Solution Manual/ Answer key. Chapter 10 Acctg Cycle OF A Merchandising Business by Zeus Millan PDF

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Chapter 10Accounting Cycle of a MerchandisingBusinessPROBLEM 1: TRUE OR FALSE1. TRUE FALSE – perpetual inventory system FALSE – periodic inventory system TRUE TRUE TRUE TRUE FALSE - ₱ 90 FALSE [8 bananas sold x (₱5 sale price - ₱1 unit cost)] = ₱ 32 FALSE – shortage PROBLEM 2: FOR CLASSROOM DISCUSSI...

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Chapter 10 Accounting Cycle of a Merchandising Business PROBLEM 1: TRUE OR FALSE 1. TRUE 2. FALSE – perpetual inventory system 3. FALSE – periodic inventory system 4. TRUE 5. TRUE 6. TRUE 7. TRUE 8. FALSE - ₱90 9. FALSE [8 bananas sold x (₱5 sale price - ₱1 unit cost)] = ₱32 10. FALSE – shortage

PROBLEM 2: FOR CLASSROOM DISCUSSION Solutions: Requirement 1: Journal entries Perpetual system

Periodic system

1. Inventory 130,000 Accounts payable 130,000

Purchases 130,000 Accounts payable 130,000

2. Inventory Cash

Freight-in Cash

5,000 5,000

5,000 5,000

3. Accounts payable Inventory

3,000 3,000

Accounts payable 3,000 Purchase returns 3,000

4. Accounts receivable 320,000 Accounts receivable 320,000 Sales 320,000 Sales 320,000 Cost of goods sold Inventory

No entry

128,000 128,000

5. Sales returns 2,500 Accounts receivable 2,500

Sales returns 2,500 Accounts receivable 2,500

Inventory 1,000 Cost of goods sold 1,000

No entry

Requirement 2: Cost of goods sold A. Perpetual Cost of goods sold (4) Cost of goods sold

128,000 1,000 127,000

(5) Sales return end. Bal.

B. Periodic Beginning inventory

₱9,000

Purchases (1) Freight-in (2)

₱130,000 5,000

Purchase returns (3)

(3,000)

Purchase discounts

-

Net purchases

132,000

Total goods available for sale

141,000

Ending inventory

(14,000)

Cost of goods sold

₱127,000

Requirement 3: Statement of COGS and Gross profit Entity A Statement of Cost of goods sold and Gross profit For the period ended December 31, 20x1 Sales

₱320,000

Sales returns

(2,500)

Net sales

317,500

Cost of goods sold: Beginning inventory

₱9,000

Add: Net purchases

132,000

Total goods available for sale

141,000

Less: Ending inventory

(14,000)

Gross profit

(127,000) ₱190,500

4. Solution: Inventory beg.

20,000

Net purchases

210,000

190,000

COGS

40,000

end.

5. Solution: Inventory beg.

40,000

Net purchases

270,000

230,000

COGS (squeeze)

80,000

end.

6. Solution: Inventory beg.

30,000

Net purchases (squeeze)

260,000

270,000 20,000

COGS end.

7. Solution: Inventory beg. (squeeze)

30,000

Net purchases

170,000

140,000

COGS

60,000

end.

8. Solution: Inventory beg.

irrelevant

Net purchases

130,000

140,000

COGS

70,000

end.

₱140,000 COGS + ₱70,000 Inventory, end. = ₱210,000 TGAS

9. Solution: Inventory beg.

0

Net purchases

130,000

60,000

COGS

70,000

end.

10. Solution: Inventory beg.

10,000

Net purchases

160,000

170,000 0

COGS end.

11. Solution: Inventory beg.

50,000

Net purchases Irrelevant

170,000 COGS 40,000

end. (210K – 170K)

Change in inventory (50K, beg. – 40K, end.) = 10,000 decrease 12. Solution: Inventory beg. (squeeze)

20,000

Net purchases 150,000

120,000

COGS (170K TGAS – 50K)

50,000

end.

Change in inventory (20K, beg. – 50K, end.) = 30,000 increase

13. Requirement 13: Perpetual inventory system I.

Journal entries a. Inventory Accounts payable

160,000 160,000

b. Inventory Cash

3,000

c.

