f)
(b)
29,500
10,800
~—-70,500
BE5—2 The Big C Companysells three types of cookies. The companyusesa perpetual inventory
system and a subsidiary ledger to keep track of its inventory. Determinethe balancein the inventory
control accountin the generalledger if the companyhad the following items on hand on March 31:
Inventory Item
Packages on Hand
Cost per Package
Oatmeal
Chocolate Chip
Ginger Snaps
200
600
450
$1.75
2.10
1.50
BE5—3 The Big C Company(see BE5—2)hasdecided to expandits sales to include Double Chocolate Chip cookies. It purchases 1,000 packages from its supplier at a cost of $2.50 per package, terms
2/10, n/30, FOB shipping point. The freight charges are $120. Big C pays for the merchandise within
the discount period. Whatare the total cost and cost per package ofthis inventory item, andthe balance in the Merchandise Inventory control account in the general ledger after these transactions?
BE5—4 Prepare the journalentries to record the following purchase transactions in Xiaoyan Company’s books. Xiaoyan uses a perpetual inventory system.
Jan. 3 Xiaoyan purchased $9,000 of merchandise from Feng Company, terms n/30, FOB shipping point.
4 The correct companypaidfreight costs of $135.
6 Xiaoyan returned $1,000 of the merchandise purchased on January 3 because it was not
needed.
12 Xiaoyan paid the balance owingto Feng.
Record purchase transactions
with a purchase discount—
perpetual system.
(SO 2) AP
BE5—5 Prepare the journal entries to record the following purchase transactions in Jarek Company’s books. Jarek uses a perpetual inventory system.
Mar. 12 Jarek purchased $12,000 of merchandise from Dalibor Company, terms 2/10, n/30, FOB
destination.
13 The correct companypaid freight costs of $155.
14 Jarek returned $2,000 of the merchandise purchased on March 12 because it was damaged.
22 Jarek paid the balance owingto Dalibor.
Record sales transactions—
perpetual system.
(SO 3) AP
BE5—6 Prepare journal entries to record the following sales transactions in Feng Company's
books. Feng uses a perpetual inventory system.
Jan. 3 Feng sold $9,000 of merchandise to Xiaoyan Company, terms n/30, FOB shipping point.
The cost of the merchandise sold was $6,000.
Brief Exercises
<
259
Jan. 4 The correct companypaid freight costs of $135.
6 Xiaoyan returned $1,000 of the merchandise purchased on January 3 because it was not
needed. The cost of the merchandise returned was $800, andit was restored to inventory.
12 Fengreceived the balance due from Xiaoyan.
BE5—7 Prepare journalentries to record the following sales transactions in Dalibor Company’s
books. Daliboruses a perpetual inventory system.
Mar. 12 Dalibor sold $12,000 of merchandise to Jarek Company, terms 2/10, n/30, FOB destination. The cost of the merchandise sold was $7,500.
Record sales transactions—
perpetual system.
(SO 3) AP
13 The correct companypaid freight costs of $155.
14 Jarek returned $2,000 of the merchandise purchased on March 12 because it was damaged. The cost of the merchandise returned was $1,250. Dalibor examined the merchan-
dise, decided it was not longer saleable, and discardedit.
22 Dalibor received the balance due from Jarek.
BES5—8 Atits August 31 year end, the inventory records of Dren Company showed merchandise
inventory of $98,000. Through a physical count, the company determined thatits actual inventory
on hand was $97,100. Record the necessary adjusting entry.
Prepare adjusting entry.
BE5—9
Prepare closing entries.
Prasad Companyhasthe following merchandise account balancesat its July 31 year end:
(SO 4) AP
Sales $180,000; Sales Returns and Allowances $2,000; Sales Discounts $750; Cost of Goods Sold
$100,000; Merchandise Inventory $40,000; Freight Out $2,500; and S. Prasad, Capital $150,000.
(SO 4) AP
BE5-—10
Calculate net sales,
Prepare the closing entries.
Crisp Company has the following account balances: Sales $500,000; Interest Reve-
nue $8,000; Sales Returns and Allowances $15,000; Sales Discounts $5,000; Cost of Goods Sold
$350,000; Amortization Expense $12,000; Insurance Expense $3,000; Interest Expense $10,000;
Rent Expense $40,000; Salaries Expense $50,000; Supplies Expense $4,000 and Gain on Sale of
Equipment $2,000. Assuming Crisp Companyuses a multiple-step income statement, calculate the
gross profit, income from
operations, and net income.
(SO 5) AP
following: (a) net sales, (b) gross profit, (c) income from operations, and (d) net income.
BE5—11
Refer to the information given in BE5—10 for Crisp Company. Assuming Crisp Company
uses a single-step income statement, calculate the following: (a) total revenues, (b) total expenses,
and (c) net income.
BE5—12 In 2007, Ry Companyreported netsales of $550,000; cost of goods sold of $300,000; and
operating expenses of $200,000. In 2008, Ry reported net sales of $600,000; cost of goods sold of
$350,000; and operating expenses of $225,000. Calculate the gross profit margin and profit margin
for each of 2007 and 2008. HasRy’s profitability improved or weakened?
*BE5—13 From the information in BE5—5, prepare the journal entries to record the purchase
transactions on Jarek Company’s books, assuming a periodic inventory system is used instead of a
perpetual inventory system.
*BE5—14
From the information in BE5~7, prepare the journalentries to record the sales transac-
tions on Dalibor Company’s books, assuming a periodic inventory system is used instead of a perpetual inventory system.
*BE5—15 Bassing Companyuses a periodic inventory system and reports the following information: net sales $630,000; purchases $400,000; purchase returns and allowances $11,000; purchase
discounts $3,500; freight in $16,000; beginning inventory $60,000; ending inventory $90,000; and
freight out $12,500. Calculate (a) net purchases, (b) cost of goods purchased, (c) cost of goods sold,
and (d) gross profit.
Calculate total revenues, total
expenses, and net income.
(SO 5) AP
Calculate profitability ratios
and comment.
(SO 6) AP
Record purchase
transactions—periodic
system.
(SO 7) AP
Record sales transactions—
periodic system.
(SO 7) AP
Calculate net purchases, cost
of goods purchased, costof
goods sold, and gross profit.
