E5-3 On September 1, Howe Office Supply had an inventory of 30 calculators at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions occurred.
Sept. 6 Purchased 80 calculators at $20 each from DeVito Co. for cash.
9 Paid freight of $80 on calculators purchased from DeVito Co.
10 Returned 2 calculators to DeVito Co. for $42 credit (including freight) because they
did not meet specifications.
12 Sold 26 calculators costing $21 (including freight) for $31 each to Mega Book Store,
14 Granted credit of $31 to Mega Book Store for the return of one calculator that was not
20 Sold 30 calculators costing $21 for $31 each to Barbara’s Card Shop, terms n/30.
Journalize the September transactions.
Fill in the lettered blanks to complete the cost of goods sold sections.
*E5-16 This information relates to Martinez Co.
1. On April 5 purchased merchandise from D. Norlan Company for $20,000, terms 2/10, net/30,
FOB shipping point.
2. On April 6 paid freight costs of $900 on merchandise purchased from D. Norlan Company.
3. On April 7 purchased equipment on account for $26,000.
4. On April 8 returned some of April 5 merchandise to D. Norlan Company which cost $2,800.
5. On April 15 paid the amount due to D. Norlan Company in full.
(a) Prepare the journal entries to record these transactions on the books of Martinez Co. using a
periodic inventory system.
(b) Assume that Martinez Co. paid the balance due to D. Norlan Company on May 4 instead of
April 15. Prepare the journal entry to record this payment.
E6-7 Jones Company had 100 units in beginning inventory at a total cost of $10,000.The company
purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2)
LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance
(d) Which cost flow method would result in Jones paying the least taxes in the first year?
Compute the correct cost of goods sold for each year.
E6-12 Staley Watch Company reported the following income statement data for a 2-year period.
Sales $210,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31,
2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,000.
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Staley Company what has happened—i.e.,
the nature of the error and its effect on the financial statements.
*P5-7A At the beginning of the current season, the ledger of Village Tennis Shop showed Cash
$2,500; Merchandise Inventory $1,700; and Common Stock
$4,200. The following transactions
were completed during April.
Apr. 4 Purchased racquets and balls from Denton Co. $740, terms 3/10, n/30.
6 Paid freight on Denton Co. purchase $60.
8 Sold merchandise to members $900, terms n/30.
10 Received credit of $40 from Denton Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Newbee Sports for cash $300.
13 Paid Denton Co. in full.
14 Purchased tennis shirts and shorts from Venus’s Sportswear $600, terms 2/10, n/60.
15 Received cash refund of $50 from Newbee Sports for damaged merchandise that was
17 Paid freight on Venus’s Sportswear purchase $30.
18 Sold merchandise to members $1,000, terms n/30.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Venus’s Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members $500.
c) Prepare a trial balance on April 30, 2008.
(d) Prepare an income statement through gross profit, assuming merchandise inventory on hand
at April 30 is $2,296.
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