ACCY 201 Exam 2 Study Guide

11. Income from operations is gross profit less a. administrative expenses. b. operating expenses. c. other expenses and losses. d. selling expenses.

12. An enterprise which sells goods to consumers is known as a a. proprietorship. b. corporation. c. retailer. d. service firm.

13. Which of the following would not be considered a merchandiser? a. house cleaning business b. drugstore c. book store d. grocery store

14. A merchandiser that sells directly to consumers is a a. retailer. b. wholesaler. c. broker. d. service enterprise.

15. Two categories of expenses for merchandisers are a. cost of goods sold and financing expenses. b. operating expenses and financing expenses. c. cost of goods sold and operating expenses. d. sales and cost of goods sold.

Use the following information to answer questions 16-18. During 2006, California Salon Enterprises generated revenues of $60,000. Their expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.

16. California Salon’s gross profit is a. $60,000 b. $30,000 c. $18,000 d. $16,000

17. California Salon’s operating income is a. $60,000 b. $30,000 c. $18,000 d. $12,000

18. California Salon’s net income is a. $60,000 b. $30,000 c. $18,000 d. $16,000

19. Flynn Flint Company purchased merchandise inventory with an invoice price of $3,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Flynn Company pays within the discount period? a. $3,000. b. $2,940. c. $2,700. d. $2,760.

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20. Sales revenues are usually considered earned when a. cash is received from credit sales. b. an order is received. c. goods have been transferred from the seller to the buyer. d. adjusting entries are made.

21. West Eaton Company sells merchandise on account for $1,000 to Little Tang Company with credit terms of 2/10, n/30. Little Tang Company returns $300 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does West Eaton Company make upon receipt of the check? a. Cash............................................................................................... 700

Accounts Receivable............................................................ 700 b. Cash..........................................................................................686 Sales Returns and Allowances.......................................................314

Accounts Receivable............................................................ 1,000 c. Cash............................................................................................... 686 Sales Returns and Allowances...................................................... 300 Sales Discounts............................................................................ . 14

Accounts Receivable............................................................ 1,000 d. Cash............................................................................................. .. 980 Sales Discounts........................................................................... .. 20

Sales Returns and Allowances................................ ............ 300 Accounts Receivable................................................ ............700

Use the following information to answer questions 22-25. During August, 2006, Green Grocery Supply Store generated revenues of $30,000. Their operating expenses were as follows: cost of goods sold of $12,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000.

22. Green Grocery’s gross profit for August, 2006 is: a. $30,000 b. $19,000 c. $18,000 d. $16,000

23. Green Grocery’s non-operating income (loss) for the month of August 2006 is a. $0 b. $500 c. $1,000 d. $1,500

24. Green Grocery’s operating income for the month of August 2006 is a. $30,000 b. $19,500 c. $18,500 d. $16,000

25. Green Grocery’s net income for August 2006 is a. $18,000 b. $17,500 c. $16,500 d. $16,000

26. Inventories affect a. only the balance sheet. b. only the income statement. c. both the balance sheet and the income statement. d. neither the balance sheet nor the income statement.

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27. Merchandise inventory is a. reported under the classification of Property, Plant, and Equipment on the balance sheet. b. often reported as a miscellaneous expense on the income statement. c. reported as a current asset on the balance sheet. d. generally valued at the price for which the goods can be sold.

28. If goods in transit are shipped FOB destination a. the seller has legal title to the goods until they are delivered. b. the buyer has legal title to the goods until they are delivered. c. the transportation company has legal title to the goods while the goods are in transit. d. no one has legal title to the goods until they are delivered.

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11. B 12. C 13. A 14. A 15. C 16. B 17. C 18. D 19. B 20. C 21. C 22. C 23. D 24. D 25. B26. C 27. C 28. A

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The ABC Company had the following inventory record for the month of January:

# of UnitDate Description Items Price Item

1/1 Beginning inventory 5 $20 Z1, Z2, Z3, Z4, Z5

1/5 Sale 2 Z2, Z51/11 Purchase 9 12 Z6, Z7, Z8, Z9, Z10, Z11,

Z12, Z13, Z141/28 Sale 7 Z1, Z3, Z6, Z7, Z8, Z9, Z14

Required:

a) Assuming a perpetual system is in use, determine the cost of goods sold and the ending inventory using each of the following methods:

1. FIFO

2. LIFO

3. Weighted average

4. Specific identification

b) If asked to calculate ending inventory and the cost of goods sold for each cost flow assumption, which method(s) would be used?

