66124 appc c1-c14 · purchased $30,000 of merchandise on account from owen clothing, terms 2/10,...

a p p e n d i x CPeriodic Inventory Systems for Merchandising Businesses

In this text, we emphasize the perpetual inventory system of accounting for pur-chases and sales of merchandise. Not all merchandise businesses, however, use per-petual inventory systems. For example, some managers/owners of small merchandisebusinesses, such as locally owned hardware stores, may feel more comfortable us-ing manually kept records. Because a manual perpetual inventory system is time-consuming and costly to maintain, the periodic inventory system is often used inthese cases.

Merchandise Transactions in a Periodic Inventory SystemIn a periodic inventory system, the revenues from sales are recorded when sales aremade in the same manner as in a perpetual inventory system. However, no attemptis made on the date of sale to record the cost of the merchandise sold. Instead, themerchandise inventory on hand at the end of the period is counted. This physicalinventory is then used to determine (1) the cost of merchandise sold during the pe-riod and (2) the cost of merchandise on hand at the end of the period.

In a periodic inventory system, purchases of inventory are recorded in a pur-chases account rather than in a merchandise inventory account. No attempt is madeto keep a detailed record of the amount of inventory on hand at any given time.

The purchases account is normally debited for the amount of the invoice beforeconsidering any purchases discounts. Purchases discounts are normally recorded ina separate purchases discounts account.1 The balance of this account is reportedas a deduction from the amount initially recorded in Purchases for the period. Thus,the purchases discounts account is viewed as a contra (or offsetting) account toPurchases.

Purchases returns and allowances are recorded in a similar manner as purchasesdiscounts. A separate account is used to keep a record of the amount of purchasesreturns and allowances during a period. Purchases returns and allowances are re-ported as a deduction from the amount initially recorded as Purchases. Like Pur-chases Discounts, the purchases returns and allowances account is a contra (oroffsetting) account to Purchases.

When merchandise is purchased FOB shipping point, the buyer is responsible forpaying the freight charges. In a periodic inventory system, freight charges paid whenpurchasing merchandise FOB shipping point are debited to Transportation In, FreightIn, or a similarly titled account.

To illustrate the recording of merchandise transactions in a periodic system, wewill use the following selected transactions for Taylor Co. We will also explain howthe transaction would have been recorded under a perpetual system.

June 5. Purchased $30,000 of merchandise on account from Owen Clothing, terms 2/10, n/30.

Purchases 30,000Accounts Payable—Owen Clothing 30,000

Under the perpetual inventory system, such purchases would be recorded in the mer-chandise inventory account at their cost, $30,000.

1Some businesses prefer to credit the purchases account. If this alternative is used, the balance of the purchases ac-count will be a net amount—the total purchases less the total purchases discounts for the period.

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lansara

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Appendix C • Periodic Inventory Systems for Merchandising BusinessesC-2

June 8. Returned merchandise purchased on account from Owen Clothing onJune 5, $500.

Accounts Payable—Owen Clothing 500Purchases Returns and Allowances 500

Under the perpetual inventory system, returns would be recorded as a credit to themerchandise inventory account at their cost of $500.

June 15. Paid Owen Clothing for purchase of June 5, less return of $500 anddiscount of $590 [($30,000 � $500) � 2%].

Accounts Payable—Owen Clothing 29,500Cash 28,910Purchases Discounts 590

Under a perpetual inventory system, a purchases discount account is not used. Insteadthe merchandise inventory account is credited for the amount of the discount, $590.

June 18. Sold merchandise on account to Jones Co., $12,500, 1/10, n/30. The cost ofthe merchandise sold was $9,000.

Accounts Receivable—Jones Co. 12,500Sales 12,500

The entry to record the sale is the same under both systems. Under the perpetual in-ventory system, the cost of merchandise sold and the reduction in merchandise in-ventory would also be recorded on the date of sale.

June 21. Received merchandise returned on account from Jones Co., $4,000. The cost of the merchandise returned was $2,800.

Sales Returns and Allowances 4,000Accounts Receivable—Jones Co. 4,000

The entry to record the sales return is the same under both systems. In addition, thecost of the merchandise returned would be debited to the merchandise inventory ac-count and credited to the cost of merchandise sold account under the perpetual in-ventory system.