(SO 6) AP
260 CHAPTER 5
>
Accounting for Merchandising Operations
Exercises
Match concepts with
descriptions.
(SO 1, 2, 3, 4, 5, 6) K
E5—1
Here are someof the concepts discussed in the chapter:
1. Gross profit
2. Perpetual inventory system
8. Subsidiary ledger
9. FOB destination
3. Cost of goods sold
10. Sales allowance
5. Freight out
12. Profit margin
7. Periodic inventory system
14. Merchandise inventory
4. Purchase discounts
6. FOB shipping point
11. Non-operating activities
13. Contra revenue account
Instructions
Match each concept with the best description below. Each concept may be used more than once, or
maynot be usedatall.
(a) ___ An expense accountthat showsthe cost of merchandise sold
(b) ___ A group of accounts that share a commoncharacteristic, such asall inventory accounts
(c) ___ An account, such as Sales Discounts, that is deducted from a revenue accounton theincome statement
(d) ___ Areduction in the amount owingthatis given to a buyer for early paymentof a balance due
(e) ___ Freight terms wheretheseller will pay for the cost of shipping the goods
(f) __ An inventory system where the inventory records need to be updated at year end to show
the inventory on hand
(g) ___ A reductionin price given for unsatisfactory inventory
(h) ___ Sales revenue less cost of goods sold
(i) __ Revenues, expenses, gains, and losses that are not part of the company’s main operations
(j) ___ Freight terms wherethe buyer will pay for the cost of shipping the goods
(k) ___ An inventory system where the cost of goods sold is calculated and recorded with every
sales transaction
(1) __ An asset that shows goods purchased for resale
(m) ___ Net incomedividedbynetsales
Record inventory transactions
on buyer's books—perpetual
system.
(SO 2) AP
E5—2
Information for Olaf Co. follows:
|
Apr. 5 Purchased merchandise from DeVito Companyfor $15,000, terms, 2/10, n/30, FOB shipping point.
6 The correct companypaid freight costs of $900.
7 Purchased supplies for $2,600 cash.
8 Returned damaged merchandise to DeVito Company and was given a $3,000 purchase
allowance.
May 2 Paid the amount due to DeVito Companyin full.
Instructions
(a) Prepare the journalentries to record these transactions on the books of Olaf Co., assuming a
perpetual inventory system is used.
‘
(b) Whatis the balance in the Merchandise Inventory account after recording these transactions?
(c) Assumethat Olaf Co. paid DeVito in full on April 15 instead of May 2. Record this journal entry.
Whatwould the balance in the Merchandise Inventory account be using this assumption?
Record inventory transactions
on seller's books—perpetual
system.
(SO 3) AP
E5—3
The following merchandise transactions occurred in December. Pippen uses a perpetual
inventory system.
Dec. 3 Pippen Companysold merchandise to Thomas Co. for $48,000, terms 2/10, n/30, FOB
destination. This merchandise cost Pippen Company $32,000.
4 The correct companypaid freight of $750.
Exercises
<
261
Dec. 8 Pippen Companygave Thomas Co. a sales allowance of $2,400 for defective merchandise
purchased on December3. No merchandise was returned.
31 Pippen Companyreceived the balance due from Thomas Co.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Pippen Company.
(b) Calculate the gross profit earned by Pippen in Decemberon the abovetransactions.
(c) Assume that Thomas Co. paid Pippen Companyin full on December 13 instead of December 31.
Record this journalentry. Calculate the gross profit earned by Pippen using this assumption.
E5—4 Collegiate Office Supply sells various office furniture items and uses a perpetual inventory Record and postinventory
system. At the beginning of October,it had nooffice chairs in stock. The following events occurred ansactions and adjusting
entry—perpetual system.
uring October and November::
during
(SO 2, 3, 4) AP
Oct. 6 Purchased 100 office chairs from Katts Ltd. for $68 each, terms n/30, FOB shippingpoint.
7 Paid $200 cash to Freight Company for the delivery of the chairs.
9 Sold 30 chairs to Butler Inc. for $135 each on credit, terms n/30, FOB destination. (Hint: Note
10
11
31
Noy. 5
8
that the freight charges from the October7 transaction will increase the costper chair.)
Paid $30 cash to Freight Companyforthe delivery of the chairs to Butler Inc.
Gave Butler Inc. credit for five returned chairs. The chairs were returned to inventory.
Counted the inventory and determined there were 74 chairs on hand.
Paid Katts Ltd. for the chairs purchased on October6.
Received paymentfrom ButlerInc. for the amount owing.
Instructions
(a) Record the above transactions and events.
(b) Post the appropriate entries to the Merchandise Inventory and Cost of Goods Sold accounts and
determinetheir ending balances.
E5—5 On June 10, Pele Company purchased $5,000 of merchandise from Duvall Company, terms Record inventory transactions
2/10, n/30, FOB shipping point. Pele paid $300 offreight costs to Hoyt Movers on June 11. Damaged 24 clea entries—
goodstotalling $500 were returned to Duvall for credit on June 12. On June 20, Pele paid Duvall ae
Companyin full. On July 15, Pele sold all of the remaining merchandise purchased from Duvall for
_
$8,500 cash. On that same date, Pele paid $250 of freight costs to AAA Transit to deliver the goods
to the customer. OnJuly 17, Pele gave its customer a $300 cash sales allowance for damaged goods.
Pele uses a perpetual inventory system.
Instructions
(a) Record each of the above transactions on the books of Pele Company.
(b) Prepare closing entries on July 31 for the temporary accounts.
E5—6
Financial information follows for three different companies:
r
Natural Cosmetics
Mattar Grocery
Sales
Sales returns and allowances
Netsales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Other expenses
Net income
Instructions
Determine the missing amounts.
$95,000
(a)
84,000
56,000
(b)
15,000
(c)
4,000
(d)
$
(e)
5,000
95,000
(f)
38,000
(g)
(h)
7,000
10,000
Allied Wholesalers
.
$148,000
12,000
(i)
(j)
24,000
18,000
(k)
(1)
5,000
Calculate missing amounts.
(SO 5) AP
ee
262 CHAPTER 5
Prepare multiple-step
and single-step income
statements and closing
entries—perpetual system.