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a)1.FIFO Perpetual

Date Purchases Sales at CostInventory Balance

1/1Beginning Inventory

5 @ $20 = $100

1/5 2 @ $20 = $ 40 3 @ $20 = $ 601/11 9 @ 12=$108 3 @ $20 = $ 60

9 @ $12 = 108 $168

1/28 3 @ $20 = $ 604 @ $12 = 48

$108

5 @ $12 = $ 60Ending Inventory

Total CGS $ 40 + 108 = $148

2.LIFO Perpetual


1/1BeginningInventory

5 @ $ 20 = $100

1/5 2 @ $20 = $ 40 3 @ $20 = 601/11 9 @ $12=$108 3 @ $20 = $ 60

9 @ $12 = 108 $168

1/18 7 @ $12 = $ 84 3 @ $20 = $ 602 @ $12 = 24

$ 84Ending Inventory

Total CGS $40 + 84 = $124

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3.Weighted Average Perpetual


1/1 Beginning Inventory

5 @ $20 = $100

1/5 2 @ $20 = $ 40 3 @ $20 = $ 601/11 9 @ 12=$108 3 @ $20 = $ 60

9 @ $12 = 108 $168

$168/12 = $ 14CPU

1/18 7 @ $14 = $ 98 5 @ $14 = $ 70Ending Inventory

Total CGS $ 40 + 94 = $138

4.Specific Identification PerpetualDate Purchases Sales at Cost Inventory

Balance1/1Beginning Inventory

5 @ $ 20 = $100Z1-Z5

1/5 2 @ $20 = $ 40Z2, Z5

3 @ $20 = $ 60Z1, Z3, Z4

1/11 9 @ $12=$108 Z6-Z14

3 @ $20 = $ 60Z1, Z3, Z4

9 @ $12 = 108Z6-Z14

$168

1/18 Z1, Z32 @ $20 = $ 40

Z6, Z7, Z8, Z9, Z14

5 @ $12 = $ 60$ 100

1 @ $20 = $ 20Z4

4 @ $12 = 48Z10-13

$ 68Ending Inventory

Total CGS $40 + 100 = $140

b) FIFO, LIFO, and weighted average (also called moving average and average –cost). Specific identification makes no assumptions about the flow of costs.

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Lisa Beja is unable to reconcile the bank balance at January 31. Lisa’s reconciliation is as follows:

Cash balance per bank $3,660.20 Cash balance per books $3,875.20

Add: NSF check 590.00 Less: Deposits in transit 530.00

Less: Bank service charge 25.00 Add: Outstanding Checks 930.00

Adjusted balance per bank $4225.20 Adjusted balance per books $4,275.20

A) Prepare a correct bank reconciliation. B) Journalize the entries required by the reconciliation.

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(a) Cash balance per bank statement $3,660.20 Cash balance per books $3,875.20

Add: Deposits in transit 530.00

Less: Less:

Outstanding checks 930.00 NSF check 590.00 Bank service charge 25.00

Adjusted cash balance per bank $3,260.20 Adjusted cash balance per books $3,260.20

(b) Accounts Receivable................................................................................... 590.00 Cash..................................................................................................... 590.00

Miscellaneous Expense............................................................................... 25.00 Cash …………………………………………………………………………………………………. 25.00

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At July 31, Chevron Company has the following bank information: cash balance per bank $7,420.00, outstanding checks $762.00, deposits in transit $1,620.00 and a bank service charge $20.00. Determine the adjusted cash balance per bank at July 31.

Cash balance per bank................................................................................................................... $7,420

Add: Deposits in transit................................................................................................................. 1,620

Less: Outstanding checks.............................................................................................................. 762

Adjusted cash balance per bank................................................................................................. $8,278

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At May 31, Delta Company has a cash balance per books of $8,900 and the following additional data from the bank statement: charge for printing Delta Company checks $35.00, interest earned on checking account balance $40.00, and outstanding checks $800.00. Determine the adjusted cash balance per books at May 31.