June 22. Purchased merchandise from Norcross Clothiers, $15,000, terms FOBshipping point, 2/15, n/30, with prepaid transportation charges of $750 added to the invoice.

Purchases 15,000Transportation In 750

Accounts Payable—Norcross Clothiers 15,750

This entry is similar to the June 5 entry for the purchase of merchandise. Since thetransportation terms were FOB shipping point, the prepaid freight charges of $750must be added to the invoice cost of $15,000. Under the perpetual inventory system,the purchase is recorded in the merchandise inventory account at the cost of $15,750(invoice price plus transportation).

June 28. Received $8,415 as payment on account from Jones Co., less return ofJune 21 and less discount of $85 [($12,500 � $4,000) � 1%].

Cash 8,415Sales Discounts 85

Accounts Receivable—Jones Co. 8,500


Appendix C • Periodic Inventory Systems for Merchandising Businesses C-3

This entry is the same under the perpetual inventory system.

June 29. Received $19,600 from cash sales. The cost of the merchandise sold was $13,800.

Cash 19,600Sales 19,600

The entry to record the sale is the same under both systems. Under the perpetual in-ventory system, the cost of merchandise sold and the reduction in merchandise in-ventory would also be recorded on the date of sale.

The multiple-step income statement under the periodic inventory system is il-lustrated in Exhibit 1. The multiple-step income statement under a perpetual in-ventory system is similar, except that the cost of merchandise sold is reported asa single amount.

Chart of Accounts for a Periodic Inventory SystemExhibit 2 is the chart of accounts for NetSolutions when a periodic inventory sys-tem is used. The periodic inventory accounts related to merchandising transactionsare shown in color.

End-of-Period Procedures in a Periodic Inventory SystemThe end-of-period procedures are generally the same for the periodic and perpet-ual inventory systems. In the remainder of this appendix, we will discuss the dif-ferences in procedures for the two systems that affect the work sheet, the adjustingentries, and the closing entries. As the basis for illustrations, we will use the datafor NetSolutions, presented in Chapter 6.

Work SheetThe differences in the work sheet for a merchandising business that uses the periodicinventory system are highlighted in the work sheet for NetSolutions in Exhibit 3. Aswe illustrated earlier, accounts for purchases, purchases returns and allowances, pur-chases discounts, and transportation in are used in a periodic inventory system.

Under the periodic inventory system, the merchandise inventory account, through-out the accounting period, shows the inventory at the beginning of the period. Themerchandise inventory on January 1, 2007, $59,700, is a part of the merchandiseavailable for sale. At the end of the period, the beginning inventory amount in theledger is replaced with the ending inventory amount. To update the inventory ac-count, two adjusting entries are used.2 The first adjusting entry transfers the begin-ning inventory balance to Income Summary. This entry, shown below, has the effectof increasing the cost of merchandise sold and decreasing net income.

Dec. 31 Income Summary 59,700Merchandise Inventory 59,700

2Another method of updating the merchandise inventory account at the end of the period is called the closing method.This method adjusts the merchandise inventory through the use of closing entries. This method may not be appropriatefor use in computerized accounting systems. Since the financial statements are the same under both methods and sincecomputerized accounting systems are used by most businesses, the closing method is not illustrated.



After the first adjusting entry has been recorded and posted, the balance of themerchandise inventory account is zero. The second adjusting entry records the costof the merchandise on hand at the end of the period by debiting Merchandise In-ventory. Since the merchandise inventory at December 31, 2007, $62,150, is sub-tracted from the cost of merchandise available for sale in determining the cost of

•Exhibit 1•Exhibit 1 Multiple-Step Income Statement—Periodic Inventory System

NetSolutionsIncome Statement

For the Year Ended December 31, 2007

Revenue from sales:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Sales returns and allowances . . . . . . . . . .

Sales discounts . . . . . . . . . . . . . . . . . . . . .

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost of merchandise sold:

Merchandise inventory, January 1, 2007 . . . . .

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Purchases returns and allowances . . . . . .

Purchases discounts . . . . . . . . . . . . . . . . .

Net purchases . . . . . . . . . . . . . . . . . . . . . . . . . .

Add transportation in . . . . . . . . . . . . . . . . . . . .

Cost of merchandise purchased . . . . . . . . . . . .

