{"id":129,"date":"2016-12-05T20:00:32","date_gmt":"2016-12-05T20:00:32","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/tc3-accounting1\/?post_type=chapter&p=129"},"modified":"2016-12-05T20:00:32","modified_gmt":"2016-12-05T20:00:32","slug":"exercises-unit-6","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/tc3-accounting1\/chapter\/exercises-unit-6\/","title":{"raw":"Exercises: Unit 6","rendered":"Exercises: Unit 6"},"content":{"raw":"

\u00a0SHORT ANSWER QUESTIONS, EXERCISES AND PROBLEMS<\/h3>\n

Questions<\/strong><\/b><\/h4>\n\u27a2\u00a0 Sales discounts and sales returns and allowances are deducted from sales on the income statement to arrive at net sales. Why not deduct these directly from the Sales account by debiting Sales each time a sales discount, return, or allowance occurs?\n\n\u27a2\u00a0 What useful purpose does the Purchases account serve?\n\n\u27a2\u00a0 What type of an expense is delivery expense? Where is this expense reported in the income statement?\n\n\u27a2\u00a0 How does the accountant arrive at the total dollar amount of the inventory after taking a physical inventory?\n\n\u27a2\u00a0 How is cost of goods sold determined under periodic inventory procedure?\n\n\u27a2\u00a0 If the cost of goods available for sale and the cost of the ending inventory are known, what other amount appearing on the income statement can be calculated?\n\n\u27a2\u00a0 What are the major sections in a\u00a0multi-step income statement for a merchandising company, and in what order do these sections appear?\n\n\u27a2\u00a0 What is gross margin? Why might management be interested in the percentage of gross margin to net sales?\n\n\u27a2\u00a0 How are adjusting entries different under perpetual and periodic inventory methods?\n\n\u27a2\u00a0\u00a0After closing entries are posted to the ledger, which types of accounts have balances? Why?\n\nExercises<\/strong><\/b>\n\nExercise\u00a01 (periodic) <\/strong><\/b>Cramer Company uses periodic inventory procedure. Determine the cost of goods sold for the company assuming purchases during the period were $ 40,000, transportation-in was $ 300, purchase returns and allowances were $ 1,000, beginning inventory was $ 25,000, purchase discounts were $ 2,000, and ending inventory was $ 13,000.\n\nExercise\u00a02 <\/strong><\/b>In each case, use the following information to calculate the missing information:\n
\u00a0<\/strong><\/b><\/td>\nCase 1<\/strong><\/b><\/td>\nCase 2<\/strong><\/b><\/td>\nCase 3<\/strong><\/b><\/td>\n<\/tr>
Gross sales<\/strong><\/b><\/td>\n$ 640,000<\/strong><\/b><\/td>\n$ ?<\/strong><\/b><\/td>\n$ ?<\/strong><\/b><\/td>\n<\/tr>
Sales discounts<\/strong><\/b><\/td>\n?<\/strong><\/b><\/td>\n25,600<\/strong><\/b><\/td>\n19,200<\/strong><\/b><\/td>\n<\/tr>
Sales returns and allowances<\/strong><\/b><\/td>\n19,200<\/strong><\/b><\/td>\n44,800<\/strong><\/b><\/td>\n32,000<\/strong><\/b><\/td>\n<\/tr>
Net sales<\/strong><\/b><\/td>\n608,000<\/strong><\/b><\/td>\n1,209,600<\/strong><\/b><\/td>\n\u00a0?<\/strong><\/b><\/td>\n<\/tr>
Merchandise inventory, January 1<\/strong><\/b><\/td>\n256,000<\/strong><\/b><\/td>\n?\u00a0<\/strong><\/b><\/td>\n384,000<\/strong><\/b><\/td>\n<\/tr>
Purchases<\/strong><\/b><\/td>\n384,000<\/strong><\/b><\/td>\n768,000<\/strong><\/b><\/td>\n\u00a0<\/strong><\/b><\/td>\n<\/tr>
Purchase discounts<\/strong><\/b><\/td>\n7,680<\/strong><\/b><\/td>\n13,440<\/strong><\/b><\/td>\n12,800<\/strong><\/b><\/td>\n<\/tr>
Purchase returns and allowances<\/strong><\/b><\/td>\n24,320<\/strong><\/b><\/td>\n31,360<\/strong><\/b><\/td>\n32,000<\/strong><\/b><\/td>\n<\/tr>
Net purchases<\/strong><\/b><\/td>\n352,000<\/strong><\/b><\/td>\n?\u00a0<\/strong><\/b><\/td>\n672,000<\/strong><\/b><\/td>\n<\/tr>
Transportation-in<\/strong><\/b><\/td>\n25,600<\/strong><\/b><\/td>\n38,400<\/strong><\/b><\/td>\n32,000<\/strong><\/b><\/td>\n<\/tr>
Net cost of purchases<\/strong><\/b><\/td>\n377,600<\/strong><\/b><\/td>\n761,600<\/strong><\/b><\/td>\n?<\/strong><\/b><\/td>\n<\/tr>
Cost of goods available for sale<\/strong><\/b><\/td>\n?<\/strong><\/b><\/td>\n1,081,600<\/strong><\/b><\/td>\n1,088,000<\/strong><\/b><\/td>\n<\/tr>
Merchandise inventory, December 31<\/strong><\/b><\/td>\n?<\/strong><\/b><\/td>\n384,000<\/strong><\/b><\/td>\n448,000<\/strong><\/b><\/td>\n<\/tr>
Cost of goods sold<\/strong><\/b><\/td>\n320,000<\/strong><\/b><\/td>\n?<\/strong><\/b><\/td>\n640,000<\/strong><\/b><\/td>\n<\/tr>
Gross margin<\/strong><\/b><\/td>\n\u00a0?<\/strong><\/b><\/td>\n512,000<\/strong><\/b><\/td>\n320,000<\/strong><\/b><\/td>\n<\/tr><\/tbody><\/table>Exercise\u00a03 <\/strong><\/b>In each of the following equations supply the missing term(s):\n
  1. Net sales = Gross sales - (______________________ + Sales returns and allowances).<\/li>\n\t