2,000

Accounts payable Inventory

d. Cash Sales Cost of goods sold Inventory e. Sales returns Cash

f.

3,000

2,000 270,000 270,000 180,000 180,000 6,000 6,000

Inventory Cost of goods sold

4,000

Accounts payable Cash

180,000

g. Utilities expense Cash

4,000

180,000 20,000 20,000

II.

Posting ASSETS Cash beg. (d)

Bal.

60,000 270,000

Inventory 40,000 160,000 3,000 2,000 4,000 180,000

beg.

(b) (e) (f) (g)

3,000 6,000 180,000 20,000

121,000

(a) (b) (e)

Bal.

25,000

beg.

Equipment 200,000

Bal.

200,000

(c) (d)

Accumulated depreciation

LIABILITIES

(c) (f)

Accounts payable 30,000 2,000 160,000 180,000 8,000

beg. (a)

Bal.

EQUITY Owner’s equity 250,000 250,000

beg.

Bal.

20,000

beg.

20,000

Bal.

INCOME Sales 270,000

(d)

270,000

Bal.

Sales Returns (e)

6,000

Bal.

6,000

EXPENSES Cost of goods sold (d)

180,000 4,000

Bal.

Utilities expense

176,000

(g)

20,000

Bal.

20,000

(e)

III.

Unadjusted trial balance Entity B Unadjusted trial balance December 31, 20x1 Accounts Cash Inventory Equipment Accumulated depreciation

Dr. 121,000 25,000 200,000

20,000

Accounts payable

8,000 250,000

Owner's equity Sales

IV.

270,000

Sales returns Cost of goods sold

6,000 176,000

Utilities expense

20,000

Totals

Cr.

548,000

548,000

Adjusting entries AJE #1: Depreciation Depreciation expense 20,000 Accumulated depreciation

20,000

V.

Worksheet

VI.

Closing entries Cl.E#1: Closing to Income summary Sales

270,000 Sales returns Cost of goods sold Utilities expense Depreciation expense Income summary

6,000 176,000 20,000 20,000 48,000

Cl.E#2: Closing of Income summary to Owner’s equity Income summary Owner’s equity

48,000 48,000

14. Requirement 14: Periodic inventory system I.

Journal entries a. Purchases Accounts payable

160,000 160,000

b. Freight-in Cash

3,000

c.

2,000

Accounts payable Purchase returns

3,000

2,000

d. Cash Sales

270,000

e. Sales returns Cash

6,000

f.

180,000

Accounts payable Cash

g. Utilities expense Cash

270,000

6,000

180,000 20,000 20,000

II.

Posting ASSETS Cash (d)

60,000 270,000

Bal.

121,000

beg.

beg.

Inventory 40,000

Bal.

40,000

beg.

Equipment 200,000

Bal.

200,000

(b) (e) (f) (g)

3,000 6,000 180,000 20,000

Accumulated depreciation

LIABILITIES Accounts payable (c) (f)

2,000 180,000

30,000 160,000

beg.

8,000

Bal.

(a)

EQUITY Owner’s equity 250,000

beg.

250,000

Bal.

20,000

beg.

20,000

Bal.

INCOME Sales 270,000

(d)

270,000

Bal.

Sales Returns (e)

6,000

Bal.

6,000

EXPENSES (a)

Bal.

Purchases 160,000

(b)

160,000

Bal.

Purchase returns

(g) Bal.

2,000

(c)

2,000

Bal.

Utilities expense 20,000 20,000

Freight-in 3,000

3,000

III.

Unadjusted trial balance Entity B Unadjusted trial balance December 31, 20x1 Accounts Cash Inventory, beg. Equipment

Dr. 121,000 40,000 200,000

Accumulated depreciation Accounts payable

20,000 8,000

Owner's equity

250,000 270,000

Sales Sales returns Purchases Freight-in

6,000 160,000 3,000

Purchase returns Utilities expense Totals

IV.

Cr.

2,000 20,000 550,000

550,000

Adjusting entries AJE #1: Depreciation Depreciation expense 20,000 Accumulated depreciation

20,000

AJE #2: Ending inventory Inventory, end. Income summary

25,000

25,000

V.

Worksheet

P a g e | 17

VI.

