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ACCTG311 Lecture Notes - Lecture 8: Perpetual Inventory, Accounts Payable, Gross Profit

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School
University of Alberta
Department
Accounting
Course
ACCTG311
Professor
Kirstin Veugelers

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Document Summary

Manufactures: produce goods for sale to wholesalers, inventory classification for manufacturing companies: raw materials, work in process, finished goods. Merchandising operations: purchasing product(inventory) to resell to customers. The company first has to purchase merchandise for cash or an account payable before it can sell it for cash or an account receivable. Expenses are divided into cogs and operating expense, non-operating revenue and expense. Less: cogs: the total cost of the merchandise that was sold during the period. Less: operating expense: expense that are incurred in the process of earning sales revenue. (salaries, insurance, depreciation) Note: when we talk about inventory we will be talking about goods purchased or held for resale beginning inventory means what you have at the beginning. Cost of goods purchased means what you have purchase during the period. Cost of good sold means what has been sold. Every time a sale is made, inventory is reduced and cogs is recorded.

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Related Questions

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyer’sjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyer’sjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the seller’sjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the seller’s journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the company’s net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

Palisade Creek Co. is a merchandising business that uses theperpetual inventory system. The account balances for Palisade CreekCo. as of May 1, 2016 (unless otherwise indicated), are asfollows:

110 Cash $ 83,600
112 Accounts Receivable 233,900
115 Merchandise Inventory 624,400
116 Estimated Returns Inventory 28,000
117 Prepaid Insurance 16,800
118 Store Supplies 11,400
123 Store Equipment 569,500
124 Accumulated Depreciation-Store Equipment 56,700
210 Accounts Payable 96,600
211 Salaries Payable —
212 Customers Refunds Payable 50,000
310 Lynn Tolley, Capital, June 1, 2015 685,300
311 Lynn Tolley, Drawing 135,000
312 Income Summary —
410 Sales 5,069,000
510 Cost of Merchandise Sold 2,823,000
520 Sales Salaries Expense 664,800
521 Advertising Expense 281,000
522 Depreciation Expense —
523 Store Supplies Expense —
529 Miscellaneous Selling Expense 12,600
530 Office Salaries Expense 382,100
531 Rent Expense 83,700
532 Insurance Expense —
539 Miscellaneous Administrative Expense 7,800

During May, the last month of the fiscal year, the followingtransactions were completed:

Record the following transactions on page 20 of the journal.Refer to the Chart of Accounts for exact wording of accounttitles.

May 1 Paid rent for May, $5,000.
3 Purchased merchandise on account from Martin Co., terms 2/10,n/30, FOB shipping point, $36,000.
4 Paid freight on purchase of May 3, $600.
6 Sold merchandise on account to Korman Co., terms 2/10, n/30,FOB shipping point, $68,500. The cost of the merchandise sold was$41,000.
7 Received $22,300 cash from Halstad Co. on account.
10 Sold merchandise for cash, $54,000. The cost of the merchandisesold was $32,000.
13 Paid for merchandise purchased on May 3.
15 Paid advertising expense for last half of May, $11,000.
16 Received cash from sale of May 6.
19 Purchased merchandise for cash, $18,700.
19 Paid $33,450 to Buttons Co. on account.
20 Paid Korman Co. a cash refund of $13,230 for returnedmerchandise from sale of May 6. The invoice amount of the returnedmerchandise was $13,500 and the cost of the returned merchandisewas $8,000.

Record the following transactions on page 21 of the journal.Refer to the Chart of Accounts for exact wording of accounttitles.

