Apply It: Chapter 5 - Accounting for Merchandising Operations

Apply It: Chapter 5 - Accounting for Merchandising Operations

Directions: Be sure to read the following requirements for this assignment and address each of the stated criteria. There are seven (7) questions total.

The components in the income statements of companies A, B, C, and D follow. Determine the missing amounts. and if it is a Profit or Loss. (8 points)

Sales Cost of

Goods Sold Gross Profit Operating Expenses Profit/(Loss)

Company A $350,000 (a) $122,500 $105,000 (b)

Company B 735,000 367,000 (c) (d) 73,500

Company C 525,000 315,000 (e) 115,500 (f)

Company D (g) 346,500 148,500 188,100 (h)

Presented below are the components in determining the cost of goods sold. Determine the missing amounts. (8 points)

Beginning Inventory Purchases Cost of Goods Available for Sale Ending Inventory Cost of

Goods Sold

1. $25,000 $170,000 (a) $50,000 (b)

2. 108,000 70,000 (c) (d) 90,000

3. 75,000 (e) 130,000 (f) 38,000

4. (g) 75,000 95,000 45,000 (h)

Novellus Electronics Store uses a perpetual inventory system. The company had the following transactions in March.

Mar. 16 Purchased $15,000 of merchandise from Venus Distributors, terms 2/10, n/30, FOB

destination.

Mar. 18 Novellus Electronics Store received an allowance of $750 for the merchandise

purchased on March 16 because of minor damage to the goods.

Mar. 25Paid the balance due to Venus Distributors.

For each transaction, indicate:

(i) the amount that the transaction increased or decreased total assets, total liabilities, and owners equity.

(ii) which accounts were affected by the transaction

(iii) NE (no effect) if the transaction neither increased nor decreased any of these items.

(24 points)

Date Assets Liabilities Owners Equity

March 16 March 18 March 25 The following transactions occurred in April and May. Both companies use a perpetual inventory system.

Apr. 5 Olaf Company purchased merchandise from DeVito Company for $12,000,

term 2/10, n/30, FOB shipping point. DeVito had paid $8,500 for the merchandise.

Apr. 6 The correct company paid freight costs of $300.

Apr. 8 Olaf Company returned damaged merchandise to DeVito Company and was

given a purchase allowance of $1,800. DeVito determined the merchandise could not be repaired and sent it to the recyclers. The merchandise had cost DeVito $1,275.

May 4 Olaf paid the amount due to DeVito Company in full.

Calculate the Gross Profit earned by DeVito on these transactions. (2 point)

Answer:

The following merchandise transactions occurred in December. Both companies use a perpetual inventory system.

Dec. 3 Pippen Company sold merchandise to Thomas Co. for $32,000, terms 2/10,

n/30, FOB destination. This merchandise cost Pippen Company $18,000.

Dec. 4 The correct company paid freight charges of $650.

Dec. 8 Thomas Co. returned unwanted merchandise to Pippen. The returned

merchandise had a sales price of $1,800 and a cost of $990. It was restored to inventory.

Dec. 13 Pippen Company received the balance due from Thomas Co.

Assuming that Thomas Co. had a balance in Merchandise Inventory on December 1 of $6,000, determine:

(i) the balance in the Merchandise Inventory account at the end of December for Thomas Co.

(ii) and, indicate whether it is a debit or credit.

(6 points)

Merchandise Inventory Debit or Credit Balance

SelectLululemon Athletica Inc. reported the following information (in US$ thousands) for the three fiscal years ended:

January 28, 2022 January 29, 2021 January 31. 2020

Net Sales $2,649,181 $2,344,392 $2,060,523

Cost of Goods Sold 1,250,391 1,144,775 1,063,357

Profit from Operations 456,001 421,152 369,076

Profit 258,662 303,381 266,047

Instructions

Calculate the gross profit margin and profit margin for lululemon for each of the three years.

Recalculate profit margin using profit from operations as opposed to profit.

(9 points)

2022 2021 2020

(a) Gross Profit Margin (a) Profit Margin (b) Profit Margin

(Profit from Operations)

Travel Warehouse distributes suitcases to retail stores and extends credit terms of n/30 to all of its customers. Travel Warehouse uses a perpetual inventory system the earnings approach. At the end of June its inventory consisted of 25 suitcases purchased at $30 each. During the month of July, the following merchandising transactions occurred:

July 1 Purchased 50 suitcases on account for $30 each from Trunk Manufacturers, terms

n/30, FOB destination.