Merchandise available for sale . . . . . . . . . . . . . . .

Less merchandise inventory,

December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .

Cost of merchandise sold . . . . . . . . . . . . . . .

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses:

Selling expenses:

Sales salaries expense . . . . . . . . . . . . . . . . .

Advertising expense . . . . . . . . . . . . . . . . . .

Depreciation expense—store equipment . . .

Miscellaneous selling expense . . . . . . . . . .

Total selling expenses . . . . . . . . . . . . . . .

Administrative expenses:

Office salaries expense . . . . . . . . . . . . . . . .

Rent expense . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation expense—office equipment . . .

Insurance expense . . . . . . . . . . . . . . . . . . . .

Office supplies expense . . . . . . . . . . . . . . . .

Miscellaneous administrative expense . . . .

Total administrative expenses . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . .

Income from operations . . . . . . . . . . . . . . . . . . . .

Other income and expense:

Rent revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$708,255

525,305

$182,950

105,710

$ 77,240

1,840

$ 75,400

$9,100

2,525

$ 6,140

5,790

$521,980

11,625

$510,355

17,400

$ 56,230

10,860

3,100

630

$ 21,020

8,100

2,490

1,910

610

760

$720,185

11,930

$ 59,700

$527,755

$587,455

62,150

$ 70,820

34,890

$ 600

2,440



merchandise sold, Income Summary is credited. This credit has the effect of de-creasing the cost of merchandise available for sale during the period, $587,455, bythe cost of the unsold merchandise. The second adjusting entry is shown below.

Dec. 31 Merchandise Inventory 62,150Income Summary 62,150

After the second adjusting entry has been recorded and posted, the balance ofthe merchandise inventory account is the amount of the ending inventory. The ac-counts for Merchandise Inventory and Income Summary after both entries have beenposted would appear in T account form as follows:

Merchandise Inventory

2007Jan. 1 Beginning inventory 59,700 Dec. 31 Beginning inventory 59,700Dec. 31 Ending inventory 62,150

Income Summary

Dec. 31 Beginning inventory 59,700 Dec. 31 Ending inventory 62,150

No separate adjusting entry can be made for merchandise inventory shrinkagein a periodic inventory system. This is because no perpetual inventory records areavailable to show what inventory should be on hand at the end of the period.

•Exhibit 2•Exhibit 2 Chart of Accounts—Periodic Inventory System

Balance Sheet Accounts Income Statement Accounts

100 Assets 400 Revenues110 Cash 410 Sales111 Notes Receivable 411 Sales Returns and Allowances112 Accounts Receivable 412 Sales Discounts115 Merchandise Inventory

500 Costs and Expenses116 Office Supplies510 Purchases117 Prepaid Insurance511 Purchases Returns and120 Land

Allowances123 Store Equipment512 Purchases Discounts124 Accumulated Depreciation—513 Transportation InStore Equipment520 Sales Salaries Expense125 Office Equipment521 Advertising Expense126 Accumulated Depreciation—522 Depreciation Expense—StoreOffice Equipment

Equipment200 Liabilities 523 Transportation Out

210 Accounts Payable 529 Miscellaneous Selling Expense211 Salaries Payable 530 Office Salaries Expense212 Unearned Rent 531 Rent Expense215 Notes Payable 532 Depreciation Expense—Office

300 Owner’s EquityEquipment

310 Chris Clark, Capital533 Insurance Expense

311 Chris Clark, Drawing534 Office Supplies Expense

312 Income Summary539 Misc. Administrative Expense

600 Other Income610 Rent Revenue

700 Other Expense710 Interest Expense



•Exhibit 3•Exhibit 3 Work Sheet—Periodic Inventory System

NetSolutions Work Sheet

For the Year Ended December 31, 2007

Cash

Accounts Receivable


Office Supplies

Prepaid Insurance

Land

Store Equipment

Accum. Depr.—Store Equipment

Office Equipment

Accum. Depr.—Office Equipment

Accounts Payable

Salaries Payable

Unearned Rent

Notes Payable (final payment, 2017)