($0.4, 5) AP
>
Accounting for Merchandising Operations
E5—7 Thefollowing information from Chevalier Company’s general ledgeris presented belowfor
the year ended December31, 2008:
Advertising expense
$ 45,000
Interest revenue
Cost of goods sold
Delivery expense
985,000
25,000
Merchandise inventory
Salaries expense
Amortization expense
G. Chevalier, capital
G. Chevalier, drawings
Insurance expense
Interest expense
125,000
Loss on sale of equipment
535,000
150,000
15,000
Sales
Sales discounts
Sales returns and allowances
70,000
Unearned sales revenue
$
30,000
10,000
92,000
875,000
.
2,400,000
8,500
41,000
8,000
Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement.
(c) Prepare closing entries.
Classify accounts of
merchandising company.
(SO 5) K
E5—8
pany:
Youare given the followinglist of accounts from the adjusted trial balance of Swirsky Com-
Accounts payable
Accountsreceivable
t
-
Land
Merchandise inventory
Accumulated amortization—office building
Mortgage payable
Accumulated amortization—store equipment Office building
Advertising expense
Prepaid insurance
Amortization expense
B. Swirsky, capital
B. Swirsky, drawings
Cash
Freight out
Insurance expense
Property tax payable
Salaries expense
Salaries payable
Sales
Sales discounts
Sales returns and allowances
Interest payable
Interest revenue
Unearnedsales revenue
Utilities expense
Interest expense
Store equipment
Instructions
For each account, identify whetherit should be reported on the balance sheet, statement of owner's
equity, or income statement. Assuming Swirsky Company preparesa classified balance sheet and
a multiple-step income statement, specify how the account should beclassified. For example, Accounts Payable would beclassified undercurrentliabilities on the balance sheet.
Calculate profitability ratios. ~
(SO 6) AN
“
E5—9 Best Buy Co., Inc. reported the following information forthree recentfiscal years (in U.S.
millions):
Sales
Cost of goodssold
Operating income
Net income
2005
2004
2003
$27,433
$24,548
$20,943
1,304
705
1,010
99
20,938
1,442
984
*
18,677
15,998
Instructions
Calculate the gross profit margin and profit margin for Best Buyfor each of the three years. Also
calculate profit margin using operating income as opposedto net income. Comment on whetherthe
ratios improved or weakenedoverthe three years.
|
|
Problem: Set A
*E5—10
The Furano Companyhad the following merchandise transactions in May:
<
263
Record purchase and
May 2 Purchased $1,200 of merchandise from Digital Suppliers, terms 2/10, n/30, FOB shipping
point.
2 The correct company paid $100 freight costs.
3 Returned $200 of the merchandise to Digital as it did not meet specifications.
9 Paid Digital the balance owing.
12 Sold three-quarters of the remaining merchandise to SunDial Company for$1,500, terms
sales transaction entries—
perpetual and periodic
systems.
(SO 2, 3, 7) AP
2/10, n/30.
14 SunDial complained that some of the merchandise was slightly damaged. Furano gave
SunDiala sales allowance of $100.
22 Received the correct balance owing from SunDial.
Instructions
(a) Prepare journalentries for Furano Companyassumingit uses a perpetual inventory system.
(b) Prepare journal entries for Furano Company assumingit uses a periodic inventory system.
b
*E5—11
Here arethe costof goods sold sections for four companies:
Beginning inventory
Purchases
Purchase returns and allowances
Purchase discounts
Net purchases
Freightin
Determine missing amounts
Co. 1
Co. 2
Co. 3
$ 250
$1120
$1,000
(b)
1,230
7,940
Cost of goods purchased
Cost of goodsavailable for sale
Ending inventory
Cost of goods sold
1,500
65
25
(a)
110
(c)
310
(d)
1,080
40
(e)
1,030
(f)
(g)
(h)
1,230
for cost of goods sold
Co. 4
(i)
290
160
7,210
(j)
(k)
1,450
7,490
$
section.
(i)
0 aha
43,590
(m)
400
42,090
2,240
(n)
49,530
(0)
43,300
Instructions
Fill in the missing amounts to complete the cost of goodssoldsections.
*E5—12
31, 2008:
Thefollowing selected information is for Okanagan Companyforthe year ended January
Accounts receivable
Freight in
25,000
10,000
Purchase discounts
Purchase returns and allowances
Freight out
Insurance expense
7,000
12,000
Rent expense
Salaries expense
61,000
Sales discounts
Interest expense
Merchandise in¥entory, beginning
Merchandise inventory, ending
O. Pogo, capital
O. Pogo, drawings
Purchases
6,000
42,000
105,000
42,000
200,000
Instructions
(a) Prepare a multiple-step income statement.
(b) Prepareclosing entries.
20,000
61,000
Salaries payable
Sales
2,500
315,000
Sales returns and allowances
Unearned sales revenue
1,000
6,000
‘
4,000
13,000
4,500
Prepare multiple-step income
statement and closing
entries.
(SO 7) AP
a
264 CHAPTER 5
>
Accounting for Merchandising Operations
Problems: Set A
Identify problems and
viseala inventory
P5—1A Home Décor Companysells a variety of home decorating merchandise, includingpictures,
small furniture items, dishes, candles, and area rugs. The companyusesa periodic inventory system
and counts inventory once a year. Most customersuse the option to purchase on account and many
take more than a month to pay. The owner of Home Décor, Rebecca Sherstabetoff, has decided that
the company needs a bank loan because the accounts payable need to be paid long before the accounts receivable are collected. The bank manageris willing to give Home Décor a loan but wants
monthly financial statements.
Rebecca has also noticed that while some of her merchandise sells very quickly, other items
do not. Sometimes she wonders just how long she has had someof those older items. She has also
noticed that she seemsto run out of some merchandise items on a regular basis. And she is wondering howsheis goingto find time to countthe inventory every month so she can prepare the monthly
financial statements for the bank. She has cometo youforhelp.
(SO 1)C
Instructions
(a) Explain to Rebecca what an operating cycle is and whysheis having problemspaying herbills.
(b) Explain to Rebecca how herinventory system is contributing to her problems.
(c) Make a recommendation about what inventory system she should use and why.
