Merchandising Operations and the Accounting Cycle - Pearson

268 Part One The Basic Structure of Accounting
Problem 5-10A Under the perpetual inventory system, accounting for the purchase and
sale of inventory, computing cost of goods sold and gross margin, using
the gross margin percentage to evaluate a business (Obj. 2, 5, 6)
Software Warehouse Inc. uses the perpetual inventory method in tracking its inventory
purchases and sales. All sales that result in a return, allowance, or discount
are tracked in separate accounts in order to give management the proper information
to control operations. The following information is available for the month of
April 2004:
April 1 Inventory on hand at the beginning of the month was $27,600.
2 Purchased $10,000 of merchandise from Microsoft, terms 2/10 n/30. The goods
were expected to be resold for $22,000.
4 Sold merchandise for $14,000 to Coast Logistics Inc., terms 2/10 n/60. The goods
had a cost of $8,000 to Software Warehouse Inc.
6 Software Warehouse Inc. returned $4,000 of defective merchandise purchased
from Microsoft on April 2.
8 Sold merchandise for $16,000 cash; the goods had a cost of $12,000.
9 Purchased $18,000 of merchandise from Corel, terms 2/10 n/30.
10 Software Warehouse Inc. paid the balance owing to Microsoft.
12 Software Warehouse Inc. accepted the return of half of the merchandise sold on
April 8 as it was not compatible with the customer’s needs. The goods were returned
to inventory and a cash refund paid.
18 Paid the balance owing to Corel from the purchase of April 9.
20 Sold merchandise for $8,000 to Robertson Personnel Services Ltd., terms 2/10
n/60. The goods had cost $6,000.
22 Robertson Personnel Services Ltd. complained about the quality of goods it received
and Software Warehouse gave an allowance of $1,000.
25 Purchased $12,000 of merchandise for cash and paid $1,000 for freight.
29 Software Warehouse Inc. sold merchandise for $12,000 to Burnaby Design Studio,
terms 2/10 n/30. The goods had cost $6,000. The terms of the sale where FOB
shipping point, but, as a convenience, Software Warehouse Inc. prepaid $800 of
freight for Burnaby Design Studio.
30 Collected the balance owing from Robertson Personnel Services Ltd.
Required
1. Record any journal entries required for the above transactions.
2. What is the inventory balance on April 30, 2004?
3. Prepare a multi-step income statement, to the point of gross margin, for the
month of April 2004.
4. The average gross margin percentage for the industry is 50 percent; how does
Software Warehouse Inc. compare to the industry?
Problem 5-11A Under the perpetual inventory system, computing cost of goods sold and
gross margin, adjusting and closing the accounts of a merchandising company,
preparing a merchandiser’s financial statements (Obj. 3, 4, 6)
Rapid Kayaks Ltd. has the following account balances (in alphabetical order) on
July 31, 2003:
Accounts payable................................................................ $ 1,450
Accounts receivable ............................................................ 1,550
Accumulated amortization—equipment......................... 4,300
Cash....................................................................................... 500
Common stock..................................................................... 10,000
Cost of goods sold............................................................... 45,650
Dividends............................................................................. 1,000
Equipment............................................................................ 12,000
Interest earned ..................................................................... 400
Inventory .............................................................................. 9,350
Operating expenses............................................................. 24,100
Retained earnings................................................................ 14,250