July 2 The correct company paid $125 freight on the July 1 purchase.

July 4 Received $150 credit for five suitcases returned to Trunk Manufacturers because they

were damaged.

July 10 Sold 45 suitcases that cost $30 each to Satchel World for $55 each on account.

July 12 Issued a $275 credit for five suitcases returned by Satchel World because they were

the wrong colour. The suitcases were returned to inventory.

July 15 Purchased 60 additional suitcases from Trunk Manufacturers for $27.50 each, terms

n/30, FOB shipping point.

July 18 Paid $150 freight to AA Trucking Company for merchandise purchased from Trunk

Manufacturers.

July 21 Sold 54 suitcases that cost $30 each to Fly-By-Night for $55 each on account.

July 23 Gave Fly-By-Night a $110 credit for two returned suitcases. The suitcases had been

damaged and were sent to the recyclers.

July 30 Paid Trunk Manufacturers for the July 1 purchase.

July 31 Received balance owing from Satchel World.

Determine the number of suitcases on hand at the end of the month. (3 points)

Answer:

Apply It: Chapter 6 - Inventory Costing

Directions: Be sure to read the following requirements for this assignment and address each of the stated criteria. There are four (4) questions total.

The merchandise inventory in Claires Clothing Store was counted after the close of business on December 31, 2021, the companys year-end. It was determined that the total cost of this inventory was $55,500. Claire wants to know if this is the correct amount that should be reported on the companys December 31, 2021, balance sheet or if an adjustment needs to be made for any of the following items:

The count included items costing $1,500 that had been sold but are being held for alterations. The customers have paid in full for these items.

Claires Clothing Store has $4,250 of merchandise held on consignment for a local designer. These items were included in the inventory count.

A shipment of inventory costing $2,875 was received on January 2, 2022. It had been shipped by the seller on December 30, FOB shipping point. Freight charges are $310. These items were not included in the inventory count.

A second shipment of inventory costing $4,350 was received on January 3, 2022. It had been shipped by the seller on December 31, FOB destination. Freight charges are $390. These items were also not included in the inventory count.

Determine the correct amount of Claires Clothing Stores merchandise inventory on December 31, 2021. (5 points)

Answer:

In October, Courtneys Gallery purchased four original paintings for resale for the following amounts:

Painting 1, $500

Painting 2, $2,500

Painting 3, $2,900

Painting 4, $3,900.

Paintings 3 and 4 were sold during October for $6,500 each.

Calculate the cost of goods sold for the month and the ending inventory balance on October 31 using specific identification. (4 points)

Answer:

First Choice Company uses the FIFO cost formula in a perpetual inventory system.

Fill in the missing amounts for items (a) through (k) in the following perpetual inventory record: (16 points)

Purchases Cost of Goods Sold Inventory Balance

Date Units Cost Total Units Cost Total Units Cost Total

Beginning Inventory

June 1 200 $25.00 $5,000 200 $25.00 $5,000

June 7 400 $22.00 $8,800 (a) (b) (c)

June 18 350 (d) (e) (f) (g) (h)

June 26 350 $20.00 $7,000 (i) (j) (k)

EastPoint Toyota, a small dealership, has provided you with the following information with respect to its vehicle inventory for the month of November. The company uses the specific identification method.

Date Explanation Model Serial # Unit Cost Unit Selling Price

Nov. 1 Inventory Corolla C63825 $15,000

Corolla C81362 20,000

Camry G62313 26,000

Venza X3892 27,000

Tundra F1883 22,000

Tundra F1921 25,000

Nov.8 Sales Corolla C81362 $22.000

Camry G62313 28,000

Nov. 12 Purchases Camry G71811 27,000

Camry G71891 25,000

Venza X4212 28,000

Venza X4214 31,000

Nov. 18 Sales Camry G71891 27,000

Venza X3892 31,000

Tundra F1921 29,000

Nov. 23 Purchases Tundra F2182 23,000

Camry G72166 30,000

Determine the cost of goods sold and the ending inventory for the month of November.

(12 points)