Recordinventory transactions
P5—2A
Phantom Book Warehouse distributes hardcover booksto retail stores and extends credit
sestonnempetualsytem
terms of n/30 to all of its customers. Phantom uses a perpetual inventory system and at the end of
(SO 2, 3) AP
‘May had an inventory of 230 books purchased at $6 each. During the month of June, the following
merchandise transactions occurred:
June 1 Purchased 160 books on accountfor $6 each from Reader’s World Publishers, terms n/30.
3 Sold 150 books on account to Book Nook for $10 each.
6 Received $60 credit for 10 books returned to Reader's World Publishers.
18 Issued a $50 credit memorandum to Book Nookfor the return of five damaged books. The
books were determined to be no longersaleable and were destroyed.
20 Purchased 110 books on account for $6 each from Read More Publishers, terms n/30,
FOB destination.
27 Sold 100 books on account to Readers Bookstore for $10 each.
28 Granted Readers Bookstore $150 credit for 15 returned books. These books were restored
to inventory.
30 Paid Reader's World Publishers in full.
30 Received the balance owing from Book Nook.
Re
Instructions
(a) Record the transactions for the month of June for Phantom Book Warehouse.
(b) Create a T account for merchandise inventory. Post the opening balance and June’s transactions,
and calculate the June 30 balance.
(c) How many books does Phantom have on hand on June 30? Whatis the relationship between the
numberof books on hand and the balance in the merchandise inventory account?
Record inventory
cereenonePerpetual
(SO 2, 3) AP
P5-—3A_
‘Transactions follow for Leeland Company during October and November of the current
year. Leeland uses a perpetual inventory system.
Oct. 2 Purchased merchandise on account from Gregory Companyat a cost of $70,000, terms
2/10, n/30, FOB shippingpoint.
4 The correct company paid freight charges of $1,800 to Rail Company for shipping the
merchandise purchased on October2.
5 Returned damaged goods having gross invoice cost of $6,000 to Gregory Company. Received a creditfor this.
11 Paid Gregory Companythe balance owing for the October 2 purchase.
Problems: Set A
<
265
Oct. 17 Sold all of the remaining merchandise purchased from Gregory Company to Kurji Company for $92,500, terms 2/10, n/30, FOB shipping point.
18 The correct company paid Intermodal Co. $1,500 freight costs for the October17 sale.
19 Issued Kurji Companya sales allowance of $2,500 because someof the goods did not meet
Kurji’s exact specifications.
27 Received the balance owing from Kurji Companyfor the October17 sale.
Noy. 1 Purchased merchandise on account from Romeo Companyat a cost of $85,000, terms
1/15, n/30, FOB destination.
2 The correct companypaid freight charges of $2,200.
3 Obtained a purchase allowance of $3,000 from Romeo Company to compensate for some
minor damageto the goods purchased on November1.
5 Sold all of the merchandise purchased from Romeo Company to Barlow Companyfor
$109,300, terms 2/10, n/30, FOB destination.
6 The correct companypaid freight charges of $2,600.
7 Issued Barlow a credit of $7,000 for returned goods. These goods had cost Leeland $5,250
and were returned to inventory.
29 Received a cheque from Barlow Companyfor the balance owing on the November5 sale.
30 Paid Romeo Company the amount owing on the November1 purchase.
Instructions
Prepare journalentries to record the abovetransactions for Leeland Company.
P5—4A Copple Hardware Store had the following merchandising transactions in the month of May.
At the beginning of May, Copple’s ledger showed Cash $15,000 and B. Copple, Capital, $15,000.
nu
BB
W
May 1 Purchased 120 tool sets for resale from Lathrop Wholesale Supply Co. for $5,800, terms
2/10, n/30, FOB shippingpoint.
The correct company paid $200 cash forfreight charges on the May 1 merchandise purchase.
Sold 30 of the tool sets on account for $2,250, terms 2/10, n/30, FOB destination.
The correct company paid $100 freight on the May4 sale.
Issued a credit memorandum forthe return of three tool sets sold on May 4. The tool sets
\o 0
were returned to inventory.
10
12
19
24
Purchased supplies for $900 cash.
Purchased merchandise from Harlow Distributors for $2,000, terms 2/10, n/30, FOB
shipping point.
The correct company paid $300 freight on the May 9 purchase.
Received $200 credit from Harlow Distributors for returned merchandise.
Paid Harlow Distributors for the balance owing.
Sold one-half of the remaining merchandise purchased from Harlow for $2,600 cash. The
merchandise sold had a cost of $1,032.
25 Purchaséd merchandise from Horicon Inc. for $1,000, terms n/30, FOB destination.
27 Received collectionsin full from customers billed on May4.
28 Madecash refunds to customers for returned merchandise, $100. The returned merchan28
29
3]
31
dise had a cost of $70 and wasrestored to inventory.
Purchased merchandise for $2,400 cash.
Received a $230 refund from a supplier for poor-quality merchandise purchased with cash.
Paid Lathrop Wholesale Supply for the balance owing.
Sold merchandise on accountfor $1,600, FOB shippingpoint, terms n/30. The costof the
merchandise sold was $1,000.
Instructions
(a) Record the transactions assuming Copple uses a perpetual inventory system.
(b) Set up general ledger accounts, enter the beginning cash and capital balances, and post the
transactions.
(c) Prepare a partial multiple-step income statement, up to gross profit, for the month of May 2008.
(d) Prepare the current assets section of the balance sheet at May 31, 2008.
hs
Record and post inventory
transactions—perpetual
system. Prepare partial
income statement and
balance sheet.
(SO 2, 3, 5) AP
|
266 CHAPTER 5
Prepare adjusting and closing
entries—perpetual system.
Prepare financial statements.
Accounting for Merchandising Operations
>
P5—5A
The unadjusted trial balance of Global Enterprises for the year ending December31,
2008. follows:
(SO 4, 5) AP
GLOBAL ENTERPRISES
Trial Balance
December 31, 2008
Cash
Accountsreceivable
Merchandise inventory
Supplies
Prepaid insurance
Land
Building
Accumulated amortization—building
Office equipment
Accumulated amortization—office equipment
$ 10,360
31,500
28,955
2,940
1,980
30,000
150,000
45,000
$ 18,750
9,000
Accounts payable
30,250
Unearned sales revenue
Mortgage payable
I. Rochefort, capital
I. Rochefort, drawings
Sales
Sales returns and allowances
Sales discounts
Cost of goodssold
Salaries expense
4,000
35,500
5275
2,635
171,225
30,950
Utilities expense
5,100
Interest expense
9,975
$561,395
161,250
74,275
263,870
~
\
$561,395
Otherdata:
Ui
Bw
Dd
.