Closing entries Cl.E#1: Closing to Income summary Sales 270,000 Purchase returns 2,000 Inventory, beg. Purchases Freight-in Sales returns Utilities expense Depreciation expense Income summary

40,000 160,000 3,000 6,000 20,000 20,000 23,000

Cl.E#2: Closing of Income summary to Owner’s equity Income summary Owner’s equity

48,000* 48,000

* 25,000 from AJE #2 + 23,000 from Cl.E #1 above = 48,000

P a g e | 18 PROBLEM 3: JOURNAL ENTRIES Requirement (a): Journal entries Perpetual system 1. Inventory 90,000 Accounts payable 90,000

Purchases 90,000 Accounts payable 90,000

2. Inventory Cash

Freight-in Cash

3. Accounts payable Inventory

7,000 7,000

2,000 2,000

Periodic system

7,000 7,000

Accounts payable 2,000 Purchase returns 2,000

4. Accounts receivable 132,000 Accounts receivable 132,000 Sales 132,000 Sales 132,000 Cost of goods sold Inventory

80,000 80,000

5. Sales returns 9,000 Accounts receivable 9,000 Inventory 6,000 Cost of goods sold 6,000

No entry

Sales returns 9,000 Accounts receivable 9,000 No entry

P a g e | 19 Requirement (b): Perpetual inventory system: Cost of goods sold (4) Cost of goods sold

80,000 6,000

(5) Sales return

74,000

end. Bal.

Periodic inventory system: Beginning inventory Purchases (1) Freight-in (2) Purchase returns (3) Purchase discounts Net purchases Total goods available for sale

₱

-

₱90,000 7,000 (2,000) 95,000 95,000

Ending inventory (physical count)

(21,000)

Cost of goods sold

₱74,000

P a g e | 20 PROBLEM 4: JOURNAL ENTRIES Solution: Requirement (a): Journal entries Perpetual system

Periodic system

1. Inventory 120,000 Accounts payable 120,000

Purchases 120,000 Accounts payable 120,000

2. Inventory Cash 3. Accounts payable Inventory

12,000 12,000

2,400 2,400

Freight-in Cash

12,000 12,000

Accounts payable 2,400 Purchase returns 2,400

4. Accounts receivable 147,600 Accounts receivable 147,600 Sales 147,600 Sales 147,600 Cost of goods sold Inventory

98,400 98,400

5. Sales returns 10,800 Accounts receivable 10,800 Inventory 7,200 Cost of goods sold 7,200

No entry

Sales returns 10,800 Accounts receivable 10,800 No entry

P a g e | 21 Requirement (b): Perpetual inventory system: Cost of goods sold (4) Cost of goods sold

98,400 7,200

(5) Sales return

91,200

end. Bal.

Periodic inventory system: Beginning inventory

₱ 6,200

Purchases (1)

₱120,000

Freight-in (2)

12,000

Purchase returns (3) Purchase discounts

(2,400) -

Net purchases

129,600

Total goods available for sale

135,800

Ending inventory (physical count)

(44,600)

Cost of goods sold

₱91,200

P a g e | 22 PROBLEM 5: STATEMENT OF COGS & GROSS PROFIT Solution: Entity A Statement of Cost of goods sold and Gross profit For the period ended December 31, 20x1 Net sales: Sales

230,000

Sales discounts

(7,000)

Sales returns

(15,000)

208,000

Cost of goods sold: Beginning inventory

22,000

Purchases Freight-in

120,000 5,000

Purchase discounts

(3,000)

Purchase returns

(2,000)

Total goods available for sale

142,000

Less: Ending inventory

(28,000)

Gross profit

(114,000) 94,000

P a g e | 23 PROBLEM 6: STATEMENT OF COGS & GROSS PROFIT Solution: Entity B Statement of Cost of goods sold and Gross profit For the period ended December 31, 20x1 Net sales: Sales

320,000

Sales discounts

(10,000)

Sales returns

(8,000)

302,000

Cost of goods sold: Beginning inventory Purchases Freight-in

27,000 145,000 7,000

Purchase discounts

(4,000)

Purchase returns

(3,000)

Total goods available for sale

172,000

Less: Ending inventory

(32,000)

