Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a price of $9 per unit. On May 5, Spare Parts sold 1,200 of the units for $13 per unit to DeSoto Co. Terms of the sale were 2/10, n/60. a. On May 7, DeSoto returns 420 units because they did not fit the customer's needs. Spare Parts restores the units to its inventory. b. On May 8, DeSoto discovers that 100 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $500 to compensate for the damage. c. On May 15, DeSoto discovers that 120 units are the wrong color. DeSoto keeps 72 of these units because Spare Parts sends a $140 credit memorandum to compensate. DeSoto returns the remaining 48 units to Spare Parts. Spare Parts restores the 48 returned units to its inventory. Prepare entries for Spare Parts to record the May 5 sale and each of the above separate transactions a through c using a perpetual inventory system.

Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a price of $9 per unit. On May 5, Spare Parts sold 1,200 of the units for $13 per unit to DeSoto Co. Terms of the sale were 2/10, n/60.

    

a.	On May 7, DeSoto returns 420 units because they did not fit the customer's needs. Spare Parts restores the units to its inventory.
b.	On May 8, DeSoto discovers that 100 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $500 to compensate for the damage.
c.	On May 15, DeSoto discovers that 120 units are the wrong color. DeSoto keeps 72 of these units because Spare Parts sends a $140 credit memorandum to compensate. DeSoto returns the remaining 48 units to Spare Parts. Spare Parts restores the 48 returned units to its inventory.

     

Prepare entries for Spare Parts to record the May 5 sale and each of the above separate transactions a through c using a perpetual inventory system.

 

Explanation:

May 5:

Sold merchandise on credit (1,200 × $13) = $15,600

To record cost of sale (1,200 × $9) = $10,800

May 7:

Accepted a return from a customer (420 × $13) = $5,460

Returned merchandise to inventory (420 × $9) = $3,780

May 15:

Accepted return from a customer (48 × $13) = $624

Returned merchandise to inventory (48 × $9) = $432

Taos Company purchased merchandise for resale from Tuscon Company with an invoice price of $19,900 and credit terms of 2/10, n/60. The merchandise had cost Tuscon $13,572. Taos paid within the discount period. Assume that both buyer and seller use a perpetual inventory system. 1(a) Prepare entries that the buyer should record for the purchase.

Taos Company purchased merchandise for resale from Tuscon Company with an invoice price of $19,900 and credit terms of 2/10, n/60. The merchandise had cost Tuscon $13,572. Taos paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.

   
1(a)

Prepare entries that the buyer should record for the purchase.

1(b)

Prepare entries that the buyer should record for the cash payment.

 

2(a)

Prepare entries that the seller should record for the sale.

 

2(b)

Prepare entries that the seller should record for the cash collection.

 

3.

Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 11% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Use 365 days a year. Round your answer to 2 decimal places.)

 

Explanation: 1b and 2b.

Paid account payable with 2% discount period.

Discount = 19,900 × 2% = 398

    
3.

Amount borrowed to pay with discount	$	19,502
Annual rate of interest		× 11%
Interest per year	$	2,145.22

     

Interest per day ($2,145.22 / 365 days) = $5.88

      

Savings from discount taken ($19,900 − $19,502)	$	398.00
Interest paid on 50-day loan (50 days × $5.88)		(294.00	)
Net savings from borrowing to pay in discount period	$	104.00

BizKid Company’s adjusted trial balance on August 31, 2011, its fiscal year-end, follows. Debit Credit Merchandise inventory $ 32,000 Other (noninventory) assets 128,000 Total liabilities $ 36,960 Common stock 64,560 Retained earnings 43,076 Dividends 8,000 Sales 218,880 Sales discounts 3,349 Sales returns and allowances 14,446 Cost of goods sold 85,312 Sales salaries expense 29,987 Rent expense—Selling space 10,287 Store supplies expense 2,627 Advertising expense 18,605 Office salaries expense 27,360 Rent expense—Office space 2,627 Office supplies expense 876 Totals $ 363,476 $ 363,476 On August 31, 2010, merchandise inventory was $25,824. Supplementary records of merchandising activities for the year ended August 31, 2011, reveal the following itemized costs. Invoice cost of merchandise purchases $ 94,080 Purchase discounts received 1,976 Purchase returns and allowances 4,516 Costs of transportation-in 3,900

BizKid Company’s adjusted trial balance on August 31, 2011, its fiscal year-end, follows.

      

			Debit			Credit
Merchandise inventory		$	32,000
Other (noninventory) assets			128,000
Total liabilities					$	36,960
Common stock						64,560
Retained earnings						43,076
Dividends			8,000
Sales						218,880
Sales discounts			3,349
Sales returns and allowances			14,446
Cost of goods sold			85,312
Sales salaries expense			29,987
Rent expense—Selling space			10,287
Store supplies expense			2,627
Advertising expense			18,605
Office salaries expense			27,360
Rent expense—Office space			2,627
Office supplies expense			876
Totals		$	363,476		$	363,476

      

On August 31, 2010, merchandise inventory was $25,824. Supplementary records of merchandising activities for the year ended August 31, 2011, reveal the following itemized costs.

       

Invoice cost of merchandise purchases	$	94,080
Purchase discounts received		1,976
Purchase returns and allowances		4,516
Costs of transportation-in		3,900

1.	Compute the company’s net sales for the year.

Sales		$	218,880
Less: Sales discounts			(3,349	)
Sales returns and allowances			(14,446	)
Net sales		$	201,085

2.	Compute the company’s total cost of merchandise purchased for the year.

Cost of Merchandise purchased:
Invoice cost of merchandise purchased		$	94,080
Purchase discounts received			(1,976	)
Purchase returns and allowances			(4,516	)
Costs of transportation-in			3,900
Total cost of merchandise purchased		$	91,488

3.	Prepare a multiple-step income statement that includes separate categories for selling expenses and for general and administrative expenses.

 

Explanation:

Cost of goods sold (alternative computation):
Merchandise inventory, August 31, 2010	$	25,824
Total cost of merchandise purchased (from part 2)		91,488
Merchandise available for sale		117,312
Merchandise inventory, August 31, 2011		32,000
Cost of goods sold	$	85,312

4.	Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.