.
.
.
The 12-monthinsurancepolicy was purchased on February 1, 2008.
There was $650 of supplies on hand on December31, 2008.
The building has a 40-year useful life and the equipment has a 10-year usefullife.
Accrued interest expense at December31, 2008, is $895.
. Unearned sales revenue of $975 is still unearned at December 31, 2008. On the sales that were
earned, the cost of goods sold was $2,000.
SN
. A physical count of merchandise inventory indicates $26,200 on hand on December31, 2008.
7 Of the mortgage payable, $9,000 is to be paid in 2009.
8. Ingrid Rochefort invested $7,500 cash in the business on May 21, 2008.
Instructions
(a) Prepare the adjusting journalentries assuming they are prepared annually.
(b) Prepare a multiple-step income statement, statement of owner's equity, and classified balance
sheet.
(c) Prepare the closing entries.
Prepare adjusting and closing
entries, and multiple-step
and single-step income
statements—perpetual
system. Calculate ratios.
(SO 4,5, 6) AP
P5—6A_
Thetrial balance of Poorten Wholesale Centre contained the following accounts at No-
vember30, the company’s fiscal year end:
Problems: Set A
<
267
POORTEN WHOLESALE CENTRE
Trial Balance
November 30, 2008
_ Debit
Cash
$
Accounts receivable
Merchandise inventory
Supplies
;
a
Notes receivable
Land
Building
Accumulated amortization—building
Delivery equipment
Accumulated amortization—delivery equipment
15,700
45,200
1,500
25,000
60,000
85,000
48,000
Accounts payable
12,000
‘
Interest revenue
17,000
‘24,000
132,000
750,300
1,620
Sales returns and allowances
Sales discounts
4,200
3,750
Cost of goods sold
Advertising expense
497,500
26,400
Amortization expense
Freight out
Insurance expense
10,125
16,700
3,420
Interest expense
3,700
Salaries expense
Supplies expense
Utilities expense
Otherdata:
$
3,000
51,000
K. Poorten, capital
Sales
\
48,500
Unearnedsales revenue
Mortgage payable
K. Poorten, drawings
Credit
12,100
136,625
6,500
14,000
$1,027,420
$1,027,420
—
1. All adjustments have been recorded and posted except for the inventory adjustment. Merchandise inventory actually on hand at November 30, 2008, is $42,600.
,
2. Last year, Poorten Wholesale had a gross profit margin of 35% and a proht margin of 5%.
Instructions
(a) Pkepare the adjusting entry.
(b) Prepare a mulfiple-step income statement.
(c) Prepare a single-step income statement.
(d) Compare the two income statements and commenton the usefulness of each one.
e) Calculate the gross profit margin and profit margin for 2008. Comparetheseresults to the previ(e)
ous year’s results and comment onanytrends.
'
(f) Prepare the closing entries. Post to the Income Summaryaccount. Check that the balance in
Income Summarybeforeclosing it is equal to net income.
|
268 CHAPTER 5
Prepare financial statements
and closing entries, and
calculate ratios—perpetual
system.
(SO 4, 5, 6) AP
>
Accounting for Merchandising Operations
P5—7A_
Analphabetical list of Betty's Boutique’s adjusted accountbalancesatits fiscal year end,
March 31, 2008, follows. All accounts have normal balances.
Accounts payable
Accounts receivable
Accumulated amortization—
$ 24,200
4,870
office furniture
6,680
store equipment
12,320
Accumulated amortization—
Amortization expense
B. Tainch, capital
B. Tainch, drawings
Cash
Costof goods sold
Insurance expense
Interest expense
Interest payable
Loss on sale of equipment
4,750
65,780
90,800
9,975
277,750
1,280
1,615
360
510
Merchandise inventory
Note payable
Office furniture
Prepaid insurance
Rent expense
Salaries expense
Salaries payable
Sales
Sales discounts
Sales returns and allowances
Store equipment
Supplies
Supplies expense
Unearnedsales revenue
$ 78,200
21,500
16,700
1,280
61,000
91,545
2,100
550,545
2,129
5,445
30,800
840
5,040
1,640
Otherdata:
1. Of the notes payable, $5,000 becomes due on January31, 2009. The balance is due in 2010.
2. On August 7, 2007, Betty invested $1,000 cash in the business.
3. The average gross profit margin for this industry is 45%.
Instructions
(a) Prepare a multiple-step income statement, statement of owner's equity, and classified balance
sheet.
(b) Prepare closing entries.
(c) Calculate the gross profit margin and profit margin.
(d) Compare Betty’s Boutique’s gross profit margin to the industry average, and comment.
Calculate ratios and
comment.
P5—8A_
Thefollowing information (in thousands) is for Danier Leather Inc.:
(SO 6) AN
Current assets
Current liabilities
Sales revenue
Cost of goods sold
Net income
2005
2004
2003
$ 52,455
8,170
166,350
82,863
$ 54,579
10,377
175,270
88,742
$ 46,223
9,350
175,487
88,788
(185)
(7,097)
5,394
Instructions
(a) Calculate the gross profit margin, profit margin, and currentratio for Danier Leather for 2005,
2004, and 2003. Commenton whetherthe ratios have improved or weakenedoverthethreeyears.
(b) Compare the profit margins and currentratios to the following industry averages: 2005 profit
margin, 3.9%; 2004 profit margin, 3.6%; 2003 profit margin, 1.5%; and 2005 currentratio, 2.1
to 1. State whether Danier Leather’s ratios are better or worse than those ofits industry.
Record inventory
*P5—9A
system.
(SO 7) AP
Instructions
Record inventory
*P5—10A
system.
Instructions
(SO 7) AP
Record the October and Novembertransactions for Leeland Companyassuminga periodic inventory
system is used instead of a perpetual inventory system.
transactions—periodic
transactions—periodic
Data for Phantom Book Warehouse are presented in P5—2A.
Record the June transactions for Phantom Book Warehouse assuminga periodic inventory system is
used instead of a perpetual inventory system.
Data for Leeland Companyare presented in P5—3A.
