Chapter 6, Problem 1COP

Reporting Cash, Inventory Orders, Purchases, Sales, Returns, and (Gross Method) Discounts (Chapters 5 and 6)

(a) On October 1, the Business Students’ Society (BSS) placed an order for 100 golf shirts at a unit cost of $20, under terms 2/10, n/30. (b) The order was received on October 10, but some golf shirts differed from what had been ordered. Uncertain whether the shirts would be returned or kept, BSS decided to record any purchase discount only when taken (using the gross method). (c) On October 11, 20 golf shirts were returned to the supplier. (d) On October 12, BSS complained the remaining golf shirts were slightly defective so the supplier granted a $100 allowance. (e) BSS paid for the golf shirts on October 13. (f) During the first week of October, BSS received student and faculty orders for 80 golf shirts, at a unit price of $60, on terms 2/10, n/30. (g) The golf shirts were delivered to these customers on October 18. Unfortunately, customers were unhappy with the golf shirts, so BSS permitted them to be returned or given an allowance (see h and i). Uncertain whether customers would keep or return the shirts, BSS decided to record any sales discount only when taken (using the gross method). (h) On October 19, one-half of the golf shirts were returned by customers to BSS. (i) On October 20, an allowance was given on account equal to $12.50 per shirt for the remaining 40 shirts. (j) The customers paid their remaining balances on the last day of the month, October 31.

Required:

1. 1. Create a five-column table, in which the first column lists events (a) through (j), and the second through fifth columns show the impact of the events on Inventory, Net Sales, Cost of Goods Sold, and Gross Profit.
2. 2. Determine the percentage of net sales that is available to cover operating expenses other than cost of goods sold. By what name is this percentage commonly known?
3. 3. As of October 31, the check dated October 13 had not cleared the bank. How should BSS report this on its October 31 bank reconciliation? Give the journal entry, if any, needed as a result of including this item in the bank reconciliation.