Question

On May I. Sam Company sold $5,000 of inventory to Bob Company. The sale was made on account and Sam granted Bob credit terms of 2/10. n/30. The inventory cost Sam Company $3,000. On May 3, Bob returned $1,000 of the inventory to Sam. (The inventory returned by Bob cost Sam $600.) On May 9, Bob paid Sam in full for the amount due.

1. What journal entry will Sam record on May 3 if the perpetual inventory system is used?

A) debit Merchandise Inventory, $600; credit Cost of Goods Sold, $600.

B) debit Sales, $1,000; credit Accounts Receivable, $1,000.

C) debit Sales, $1,000; credit Cash, $1,000.

D) debit Sales Returns and Allowances, $1,000; credit Accounts Receivable, $1,000.

E) debit Sales Returns and Allowances, $1,000; credit Cash, $1,000.

2. What journal entry will Bob record on May 9 if the periodic inventory system is used?

A) debit Accounts Payable, $4,000; credit Cash, $4,000.

B) debit Accounts Payable, $5,000; credit Cash, $5,000.

C) debit Accounts Payable, $4,000; credit Merchandise Inventory, $80; credit Cash, $3,920.

D) debit Accounts Payable, $4,000; credit Purchase Discounts; $80, credit Cash, $3,920

E) debit Accounts Payable, $4,000; credit Purchase Returns and Allowances, $80; credit Cash, $3,920.

3. What journal entry will Bob record on May 9 if the perpetual inventory system is used?

A) debit Accounts Payable, $4,000; credit Cash, $4,000.

B) debit Accounts Payable, $5,000; credit Cash, $5,000.

C) debit Accounts Payable, $4,000; credit Merchandise Inventory, $80; credit Cash, $3,920.

D) debit Accounts Payable, $4,000; credit Purchase Discounts; $80, credit Cash, $3,920

E) debit Accounts Payable, $4,000; credit Purchase Returns and Allowances, $80; credit Cash, $3,920.

4. What journal entry will Sam record on May 9?

A) debit Cash, $4,000; credit Accounts Receivable; $4,000.

B) debit Cash, $5,000; credit Accounts Receivable, $5,000.

C) debit Cash, $3,920; debit Sales, $80; credit Accounts Receivable, $4,000.

D) debit Cash, $3,920; debit Sales Discounts, $80; credit Accounts Receivable, $4,000.

E) debit Cash, $3,920; debit Sales Returns and Allowances, $80; credit Accounts Receivable, $4,000.

Use the following information to answer the next 6 questions:

The following selected information is taken from the books of the Rick Company

Cash	2,500	Sales	15,000
Accounts receivable	3,000	Purchases returns and allowances	400
Purchases	9,000	Purchases discounts	300
Sales returns and allowances	150	Accounts Payable	3,000
Sales discounts	350	Allowance for Doubtful Accounts	400
Inventory, 1/1/2007	3,000	Selling expense	400
Inventory, 12/31/2007	2,000	. Administrative expense	600
Transportation - out	300	Bad Debt Expense	200
Transportation- in	200	Rent expense	1,000
Dividends	1,500	Insurance expense	500

5. Net Sales for the period is:

6. Cost of net purchases for the period is:

7. Cost of Goods Available for Sale for the period is:

8. Cost of Goods Sold for the period is:

9. Gross Profit for the period is:

10. Net Income for the period is:

Answer 1

Q1). (a) Debit Merchandise inventory , $600 ; credit cost of goods sold , $600

Q2). (d) Debit Accounts payable, $4000 ; credit purchase discount $80 ; credit cash $3920.

Q3). (d) Debit Accounts payable , $4000 ; credit purchase discounts , $80 ; credit cash , $3920

Q4). (d) Debit cash , $3920 ; debit sales discount , $80 ; credit accounts receivable $4000

Q5). Net sales = Gross sales - sales discount- sales return & allowances

net sales = $15000 - $350 - $150 = $ 14500

Q6). Net purchases = Gross purchases - purchase discount - purchase return

net purchases = $ 9000 - $ 300 - $ 400 = $ 8300

Q8). Cost of goods sold = opening inventory + purchases - closing inventory

COGS = $3000 + $8300 - $2000 = $ 9300

Q7). Cost of goods available for sale = cost of goods sold + closing inventory

= $9300 + $ 2000 = $ 11300

even transportation in is also included = $11300 + $ 200 = $11500

Q9). Gross profit = net sales - cost of goods sold

gross profit = $ 14500 - $ 9300 = $ 5200

Q10). Net income = Gross profit + operating income - operating expense

net income = $5200 + dividends received - selling expense - administration expense - bad debts - rent expense - Insurance expense - transportation in - transportation out

net income = $ 5200 + $ 1500 - $ 400 - $ 600 - $200 - $1000 - $500 - $200 - $ 300 = $ 3500

Note: Dividends is assumed as dividend received.