Problems: Set B
*P5—11A Data for Copple Hardware Store are presented in P5—4A. A physical inventory count
shows the company has $7,922 of inventory on hand at May 31, 2008.
Instructions
(a) Record the transactions assuming Copple uses a periodic inventory system.
(b) Set up general ledger accounts, enter the beginning cash and capital balances, and post the
<
269
Record and post inventory
transactions—periodic
system. Prepare partial
income statement.
(SO 7) AP
transactions.
(c) Prepare a partial multiple-step income statement, up to gross profit, for the month of May 2008.
*P5—12A ‘The following is an alphabetical list of Tse’s Tater Tots’ adjusted account balancesat the
end of the company’s fiscal year on December31, 2008:
Accounts payable
Accountsreceivable
Accumulated amortization—
building
Accumulated amortization—
equipment
Amortization expense
$ 56,200
19,400
51,800
42,900
23,400
Purchase discounts
Purchase returns and allowances
Purchases
22,000
Salaries payable
Building
190,000
Equipment
110,000
Cash
Freight in
H. Tse, capital
H. Tse, drawings
Insurance expense
Interest expense
Interest revenue
Inventory, Jan. 1, 2008
Mortgage payable
Property tax expense
Property tax payable
5,600
178,600
28,000
7,200
5,400
1,050
Salaries expense
$ 40,500
80,000
4,800
4,800
Prepare financial statements
and closing entries—periodic
system.
(SO 7) AP
4,450
6,400
441,600
122,500
3,500
Sales
Sales discounts
Sales returns and allowances
Supplies
Supplies expense
Unearnedsales revenue
Utilities expense
623,000
6,200
8,000
400
2,000
2,300
18,000
Additional facts:
1. Merchandise inventory on December31, 2008, is $72,600.
2. Of the mortgage payable, $7,300 is to be paid during the nextyear.
Instructions
(a) Howdo you know from thelist of accounts that Tse uses a periodic inventory system?
(b) Prepare a multiple-step income statement, a statement of owner's equity, and classified balance sheet.
(c) Prepare the closing journal entries.
(d) Post the closing entries to the inventory and capital accounts. Check that the balancesin these
accounts are the same as the amounts on the balancesheet.
~
Problems: Set B
\
P5—-1B_ AAA DognrCatShopsells a variety of merchandise for the pet owner, including petfood,
grooming supplies, toys, and kennels. Most customers use the option to purchase on account and
take 60 days, on average, to pay their accounts. The owner of AAA Dog n’ Cat Shop, Adam Fleming,
has decided the company needsa bank loan because the accounts payable needto be paid in 30 days.
Adam estimates thatit takes 45 days, on average, to sell merchandise from the timeit arrives at his
store. Since the companyearns a goodprofit every year, the bank manageris willing to give AAA Dog
n Cat Shop a loan but wants monthly financial statements.
Adam has also noticed that while some of the merchandise sells very quickly, other items do not.
Sometimes he wonders just how long he has had someof thoseolderitems. He hasalso noticed that
he seems to run out of some merchandise items on a regular basis. Adam is also concerned about
Identify problems and
recommend inventory
system.
(SO 1) C
270 CHAPTER 5
>
Accounting for Merchandising Operations
preparing monthly financial statements. The companyusesa periodic inventory system and Adam
counts inventory once a year. He is wondering how heis goingto calculate the cost of goods sold for
the month without counting the inventory at the end of every month. He has cometo youforhelp.
Instructions
(a) Explain to Adam what anoperating cycle is and why he is having problemspaying thebills.
(b) Explain to Adam howtheperiodic inventory system is contributing to his problems.
(c) Make a recommendation about what inventory system the company should use and why.
Record inventory transactions
P5—2B
and post te inventery
Travel Warehouse distributes suitcases to retail stores and extends credit terms of n/30 to
all of its customers. Travel Warehouse uses a perpetual inventory system and at the end ofJune its
.
.
.
:
.
inventory consisted of 40 suitcases purchased at $30 each. During the monthofJuly, the following
merchandising transactions occurred:
account—perpetual system.
ene
July 1 Purchased 50 suitcases on accountfor $30 each from Trunk Manufacturers, FOB destina- »
tion, terms n/30.
2 Received $150 credit for five suitcases returned to Trunk Manufacturers because they
were the wrong colour.
3 Sold 35 suitcases on account to Satchel World for $55 each.
4 Issued a $55 credit memorandum to Satchel World for the return of a damaged suitcase.
The suitcase was determined to be no longersaleable and was destroyed.
18 Purchased 60 suitcases on account for $1,700 from Holiday Manufacturers, FOB shipping
point, terms n/30.
18 Paid $100 freight to AA Trucking Company for merchandise purchased from Holiday
.
Manufacturers.
21 Sold 54 suitcases on accountto Fly-By-Nightfor $55 each.
23 Gave Fly-By-Night $220 credit for four returned suitcases. The suitcases were in good
condition and wererestored to inventory.
30 Paid Trunk Manufacturersin full.
31 Received balance owing from Satchel World.
Instructions
(a) Record the transactions for the month ofJuly for Travel Warehouse.
(b) Create a T account for merchandise inventory. Post the opening balance and July’s transactions,
and calculate the July 31 balance.
(c) Howmanysuitcases does Travel Warehouse have on hand onJuly 31? Whatis the relationship between the numberof suitcases on hand andthe balance in the merchandise inventory account?
Record inventory
Ee epee
(SO 2, 3) AP
P5-—3B Presented beloware selected transactions for Norlan Company during September and
Octoberof the current year. Norlan uses a perpetual inventory system.
&
Sept. 1 Purchased merchandise on account from Hillary Companyat a cost of $65,000, FOB shipping point, terms 1/15, n/30.
2 The correct companypaid $2,000 of freight charges to Trucking Companyon the September 1 merchandise purchase.
5 Returned damaged goods having a gross invoice cost of $7,000 to Hillary Company. Received a credit forthis.
15 Sold all of the remaining merchandise purchased from Hillary Companyto Irvine Company for $90,000, FOB shippingpoint, terms 2/10, n/30.
17 Issued Irvine Companya credit of $4,000 for returned goods. These goods had cost Norlan
Company $2,400 and were returned to inventory.
Oct.