Chris Clark, Capital

Chris Clark, Drawing

Income Summary

Sales

Sales Returns and Allowances

Sales Discounts

Purchases

Purchases Returns & Allowances

Purchases Discounts

Transportation In

Sales Salaries Expense

Advertising Expense

Depr. Expense—Store Equipment

Miscellaneous Selling Expense

Office Salaries Expense

Rent Expense

Depr. Expense—Office Equipment

Insurance Expense

Office Supplies Expense

Misc. Administrative Expense

Rent Revenue

Interest Expense

Net Income

52,950

91,080

59,700

1,090

4,560

20,000

27,100

15,570

18,000

6,140

5,790

521,980

17,400

55,450

10,860

630

20,660

8,100

760

2,440

940,260

2,600

2,230

22,420

2,400

25,000

153,800

720,185

9,100

2,525

940,260

Account Title

Trial Balance

(a)59,700

(c) 610

(d) 1,910

(e) 3,100

(f) 2,490

(g) 1,140

(b)62,150

(h) 600

131,700

Dr. Cr.

AdjustedTrial BalanceAdjustments

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

BalanceSheet

IncomeStatement

52,950

91,080

62,150

480

2,650

20,000

27,100

15,570

18,000

59,700

6,140

5,790

521,980

17,400

60,030

10,860

3,100

630

21,020

8,100

2,490

1,910

610

760

2,440

1,009,140

5,700

4,720

22,420

1,140

1,800

25,000

153,800

62,150

720,185

9,100

2,525

600

1,009,140

59,700

6,140

5,790

521,980

17,400

60,030

10,860

3,100

630

21,020

8,100

2,490

1,910

610

760

2,440

719,160

75,400

794,560

62,150

720,185

9,100

2,525

600

794,560

794,560

52,950

91,080

62,150

480

2,650

20,000

27,100

15,570

18,000

289,980

289,980

5,700

4,720

22,420

1,140

1,800

25,000

153,800

214,580

75,400

289,980

(b) 62,150

(h) 600

(a)59,700

(g) 780

(e) 3,100

(g) 360

(f) 2,490

(d) 1,910

(c) 610

131,700

(a) Beginning merchandise inventory, $59,700.(b) Ending merchandise inventory, $62,150.(c) Office supplies used, $610 ($1,090 � $480).(d) Insurance expired, $1,910.(e) Depreciation of store equipment, $3,100.

(f ) Depreciation of office equipment, $2,490.(g) Salaries accrued but not paid (sales salaries,

$780; office salaries, $360), $1,140.(h) Rent earned from amount received in

advance, $600.



One disadvantage of the periodic inventory system is that inventory shrinkage can-not be measured.3

Completing the Work SheetAfter all of the necessary adjustments have been entered on the work sheet, thework sheet is completed in the normal manner. An exception to the usual practiceof extending only account balances is Income Summary. Both the debit and creditamounts for Income Summary are extended to the Adjusted Trial Balance columns.Extending both amounts aids in the preparation of the income statement becausethe debit adjustment (the beginning inventory of $59,700) and the credit adjustment(the ending inventory of $62,150) are reported as part of the cost of merchandisesold.

The purchases, purchases discounts, purchases returns and allowances, and trans-portation in accounts are extended to the Income Statement Columns of the worksheet, since they are used in computing the cost of merchandise sold. You shouldnote that the two merchandise inventory amounts in Income Summary are extendedto the Income Statement columns. After all of the items have been extended to thestatement columns, the four columns are totaled and the net income or net loss isdetermined.

Financial StatementsThe financial statements for NetSolutions are essentially the same under both theperpetual and periodic inventory systems. The main difference is that the cost ofgoods is reported as a single amount under the perpetual system. Exhibit 1 illus-trates the manner in which cost of merchandise sold is reported in a multiple-stepincome statement when the periodic inventory system is used.4

Adjusting and Closing EntriesThe adjusting entries are the same under both inventory systems, except for mer-chandise inventory. As indicated previously, two adjusting entries for beginning andending merchandise inventory are necessary in a periodic inventory system.

The closing entries differ in the periodic inventory system in that there is no costof merchandise sold account to be closed to Income Summary. Instead, the pur-chases, purchases discounts, purchases returns and allowances, and transportationin accounts are closed to Income Summary.5 To illustrate, the adjusting and closingentries under a periodic inventory system for NetSolutions are shown at the top ofthe following pages.

