Question

The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system.

Jan. 2	Purchased $21,600 of merchandise on account, FOB shipping point, terms 2/15, n/30.
5	Paid freight of $450 on the January 2 purchase.
6	Returned $4,400 of the merchandise purchased on January 2.
13	Sold merchandise on account, $6,500, FOB destination, 1/10, n/30. The cost of merchandise sold was $4,700.
15	Paid freight of $150 for the merchandise sold on January 13.
17	Paid for the purchase of January 2 less the return and discount.
23	Received payment on account for the sale of January 13 less the discount.

Journalize the entries to record the transactions of Air Systems Company. For a compound transaction, if an amount box does not require an entry, leave it blank

Multiple-Step Income Statement

On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows:

Accumulated Depreciation—Building	$747,950		Merchandise Inventory	$939,850
Administrative Expenses	545,700		Notes Payable	240,200
Building	2,416,650		Office Supplies	20,650
Cash	180,250		Salaries Payable	7,700
Cost of Merchandise Sold	3,965,850		Sales	6,126,850
Interest Expense	9,550		Selling Expenses	717,650
Kathy Melman, Capital	1,545,600		Store Supplies	87,000
Kathy Melman, Drawing	181,750

a. Prepare a multiple-step income statement for the year ended March 31, 2019.

Racine Furnishings Company
Income Statement
For the Year Ended March 31, 2019
		$
Gross profit		$
Expenses:
	$
Total expenses
		$
Other expense:
		$

b. What is a major advantage of the multiple-step income statement over the single-step income statement?

Journal Entries Using the Periodic Inventory System

The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system.

Jan. 2	Purchased $21,600 of merchandise on account, FOB shipping point, terms 2/15, n/30.
5	Paid freight of $450 on the January 2 purchase.
6	Returned $4,400 of the merchandise purchased on January 2.
13	Sold merchandise on account, $6,500, FOB destination, 1/10, n/30. The cost of merchandise sold was $4,700.
15	Paid freight of $150 for the merchandise sold on January 13.
17	Paid for the purchase of January 2 less the return and discount.
23	Received payment on account for the sale of January 13 less the discount.

Journalize the entries to record the transactions of Air Systems Company. For a compound transaction, if an amount box does not require an entry, leave it blank.

Cost of Merchandise Sold

Based on the following data, determine the cost of merchandise sold for July:

Increase in estimated returns inventory	$27,200
Merchandise inventory, July 1	45,300
Merchandise inventory, July 31	87,000
Purchases	906,700
Purchases returns and allowances	30,800
Purchases discounts	18,100
Freight in	12,700

Cost of Merchandise Sold

Based on the following data, determine the cost of merchandise sold for November:

Increase in estimated returns inventory	$8,200
Merchandise inventory, November 1	13,700
Merchandise inventory, November 30	26,300
Purchases	273,900
Purchases returns and allowances	9,300
Purchases discounts	5,500
Freight in	3,800

July 3.	Purchased merchandise on account from Hamling Co., list price $72,000, trade discount 15%, terms FOB shipping point, 2/10, n/30, with prepaid freight of $1,450 added to the invoice.
5.	Purchased merchandise on account from Kester Co., $33,450, terms FOB destination, 2/10, n/30.
6.	Sold merchandise on account to Parsley Co., $36,000, terms n/15. The cost of the merchandise sold was $25,000.
7.	Returned $6,850 of merchandise purchased on July 5 from Kester Co.
13.	Paid Hamling Co. on account for purchase of July 3.
15.	Paid Kester Co. on account for purchase of July 5, less return of July 7.
21.	Received cash on account from sale of July 6 to Parsley Co.
21.	Sold merchandise on MasterCard, $108,000. The cost of the merchandise sold was $64,800.
22.	Sold merchandise on account to Tabor Co., $16,650, terms 2/10, n/30. The cost of the merchandise sold was $10,000.
23.	Sold merchandise for cash, $91,200. The cost of the merchandise sold was $55,000.
28.	Paid Parsley Co. a cash refund of $7,150 for returned merchandise from sale of July 6. The cost of the returned merchandise was $4,250.
31.	Paid MasterCard service fee of $1,650.

Determining Amounts to be Paid on Invoices

Determine the amount to be paid in full settlement of each of the following invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period:

	Merchandise		Freight Paid by Seller				Customer Returns and Allowances
a.	$17,000		-			FOB destination, n/30	$900
b.	10,200		$400			FOB shipping point, 1/10, n/30	1,200
c.	5,500		-			FOB shipping point, 1/10, n/30	500
d.	4,400		200			FOB shipping point, 2/10, n/30	600
e.	1,300		-			FOB destination, 1/10, n/30	-

July 3.	Purchased merchandise on account from Hamling Co., list price $72,000, trade discount 15%, terms FOB shipping point, 2/10, n/30, with prepaid freight of $1,450 added to the invoice.
5.	Purchased merchandise on account from Kester Co., $33,450, terms FOB destination, 2/10, n/30.
6.	Sold merchandise on account to Parsley Co., $36,000, terms n/15. The cost of the merchandise sold was $25,000.
7.	Returned $6,850 of merchandise purchased on July 5 from Kester Co.
13.	Paid Hamling Co. on account for purchase of July 3.
15.	Paid Kester Co. on account for purchase of July 5, less return of July 7.
21.	Received cash on account from sale of July 6 to Parsley Co.
21.	Sold merchandise on MasterCard, $108,000. The cost of the merchandise sold was $64,800.
22.	Sold merchandise on account to Tabor Co., $16,650, terms 2/10, n/30. The cost of the merchandise sold was $10,000.
23.	Sold merchandise for cash, $91,200. The cost of the merchandise sold was $55,000.
28.	Paid Parsley Co. a cash refund of $7,150 for returned merchandise from sale of July 6. The cost of the returned merchandise was $4,250.
31.	Paid MasterCard service fee of $1,650.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
2-Jan	Merchandise Inventory	$21,600
	Accounts payable		$21,600
	[To record inventory purchased on account]
5-Jan	Merchandise Inventory	$     450
	cash		$     450
	[To record freight paid on inventory purchase]
6-Jan	Accounts payable	$ 4,400
	Merchandise Inventory		$ 4,400
	[To record inventory returned]
13-Jan	Accounts receivable	$ 6,500
	Sales revenue		$ 6,500
	[To record sales made on account]
	cost of goods sold	$ 4,700
	Merchandise Inventory		$ 4,700
	[To record cost of sales recorded]
15-Jan	Freight expense	$     150
	Cash		$     150
	[To record freight paid on merchandise sold ]
17-Jan	Accounts payable [21600-4400]	$17,200
	Merchandise Inventory [17200*2%]		$     344
	Cash		$16,856
	[To record payment for purchase within discount period]
23-Jan	Cash	$ 6,435
	Sales discount [6500*1%]	$       65
	Accounts Receivable		$ 6,500
	[To record cash collected from receivable]