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Cash balance per books................................................................................................................. $8,900

Add: Interest earned...................................................................................................................... 40 Less: Charge for printing company checks................................................................................ 35

Adjusted cash balance per books............................................................................................... $8,905

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The bank statement of Little’s Floral shows a final balance of $8,966 as of October 31. The present balance of the cash account in the ledger, after Little’s accountant has posted from the journal, is $8,030.50. The accountant took the following steps: 1) Verified that canceled checks were recorded correctly on the bank statement. 2) Discovered that a deposit of $1,003 made on Oct 31 was not recorded on the bank statement. 3) Noted outstanding checks: no. 1916, $461; no. 2022, $119; no. 2023, $827; no. 2024, $67. 4) Noted that a credit memo for a note collected by the bank from Lee and Brock, $600 principle plus $6 interest, was not recorded in the journal. 5) Found that check no. 2001 for $523 payable to Davis, Inc., on account, was recorded in the journal as $532. (The correct amount is $523.) 6) Noted that a debit memo for a collection charge and service charge of $25.50 was not recorded in the journal. 7) Noted that a debit memo for an NSF check for $125 from M.D. Scott was not recorded.

Prepare a correct bank reconciliation. Journalize the entries required by the reconciliation.

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Cash balance per bank statement $8,966.00 Cash balance per books $8,030.50

Add: Add:Deposits in transit 1,003.00 Note Collected 606.00

Check No. 2001 Error 9.00

Less: Less:Outstanding checks: NSF check 125.00 No. 1916 461.00 Collection & Bank svc charge 25.50 No. 2022 119.00No.2023 827.00No. 2024 67.00

Adjusted cash balance per bank $8,495.00 Adjusted cash balance per books $8,495.00

Cash 606.00 N/R 600.00 Interest Revenue 6.00

Cash 9.00 A/P 9.00

A/R 125.00 Cash 125.00

Misc exp 25.50 Cash 25.50

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Below is a partial listing of the adjusted account balances of Murray Department Store at year end on December 31, 2012.

Accounts Receivable $ 19,000 Cost of Goods Sold 255,000 Selling Expenses (includes depreciation) 35,000 Interest Expense 1,000 Accumulated Depreciation—Building 10,000 Sales Discounts 22,000 Merchandise Inventory 45,000 Administrative Expenses (includes depreciation) 15,000 Sales 330,000 Accounts Payable 14,000 Interest Revenue 800

Instructions Using whatever data you believe appropriate, prepare a multiple-step income statement for Murray Department Store for the year ended December 31, 2012.

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MURRAY DEPARTMENT STOREIncome Statement

For Year Ended December 31, 2012Sales revenues

Sales ....................................................................................................... $330,000 Less: Sales discounts ........................................................................... 22,000

Net sales .......................................................................................................... $308,000

Cost of goods sold ........................................................................................... 255,000 Gross profit ....................................................................................................... 53,000 Operating expenses

Selling expenses ................................................................................... 35,000 Administrative expenses ...................................................................... 15,000

Total operating expenses .............................................................. 50,000 Income from operations .................................................................................. 3,000 Other revenues and gains

Interest revenue ..................................................................................... 800 Other expenses and losses

Interest expense .................................................................................... 1,000 (200) Net Income......................................................................................................... $ 2,800

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Barkley Company has the following account balances: Beginning Inventory $50,000, Ending Inventory $70,000, Freight-in $12,000, Purchases $450,000, Purchase Returns and Allowances $8,000, and Purchase Discounts $6,000.

Instructions Compute each of the following: (a) Net purchases (b) Cost of goods available for sale (c) Cost of goods sold

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(a) Net purchases: $450,000 – $8,000 – $6,000 = $436,000 (b) Cost of goods available for sale: $50,000 + $436,000 + $12,000 = $498,000 (c) Cost of goods sold: $498,000 – $70,000 = $428,000

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A company had the following transactions during December:a. Sold merchandise on credit for $5,000, terms 3/10, n/30. The

items sold had a cost of $3,500.b. Purchased merchandise for cash, $720.c. Purchased merchandise on credit for $2,600, terms 1/20, n/30.d. Issued a credit memorandum for $300 to a customer who

returned merchandise purchased November 29. The returned items had a cost of $210.

e. Received payment for merchandise sold December 1.f. Received a credit memorandum for the return of faulty

merchandise purchased on December 4 for $600.g. Paid freight charges of $200 for merchandise ordered last

month. (FOB shipping point).h. Paid for the merchandise purchased December 4 less the

portion that was returned.i. Sold merchandise on credit for $7,000, terms 2/10, n/30. The

items had a cost of $4,900.j. Received payment for merchandise sold on December 24.

Required:

Prepare the general journal entries to record these transactions using a perpetual inventory system.