3Any inventory shrinkage that does exist is part of the cost of merchandise sold and is reported on the income state-ment, since a smaller ending inventory is deducted from other merchandise available for sale.4The single-step income statement would be the same for both the perpetual and the periodic inventory systems.5The balance of Income Summary, after the merchandise inventory adjustments and the first two closing entries havebeen posted, is the net income or net loss for the period.



59 7 0 0 00

62 1 5 0 00

6 1 0 00

1 9 1 0 00

3 1 0 0 00

2 4 9 0 00

1 1 4 0 00

6 0 0 00

59 7 0 0 00

62 1 5 0 00

6 1 0 00

1 9 1 0 00

3 1 0 0 00

2 4 9 0 00

7 8 0 00

3 6 0 00

6 0 0 00

Income Summary



Income Summary


Office Supplies

Insurance Expense

Prepaid Insurance

Depreciation Expense––Store Equip.

Accumulated Depr.––Store Equip.

Depreciation Expense––Office Equip.

Accumulated Depr.––Office Equip.



Salaries Payable

Unearned Rent

Rent Revenue

JOURNAL Page 16

Date DescriptionPost.Ref. Debit Credit

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Dec.2007 31

31

31

31

31

31

31

31

312

115

115

312

534

116

533

117

522

124

532

126

520

530

211

212

610

Adjusting Entries



732 4 1 0 00

6 1 4 0 00

5 7 9 0 00

521 9 8 0 00

17 4 0 0 00

56 2 3 0 00

10 8 6 0 00

3 1 0 0 00

6 3 0 00

21 0 2 0 00

8 1 0 0 00

2 4 9 0 00

1 9 1 0 00

6 1 0 00

7 6 0 00

2 4 4 0 00

75 4 0 0 00

18 0 0 0 00

720 1 8 5 00

9 1 0 0 00

2 5 2 5 00

6 0 0 00

659 4 6 0 00

75 4 0 0 00

18 0 0 0 00

Sales

Purchases Returns and Allowances

Purchases Discounts

Rent Revenue

Income Summary

Income Summary

Sales Returns and Allowances

Sales Discounts

Purchases

Transportation In


Advertising Expense

Depreciation Exp.––Store Equip.

Miscellaneous Selling Expense


Rent Expense

Depreciation Exp.––Office Equip.

Insurance Expense


Miscellaneous Administrative Exp.

Interest Expense

Income Summary



Chris Clark, Drawing

JOURNAL Page 17

Date DescriptionPost.Ref. Debit Credit

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

Dec.2007 31

31

31

31

410

511

512

610

312

312

411

412

510

513

520

521

522

529

530

531

532

533

534

539

710

312

310

310

311

Closing Entries

EExercisesJournalize entries for the following related transactions, assuming that MountainGallery, Inc. uses the periodic inventory system.

a. Purchased $12,000 of merchandise from Yellowstone Co. on account, terms 2/10,n/30.

b. Discovered that some of the merchandise was defective and returned items withan invoice price of $2,500, receiving credit.

c. Paid the amount owed on the invoice within the discount period.d. Purchased $9,000 of merchandise from Glacier, Inc. on account, terms 1/10, n/30.e. Paid the amount owed on the invoice within the discount period.

Journalize entries for the following related transactions, assuming that Aveda Com-pany uses the periodic inventory system.

EXERCISE C-1Purchases-relatedtransactions—periodicinventory system

EXERCISE C-2Sales-related transactions—periodic inventory system



EXERCISE C-3Adjusting entries formerchandise inventory—periodic inventory system

EXERCISE C-4Identification of missingitems from incomestatement—periodicinventory system

EXERCISE C-5Multiple-step incomestatement—periodicinventory system

�Gross profit: $230,560

EXERCISE C-6Adjusting and closingentries—periodic inventorysystem

July 6 Sold merchandise to a customer for $18,500, terms FOB shipping point,2/10, n/30.

6 Paid the transportation charges of $420, debiting the amount to AccountsReceivable.

9 Issued a credit memorandum for $4,700 to the customer for merchandisereturned.

16 Received a check for the amount due from the sale.

Data assembled for preparing the work sheet for Meridian Co. for the fiscal yearended December 31, 2006, included the following:

Merchandise inventory as of January 1, 2006 $475,000Merchandise inventory as of December 31, 2006 $528,300

Journalize the two adjusting entries for merchandise inventory that would appearon the work sheet, assuming that the periodic inventory system is used.

