EYK
5-2
Comprehensive Merchandising
Problems—Perpetual
PR O BLE MS
Problem 5-1A
The following information appeared on Glendall Company’s post-closing trial balance spreadsheet as of
October 31, 2013, the end of its fiscal year:
Account
Number
Account Description
Balance1
101
Cash................................................................................................
$10,000
106
119
128
165
166
201
202
251
301
413
414
415
502
605
622
633
637
640
Accounts receivable.........................................................................
Merchandise inventory ....................................................................
Prepaid rent ....................................................................................
Store equipment .............................................................................
Accumulated depreciation, store equipment ...................................
Accounts payable ............................................................................
Insurance payable ...........................................................................
Long-term notes payable2 ...............................................................
Wes Glendall, capital .......................................................................
Sales................................................................................................
Sales returns and allowances ...........................................................
Sales discounts ................................................................................
Cost of goods sold ..........................................................................
Depreciation expense, store equipment ..........................................
Salaries expense3 .............................................................................
Interest expense ..............................................................................
Insurance expense3 .........................................................................
Rent expense3 .................................................................................
26,000
38,000
4,000
73,000
11,000
9,000
1,000
45,000
85,000
0
0
0
0
0
0
0
0
655
Advertising expense ........................................................................
0
0
1
Assume account balances are normal.
$5,000 is due during each of the years ended October 31, 2014 and 2015.
3
50% relates to general expenses and 50% to selling and administrative expenses.
2
During the year ended October 31, 2014, the following transactions occurred:
a. Purchased $550,000 of merchandise; terms 2/10, n/30.
b. Sold merchandise for cash; $815,000 (cost of sales $509,000).
c. Paid $10,500 in freight costs regarding the purchase in (a) above.
d. $20,000 of the merchandise purchased in (a) above were returned.
e. Paid for the purchase in (a) above within the discount period.
f. Paid for 12 months of rent in advance; $36,000.
g. Sold $25,000 of merchandise on account; terms 2/10, n/30 (cost of sales $17,000).
h. $3,000 of the $25,000 sale in (g) was returned and restored to inventory (cost of sales $2,040).
i. Paid salaries of $50,000.
j. Made a payment on the long-term loan; $5,000 principal and $1,000 in interest.
k. Collected within the discount period the balance owing regarding the sale in (g).
l. Paid the outstanding insurance bill.
1
2
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Required
1.
Open T-accounts using the information provided in the post-closing trial balance.
2.
Journalize and post transactions (a) through (j).
3.
Prepare an unadjusted trial balance dated October 31, 2014.
4.
Journalize and post adjusting entries dated October 31, 2014, based on the following additional information available on that date:
– $2,000 of the prepaid rent is unexpired.
– Annual depreciation on the store equipment is $5,500.
– $14,000 of advertising had been incurred but was unpaid and unrecorded.
– $700 of insurance expense remained unpaid and unrecorded.
– A physical count of the merchandise inventory revealed a balance on hand of $39,000.
5.
Prepare an adjusted trial balance.
6.
Prepare a single-step income statement and a classified balance sheet.
7.
Journalize and post closing entries.
8.
Prepare a post-closing trial balance.
Analysis Component The gross profit ratio for the year ended October 31, 2013, was 27%. Calculate the
gross profit ratio for the year ended October 31, 2014, and determine whether the change was favourable or unfavourable.
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
3
Problem 5-1B
The following information appeared on Tuxall Company’s post-closing trial balance spreadsheet as of
March 31, 2013, the end of its fiscal year:
Account
Number
Account Description
Balance1
101
106
119
128
165
166
201
202
251
301
413
414
415
502
605
622
633
637
640
655
Cash...............................................................................................
Accounts receivable........................................................................
Merchandise inventory ...................................................................
Prepaid rent ...................................................................................
Store equipment ............................................................................
Accumulated depreciation, store equipment ..................................
Accounts payable ...........................................................................
Insurance payable ..........................................................................
Long-term notes payable2 ..............................................................
Sasha Tuxall, capital .......................................................................
Sales...............................................................................................
Sales returns and allowances ..........................................................
Sales discounts ...............................................................................
Cost of goods sold .........................................................................
Depreciation expense, store equipment .........................................
Salaries expense3 ............................................................................
Interest expense .............................................................................
Insurance expense3 ........................................................................
Rent expense3 ................................................................................
Advertising expense .......................................................................
$ 65,000
203,000
420,000
84,000
498,000
56,000
178,000
24,000
192,000
820,000
0
0
0
0
0
0
0
0
0
0
1
Assume account balances are normal.
$25,000 is due during each of the years ended March 31, 2014 and 2015.
3
25% relates to general expenses and 75% to selling and administrative expenses.
2
During the year ended March 31, 2014, the following transactions occurred:
a. Purchased $2,900,000 of merchandise; terms 3/10, n/30.
b. Sold merchandise for cash; $3,400,000 (cost of sales $2,720,000).
c. Paid $140,000 in freight costs regarding the purchase in (a) above.
d. $150,000 of the merchandise purchased in (a) above was returned.
e. Paid for the purchase in (a) above 45 days after the date of purchase.
f. Paid for 12 months of rent in advance; $120,000.
g. Sold $650,000 of merchandise on account; terms 1/10, n/30 (cost of sales $520,000).
h. $15,000 of the $650,000 sale in (g) was returned and scrapped due to damages (cost of sales $12,000).
i. Paid salaries of $320,000.
j. Made a payment on the long-term loan; $25,000 principal and $8,500 in interest.
k. Collected the balance owing regarding the sale in (g) 25 days after the transaction date.
l. Paid half of the outstanding insurance bill.
Required
1. Open T-accounts using the information provided in the post-closing trial balance.
2. Journalize and post transactions (a) through (j).
3. Prepare an unadjusted trial balance dated March 31, 2014.
4. Journalize and post adjusting entries dated March 31, 2014, based on the following additional information available on that date:
– $190,000 of the balance in prepaid rent has expired.
– Annual depreciation on the store equipment is $28,000.
– $85,000 of advertising had been incurred but was unpaid and unrecorded.
– $8,000 of insurance expense remained unpaid and unrecorded.
– A physical count of the merchandise inventory revealed a balance on hand of $42,000.
5. Prepare an adjusted trial balance.
6. Prepare a single-step income statement and a classified balance sheet.
7. Journalize and post closing entries.
8. Prepare a post-closing trial balance.
Analysis Component Inventory shrinkage for the year ended March 31, 2013, represented 12% of the
adjusted balance in cost of goods sold on March 31, 2013. Does this compare favourably or unfavourably to the situation on March 31, 2014?