Financial statement data for years ending December 31, 2019 and 2018, for Edison Company follow:

Financial statement data for years ending December 31, 2019 and 2018, for Edison Company follow: 

                                       2019 | 2018

Sales                    $1,884,000 | $1,562,000

Total assets:

Beginning of year      770,000 | 650,000

End of year                800,000 | 770,000

a. Determine the asset turnover for 2019 and 2018. 

b.  Does the change in the asset turnover from 2018 to 2019 indicate a favorable or an unfavorable trend?

Answer:

a.2019 2018 Asset turnover2.4* 2.2** * $1,884,000 ÷ [($770,000 + $800,000) ÷ 2] ** $1,562,000 ÷ [($650,000 + $770,000) ÷ 2] b. The increase from 2.2 to 2.4 indicates a favorable change in using assets to generate sales.

Financial statement data for years ending December 31, 2019 and 2018, for Latchkey Company follow:

Financial statement data for years ending December 31, 2019 and 2018, for Latchkey Company follow:

                                       2019 | 2018

Sales                    $1,734,000 | $1,645,000

Total assets:

Beginning of year      480,000 | 460,000

End of year                540,000 | 480,000

a. Determine the asset turnover for 2019 and 2018. 

b.  Does the change in the asset turnover from 2018 to 2019 indicate a favorable or an unfavorable trend?

Answer:

a.2019 2018 Asset turnover3.4* 3.5** * $1,734,000 ÷ [($480,000 + $540,000) ÷ 2] ** $1,645,000 ÷ [($460,000 + $480,000) ÷ 2] b. The decrease from 3.5 to 3.4 indicates an unfavorable change in using assets to generate sales.

Assume the following data for Casper Company before its year-end adjustments:

Assume the following data for Casper Company before its year-end adjustments:

Unadjusted Balances Debit Credit Sales $1,750,000 Cost of Merchandise Sold $1,000,000 Estimated Returns Inventory 600 Customer Refunds Payable400

Estimated cost of merchandise that will be returned in the next year $8,000

Estimated percent of refunds for current year sales 0.6%

Journalize the adjusting entries for the following:

a. Estimated customer allowances 

b. Estimated customer returns

Answer:

a. 

Sales ($1,750,000 × 0.006) 10,500

          Customer Refunds Payable 10,500

b. 

Estimated Returns Inventory 8,000

           Cost of Merchandise Sold 8,000

Assume the following data for Lusk Inc. before its year-end adjustments:

Assume the following data for Lusk Inc. before its year-end adjustments:

Unadjusted Balances Debit Credit Sales $3,600,000 Cost of Merchandise Sold $2,100,000 Estimated Returns Inventory 1,800 Customer Refunds Payable900

Estimated cost of merchandise that will be returned in the next year $15,000

Estimated percent of refunds for current year sales 0.8%

Journalize the adjusting entries for the following:

a. Estimated customer allowances 

b. Estimated customer returns

Answer:

a. 

Sales ($3,600,000 × 0.008)28,800

        Customer Refunds Payable 28,800

b. 

Estimated Returns Inventory 15,000

         Cost of Merchandise Sold 15,000

Castle Furnishings Company’s perpetual inventory records indicate that $675,400 of merchandise

Castle Furnishings Company’s perpetual inventory records indicate that $675,400 of merchandise should be on hand on November 30, 2019. The physical inventory indicates that $663,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Castle Furnishings Company for the year ended November 30, 2019. Assume that the inventory shrinkage is a normal amount.

Answer:

Nov. 30 

Cost of Merchandise Sold 11,600

        Merchandise Inventory 11,600

         Inventory shrinkage.

         ($675,400 – $663,800)

Hahn Flooring Company’s perpetual inventory records indicate that $1,333,150 of merchandise should be on hand

Hahn Flooring Company’s perpetual inventory records indicate that $1,333,150 of merchandise should be on hand on December 31, 2019. The physical inventory indicates that $1,309,900 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Hahn Flooring Company for the year ended December 31, 2019. 

Assume that the inventory shrinkage is a normal amount.

Answer:

Dec. 31 

Cost of Merchandise Sold 23,250

        Merchandise Inventory 23,250

         Inventory shrinkage.

         ($1,333,150 – $1,309,900)

Sather Co. sold merchandise to Boone Co. on account, $31,800, terms 2/15, n/30. The cost of the merchandise sold is $19,000

Sather Co. sold merchandise to Boone Co. on account, $31,800, terms 2/15, n/30. The cost of the merchandise sold is $19,000. Journalize the entries for Sather Co. and Boone Co. for the sale, purchase, and payment of amount due. Assume all discounts are taken.

Answer:

Sather Co. journal entries:

Accounts Receivable—Boone Co. 31,164 Sales 31,164 [$31,800 – ($31,800 × 2%)] Cost of Merchandise Sold 19,000 Merchandise Inventory 19,000 Cash 31,164 Accounts Receivable—Boone Co. 31,164 Boone Co. journal entries: 

Merchandise Inventory [$31,800 – ($31,800 × 2%)] 31,164 Accounts Payable—Sather Co. 31,164 Accounts Payable—Sather Co. 31,164 Cash 31,164

Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30

Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30. The cost of the merchandise sold is $67,200. Shore Co. paid freight of $1,800. Journalize the entries for Shore Co. and Blue Star Co. for the sale, purchase, and payment of amount due. Assume all discounts are taken.

