Question

Use the following information to answer Questions #6 through #10.—Bimbo Bread Company started Year 2 with balances in the following accounts:

ASSETS			CLAIMS
CASH	INVENTORY	LAND	ACCTS. PAYABLE	COMMON STOCK	RET. EARNINGS
25,000	3,000	5,000	0	18,000	15,000

Bimbo experienced the following transactions during Year 2:

• Purchased $16,000 of inventory on account. Terms were 2/10, net 30.
• The inventory purchased above was delivered FOB Shipping Point. Freight costs totaled $600.
• Returned $500 of the inventory purchased above.
• Recorded the cash discount on the goods purchased above and paid the balance due in Accounts Payable within the discount period.
• Recognized $21,000 of cash revenue from the sale of inventory and recognized $15,000 of costs of goods sold.
• The inventory that was sold was shipped FOB, Destination. Freight costs totaled $950.
• Paid $4,000 of selling and administrative expenses in cash.
• Sold the land for $5,600.

1. Cost of Goods Sold totaled __________.

2. The ending balance in the Cash account totaled __________.

3. Net Income totaled __________.

4. The ending balance in the Inventory account totaled __________.

5. The ending balance in the Retained Earnings account totaled __________.

Answer 1

a	Cost of goods sold	15,000
b	The ending balance in the Cash account totaled	30,860
c	Net Income totaled	1,960
d	The ending balance in the Inventory account totaled	4,100
e	The ending balance in the Retained Earnings account totaled	16,960

Works:

(a) Cost of goods sold is given: $15,000. Freight charges of $950 are to be born by the seller but this will not be added to Cost fo goods sold as it as cost of sales.

(b).

Cash A/C
To balance	25,000
		By Freight charges	600
		By supplier (15,500 - 2%)	15,190
To Sales	21,000
		By Freight charges	950
		By Selling and distribution	4,000
To Land	5,600
		By Balance	30,860
	51,600		51,600

.

(c)

Trading and P/L A/C
To Inventory	3,000	By sales	21,000
To Purchases 16,000
Less: Purchase return (500)		By Ending inventory	4,100
Add: Freight 600	16,100
To Gross Profit	6,000
	25,100		25,100
To Freight charges	950	By Gross Profit	6,000
To Selling and distribution	4,000	By gain on sale land	600
		By Cash discount	310
To Net Profit	1,960
	6,910		6,910

.

(d)

Beginning inventory	3,000
Add: Purchases	16,000
Less: Purchase returns	(500)
Add: Freight charges	600
Less: Cost of goods sold	(15,000)
Ending inventory	4,100

.

(e)

Beginning Retained Earnings	15,000
Add: Net Income	1,960
Ending Retained Earnings	16,960