CHAPTER 5

PROBLEMS: SET C
P5-1C Gagliardo Book Warehouse distributes hardcover books to retail stores and ex- Journalize purchase and
tends credit terms of 2/10, n/30 to all of its customers. At the end of May, Gagliardo’s sales transactions under a
inventory consisted of 240 books purchased at $1,200. During the month of June the fol- perpetual inventory system.
lowing merchandising transactions occurred. (LO 2, 3)
June 1 Purchased 180 books on account for $5 each from Garrison Publishers, FOB
destination, terms 2/10, n/30. The appropriate party also made a cash payment
of $50 for the freight on this date.
3 Sold 120 books on account to Books-R-Us for $10 each.
6 Received $50 credit for 10 books returned to Garrison Publishers.
9 Paid Garrison Publishers in full, less discount.
15 Received payment in full from Books-R-Us.
17 Sold 150 books on account to Binder Books for $10 each.
20 Purchased 120 books on account for $5 each from Reading Publishers, FOB
destination, terms 2/15, n/30. The appropriate party also made a cash payment
of $50 for the freight on this date.
24 Received payment in full from Binder Books.
26 Paid Reading Publishers in full, less discount.
28 Sold 110 books on account to Read-n-Weep Bookstore for $10 each.
30 Granted Read-n-Weep Bookstore $150 credit for 15 books returned costing $75.
Gagliardo Book Warehouse’s chart of accounts includes the following: No. 101 Cash, No. 112
Accounts Receivable, No. 120 Inventory, No. 201 Accounts Payable, No. 401 Sales
Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, No. 505 Cost
of Goods Sold.

Instructions
Journalize the transactions for the month of June for Gagliardo Book Warehouse using a
perpetual inventory system.

P5-2C Bluestem Hardware Store completed the following merchandising transactions Journalize, post, and prepare
in the month of May. At the beginning of May, the ledger of Bluestem showed Cash of a partial income statement.
$10,000 and Owner’s Capital of $10,000. (LO 2, 3, 5, 6)
May 1 Purchased merchandise on account from Ming Wholesale Supply $9,000, terms
2/10, n/30.
2 Sold merchandise on account $4,500, terms 1/10, n/30. The cost of the merchan-
dise sold was $3,100.
5 Received credit from Ming Wholesale Supply for merchandise returned $600.
9 Received collections in full, less discounts, from customers billed on sales of
$4,000 on May 2.
10 Paid Ming Wholesale Supply in full, less discount.
11 Purchased supplies for cash $900.
12 Purchased merchandise for cash $2,700.
15 Received refund for poor quality merchandise from supplier on cash purchase
$230.
17 Purchased merchandise from Longwell Distributors $3,000, FOB shipping point,
terms 2/10, n/30.
19 Paid freight on May 17 purchase $250.
24 Sold merchandise for cash $6,200. The merchandise sold had a cost of $4,600.
25 Purchased merchandise from Duffy Inc. $1,000, FOB destination, terms 2/10,
n/30.
27 Paid Longwell Distributors in full, less discount.
29 Made refunds to cash customers for defective merchandise $100. The returned
merchandise had a scrap value of $20.
31 Sold merchandise on account $2,600, terms n/30. The cost of the merchandise
sold was $1,820.
Bluestem Hardware’s chart of accounts includes the following: No. 101 Cash, No. 112
Accounts Receivable, No. 120 Inventory, No. 126 Supplies, No. 201 Accounts Payable,
No. 301 Owner’s Capital, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances,
No. 414 Sales Discounts, No. 505 Cost of Goods Sold.
2 5 Accounting for Merchandising Operations

Instructions
(a) Journalize the transactions using a perpetual inventory system.
(b) Enter the beginning cash and capital balances and post the transactions. (Use J1 for
the journal reference.)
(c) Gross profit $3,160 (c) Prepare an income statement through gross profit for the month of May 2017.

Prepare financial statements P5-3C Long Department Store is located in midtown Metropolis. During the past several
and adjusting and closing years, net income has been declining because of suburban shopping centers. At the end of
entries. the company’s fiscal year on November 30, 2017, the following accounts appeared in two
(LO 4, 5) of its trial balances.

Unadjusted Adjusted Unadjusted Adjusted

Accounts Payable $ 47,310 $ 47,310 Notes Payable $ 46,000 $ 46,000
Accounts Receivable 11,770 11,770 Owner’s Capital 84,200 84,200
Accumulated Depr.—Equip. 47,980 61,480 Owner’s Drawings 12,000 12,000
Cash 8,000 8,000 Prepaid Insurance 13,500 4,500
Cost of Goods Sold 633,220 633,220 Property Tax Expense 3,500
Freight-Out 8,200 8,200 Property Taxes Payable 3,500
Equipment 182,000 182,000 Rent Expense 19,000 19,000
Depreciation Expense 13,500 Salaries and Wages Expense 120,000 120,000
Insurance Expense 9,000 Sales Revenue 850,000 850,000
Interest Expense 8,000 8,000 Sales Commissions Expense 8,000 14,000
Interest Revenue 5,000 5,000 Sales Commissions Payable 6,000
Inventory 36,200 36,200 Sales Returns and Allowances 10,000 10,000
Utilities Expense 10,600 10,600

Instructions
(a) Net income $5,980 (a) Prepare a multiple-step income statement, an owner’s equity statement, and a classi-
Capital $78,180 fied balance sheet. Notes payable are due in 2020.
Total assets $180,990 (b) Journalize the adjusting entries that were made.
(c) Journalize the closing entries that are necessary.