May 20 Sold merchandise on account to Crescent Co., terms 1/10, n/30,FOB shipping point, $110,000. The cost of the merchandise sold was$70,000.
21 For the convenience of Crescent Co., paid freight on sale ofMay 20, $2,300.
21 Received $42,900 cash from Gee Co. on account.
21 Purchased merchandise on account from Osterman Co., terms 1/10,n/30, FOB destination, $88,000.
24 Returned of damaged merchandise purchased on May 21, receivinga credit memo from the seller for $5,000.
26 Refunded cash on sales made for cash, $7,500. The cost of themerchandise returned was $4,800.
28 Paid sales salaries of $56,000 and office salaries of$29,000.
29 Purchased store supplies for cash, $2,400.
30 Sold merchandise on account to Turner Co., terms 2/10, n/30,FOB shipping point, $78,750. The cost of the merchandise sold was$47,000.
30 Received cash from sale of May 20 plus freight paid on May21.
31 Paid for purchase of May 21, less return of May 24.
Required:
1. Download the spreadsheet in the Ledger panel and save the Excelfile to your computer. Use the spreadsheet to post the Maytransactions from the journal to a ledger of four-column accounts.Be sure to save your work in Excel as it will be used to completethe following steps in Part 1 of this problem as well as steps inPart 2 of this problem. Your input into the spreadsheet will not beincluded in your grade in CengageNOW on this problem.
A. Enter the May 1 balances of each of the accounts in theappropriate balance column of a four-column account. Enter May 1 inthe date column. Write Balance in the item section, and enter “X”in the Posting Reference column.
B. Journalize the transactions for May, starting on Page 20 of thejournal.*
2. Post the journal to the general ledger, extending the month-endbalances to the appropriate balance columns after all posting iscompleted. In this problem, you are not required to update or postto the accounts receivable and accounts payable subsidiary ledgers.Add the appropriate posting reference to the journal.
3. Prepare an unadjusted trial balance. Accounts with zerobalances can be left blank.
4. At the end of May, the following adjustment data wereassembled. Analyze and use these data to complete (5) and (6).
• Merchandise inventory on May 31, $570,000
• Insurance expired during the year, $12,000
• Store supplies on hand on May 31, $4,000
• Depreciation for the current year, $14,000
• Accrued salaries on May 31:
Sales salaries, $7,000
Office salaries, $6,600
Total accrued salaries: $13,600
• The adjustment for customer returns and allowances is $60,000for sales and $35,000 for cost of merchandise sold.
5. (Optional) On your own paper or spreadsheet, enter theunadjusted trial balance on a 10-column end-of-period spreadsheet(work sheet), and complete the spreadsheet. Find a blankend-of-period work sheet in the Excel spreadsheet you previouslydownloaded.
6.
A. Journalize the adjusting entries. Record the adjusting entrieson Page 22 of the journal.*
B. Post the adjusting entries. Add the appropriate postingreference to the journal.
7. Prepare an adjusted trial balance. Accounts with zero balancescan be left blank.
* Refer to the Chart of Accounts for exact wording of accounttitles.

17) Which financial statement is prepared last?

A) statement of retained earnings

B) income statement

C) balance sheet

D) The financial statements can be prepared in any order 

 

18) Net sales revenue is calculated by 

A) subtracting sales discounts and estimated sales returns and allowances from sales revenue

B) subtracting cost of goods sold from sales revenue

C subtracting sales discounts and selling expenses from sales revenue

D) adding sales discounts and sales returns and allowances to sales revenue

 

19) Which of the following is the correct formula to calculate weighted- average unit cost for merchandise inventory?

A) Weighted- average unit cost = Cost of goods available for sale x Number of units available

B) Weighted-average unit cost = Cost of goods available for sale/Number of units available 

C) Weighted- average unit cost =  Cost of goods available for sale+ Number of units available

D) Weighted-average unit cost = Cost of goods available for sale- Number of units available

 

20) Which of the following items must be examined by the controller or treasurer before signing a check?

A) the journal entry

C) the confirmation report

B) the ledger

D) the purchase order 

21) At the beginning of 2019, Patriots, Inc. has the following account balances:

Accounts Receivable $45,000 (Debit)

Allowance for Bad Debts $8,000 (Credit)

Bad Debts Expense $0

During the year, credit sales amounted to $810,000. Cash collected on credit sales amounted to $770,000, and $18,000 has been written off. At the end of the year, the company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 3.5%. The amount of bad debt expense for 2019 is.

A) $18,000

B) $18,350

C) $28,350

D) $56,875