Question

C6-1 Accounting for Inventory Orders, Purchases, Sales, Returns, and Discounts (Chapters 5 and 6) [LO 5-4, LO 6-3, LO 6-4, LO 6-5]

[The following information applies to the questions displayed below.]

1.	On October 1, the Business Students’ Society (BSS) placed an order for 100 golf shirts at a unit cost of $21, under terms 2/10.
2.	The order was received on October 10, but 10 golf shirts had been damaged in shipment.
3.	On October 11, the damaged golf shirts were returned.
4.	On October 12, BSS complained that the remaining golf shirts were slightly defective so the supplier granted a GL $290 allowance.
5.	BSS paid for the golf shirts on October 13.
6.	During the first week of October, BSS received student and faculty orders for 90 golf shirts, at a unit price of $39.00, on terms 2/10, n/30.
7.	The golf shirts were delivered to these customers on October 18. Unfortunately, customers were unhappy with the golf shirts, so BSS permitted them to be returned or gave an allowance of $9.00 per shirt.
8.	On October 21, one-half of the golf shirts were returned.
9.	On October 22, the remaining 45 customers were granted the allowance on account.
10.	The customers paid their remaining balances during the week of October 25.

rev: 02_04_2016_QC_CS-40209

References

Section BreakC6-1 Accounting for Inventory Orders, Purchases, Sales, Returns, and Discounts (Chapters 5 and 6) [LO 5-4, LO 6-3, LO 6-4, LO 6-5]

1.

value:
2.50 points

Required information

C6-1 Part 1

Required:
1.	Prepare journal entries for the transactions described above, using the date of each transaction as its reference. Assume BSS uses perpetual inventory accounts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

     

rev: 10_19_2016_QC_CS-65599, 11_07_2016_QC_CS-68868

References

eBook & Resources

General JournalDifficulty: 3 HardLearning Objective: 06-04 Analyze sales transactions under a perpetual inventory system.

C6-1 Part 1Learning Objective: 06-03 Analyze purchase transactions under a perpetual inventory system.Learning Objective: 06-05 Prepare and analyze a merchandiser's multistep income statement.

Check my work

2.

value:
2.50 points

Required information

C6-1 Part 2

2.	Report the financial effects of the above transactions in a multistep income statement for the month ended October 31 prepared for internal use. Assume operating expenses, other than cost of goods sold, are $100 and income tax expense is $135.

     

References

eBook & Resources

Financial StatementsDifficulty: 3 HardLearning Objective: 06-04 Analyze sales transactions under a perpetual inventory system.

C6-1 Part 2Learning Objective: 06-03 Analyze purchase transactions under a perpetual inventory system.Learning Objective: 06-05 Prepare and analyze a merchandiser's multistep income statement.

Check my work

3.

value:
2.50 points

Required information

C6-1 Part 3

3.	Determine the percentage of net sales that is available to cover operating expenses other than cost of goods sold. (Round your answers to the nearest whole percentage amount.)

    

References

eBook & Resources

WorksheetDifficulty: 3 HardLearning Objective: 06-04 Analyze sales transactions under a perpetual inventory system.

C6-1 Part 3Learning Objective: 06-03 Analyze purchase transactions under a perpetual inventory system.Learning Objective: 06-05 Prepare and analyze a merchandiser's multistep income statement.

Check my work

4.

value:
2.50 points

Required information

C6-1 Part 4

4-a.	As of October 31, the check dated October 13 had not cleared the bank. How should BSS report this on its October 31 bank reconciliation?

        

4-b.	Give the journal entry, if any needed as a result of including the item discussed in requirement 4-a in the bank. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

         

References

eBook & Resources

General JournalDifficulty: 3 HardLearning Objective: 06-04 Analyze sales transactions under a perpetual inventory system.

C6-1 Part 4Learning Objective: 06-03 Analyze purchase transactions under a perpetual inventory system.

Answer 1

Journal entries
Transaction	General Journal	Debit	Credit
1	Inventory	2100
	Account payable		2100
	(To record purchase of inventory.) (21*100)
3	Account payable	210
	Inventory		210
	(To record damaged golf shirts were returned.) (21*10)
4	Account payable	290
	Inventory		290
	(To record BSS complained that the remaining golf shirts were slightly defective so the supplier granted a GL $290 allowance.)
5	Account payable	1600
	Cash		1600
	(To record paid for the golf shirts on October 13.) (2100-210-290)
6	Account receivable	3510
	Sales revenue		3510
	(To record sales revenue received student and faculty orders for 90 golf shirts.) (90*39)
6	Cost of goods sold	1600
	Inventory		1600
	(To record cost of goods sold.) (net cost of purchase of 90 shirts =2100-210-290)
7	Sales return and allowance	810
	Account receivable		810
	(To record gave an allowance of $9.00 per shirt.) (9*90)
9	Sales return and allowance	1350
	Account receivable		1350
	(To record 45 golf shirts were returned by customer.) (net price=39-9=30) (45*30)
9	Inventory	800
	Cost of goods sold		800
	(To record cost of goods return.) (1600*45/90)
10	Cash (1350-27)	1323
	Sales discount (1350*2%)	27
	Account receivable		1350
	(To record cash received from customer) (3510-810-1350)

Multi step income statement
Sales revenue	3510
Less: Sales return and allowance (810+1350)	2160
Less: sales discount	27
Net sales		1323
Less: cost of goods sold (1600-800)		800
Gross profit		523
Less: Operating expense		100
Income before tax		423
Less: income tax expense		135
Net income		288
Percentage of net sales that is available to cover operating expenses other than cost of goods sold (Operating expense / Net sales)		8%
As of October 31, the check dated October 13 had not cleared the bank. How should BSS report this on its October 31 bank reconciliation?
Considered under outstanding check. No journal entry required for outstanding check.