On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

E7-5 (Record sales gross and net) On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for balance due from Chester Company.

Instructions
a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
Sales and receivables are entered at gross selling price.
Sales and receivables are entered at net of cash discounts.
b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

Click here for the solution: On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

Pocras Company buys merchandise on account from Wedell Company

BE5-2 Pocras Company buys merchandise on account from Wedell Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies.

Click here for the solution: Pocras Company buys merchandise on account from Wedell Company

On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

E5-4 On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30. Meredith pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Leinert for credit on June 12. The scrap value of these goods is $150. On June 19, Meredith pays Leinert Company in full, less the purchase discount. Both companies use a perpetual inventory system.

Instructions
(a) Prepare separate entries for each transaction on the books of Meredith Company.
(b) Prepare separate entries for each transaction for Leinert Company. The merchandise purchased by Meredith on June 10 had cost Leinert $5,000.

Click here for the solution: On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

Assume that in Year 1, the ending merchandise inventory is overstated by $30,000

8. Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Years 1 and 2, fill in the items below, indicating which items will be understated, overstated, or correctly stated for Years 1 and 2.

Item Year 1 Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________


Click here for the solution: Assume that in Year 1, the ending merchandise inventory is overstated by $30,000

Garber, Inc. accounts for all sales of its merchandise on the installment basis

Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12:

Cash $ 90,200
Installment Accounts Receivable—2010 170,000
Installment Accounts Receivable—2011 400,000
Installment Accounts Receivable—2012 750,000
Inventory, 1/1/12 78,000
Repossessed Merchandise 22,000
Accounts Payable $ 136,000
Deferred Gross Profit—2010 84,000
Deferred Gross Profit—2011 195,000
Capital Stock 600,000
Retained Earnings 406,200
Installment Sales 1,000,000
Purchases 758,000
Loss on Repossession 3,000
Operating Expenses 150,000
$2,421,200 $2,421,200

Additional Data: 2010 Gross Profit Rate = 30%; Inventory 12/31/12 = $158,000;
Repossessed merchandise 12/31/12 = $15,000;
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared (assume correctly):
Deferred Gross Profit—2011 15,000
Repossessed Merchandise 22,000
Loss on Repossession 3,000
Installment Accounts Receivable—2011 40,000

Instructions
(a) Determine collections during 2012 on Installment A/R for each of the years 2010, 2011, and 2012.

(b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2012 were $1,060,000; $220,000 from 2010, $300,000 from 2011, and $540,000 from 2012. Prepare all necessary adjusting and closing entries at 12/31/12.


Click here for the solution: Garber, Inc. accounts for all sales of its merchandise on the installment basis

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.

Instructions
(a) Prepare journal entries on Hunt Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.


Click here for the solution: On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

Maxley Markets Company sells logo sports merchandise and does custom embroidery

Maxley Markets Company sells logo sports merchandise and does custom embroidery. They are trying to decide whether or not to continue embroidery. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the embroidery were dropped.

Embroidery Apparel Sales
Sales $120,000 $420,000
Variable Costs $90,000 $220,000
Contribution Margin $30,000 $200,000
Direct Fixed Costs $18,000 $70,000
Allocated Common Fixed Costs $20,000 $70,000
Net Income ($ 8,000) $ 60,000

(a) What would be the impact on profits if embroidery was dropped?
(b) Assume that if embroidery was dropped, apparel sales would increase 20%. What is the impact on contribution margin and net income?
(c) Give an example of a cost that is not relevant in this analysis.


Click here for the solution: Maxley Markets Company sells logo sports merchandise and does custom embroidery