Merchandising Operations and the Accounting Cycle - Pearson

April 6 Century Life Products Ltd. returned $1,500 of defective merchandise purchased
from Muzac Corp. on April 2.
8 Sold merchandise for $13,500 cash; the goods had a cost of $9,000.
9 Purchased $12,000 of merchandise from Keiser Corp., terms 2/10 n/30.
10 Century Life Products Ltd.paid the balance owing to Muzac Corp.
12 Century Life Products Ltd. 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 stock and a cash refund paid.
18 Paid the balance owing to Keiser Corp. from the purchase of April 9.
20 Sold merchandise for $7,500 to Clearbrook Health Clubs Ltd., terms 2/10 n/60.
The goods had cost $5,250.
22 Clearbrook Health Clubs Ltd. complained about the quality of goods it received
and Century Life Products Ltd. gave an allowance of $900.
25 Purchased $10,500 of merchandise for cash and paid $600 for freight.
29 Century Life Products Ltd. sold merchandise for $7,500 to England Fitness Ltd.,
terms 2/10 n/30. The goods had cost $4,500. The terms of the sale were FOB
shipping point, but as a convenience, Century Life Products Ltd. prepaid $450 of
freight for England Fitness Ltd. and included the charge on its invoice.
30 Collected the balance owing from Clearbrook Health Clubs Ltd.
Required
274 Part One The Basic Structure of Accounting
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 48 percent; how does
Century Life Products Ltd. compare to the industry?
Problem 5-11B 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)
Saskatoon Skate Products Ltd. has the following account balances (in alphabetical
order) on August 31, 2004:
Accounts payable .............................................................. $ 11,600
Accounts receivable .......................................................... 12,400
Accumulated amortization—equipment....................... 34,400
Cash..................................................................................... 4,000
Common stock................................................................... 45,000
Cost of goods sold............................................................. 221,200
Dividends ........................................................................... 8,000
Equipment.......................................................................... 86,000
Interest earned ................................................................... 3,200
Inventory ............................................................................ 74,800
Operating expenses........................................................... 156,800
Retained earnings.............................................................. 81,000
Sales discounts................................................................... 4,400
Sales returns and allowances........................................... 30,400
Sales revenues.................................................................... 430,000
Supplies .............................................................................. 15,200
Unearned sales revenue ................................................... 8,000
Note: For simplicity, all operating expenses have been summarized in the account
Operating Expenses.
Additional data at August 31, 2004:
a. A physical count of items showed $260 of supplies were on hand.
b. An inventory count showed inventory on hand at August 31, 2004, $72,000.