25 Received the balance owing from Irvine Companyfor the September15 sale.
30 Paid Hillary Companythe balance owing for the September 1| purchase.
1 Purchased merchandise on account from Kimmel Companyat a cost of $50,000, FOB
destination, terms 2/10, n/30.
2 The correct companypaid freight costs of $1,200 on the October 1 purchase.
,
Problems: Set B
<<
271
Oct. 3 Obtained a purchase allowance of $2,000 from Kimmel Company to compensate for some
minor damage to goods purchased on October1.
10 Paid Kimmel Company the amount owing on the October | purchase.
11 Sold all of the merchandise purchased from Kimmel Company to Kieso Companyfor
$80,000, FOB destination, terms 2/10, n/30.
12 The correct company paid $800 freight costs on the October11 sale.
17 Issued Kieso Companya salesallowanceof $1,500 because someof the goodsdid not meet
Kieso’s exact specifications.
31 Received a cheque from Kieso Companyfor the balance owing on the October 11 sale.
Instructions
Prepare journal entries to record the abovetransactions for Norlan Company.
P5—4B
__Nisson Distributing Companyhadthefollowing merchandisingtransactions in the month
Record and postinventory
of April 2008. At the beginning of April, Nisson’s ledger showed Cash $9,000 and M. Nisson, Capi- @nsactions—perpetual
system. Prepare partial
tal, $9,000.
income statement and
Nu BW
Apr. 2 Purchased 100 tables for resale from Kananaskis Supply Co. for $8,900, terms 1/15, n/30,
FOB shipping point.
The correct companypaid $100 cash for freight charges on the April 2 purchase.
Sold 80 of these tables on accountfor $145 each, terms 2/10, n/30, FOB destination.
The correct company paid $75 freight on the April 4 sale.
Issued a credit memorandum forthe returnof four tables sold on April 4. The tables were
returned to inventory.
balance sheet.
ae, EER
:
8 Purchased merchandise from Testa Distributors for $4,200, terms 2/10, n/30, FOB destination.
.
9 The correct company paid $110 freight costs on the April 8 purchase.
10 Received a $300 credit from Testa for returned merchandise.
18 Paid Testa the balance owing from the April 8 purchase.
23 Sold merchandise for $6,400 cash. The cost of this merchandise was $5,200.
24 Purchased merchandise for $3,800 cash.
25 Made refunds to cash customers for merchandise, $90. The returned merchandise had a
cost of $60. The merchandise wasreturned to inventory for future resale.
26 Received a $500 refund from a supplier for returned goods on the cash purchaseof April 24.
26 Purchased merchandise for $2,300 cash.
28 Collected the balance owing from customerbilled on April 4.
30 Sold merchandise on account for $3,800, terms n/30, FOB shipping point. Nisson’s cost
for this merchandise was $2,700.
|
30 Paid Kananaskis Supply Co. the amountdue.
Instructions
(a) Record the trarfsactions assuming Nisson uses a perpetualinventory system.
(b) Set up general ledger accounts, enter the beginning cash and capital balances, and post the
transactions.
(c) Prepare a partial multiple-step income statement, up to gross profit, for the month of April 2008.
(d) Prepare the current assets section of the balance sheet at the end of April.
||
|
i
|
EE
272 CHAPTER 5
Prepare adjusting and closing
entries—perpetual system.
Prepare financial statements.
>
Accounting for Merchandising Operations
P5—5B_
follows:
The unadjusted trial balance of World Enterprises for the year ending December 31, 2008,
(SO 4, 5) AP
WORLD ENTERPRISES
Trial Balance
December 31, 2008
Cash
Accounts receivable
Merchandise inventory
Supplies
Prepaid insurance
Office furniture
Accumulated amortization—office Furniture
Store equipment
Accumulated amortization—store equipment
$ 12,550
30,600
27,850
1,650
1,800
26,800
$ 10,720
42,000
8,400
Accounts payable
34,400
Note payable
36,000
Unearned sales revenue
S. Kim, capital
S. Kim, drawings
Sales
Sales returns and allowances
Sales discounts
Cost of goods sold
Salaries expense
Rent expense
3,000
59,700
45,850
238,500
4,600
1,450
157,870
31,600
6,100
$390,720
$390,720
—
Otherdata:
1. The 12-month insurancepolicy was purchased on August 1, 2008.
2. There is $750 of supplies on hand on December31, 2008.
3. Both the store equipmentand office furniture have an estimated 10-yearusefullife.
4. Accrued interest expense at December 31, 2008, is $2,520.
5. Of the unearned sales revenue, $1,950 has been earned by December31, 2008. The cost of
goods sold to earn this revenueis $1,275.
6. A physical count of merchandise inventory indicates $25,600 on hand on December31, 2008.
7. Of the note payable, $6,000 is to be paid in 2009.
8. Seok Kim invested $5,000 cash in the business on July 18, 2008.
Instructions
(a) Prepare the adjusting journal entries assumingthey are prepared annually.
(b) Prepare a multiple-step income statement, statement of owner's equity, and classified balance sheet.
(c) Prepare the closing entries.
Prepare adjusting and closing
entries, and multipie-step
and single-step income
statements—perpetual
system. Calculate ratios.
(SO 4, 5, 6) AP
P5—6B_ Thetrial balance of Club Canada Wholesale Companycontained the following accounts
at December31, the company’s fiscal year end:
|
Problems: Set B
<
273
CLUB CANADA WHOLESALE COMPANY
Trial Balance
December 31, 2008
Debit
Cash
Accounts receivable
Merchandise inventory
Supplies
Notes receivable
Land
Building
Accumulated amortization—building
Equipment
Accumulated amortization—equipment
$
72,400
3,780
30,000
72,000
197,000
83,500
Accounts payable
Unearned revenue
Mortgage payable
E. Martel, capital
E. Martel, drawings
Sales
Cost of goods sold
Amortization expense
Insurance expense
Interest expense
Freight out
Salaries expense
Utilities expense
$
93,575
33,400
37,500
7,550
72,500
Interest revenue
Sales returns and allowances
Sales discounts
Credit
18,875
7,600
186,000
120,265
923,470
1,200
18,050
4,615
712,100
13,275
3,640
8,525
5,900
69,800
9,400
$1,402,960
$1,402,960
Otherdata:
1. All adjustments have been recorded and posted except for the inventory adjustment. Merchandise inventory actually on hand at December 31, 2008, is $70,600.
