Assignment 3

ACCT 210 – Introductory Financial Accounting IAssignment #3

Student Name:

Student ID No.:

Instructor Name:

Question Value Mark Received1 102 233 174 125 186 87 12

Total 100

Note: Handwritten assignments will not be accepted. All answers must be typed into this document.Round up to the nearest cent on dollar amounts.Round to three (3) decimal places when the solution calls for a percentage.Answer in the space provided and show your calculations.This assignment is worth 5% of your final grade.

Question 1 (10 marks)

Required:

Answer all of the questions by bolding and/or colouring the answer you think is correct. Questions with more than one (1) answer bolded and/or coloured will be marked as incorrect. Each question is worth one (1) mark.

1. The operating cycle of a merchandising company: a) begins with the purchase of merchandise and ends with closing entries. b) begins with the purchase of merchandise and ends with the collection of cash from

the sale of merchandise.c) begins with a sale of merchandise and the collection of cash from the sale of

merchandise.d) begins with a sale of merchandise and ends with the payment for the merchandise to

the supplier. e) begins with a credit sale and ends when payment is made within the discount period.

2. Merchandise inventory:a) is a long-term asset.b) is a current asset.c) can include supplies.d) is an invested asset.e) both b) and c).

3. Each sales transaction for a seller of merchandise involves:a) revenue received in the form of an asset from a customer.b) recognizing the cost of merchandise sold to a customer. c) recognizing purchase discounts. d) both a) and b). e) All of the above.

4. Shrinkage: a) refers to the loss of inventory for merchandising companies. b) is directly measured by a perpetual inventory system. c) is recognized by debiting Cost of Goods Sold. d) both a) and c).e) both b) and c).

5. Gross profit from sales is the difference between: a) net sales and operating expenses. b) net sales and the cost of goods sold plus all the expenses. c) gross sales less the sales discounts and sales returns and allowances.d) net sales and the cost of goods sold. e) gross sales less purchases and purchase discounts.

ACCT 210 Introductory Financial Accounting I of 16Assignment #3

6. All-Mart purchased $4,000 worth of merchandise, FOB shipping, terms 2/10, n30. Transportation costs were an additional $350. It returned $275 worth of merchandise and paid the invoice within 10 days. The amount of the cheque issued to pay for the merchandise and the transportation costs was:

a) $4,075.00 b) $4,000.50 c) $3,725.00 d) $3,995.00e) $3,993.50

7. When a Sales Journal’s amount column is totalled at the end of the month, the total is: a) debited to Sales and credited to Accounts Receivable. b) debited to Accounts Receivable and credited to Cash.c) debited to Cash and credited to Accounts Receivable. d) debited to Accounts Receivable and credited to Sales.e) debited to Cash and credited to Sales.

8. The general journal is used for: a) recording adjusting entries. b) posting transactions to special journals.c) accumulating debits and credits. d) collecting detailed listings of amounts.e) both a) and b) only.

9. A trade discount is: a) a term used by a purchaser to describe a cash discount given to customers for prompt

payment. b) a reduction below a list price.c) a term used by a seller to describe a cash discount granted to customers for prompt

payment. d) a reduction is price for prompt payment.e) also called a rebate.

10. The bookkeeper of a company using a purchases journal made an error in totalling the journal’s columns. The error should be discovered:

a) when the purchases journal is posted to the general ledger. b) when the trial balance is prepared.c) when the total of the schedule of accounts payable is compared with the balance of

the accounts payable account. d) when creditors receive their payments.e) when the financial statements are prepared.



Tim McKay is the sole proprietor of Handy Tools. Sales are made on a variety of credit terms to various customers and some sales are for cash. Handy Tools uses a perpetual inventory system. The following transactions occurred during the month of September 2007:

Sep 01 Purchased merchandise (skill saws) on credit from General Tool Supply for $3,500, terms, 3/10, n30, FOB shipping.

Sep 02 Paid freight charges of $95 on the shipment of merchandise from General Tool Supply.

Sep 04 Sold merchandise to Home Hardware for $900, the cost was $500, terms 2/10, n30.Sep 05 Merchandise costing $225 was sold for $500 cash today.Sep 06 When unpacking the skill saws received from General Tool Supply, it was noticed

that two were damaged. Merchandise costing $500 was returned to General Tool Supply.