For (a) through (i), identify the items designated by “X” and “Y.”

a. Sales � (X � Y) � Net salesb. Purchases � (X � Y) � Net purchasesc. Net purchases � X � Cost of merchandise purchasedd. Merchandise inventory (beginning) � Cost of merchandise purchased � Xe. Merchandise available for sale � X � Cost of merchandise soldf. Net sales � Cost of merchandise sold � Xg. Gross profit � Operating expenses � Xh. X � Y � Operating expensesi. Income from operations � X � Y � Net income

Selected data for Canyon Ferry Stores Company for the year ended December 31,2006, are as follows:

Merchandise inventory, January 1 $ 85,760 Sales $1,288,000Merchandise inventory, December 31 102,240 Sales discounts 10,400Purchases 1,051,200 Sales returns and allowances 13,920Purchases discounts 12,800 Transportation in 36,000Purchases returns and allowances 24,800

Prepare a multiple-step income statement through gross profit for Canyon FerryStores Company for the current year ended December 31.

Selected account titles and related amounts appearing in the Income Statement andBalance Sheet columns of the work sheet of Southern Bell Company for the yearended December 31 are listed in alphabetical order as follows:

Administrative Expenses $ 72,000 Purchases $ 820,000Building 312,500 Purchases Discounts 14,000Cash 58,500 Purchases Returns and Allowances 9,000Connie Sorum, Capital 433,080 Salaries Payable 4,220Connie Sorum, Drawing 40,000 Sales 1,450,000Interest Expense 2,500 Sales Discounts 18,000Merchandise Inventory (1/1) 300,000 Sales Returns and Allowances 32,000Merchandise Inventory (12/31) 275,000 Selling Expenses 240,200Notes Payable 25,000 Store Supplies 7,700Office Supplies 10,600 Transportation In 21,300

All selling expenses have been recorded in the account entitled Selling Expenses,and all administrative expenses have been recorded in the account entitled Admin-istrative Expenses. Assuming that Southern Bell Company uses the periodic inven-tory system, journalize (a) the adjusting entries for merchandise inventory and (b)the closing entries.



PProblemsThe following were selected from among the transactions completed by Infinet Shops,Inc., during November of the current year:

Nov. 2. Purchased merchandise on account from Loftin Co., list price $24,000,trade discount 25%, terms FOB destination, 2/10, n/30.

8. Sold merchandise for cash, $8,100.9. Purchased merchandise on account from Chestnut Co., $12,000, terms

FOB shipping point, 2/10, n/30, with prepaid transportation costs of $180added to the invoice.

10. Returned $3,000 of merchandise purchased on November 2 from Loftin Co.11. Sold merchandise on account to Fawcett Co., list price $2,500, trade dis-

count 20%, terms 1/10, n/30.12. Paid Loftin Co. on account for purchase of November 2, less return of

November 10 and discount.15. Sold merchandise on nonbank credit cards and reported accounts to the

card company, American Express, $9,850.19. Paid Chestnut Co. on account for purchase of November 9, less discount.21. Received cash on account from sale of November 11 to Fawcett Co., less

discount.25. Sold merchandise on account to Clemons Co., $3,000, terms 1/10, n/30.28. Received cash from American Express for nonbank credit card sales of

November 15, less $380 service fee.30. Received merchandise returned by Clemons Co. from sale on November 25,

$1,700.

InstructionsJournalize the transactions for Infinet Shops, Inc., in a two-column general journal.

The following were selected from among the transactions completed by Copra Sen-try Company during July of the current year:

July 3. Purchased merchandise on account from Swanson Co., list price $60,000,trade discount 30%, terms FOB shipping point, 2/10, n/30, with prepaidtransportation costs of $1,200 added to the invoice.