  2. Cost of goods sold = Beginning inventory + Net cost of purchases - ________ ________.<\/li>\n\t
  3. Gross margin = ________ ________ - Cost of goods sold.<\/li>\n\t
  4. Income from operations = __________ _________ - Operating expenses.<\/li>\n\t
  5. Net income = Income from operations + _________ ________ - ________ ________.<\/li>\n<\/ol>Exercise\u00a04 (periodic) <\/strong><\/b>A partial trial balance is presented below.\u00a0\u00a0The ending physical count of\u00a0inventory is\u00a0$96. Prepare the 2 adjusting entries required under the periodic inventory method.\n
    \u00a0Trial Balance<\/strong>\u00a0<\/strong><\/td>\n<\/tr>
    \u00a0<\/strong><\/td>\nDebit<\/strong><\/td>\nCredit<\/strong><\/td>\n<\/tr>
    Merchandise Inventory<\/strong><\/td>\n120<\/strong><\/td>\n\u00a0<\/strong><\/td>\n<\/tr>
    Sales<\/strong><\/td>\n\u00a0<\/strong><\/td>\nS40<\/strong><\/td>\n<\/tr>
    Sales Discounts<\/strong><\/td>\n18<\/strong><\/td>\n\u00a0<\/strong><\/td>\n<\/tr>
    Sales Returns and Allowances<\/strong><\/td>\n45<\/strong><\/td>\n\u00a0<\/strong><\/td>\n<\/tr>
    Purchases<\/strong><\/td>\n600<\/strong><\/td>\n\u00a0<\/strong><\/td>\n<\/tr>
    Purchase Discounts<\/strong><\/td>\n\u00a0<\/strong><\/td>\n12<\/strong><\/td>\n<\/tr>
    Purchase Returns and Allowances<\/strong><\/td>\n\u00a0<\/strong><\/td>\n24<\/strong><\/td>\n<\/tr>
    Transportation-In<\/strong><\/td>\n36<\/strong><\/td>\n\u00a0<\/strong><\/td>\n<\/tr><\/tbody><\/table>Exercise\u00a05 (perpetual)\u00a0<\/strong><\/b>Under the perpetual inventory method, prepare the adjusting entry for inventory if\u00a0ending merchandise inventory is $101,000 and the physical count of inventory is $96,000.\n\nProblems<\/strong><\/b>\n\nProblem\u00a01\u00a0<\/strong><\/b>\u00a0(periodic) <\/strong><\/b>The following data are for Leone Lumber Company:\n\n
    Leone Lumber Company\u00a0\u00a0<\/strong><\/td>\n<\/tr>
    Trial Balance\u00a0\u00a0<\/strong><\/td>\n<\/tr>
    As of December 31\u00a0\u00a0<\/strong><\/td>\n<\/tr>
    Debit<\/strong><\/td>\nCredit<\/strong><\/td>\n<\/tr>
    Cash<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 70,640<\/td>\n\n<\/tr>
    Accounts Receivable<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 159,520<\/td>\n\n<\/tr>
    Merchandise Inventory,\u00a0 January 1<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 285,200<\/td>\n\n<\/tr>
    Supplies on Hand<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5,360<\/td>\n\n<\/tr>
    Prepaid Insurance<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,800<\/td>\n\n<\/tr>
    Prepaid Rent<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 57,600<\/td>\n\n<\/tr>
    Equipment<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 88,000<\/td>\n\n<\/tr>
    Accumulated Depreciation\u2014Equipment<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 17,600<\/td>\n<\/tr>
    Accounts Payable<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 102,800<\/td>\n<\/tr>
    Capital Stock<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 200,000<\/td>\n<\/tr>
    Retained Earnings,\u00a0 January 1<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 219,640<\/td>\n<\/tr>
    Sales<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,122,360<\/td>\n<\/tr>
    Sales Returns and Allowances<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5,160<\/td>\n\n<\/tr>
    Interest Revenue<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 \u00a0 1,000<\/td>\n<\/tr>
    Purchases<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 500,840<\/td>\n\n<\/tr>
    Purchases Returns and Allowances<\/td>\n\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 \u00a0 4,040<\/td>\n<\/tr>
    Transportation-In<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,840<\/td>\n\n<\/tr>
    Advertising Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 78,000<\/td>\n\n<\/tr>
    Sales Salaries Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 138,400<\/td>\n\n<\/tr>
    Office Salaries Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 80,800<\/td>\n\n<\/tr>
    Officers' Salaries Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 160,000<\/td>\n\n<\/tr>
    Utilities Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 4,800<\/td>\n\n<\/tr>
    Legal and Accounting Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 10,000<\/td>\n\n<\/tr>
    Interest Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 600<\/td>\n\n<\/tr>
    Miscellaneous Administrative Expense<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 9,880<\/td>\n\n<\/tr>
    TOTALS<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,667,440<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,667,440<\/td>\n<\/tr><\/tbody><\/table>