ACC 220 Lecture Notes - Lecture 49: Product Return, Income Statement

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24 Feb 2019

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Transfer cost of merchandise from cost of goods sold back to inventory. Example: your company sells goods to a customer on january 5 for ,000 on account. Your company purchased the goods from a vendor for ,800. The customer returns goods with a sales price of and cost of on. If a customer takes advantage of a cash discount, the seller records the discount in a separate account called sales discounts. It is a contra-revenue account, reducing gross sales revenue on the income statement. On january 10, your company receives cash payment from the customer to pay the amount due in full. Example: your company sells goods to a customer on january 5 for ,000 with credit terms 2/15, n/30. On january 25, your company receives cash payment from the customer to pay the amount due in full.

Related Questions

Under the perpetual inventory? system, the adjusting journal entries to record estimated sales returns? (the original sales were on? account) would? be: A. Accounts Receivable XX ???????Sales Revenue XX Sales Revenue XX ???????Cost of Goods Sold XX B. Sales Returns and Allowances XX ???????Cost of Goods Sold XX Merchandise Inventory XX ???????Accounts Receivable XX C. Sales Revenue XX ???????Refunds Payable XX Estimated Returns Inventory XX ???????Cost of Goods Sold XX D. Sales Revenue XX ???????Merchandise Inventory XX Estimated Returns Inventory XX ???????Refunds Payable XX

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Use the following information toanswer the next 11 questions. SELECT ALL ANSWERS THATAPPLY.

On May I. Sam Company sold $5,000of inventory to Bob Company. The sale was made on account and Samgranted Bob credit terms of 2/10. n/30. The inventory cost SamCompany $3,000. On May 3, Bob returned $1,000 of the inventory toSam. (The inventory returned by Bob cost Sam $600.) On May 9, Bobpaid Sam in full for the amount due.

1. What account will Bob debit on May I if the periodicinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

c) Merchandise Inventory

D) Purchases

E) None of the above

2. What account will Bob debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

3. What account will Sam debit on May l if the periodicinventory system, is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

4. What account will Sam debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

5. What journal entry will Bob record on May 3 if the periodicinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase Returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

6. what journal entry will Bob record on May 3 if the perpetualinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

7. what journal entry will Sam record on May 3 if the periodicinventory system is used?

A) debit Merchandise Inventory, $600; credit Cost of Goods Sold,$600.

B) debit Sales, $1,000; credit Accounts Receivable, $1,000.

C) debit Sales, $1,000; credit Cash, $1,000.

D) debit Sales Returns and Allowances, $1,000; credit AccountsReceivable, $1,000.

E) debit Sales Returns and Allowances, $1,000; credit Cash,$1,000.

Capwell Corporation uses a periodic inventory system. Thecompany's ending inventory on December 31, 2018, its fiscal-yearend, based on a physical count, was determined to be $338,000.Capwell's unadjusted trial balance also showed the followingaccount balances: Purchases, $740,000; Accounts payable; $270,000;Accounts receivable, $285,000; Sales revenue, $920,000.

The internal audit department discovered the following items:

Goods valued at $44,000 held on consignment from Dix Companywere included in the physical count but not recorded as apurchase.

Purchases from Xavier Corporation were incorrectly recorded at$64,000 instead of the correct amount of $46,000. The correctamount was included in the ending inventory.

Goods that cost $37,000 were shipped from a vendor on December28, 2018, terms f.o.b. destination. The merchandise arrived onJanuary 3, 2019. The purchase and related accounts payable wererecorded in 2018.

One inventory item was incorrectly included in ending inventoryas 220 units, instead of the correct amount of 1,600 units. Thisitem cost $50 per unit.

The 2017 balance sheet reported inventory of $472,000. Theinternal auditors discovered that a mathematical error caused thisinventory to be understated by $74,000. This amount is consideredto be material. Comparative financial statements will beissued.

Goods shipped to a customer f.o.b. destination on December 25,2018, were received by the customer on January 4, 2019. The salesprice was $52,000 and the merchandise cost $28,000. The sale andcorresponding accounts receivable were recorded in 2018.

Goods shipped from a vendor f.o.b. shipping point on December27, 2018, were received on January 3, 2019. The merchandise cost$30,000. The purchase was not recorded until 2019.

Required:
1. Determine the correct amounts for 2018 endinginventory, purchases, accounts payable, accounts receivable, andsales revenue.
2. Calculate cost of goods sold for 2018.
3. What was the effect of the error in endinginventory on 2017 before-tax income

Determine the correct amounts for 2018 ending inventory,purchases, accounts payable, accounts receivable, sales revenue,and cost of goods sold.


Ending inventory
Purchases
Accounts payable
Accounts receivable
Sales revenue
Cost of goods sold

What was the effect of the error in ending inventory on 2017before-tax income?

2017 before-tax incomewas

ACC 220 Lecture Notes - Lecture 49: Product Return, Income Statement

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