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Accounts Receivable 5,000

Sales 5,000

Cost of Goods Sold 3,500

Merchandise Inventory 3,500

Merchandise Inventory 720

Cash 720


Accounts Payable 2,600

Sales Returns and Allowances 300

Accounts Receivable 300


Cost of Goods Sold 210

Cash 4,850

Sales Discounts 150


Accounts Payable 600



Cash 200

Accounts Payable 2,000

Merchandise Inventory ($2,000 x .01) 20

Cash 1,980


Sales 7,000

Cost of Goods Sold 4,900


Cash 6,860

Sales Discounts 140

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1. A merchandising company:

a. Earns net income by buying and selling merchandise.

b. Receives fees in exchange for services.

c. Earns profit from commissions only.

d. Earns profit from fares only. 2. A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin equals:

a. ($417,000).

b. $695,000

c. $278,000

d. $417,000. 3. Merchandise inventory:

a. Is a long-term asset.

b. Is a current asset.

c. Includes supplies.

d. Is an investment asset. 4. A periodic inventory system:

a. Requires updating inventory-related accounts only at the end of each period.

b. Uses a purchases account for the cost of new inventory

c. Is based on taking a physical count of inventory.

d. All of the above 5. A perpetual inventory system:

a. Provides more timely information.

b. Is increasing in frequency in practice.

c. Allows a company to determine inventory and cost of goods sold at any time.

d. All of the above.7. The credit terms 2/10, n/30 are interpreted as:

a. 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days.

b. 10% cash discount if the amount is paid within 2 days, with balance due in 30 days.

c. 30% discount if paid within 2 days.

d. 30% discount if paid within 10 days. 8. Sales returns:

a. Refer to merchandise that customers return to the seller after the sale.

b. Refer to reductions in the selling price of merchandise sold to customers.

c. Represent cash discounts.

d. Represent trade discounts 9. Sales Returns and Allowances:

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a. Can provide useful information about dissatisfied customers and the possibility of lost future sales.

b. Are recorded in separate contra-revenue accounts.

c. Are usually not reported in published financial statements.

d. All of the above. 10. A closing entry would close any debit balance in:

a. Sales discounts

b. Sales Returns and Allowances

c. Cost of Goods Sold

d. All of the above 11. Banking activities include:

a. Bank accounts.

b. Bank deposits.

c. Checking.

d. Electronic funds transfer.

e. All of the above. 12. A check:

a. Involves the writer, the signers, the casher, and the bank.

b. Involves the maker, the payee, and the bank.

c. Involves the maker and the payee.

d. Involves the bookeeeper, the payee, and the bank.

e. Involves the signer, the casher, and the company. 13. A bank statement includes:

a. A list of outstanding checks.

b. A list of petty cash amounts.

c. The beginning and the ending balance of the depositor's checking account.

d. A listing of deposits in transit.

e. All of the above. 14. A company had $62 in extra cash at the end of the day. The proper entry for this excess includes a:

a. Credit to Cash for $62.

b. Debit to Expense for $62.

c. Credit to Cash Over and Short for $62.

d. Debit to Cash Over and Short for $62.

e. Debit to Petty Cash for $62

1. a 22

2. d 3. b 4. d 5. d 7. a 8. a 9. d 10. d 11. e 12. b 13. c 14.c

1. Merchandise inventory includes:

a. All goods owned by a company and held for sale.

b. All goods in transit.

c. All goods on consignment.

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d. Damaged goods only.

e. All of the above 2. Goods in transit are included in a purchaser's inventory:

a. At any time in transit.

b. When the purchaser is responsible for paying freight charges.

c. When the supplier is responsible for freight charges.

d. If the goods are shipped FOB destination.

e. After the half-way point between the buyer and seller. 3. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

a. Specification identification method.

b. Average cost method.

c. Weighted-average method.

d. FIFO method.

e. LIFO method. 4. If a period-end inventory amount is reported in error, it can cause a misstatement in:

a. Cost of goods sold

b. Gross profit

c. Net income

d. Current assets

e. All of the above 5. The understatement of the ending inventory balance causes:

a. Cost of goods sold to be overstated and net income to be understated.

b. Cost of goods sold to be overstated and net income to be overstated.

c. Cost of goods sold to be understated and net income to be understated.

d. Cost of goods sold to be understated and net income to be overstated.

e. Cost of goods sold to be overstated and net income to be correct. 7. Management must confront which of the following considerations when accounting for inventory:

a. Costing (valuation) method.

b. Inventory system.

c. Items to be included and their cost.

d. Use of lower of cost or market.

e. All of the above. 8. The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned

to that inventory is the:

a. Weighted-average inventory method.

b. First-in, First-out method.