Sep 07 Purchased merchandise on account from Black ‘n’ Decker for $1,200, terms, 2/10, n30.

Sep 08 Sold merchandise costing $1,850 to Sears Canada for $4,000, 2/15, n30.Sep 09 Paid freight charges of $150 regarding the sale to Sears Canada on September 8.Sep 10 Paid the balance due to General Tool Supply. Sep 11 Refunded a customer $100 for return of merchandise from the sale on September 5.Sep 12 Sears Canada returned $1,000 worth of merchandise as the incorrect model was sent.Sep 18 Purchased merchandise (1,000 screwdrivers) from Tools Unlimited on account. The

list price was $4,000; however, because of the large order, a trade discount of 15% was granted.

Sep 19 Received payment from Sears Canada.Sep 20 Paid $15,000 cash for a new delivery van for $15,000.Sep 24 Returned $200 worth of merchandise purchased from Tools Unlimited on September

18.Sep 26 Paid Black ‘n’ Decker for the purchase made on September 7.Sep 30 Received payment from Home Hardware regarding the sale on September 4.


Required:

Prepare journal entries for the above transactions. Omit explanations but show calculations where necessary.

Answers:

Date Account Titles and Explanation PR Debit Credit



Jim Bell is the sole proprietor of Bell’s Merchandising. Bell’s Merchandising had an opening balance of $4,000 in the merchandise inventory account on January 1, 2007. The following transactions occurred during the month of January 2007. Jim uses a perpetual inventory system.

Jan 03 Purchased merchandise on credit from Ace Wholesalers for $2,500, terms 3/10, n30, FOB shipping .

Jan 05 Paid freight charges of $50 on the shipment of merchandise from Ace Wholesalers.Jan 06 Sold merchandise to The Dollar Store $6,900, terms 2/10, n30. The merchandise

cost $3,000.Jan 08 Purchased merchandise on credit from Bolton Suppliers for $600, terms 2/20, n30Jan 10 Returned merchandise purchased from Ace Wholesalers for $500.Jan 12 Purchased merchandise on credit from Johnston Company for $2,000, terms 2/10,

n30, FOB destination.Jan 13 Paid the balance due to Ace Wholesalers.Jan 16 Paid freight charges of $125 regarding the sale to The Dollar Store on January 6.Jan 21 The Dollar Store returned $1,725 worth of merchandise.Jan 25 Received a credit Memorandum of $75 from Johnston Company for unsatisfactory

merchandise purchased on January 12. Jan 26 Paid Bolton Supplies for the transaction made on January 8.Jan 30 Received payment from The Dollar Store for the sale on January 6.


Required:

a) Prepare journal entries for the above transactions. Omit explanations but show calculations where necessary. (15 marks)

b) A physical count of the merchandise inventory on January 31, 2007, indicated an amount of $600 less than what the general ledger indicated. Prepare the journal entry to account for this difference. (2 marks)

Answers:

a)



b)




Stardust Company, who uses a perpetual inventory system, completed the following transactions during the month of February 2007: Feb 03 Purchased merchandise on credit from Bennett Company for $2,500, terms 3/10, n30,

FOB shipping.Feb 04 Sold merchandise on credit to Kelly Smith for $850, terms 2/10, n30.Feb 05 Received $500 for a cash sale of merchandise.Feb 08 Hired an assistant for $1,200 per month who will start work next week.Feb 10 Issued cheque #123 for $50 to pay the freight charges on the February 3 transaction.Feb 14 Kelly Smith returned $150 worth of merchandise from the February 4 sale.Feb 21 Purchased office equipment for $2,650 by issuing a cheque for $650 and the balance

is on credit. The equipment has a useful life of three years.Feb 28 Prepared the adjusting entry to amortize the office equipment purchased on February

21.