Gross profit

(140,000) 162,000

P a g e | 24 PROBLEM 7: COMPUTATIONS 1. Solution: Sales 724,200 Sales discounts Sales returns

(10,000)

Net sales

710,600

(3,600)

2. Solution: Purchases

220,000

Freight-in

12,000

Purchase discounts Purchase returns

(4,500)

Net purchases

(3,000) 224,500

3. Solution: Inventory, beg. Purchases

22,400 252,000

Freight-in Purchase discounts

11,000 (4,900)

Purchase returns

(3,000)

Total good available for sale

277,500

4. Solution: Inventory, beg. Purchases Freight-in Purchase discounts Purchase returns

22,400 252,000 11,000 (4,900) (3,000)

Total good available for sale

277,500

Inventory, end.

(15,000)

Cost of goods sold

262,500

P a g e | 25 5. Solution: Inventory beg.

33,000

Net purchases

128,000

96,000

COGS

65,000

end.

154,000

COGS

152,000

end.

106,000

COGS

6. Solution: Inventory beg.

89,000

Net purchases

217,000

7. Solution: Inventory beg.

20,000

Net purchases

176,000

90,000

end.

89,000

COGS

19,000

end.

8. Solution: Inventory beg. Net purchases

24,000 84,000

P a g e | 26 9. Solution: Inventory beg.

90,000

Net purchases

216,000

244,000

COGS

62,000

end.

10. Solution: Inventory beg. Net purchases

344,000 COGS 148,000 end.

TGAS (344K COGS + 148 Invty. end.)

492,000

11. Solution: Inventory beg.

0

Net purchases

170,000

130,000

COGS

40,000

end.

12. Solution: Inventory beg.

40,000

Net purchases

170,000

210,000 0

COGS end.

P a g e | 27

13. Solution: Inventory beg.

0

Net purchases

800,000

720,000 80,000

COGS end.

14. Solution: Inventory beg.

4,000

Net purchases Irrelevant

169,000 COGS 21,000

end. (190K – 169K)

Change in inventory (4K, beg. – 21K, end.) = 17,000 increase

15. Solution: Inventory beg. (squeeze) 12,000 Net purchases 59,000

66,000 COGS (71K TGAS – 5K EI) 5,000

end.

Change in inventory (12K, beg. – 5K, end.) = 7,000 decrease

P a g e | 28

PROBLEM 8: WORKSHEET (PERPETUAL SYSTEM) Requirement (a): Journal entries (1) (2)

(3) (4) (5)

Inventory Accounts payable Accounts receivable Sales

420,000

Cost of goods sold Inventory Cash Accounts receivable Accounts payable Cash Salaries expense Cash

430,000

420,000 900,000 900,000

430,000 870,000 870,000 390,000 390,000 520,000 520,000

Requirement (b): Posting ASSETS Cash beg. (3)

80,000 870,000

Bal.

40,000

beg. (1)

40,000 420,000

Bal.

30,000

390,000 520,000

Accounts receivable (4) (5)

beg. (2)

Bal.

Inventory 430,000

(2)

0 900,000

30,000

870,000

(3)

P a g e | 29

Equipment

Accum. Dep’n.

beg.

200,000

20,000

Bal.

200,000

20,000

LIABILITIES Accounts payable (4)

390,000

0 420,000 30,000

beg. (1) Bal.

EQUITY Owner’s equity 300,000

beg.

300,000

Bal.

INCOME Sales 900,000 900,000

EXPENSES Salaries expense (2) Bal.

(5)

Bal.

520,000 520,000

Cost of goods sold (2)

Bal.

430,000 430,000

beg.

Bal.

P a g e | 30

Requirement (c): Unadjusted trial balance

Entity A Unadjusted Trial Balance December 31, 20x1 Accounts

Debits

Cash

₱40,000

Accounts receivable

30,000

Inventory

30,000

Equipment Accum. Depreciation

Credits

200,000 ₱20,000

Accounts payable

30,000

Owner’s equity

300,000

Sales Cost of goods sold

900,000 430,000

Salaries expense

520,000

Totals

₱1,250,000

₱1,250,000

Requirement (d): Adjusting entries AJE #1: Depreciation expense Depreciation expense Accumulated depreciation

Requirement (e): Worksheet

20,000 20,000

P a g e | 31