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c. Last-in, First-out method.

d. Specific identification method. 9. A company had the purchases shown below during the current year. On December 31, there were 26 units remaining in ending

inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

January 10 units @ $120February 20 units @ $130May 15 units @ $140September 12 units @ $150November 10 units @ $160

a. $3,500

b. $3,800

c. $3,960

d. $3,280

e. $3,640 10. A company normally sells its product for $20 per unit, which includes a profit margin of 25%. However, the selling price has

fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

a. $2,550

b. $2,600

c. $2,700

d. $3,000

e. $3,200 11. The cost flow assumptions are:

a. FIFO & LIFO

b. Weighted-average & Specific Identification

c. FIFO, LIFO, & Weighted-average

d. FIFO, LIFO, & Specific Identification

e. FIFO, LIFO, Weighted-average, & Specific Identification

1. a 2. b 3. e 4. e 5. a 7. e 8. d 9. b 10. b 11. c

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Evaluate each (separate) inventory error and determine whether it overstates or understates each item.

Inventory Error Cost of Goods Sold Net Income

Understates beginning inventory

Understates ending inventory

Overstates beginning inventory

Overstates ending inventory

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Inventory Error Cost of Goods Sold Net Income

Understates beginning inventory

Understated Overstated

Understates ending inventory

Overstated Understated

Overstates beginning inventory

Overstated Understated

Overstates ending inventory

Understated Overstated

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A company reported the following data related to its ending inventory::

Product Units Cost Market849 100 $10 $11842 75 16 14847 60 14 13860 40 16 20

Calculate the lower-of-cost-or-market on the: (a) Inventory as a whole; and (b) Inventory applied separately to each product.

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Product

Units on Hand

Per Unit Cost

Market

Total Cost

Total Market

LCM by Product

849 100 $10 $11 $1,000 $1,100 $1,000842 75 16 14 1,200 1,050 1,050847 60 14 13 840 780 780860 40 16 20 640 800 640 $3,680 $3,730 $3,470

a. 3,680

b. 3.470

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Smith Company reported the following current-year data for its only product:

Jan. 1 Beginning Inventory

200Units @ $10 $2,000

Mar. 14 Purchase 350Units @ $15 5,250Jul. 30 Purchase 450Units @ $20 9,000Oct. 26 Purchase 700Units @ $25 17,500

Units Available 1,700

Units

Cost of Goods Available for Sale $33,750

Smith resold its products at $40 per unit on the following dates:

Jan. 10 Sales 100unitsMar. 15 Sales 150unitsOct. 5 Sales 310unitsTotal Sales 560units

Smith uses a perpetual inventory system. Determine the costs assigned to cost of goods sold and ending inventory using (a) FIFO and (b) LIFO. Compute the gross margin for each method.

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Solution:

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Identify whether each of the following items 1 through 10 affects the bank side or the book side of a bank reconciliation.

_____ 1. Bank service charges_____ 2. Outstanding Checks_____ 3. Deposits in transit_____ 4. NSF check_____ 5. Inerest on a checking account_____ 6. The bank incorrectly recorded a check for $9.58. The company

properly wrote the check for $95.80._____ 7. The bank printed checks for the depositor for a fee._____ 8. Bank debit memorandum_____ 9. Bank credit memorandum_____ 10. The bank collected a $1,000 note for the depositor.

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Book 1.Ban

k2.

Bank

3.

Book 4.Book 5.Ban

k6.

Book 7.Book 8.Book 9.Book 10

.

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A company established a $1,000 petty cash fund by issuing a check to the custodian (petty cashier) on October 1. On October 15, the petty cash fund was replenished and increased to $1,250 in total. The contents of the petty cash fund at the time of the October 15 replenishment were:

Currency and coins $112Petty cash receipts for: Transportation-in for inventory $139 Delivery expense 238 Repairs to office equipment 147 Postage 214 Entertainment of customers 153 891Total $1,003

Prepare the general journal entry to record both the reimbursement and the increase of the petty cash fund on October 15.

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Merchandise Inventory 139 Delivery Expense 238 Repairs Expense 147 Postage Expense 214 Entertainment Expense 153 Petty Cash 250 Cash Over and Short 3 Cash 1,138

Brown Company's bank statement for September 30, showed a cash balance of $1,350. the company's Cash account in its general ledger showed a $995 debit balance. The following information was also available as of September 30.