2. Last year, Canada Club Wholesale had a gross profit margin of 25% and a profit margin of 5%.
Instructions
(a)
(b)
(c)
(d)
(e)
Prepare the adjusting entry.
Prepare a multiple-step income statement.
Prepare a single-step income statement.
Compare the two income statements and commenton the usefulness of each one.
Calculate the gross profit margin and profit margin for 2008. Compare the results to the previous year’s results and commenton any trends.
(f) Prepare the closing entries. Post to the Income Summaryaccount. Checkthat the balance in the
Income Summaryaccountbefore closingit is equal to net income.
!
274 CHAPTER 5
Prepare financial statements
and closing entries, and
calculate ratios—perpetual
>
Accounting for Merchandising Operations
P5—7B_
Analphabetical list of Rikard’s adjusted accountsatits fiscal year end, August 31, 2008,
follows. All accounts have normal balances.
system.
Accounts payable
(SO 4, 5, 6) AP
Accountsreceivable
Accumulated amortization—
office furniture
$29,100
2,570
7,400
Accumulated amortization—
store equipment
Amortization expense
Cash
Cost of goods sold
Gain onsale of equipment
Insurance expense
Interest expense
Interest payable
Merchandise inventory
Note payable
Office furniture
$ 18,500
Prepaid insurance
2,205
R. Martinson, capital
R. Martinson, drawings
52,950
76,000
Rent expense
13,040
5,110
5,640
273,360
625
1,575
1,995
450
91,350
28,500
14,000
Salaries expense
Salaries payable
Sales
Sales discounts
55,000
2,250
457,680
2,275
Store equipment
Supplies
32,600
1,680
Sales returns and allowances
Supplies expense
4,555
5,040
Unearned sales revenue
1,460
Otherdata:
1. Of the notes payable, $5,000 becomes due on February 28, 2009. The balanceis due in 2010.
2. On July 6, 2008, Rikard invested $1,500 cash in the business.
3. The average gross profit margin for this industry is 45%.
Instructions
(a)
(b)
(c)
(d)
Calculate ratios and
comment.
(SO 6) AN
Prepare a multiple-step incomestatement, statement of owner's equity, and classified balance sheet.
Prepareclosing entries.
Calculate the gross profit margin and profit margin.
Compare Rikard’s gross profit margin to the industry average, and comment.
P5—8B
Selected financial information (in U.S. thousands) follows for IPSCO Inc., which is head-
quartered in Regina, Saskatchewan:
s
2005
Sales
Costof goodssold
Net income
Current assets
Currentliabilities
A
2004
$3,032,727
$2,531,390
585,816
454,942
2,051,491
1,517,086
348,776
1,807,339
1,182,455
356,044
f
2003
$1,358,811
1,243,151
4,672
649,302
198,181
Instructions
(a) Calculate the gross profit margin, proht margin, and currentratio for each year.
(b) Evaluate IPSCO’s performanceoverthe three-yearperiod.
Record inventory
*P5—9B
system.
(SO 7) AP
Instructions
Record inventory
*P5—10B
system.
(SO 7) AP
Instructions
transactions—periodic
transactions—periodic
Datafor Travel Warehouse are presented in P5—2B.
Record the July transactions for Travel Warehouse, assuming a periodic inventory system is used
instead of a perpetual inventory system.
Data for Norlan Companyare presented in P5-3B.
Record the September and Octobertransactions for Norlan Company, assuming periodic inventory
system is used instead of a perpetual inventory system.
Continuing Cookie Chronicle
*P5—11B Data for Nisson Distributing Company are presented in P5—4B. A physical inventory
count shows $3,742 of inventory on hand on April 30, 2008.
Instructions
<
275
Record and post inventory
transactions—periodic
system. Prepare partial
income statement.
(SO 7) AP
(a) Record the transactions assuming Nisson usesa periodic inventory system.
(b) Set up general ledger accounts, enter the beginning cash and capital balances, and post the
transactions.
(c) Prepare a partial multiple-step incomestatement, up to gross profit, for the month of April 2008.
*P5—12B The followingis an alphabetical list of Bud’s Bakery’s adjusted account balancesat the
end of the company’s fiscal year on November 30, 2008:
Accounts payable
Accounts receivable
Accumulated amortization—
building
Accumulated amortization—
equipment
Amortization expense
Building
B. Hachey, capital
B. Hachey, drawings
Cash
Delivery expense
Equipment
$ 35,910
8,470
96,250
35,000
11,375
175,000
76,800
12,000
12,700
8,200
84,000
Freight in
Insurance expense
5,060
9,000
Interest expense
11,315
Inventory, December 1, 2007
Land
$ 34,360
85,000
Property tax expense
Purchase discounts
Purchase returns and allowances
Purchases
Salaries expense
Salaries payable
Sales
Sales discounts
3,500
6,300
3,315
630,700
121,500
8,000
844,000
4,250
Mortgage payable
Prepaid insurance
Sales returns and allowances
Unearned sales revenue
Utilities expense
142,000
4,500
9,845
3,000
19,800
Additional facts:
1. Of the mortgage payable, $15,500 is due in the next year.
2. Merchandise inventory at November 30, 2008, is $38,550.
Instructions
(a) Howdo you knowfrom thelist of accounts that Bud’s Bakery uses a periodic inventory system?
(b) Prepare a multiple-step income statement, statement of owner's equity, and classified balance
sheet.
(c) Prepare the closing journal entries.
(d) Post closing entries to the inventory and capital accounts. Check that the balances in these accounts are the same as the amountson the balancesheet.
~
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 4. From the information gathered in the previous chapters, follow the instructions below using the general ledger
accounts you have already prepared.)
Because Natalie has had such a successfulfirst few months, sheis considering other opportunities
to develop her business. One opportunity is the sale of fine European mixers. The owner of Kzinski
Supply Co. has approached Natalie to becomethe exclusive Canadian distributorof these fine mixers. The current cost of a mixer is approximately $525 Canadian, and Natalie would sell each one
for $1,050. Natalie comesto you for advice on how to accountfor these mixers. Each appliance has
a serial numberand canbeeasily identified.
Prepare financial statements
and closing entries—periodic
system.
(SO 7) AP