Required:

a) For each transaction, identify into which special journal, if applicable, it should be journalized using the following codes: Sales (SJ), Purchases (PJ), Cash Receipts (CR), Cash Disbursements (CD) or General Journal (GJ). Entry appropriate code on the lines provided. (8 marks)

b) Discuss how technology-based information systems impact accounting. (4 marks)

Answers:

a)Feb 03 Feb 04 Feb 05 Feb 08 Feb 10 Feb 14 Feb 21 Feb 28

b)



Sunnyside Nursery’s year-end Trial Balance, in alphabetical order, appears below. The building has a total space of 2,000 square feet of which the office uses 400 square feet and the balance is used for the store. The insurance is allocated by square footage.

Sunnyside NurseryAdjusted Trial Balance

December 31, 2006

Account Debit CreditAccounts Payable 5,500.00Accounts Receivable 7,400.00Accumulated Amortization, Building 27,000.00Accumulated Amortization, Delivery Trucks 5,500.00Advertising Expense 875.00Amortization expense, Building 3,000.00Amortization expense, Delivery Trucks 1,575.00Building 105,000.00Cash 15,090.00Cost of Goods Sold 162,500.00Delivery Trucks 30,500.00Insurance Expense 1,700.00Interest Expense 500.00Jan Nelson, Capital 98,000.00Jan Nelson, Withdrawals 18,000.00Land 50,000.00Maintenance and fuel expense, delivery trucks 3,850.00Merchandise Inventory 2,895.00Note Payable 5,000.00Office Supplies 850.00Office Supplies Expense 425.00Prepaid Insurance 1,460.00Salaries, Office 9,000.00Salaries, Sales 24,560.00Sales 300,000.00Sales discounts 1,200.00Sales returns and allowances 3,550.00Telephone Expense, Office 385.00Telephone Expense, Store 285.00Unearned Revenue 3,600.00

444,600.00 444,600.00


Required:

a) Prepare a classified, multiple-step income statement for Sunnyside Nursery. (10 marks)b) Calculate the profit margin ratio. (2 marks)c) Prepare journal entries to close the accounts for year-end December 31, 2006. (6 marks)

Answers:

a)


b)

c)




Required:

a) Explain how the amounts in the subsidiary accounts are tested for accuracy in the space provided below. (4 marks)

Answer:

b) Explain the goals and uses of special journals. (4 marks)

Answer:



Greetmart Cards is a distributor of greeting cards to various retailers. Below is the Schedule of Accounts Payable as at Febuary 28, 2007 and transactions for the month of March 2007:

Greetmart CardsSchedule of Accounts Payable

February 28, 2007Creative Works $1,500Hallmart Wholesalers 500Merry Makers Company 900Party Suppliers 1,800Total $4,700

Mar 03 Purchased merchandise on credit from Hallmart Wholesalers for $3,000, terms 3/10, n30

Mar 05 Paid freight charges of $50 on the shipment of merchandise from Hallmart Wholesalers by issuing cheque number 181.

Mar 06 Returned $800.00 of the merchandise purchased on March 3.Mar 08 Purchased merchandise on credit from Party Suppliers for $800, terms 2/20, n30Mar 10 Sold merchandise to Save on Cards for $800.Mar 12 Purchased merchandise on credit from Creative Works for $2,000, terms 2/10, n30Mar 13 Paid the balance owing to Merry Makers by issuing cheque number 182. It is past the

discount period.Mar 16 Purchased equipment from Total Office Suppliers for $4,000, n30.Mar 21 Returned $500 of merchandise to Creative Works.Mar 25 Paid Party Suppliers $900 by issuing cheque number 183. Mar 26 Purchased merchandise on account from Merry Makers for $700, terms 2/10, n30Mar 30 Purchased merchandise on account from Party Suppliers for $500, terns 2/20, n30.

Required:

a) Post the transactions that should be posted to the Purchases Journal for the month of March and foot and crossfoot the journal. (7 marks)

b) Prepare a Schedule of Accounts Payable as at March 31, 2007. (5 marks)


Answers:

a) Purchases Journal

DateAccount Credited

Date of Invoice Terms PR A/P Cr.

Merchandise Inventory

Dr.

Other Accounts

Dr.2007

b)Greetmart Cards

Schedule of Accounts PayableMarch 31, 2007


Assignment 3

Documents

Transcript of Assignment 3