Explanation Perpetual inventory system: The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system. Gross method: Under gross method, sales and purchases of merchandises are recorded at the full invoice price (gross amount) without the deduction of discounts. Sales discounts: The merchandisers offer a reduction in sales price on initial sales, to accelerate the sale on account payments, by their customers within the sale terms promptly. Such a reduction in sales price is referred to as sales discount. This is recorded as contra-revenue account. Sales returns and allowances: Sometimes, customers either return goods due to manufacturing defects, or accept to keep the defective goods for a reduction in sale price. That amount of goods returned, or reduced amount in sale price, is referred to as sales returns and allowances. These are recorded as contra-revenue accounts. Prepare journal entries for Merchandiser A. Date Account title and Explanation Post ref. Amount Debit Credit May 03 Merchandise Inventory (+A) ( 2 , 000 units × $ 10 ) $20,000 Accounts payable (+L) $20,000 (To record the purchase of merchandise on account ) May 05 Accounts receivable – Company M (+A) ( 1 , 500 units × $ 14 ) $21,000 Sales revenue (+SE) $21,000 (To record the sale of merchandise on account with terms of 2 / 10 , n / 60 ) May 05 Cost of goods sold (-SE) $15,000 Inventory (-A) $15,000 (To record the cost of merchandise sold) May 07 Sales return and allowances (-SE) ( 125 units × $ 14 ) $1,750 Accounts receivable– Company M (-A) $1,750 (To record the merchandise returned by customers) May 07 Inventory (+A) $1,250 Cost of goods sold (+SE) $1,250 (To record the cost of merchandise returned by customers) May 08 Sales return and allowances (-SE) $300 Accounts receivable– Company M (-A) $300 (To record the allowance for scuffed items) May 15 Cash (2) (+A) $18,751 Sales discounts (1) (-SE) $379 Accounts receivable (-A) $18,950 (To record the sales discount and payment from customers for the goods sold) Table (1) May 03: To record the 2,000 units of products purchased at $10 on account, credit terms of 2 / 10 , n / 60 : Merchandise Inventory is an asset and the value is increased due to the credit purchases on account. Therefore, debit Merchandise Inventory account with $20,000 ( 2 , 000 units × $ 10 )

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Chapter 5 Solutions

Principles of Financial Accounting.

Ch. 5 - Prob. 1MCQ Ch. 5 - Prob. 2MCQ Ch. 5 - Prob. 3MCQ Ch. 5 - Prob. 4MCQ Ch. 5 - A companys net sales are 675,000, its cost of...Ch. 5 - Prob. 1DQ Ch. 5 - In comparing the accounts of a merchandising...Ch. 5 - Prob. 3DQ Ch. 5 - Prob. 4DQ Ch. 5 - How does a company that uses a perpetual inventory...

Ch. 5 - Distinguish between cash discounts and trade...Ch. 5 - Prob. 7DQ Ch. 5 - Prob. 8DQ Ch. 5 - Prob. 9DQ Ch. 5 - What is the difference between the single-step and...Ch. 5 - APPLE Refer to the balance sheet and income...Ch. 5 - Prob. 12DQ Ch. 5 - Prob. 13DQ Ch. 5 - Prob. 14DQ Ch. 5 - Prob. 15DQ Ch. 5 - QUICK STUDY Applying merchandising terms C1 P1...Ch. 5 - Identifying inventory costs Costs of 5,000 were...Ch. 5 - Prob. 3QS Ch. 5 - Question: Compute the amount to be paid for each...Ch. 5 - Recording purchases, returns, and discounts taken...Ch. 5 - Prob. 6QS Ch. 5 - Prob. 7QS Ch. 5 - Prob. 8QS Ch. 5 - Accounting for shrinkageperpetual system P3 Nix'It...Ch. 5 - Closing entries P3 Refer to QS 4-9 and prepare...Ch. 5 - Prob. 11QS Ch. 5 - Prob. 12QS Ch. 5 - Prob. 13QS Ch. 5 - Computing and interpreting acid-test ratio Use the...Ch. 5 - Prob. 15QS Ch. 5 - Contrasting periodic and perpetual systems...Ch. 5 - Prob. 17QS Ch. 5 - Prob. 18QS Ch. 5 - Prob. 19QS Ch. 5 - Prob. 20QS Ch. 5 - Prob. 21QS Ch. 5 - Prob. 22QS Ch. 5 - Prob. 23QS Ch. 5 - Prob. 1E Ch. 5 - Prob. 2E Ch. 5 - Prob. 3E Ch. 5 - Prob. 4E Ch. 5 - Recording purchases, purchases returns, and...Ch. 5 - Recording sales, purchases. and cash...Ch. 5 - Prob. 7E Ch. 5 - Inventory and cost of sales transactions in...Ch. 5 - Prob. 9E Ch. 5 - Prob. 10E Ch. 5 - Prob. 11E Ch. 5 - Impacts of inventory error on key accounts P3 A...Ch. 5 - Impacts of inventory error on key accounts P3 A...Ch. 5 - Prob. 14E Ch. 5 - Prob. 15E Ch. 5 - Prob. 16E Ch. 5 - Recording purchases, returns, and allowances...Ch. 5 - Recording sales, purchases, and cash...Ch. 5 - Prob. 19E Ch. 5 - Prob. 20E Ch. 5 - Recording estimates of future returns P6 Chico...Ch. 5 - Prob. 22E Ch. 5 - Recording sates, purchases. shipping. and...Ch. 5 - Recording purchases, sales, returns, and...Ch. 5 - Prob. 25E Ch. 5 - Preparing journal entries for merchandising...Ch. 5 - Prob. 2AP Ch. 5 - Prob. 3AP Ch. 5 - Prob. 4AP Ch. 5 - Prob. 5AP Ch. 5 - Preparing journal entries for merchandising...Ch. 5 - Prob. 2BP Ch. 5 - Prob. 3BP Ch. 5 - Prob. 4BP Ch. 5 - The following unadjusted trial balance is prepared...Ch. 5 - This serial problem began in Chapter 1 and...Ch. 5 - Prob. 1AA Ch. 5 - Prob. 2AA Ch. 5 - Prob. 3AA Ch. 5 - Prob. 1BTN Ch. 5 - You are the financial officer for Music Plus, a...Ch. 5 - Prob. 3BTN Ch. 5 - Prob. 5BTN

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Solution Summary: The author explains the perpetual inventory system, sales discounts, and sales returns and allowances of Merchandiser A.

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