Answer:

Shore Co. journal entries: Accounts Receivable—Blue Star Co. 109,760 Sales 109,760 [$112,000 – ($112,000 × 2%)]

Cost of Merchandise Sold 67,200 Merchandise Inventory 67,200 Accounts Receivable—Blue Star Co. 1,800 Cash 1,800 Cash 111,560 Accounts Receivable—Blue Star Co. 111,560 ($109,760 + $1,800) Blue Star Co. journal entries:  Merchandise Inventory 111,560 Accounts Payable—Shore Co. 111,560 [$112,000 – ($112,000 × 2%)] + $1,800 Accounts Payable—Shore Co. 111,560 Cash ($109,760 + $1,800) 111,560

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

Merchandise Freight Paid by Seller Freight Terms Returns and Allowances

a. $ 90,000 $1,000 FOB shipping point, 1/10, n/30 $15,000

b. 110,000 1,575 FOB destination, 2/10, n/30 8,500

Answer:

a. $75,250. Purchase of $89,100 [$90,000 – ($90,000 × 1%)] less return of $14,850 [($15,000 – ($15,000 × 1%)] plus $1,000 of shipping.

b. $99,470. Purchase of $107,800 [$110,000 – ($110,000 × 2%)] less return of $8,330 [$8,500 – ($8,500 × 2%)].

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

Merchandise Freight Paid by Seller Freight Terms Returns and Allowances

a. $36,000 $800 FOB destination, 1/10, n/30 $4,000

b. 44,900 375 FOB shipping point, 2/10, n/30 2,400

Answer:

a. $31,680. Purchase of $35,640 [$36,000 – ($36,000 × 1%)] less return of $3,960 [$4,000 – ($4,000 × 1%)].

b. $42,025. Purchase of $44,002 [$44,900 – ($44,900 × 2%)] less return of $2,352 [$2,400 – ($2,400 × 2%)] plus $375 of shipping.

Journalize the following merchandise transactions: a. Sold merchandise on account, $92,500 with terms 1/10, n/30

Journalize the following merchandise transactions:

a. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the merchandise sold was $55,500.

b. Received payment less the discount.

c. Issued a credit memo for returned merchandise that was sold for $10,400 terms n/30. 

The cost of the merchandise returned was $6,500.

Answer:

a. Accounts Receivable [$92,500 – ($92,500 × 1%)] 91,575 Sales 91,575 Cost of Merchandise Sold 55,500 Merchandise Inventory 55,500 b. Cash 91,575 Accounts Receivable 91,575

c. Customer Refunds Payable 10,400 Accounts Receivable 10,400 Merchandise Inventory 6,500 Estimated Returns Inventory 6,500

Journalize the following merchandise transactions: a. Sold merchandise on account, $72,500 with terms 2/10, n/30. The cost of the merchandise sold was $43,500.

Journalize the following merchandise transactions:

a. Sold merchandise on account, $72,500 with terms 2/10, n/30. The cost of the merchandise sold was $43,500.

b. Received payment less the discount.

c. Issued a credit memo for returned merchandise that was sold for $2,300 terms n/30. 

The cost of the merchandise returned was $1,600.

Answer:

a. Accounts Receivable [$72,500 – ($72,500 × 2%)] 71,050 Sales 71,050 Cost of Merchandise Sold 43,500 Merchandise Inventory 43,500 b. Cash 71,050 Accounts Receivable 71,050 c. Customer Refunds Payable 2,300 Accounts Receivable 2,300 Merchandise Inventory 1,600 Estimated Returns Inventory 1,600

Halibut Company purchased merchandise on account from a supplier for $18,600, terms 2/10, n/30. Halibut Company returned $5,000

Halibut Company purchased merchandise on account from a supplier for $18,600, terms 2/10, n/30. Halibut Company returned $5,000 of the merchandise and received full credit.

a. If Halibut Company pays the invoice within the discount period, what is the amount of cash required for the payment?

b. What account is credited by Halibut Company to record the return?

Answer:

a. $13,328. Purchase of $18,228 [$18,600 – ($18,600 × 2%)] less the return of $4,900 [$5,000 – ($5,000 × 2%)]

b. Merchandise Inventory

Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30.

Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30. Hoffman Company returned $7,500 of the merchandise and received full credit.

a. If Hoffman Company pays the invoice within the discount period, what is the amount of cash required for the payment?

b. What account is debited by Hoffman Company to record the return?

Answer:

a. $56,925. Purchase of $64,350 [$65,000 – ($65,000 × 1%)] less the return of $7,425 [$7,500 – ($7,500 × 1%)]

b. Accounts Payable—Hoffman Company

During the current year, merchandise is sold for $315,800 cash and $1,225,000 on account.

During the current year, merchandise is sold for $315,800 cash and $1,225,000 on account. 

The cost of the merchandise sold is $875,000. What is the amount of the gross profit?

Answer:

a. $665,800 ($315,800 + $1,225,000 – $875,000)

During the current year, merchandise is sold for $18,300 cash and $295,700 on account.

During the current year, merchandise is sold for $18,300 cash and $295,700 on account. 

The cost of the merchandise sold is $188,000. What is the amount of the gross profit?

Answer:

a. $126,000 ($18,300 + $295,700 – $188,000)