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a. A customer's check for $100 marked NSF was returned to Brown Company by the bank. The bank charged the company's account a $25 processing fee.

b. The September 30 cash receipts, $1,250 were placed in the bank's night depository after banking hours on that date and this amount did not appear on the September 30 bank statement.

c. A $15 debit memorandum for checks printed by the bank was included with the canceled checks.

d. Outstanding checks amounted to $1,145. e. A customer's note for $900 was collected by the bank. a collection fee of $25 was

deducted by the bank. f. Included with the canceled checks was a check for $275, drawn on another

company, Browne, Inc.

Required:

1. Prepare a bank reconciliation as of September 30. 2. Prepare any necessary adjusting journal entries necessary as a result of the bank

reconciliation.

Solution - Part 1:

BROWN COMPANYBank Reconciliation

September 30 Bank Statement Balance $1,350Book Cash Balance $995Add: Add:

Deposit of 9/30 1,250 Proceeds of note less collection fee

875

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Bank error 275 $2,875 $1,870Deduct: Deduct: Outstanding checks 1,145 NSF check processing fee 125 Bank service charge 15Adjusted Bank Balance $1,730Adjusted Book Balance $1,730

Solution - Part 2:

Cash 875 Miscellaneous Expense 25 Notes Receivable 900Accounts Receivable 125 Cash 125Miscellaneous Expense 15 Cash 15

A company made the following merchandise purchases and sales during the month of July:

July 1 Purchased 380 units @ $15 eachJuly 5 Purchased 270 units @ $20 eachJuly 9 Sold 500 units @ $55 eachJuly 14 Purchased 300 units @ $24 eachJuly 20 Sold 250 units @ $55 eachJuly 30 Purchased 250 units @ $30 each

There was no beginning inventory. If the company uses the first-in, first-out method and the perpetual method, what would be the cost of the ending inventory?

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Purchases Sales BalanceDate Units Cost Total Units Cost Total Units Cost Total07/01 380 $15 $5,700 380 $15 $5,70007/05 270 $20 $5,400 380

270650

$1520

$5,7005,400

$11,10007/09 380

120$15

20$5,700

2,400 150 $20 $3,00007/14 300 $24 $7,200 150

300450

$2024

$3,0007,200

$10,20007/20 150

100$20

24$3,000

2,400 200 $24 $4,80007/30 250 $30 $7,500 200

250450

$2430

$4,8007,500

$12,300

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Prepare the necessary general journal entries for the month of May for Stringer Company for each situation given below. Stringer uses a perpetual inventory system.

Oct. 5 Paid operating expenses as follows: $4,000 Salaries Expense, $2,000 Rent Expense, $500 Utilities Expense.

Oct. 8 Purchased merchandise for $25,000 on account. Credit terms: 2/10, n/30. Oct. 15 Returned defective merchandise with a cost of $3,500 and paid balance due for merchandise purchased on October 8. The company takes all discounts to which it is entitled. Oct. 20 Sold merchandise for $20,000 to Adder Company on account. The cost of the merchandise sold was $12,000. Credit terms: 2/10, n/30. Oct. 22 Purchased a 2-year insurance policy for $4,400 cash. Oct. 25 Issued Credit Memo No. 3811 to Adder Company for $2,000 for merchandise returned by Adder from the sale on October 20. The cost of the merchandise returned was $1,025. Oct. 29 Purchased office equipment for $15,000 paying $4,000 in cash and signing a 3-month, 11% note for the remainder.

Oct. 5 Salaries Expense.................................................................................... 4,000 Rent Expense.......................................................................................... 2,000 Utilities Expense..................................................................................... 500

Cash ..................................................................................................... 6,500

Oct. 8 Merchandise Inventory .......................................................................... 25,000 Accounts Payable ............................................................................... 25,000

Oct. 15 Accounts Payable .................................................................................. 25,000 Inventory .............................................................................................. 3,930 Cash ..................................................................................................... 21,070

Oct. 20 Accounts Receivable ............................................................................. 20,000 Sales .................................................................................................... 20,000

Cost of Goods Sold ............................................................................... 12,000 Merchandise Inventory ..................................................................... 12,000

Oct. 22 Prepaid Insurance .................................................................................. 4,400 Cash .................................................................................................... 4,400

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Oct. 25 Sales Returns and Allowances ............................................................. 2,000 Accounts Receivable ......................................................................... 2,000

Merchandise Inventory .......................................................................... 1,025 Cost of Goods Sold ........................................................................... 1,025

Oct. 29 Office Equipment ................................................................................... 15,000 Cash .................................................................................................... 4,000 Notes Payable ……............................................................................. 11,000

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ACCY 201 Exam 2 Study Guide

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