4. Purchased merchandise on account from Lambert Co., $8,000, terms FOBdestination, 1/10, n/30.

7. Sold merchandise on account to Walsh Co., list price $12,000, trade dis-count 20%, terms 2/10, n/30.

9. Returned merchandise purchased on July 4 from Lambert Co., $1,300.13. Paid Swanson Co. on account for purchase of July 3, less discount.14. Paid Lambert Co. on account for purchase of July 4, less return of July 9

and discount.17. Received cash on account from sale of July 7 to Walsh Co., less discount.19. Sold merchandise on nonbank credit cards and reported accounts to the

card company, American Express, $7,450.22. Sold merchandise on account to Wu Co., $4,420, terms 2/10, n/30.24. Sold merchandise for cash, $4,350.25. Received merchandise returned by Wu Co. from sale on July 22, $1,610.31. Received cash from American Express for nonbank credit card sales of

July 19, less $290 service fee.

InstructionsJournalize the transactions for Copra Sentry Co. in a two-column general journal.

PROBLEM C-1Sales-related and purchase-related transactions—periodic inventory system

PROBLEM C-2Sales-related and purchase-related transactions—periodic inventory system



The following selected transactions were completed during May between SimkinsCompany and Burk Co.:

May 6. Simkins Company sold merchandise on account to Burk Co., $18,500,terms FOB destination, 2/15, n/eom.

6. Simkins Company paid transportation costs of $600 for delivery of mer-chandise sold to Burk Co. on May 6.

10. Simkins Company sold merchandise on account to Burk Co., $15,750,terms FOB shipping point, n/eom.

11. Burk Co. returned merchandise purchased on account on May 6 fromSimkins Company, $5,500.

14. Burk Co. paid transportation charges of $300 on May 10 purchase fromSimkins Company.

17. Simkins Company sold merchandise on account to Burk Co., $30,000,terms FOB shipping point, 1/10, n/30. Simkins prepaid transportation costsof $1,750, which were added to the invoice.

21. Burk Co. paid Simkins Company for purchase of May 6, less discount andless return of May 11.

27. Burk Co. paid Simkins Company on account for purchase of May 17, lessdiscount.

31. Burk Co. paid Simkins Company on account for purchase of May 10.

InstructionsJournalize the May transactions for (1) Simkins Company and for (2) Burk Co.

The accounts and their balances in the ledger of Sunshine Sports Co. on December31, 2006, are as follows:

Cash $ 28,000 Sales Discounts $ 7,100Accounts Receivable 142,500 Purchases 500,000Merchandise Inventory 200,000 Purchases Returns and Allowances 10,100Prepaid Insurance 9,700 Purchases Discounts 4,900Store Supplies 4,250 Transportation In 11,200Office Supplies 2,100 Sales Salaries Expense 81,400Store Equipment 132,000 Advertising Expense 45,000Accumulated Depreciation— Depreciation Expense—

Store Equipment 40,300 Store Equipment —Office Equipment 50,000 Store Supplies Expense —Accumulated Depreciation— Miscellaneous Selling Expense 1,600

Office Equipment 17,200 Office Salaries Expense 44,000Accounts Payable 56,700 Rent Expense 26,000Salaries Payable — Insurance Expense —Unearned Rent 1,200 Depreciation Expense—Note Payable (final payment, 2013) 100,000 Office Equipment —Sherri Vogel, Capital 159,600 Office Supplies Expense —Sherri Vogel, Drawing 40,000 Miscellaneous AdministrativeIncome Summary — Expense 1,650Sales 960,000 Rent Revenue —Sales Returns and Allowances 11,900 Interest Expense 11,600

The data needed for year-end adjustments on December 31 are as follows:

Merchandise inventory on December 31 . . . . . . . . . . . . . . . . . . . . . . . $215,000Insurance expired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800Supplies on hand on December 31:

Store supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750

Depreciation for the year:Store equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800

Salaries payable on December 31:Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000Office salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 6,000

Unearned rent on December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

PROBLEM C-3Sales-related and purchase-related transactions forseller and buyer—periodicinventory system

PROBLEM C-4Preparation of work sheet,financial statements, andadjusting and closingentries—periodic inventorysystem

�1. Net income: $222,950



Instructions1. Prepare a work sheet for the fiscal year ended December 31, listing all accounts

in the order given.2. Prepare a multiple-step income statement.3. Prepare a statement of owner’s equity.4. Prepare a report form of balance sheet, assuming that the current portion of the

note payable is $10,000.5. Journalize the adjusting entries.6. Journalize the closing entries.


66124 appc c1-c14 · purchased $30,000 of merchandise on account from owen clothing, terms 2/10,...

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