Journalize, post, and prepare P5-4C Phil Woods, a former professional golf star, operates Phil’s Pro Shop at Bahia Golf
a trial balance. Course. At the beginning of the current season on April 1, the ledger of Phil’s Pro Shop
(LO 2, 3, 4) showed Cash $2,500, Inventory $3,500, and Owner’s Capital $6,000. The following trans-
actions were completed during April.
Apr. 5 Purchased golf bags, clubs, and balls on account from Lopez Co. $1,500, FOB
shipping point, terms 2/10, n/60.
7 Paid freight on Lopez purchase $80.
9 Received credit from Lopez Co. for merchandise returned $100.
10 Sold merchandise on account to members $1,100, terms n/30. The merchandise
sold had a cost of $810.
12 Purchased golf shoes, sweaters, and other accessories on account from Penguin
Sportswear $860, terms 1/10, n/30.
14 Paid Lopez Co. in full, less discount.
17 Received credit from Penguin Sportswear for merchandise returned $60.
20 Made sales on account to members $700, terms n/30. The cost of the merchan-
dise sold was $490.
21 Paid Penguin Sportswear in full, less discount.
27 Granted an allowance to members for clothing that did not fit properly $40.
30 Received payments on account from members $1,000.
The chart of accounts for the pro shop includes the following: No. 101 Cash, No. 112
Accounts Receivable, No. 120 Inventory, No. 201 Accounts Payable, No. 301 Owner’s
Capital, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 505 Cost of
Goods Sold.

Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions.
(Use J1 for the journal reference.)
(c) Total debits $7,800 (c) Prepare a trial balance on April 30, 2017.
 Problems: Set C 3

*P5-5C At the end of Hammond Department Store’s fiscal year on November 30, 2017, Determine cost of goods
these accounts appeared in its adjusted trial balance. sold and gross profit under
periodic approach.

Freight-In $ 5,060 (LO 5, 7)

Merchandise Inventory 44,360
Purchases 650,000
Purchase Discounts 7,000
Purchase Returns and Allowances 3,000
Sales Revenue 900,000
Sales Returns and Allowances 20,000

Additional facts:
1. Merchandise inventory on November 30, 2017, is $36,200.
2. Note that Hammond Department Store uses a periodic system.

Instructions
Prepare an income statement through gross profit for the year ended November 30, 2017. Gross profit $226,780

*P5-6C Aguilar Inc. operates a retail operation that purchases and sells snowmobiles, Calculate missing amounts
amongst other outdoor products. The company purchases all merchandise inventory on and assess profitability.
credit and uses a periodic inventory system. The accounts payable account is used for (LO 5, 7)
recording inventory purchases only; all other current liabilities are accrued in separate
accounts. You are provided with the following selected information for the fiscal years
2014 through 2017, inclusive.

2014 2015 2016 2017

Income Statement Data
Sales revenue $96,850 $ (e) $81,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 63,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $ 4,570 $ (j)
Balance Sheet Data
Inventory $13,000 $ (c) $14,700 $ (k)
Accounts payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
inventory on account $28,890 $ (g) $24,050
Cash payments to suppliers (d) (h) 24,650

Instructions
(a) Calculate the missing amounts. (c) $14,680
(b) Sales declined over the 3-year fiscal period, 2015–2017. Does that mean that prof- (g) $31,160
itability necessarily also declined? Explain, computing the gross profit rate and the
(i) $55,230
profit margin for each fiscal year to help support your answer. (Round to one decimal
place.)

*P5-7C At the beginning of the current season on April 1, the ledger of Molina Pro Shop Journalize, post, and prepare
showed Cash $2,500; Inventory $3,500; and Owner’s Capital $6,000. These transactions trial balance and partial
occured during April 2017. income statement using
periodic approach.
Apr. 5 Purchased golf bags, clubs, and balls on account from Bishop Co. $2,700, FOB
shipping point, terms 2/10, n/60. (LO 7)
7 Paid freight on Bishop Co. purchases $80.
9 Received credit from Bishop Co. for merchandise returned $200.
10 Sold merchandise on account to members $950, terms n/30.
4 5 Accounting for Merchandising Operations

12 Purchased golf shoes, sweaters, and other accessories on account from Arrow
Sportswear $460, terms 1/10, n/30.
14 Paid Hardee Co. in full.
17 Received credit from Arrow Sportswear for merchandise returned $60.
20 Made sales on account to members $1,400, terms n/30.
21 Paid Arrow Sportswear in full.
27 Granted credit to members for clothing that did not fit properly $75.
30 Received payments on account from members $1,100.
The chart of accounts for the pro shop includes Cash; Accounts Receivable, Inventory;
Accounts Payable; Owner’s Capital; Sales Revenue; Sales Returns and Allowances;
Purchases; Purchase Returns and Allowances; Purchase Discounts, and Freight-in.

Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T accounts, enter the beginning balances in the ledger accounts and post the
April transactions.
(c) Tot. trial (c) Prepare a trial balance on April 30, 2015.
balance $8,664 (d) Prepare an income statement through gross profit, assuming merchandise inventory
Gross profit $373 on hand at April 30 is $4,524.