BRIEF EXERCISES

Cost of Gross
Sales Operating Net
Goods Sold Revenue
Profit Expenses Income
(a) £78,000 ? £30,000 ? £10,800
(b) £108,000 £55,000 ? ? £29,500
(c) ? £83,900 £79,600 £39,500 ?

BE5-2 Giovanni Company buys merchandise on account from Gordon Company. The
selling price of the goods is €780, and the cost of the goods is €560. Both companies
use perpetual inventory systems. Journalize the transaction on the books of both
companies.
BE5-3 Prepare the journal entries to record the following transactions on Benson Company,
Ltd.’s books using a perpetual inventory system.
(a) On March 2, Benson Company sold £800,000 of merchandise to Edgebrook Company,
terms 2/10, n/30. The cost of the merchandise sold was £620,000.
(b) On March 6, Edgebrook Company returned £120,000 of the merchandise purchased
on March 2. The cost of the returned merchandise was £90,000.
(c) On March 12, Benson Company received the balance due from Edgebrook Company.
BE5-4 From the information in BE5-3, prepare the journal entries to record these trans-
actions on Edgebrook Company’s books under a perpetual inventory system.
BE5-5 At year-end, the perpetual inventory records of Federer Company showed mer-
chandise inventory of CHF98,000. The company determined, however, that its actual
inventory on hand was CHF96,100. Record the necessary adjusting entry.

BE5-6 Orlaida Company has the following account balances: Sales Revenue €192,000,
Sales Discounts €2,000, Cost of Goods Sold €105,000, and Inventory €40,000. Prepare the
entries to record the closing of these items to Income Summary.
BE5-7 Yangtze Company, Ltd. provides the following information for the month ended
October 31, 2017 (amounts in Chinese yuan): sales on credit ¥280,000, cash sales ¥100,000,
sales discounts ¥5,000, sales returns and allowances ¥22,000. Prepare the sales section of
the income statement based on this information.

BE5-8 Explain where each of the following items would appear on an income
statement: (a) gain on sale of equipment, (b) interest expense, (c) casualty loss from van- dalism, (d)
cost of goods sold, and (e) depreciation expense.
BE5-9 Assume Jose Company has the following reported amounts: Sales revenue
€506,000, Sales returns and allowances €13,000, Cost of goods sold €342,000, Operating
expenses €110,000. Compute the following: (a) net sales, (b) gross profit, (c) income from
operations, and (d) gross profit rate. (Round to one decimal place.)

*BE5-10 Presented below is the format of the worksheet presented in the chapter.

Adjusted Trial Income Statement of

Trial Balance Adjustments Balance Statement Financial Position
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Indicate where the following items will appear on the worksheet: (a) Cash, (b) Inventory,
(c) Sales revenue, and (d) Cost of goods sold.
Example:

Cash: Trial balance debit column; Adjusted trial balance debit column; and Statement of
financial position debit column
 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1

(a) Cost of goods sold = £48,000 (£78,000 – £30,000).

Operating expenses = £19,200 (£30,000 – £10,800).

(b) Gross profit = £53,000 (£108,000 – £55,000).

Operating expenses = £23,500 (£53,000 – £29,500).

(c) Sales revenue = £163,500 (£83,900 + £79,600).

Net income = £40,100 (£79,600 – £39,500).

BRIEF EXERCISE 5-2

Giovanni Company
Inventory ............................................................. 780
Accounts Payable ....................................... 780

Gordon Company
Accounts Receivable.......................................... 780
Sales Revenue............................................. 780
Cost of Goods Sold ............................................ 560
Inventory...................................................... 560
 BRIEF EXERCISE 5-3

(a) Accounts Receivable.......................................... 800,000

Sales Revenue............................................. 800,000
Cost of Goods Sold ............................................ 620,000
Inventory...................................................... 620,000

(b) Sales Returns and Allowances .......................... 120,000

Accounts Receivable .................................. 120,000
Inventory ............................................................. 90,000
Cost of Goods Sold.....................................
90,000

BRIEF EXERCISE 5-3 (Continued)

(c) Cash (£680,000 – £13,600) .................................. 666,400

Sales Discounts (£680,000 X 2%)....................... 13,600
Accounts Receivable .................................. 680,000
(£800,000 – £120,000)
BRIEF EXERCISE 5-4

(a) Inventory ............................................................. 800,000

Accounts Payable ....................................... 800,000

(b) Accounts Payable ............................................... 120,000

Inventory...................................................... 120,000

(c) Accounts Payable (£800,000 – £120,000) .......... 680,000

Inventory
(£680,000 X 2%) ....................................... 13,600
Cash (£680,000 – £13,600) .......................... 666,400

BRIEF EXERCISE 5-5

Cost of Goods Sold .................................................... 1,900

Inventory ............................................................. 1,900

BRIEF EXERCISE 5-6

Sales Revenue ............................................................ 192,000

Income Summary................................................ 192,000

Income Summary ....................................................... 107,000

Cost of Goods Sold ............................................ 105,000
Sales Discounts .................................................. 2,000
BRIEF EXERCISE 5-7

YANGTZE COMPANY, LTD.

Income Statement (Partial)
For the Month Ended October 31, 2017

Sales revenues

Sales revenue (¥280,000 + ¥100,000)................. ¥380,000

Less: Sales returns and allowances ................ ¥22,000
Sales discounts ....................................... 5,000 27,000
Net sales.............................................................. ¥353,000

BRIEF EXERCISE 5-8

The format of an income statement for a merchandising company is

designed to differentiate between various sources of income and expense.

Item Section

(a) Gain on sale of equipment Other income and expense

(b) Interest expense After other income and expenses

(c) Casualty loss from vandalism Other income and expense

(d) Cost of goods sold Cost of goods sold

(e) Depreciation expense Operating expenses

BRIEF EXERCISE 5-9

(a) Net sales = €506,000 – €13,000 = €493,000.

(b) Gross profit = €493,000 – €342,000 = €151,000.

(c) Income from operations = €151,000 – €110,000 = €41,000.

(d) Gross profit rate = €151,000 ÷ €493,000 = 30.6%.

*BRIEF EXERCISE 5-10

(a) Cash: Trial balance debit column; Adjusted trial

balance debit column;Statement of financial position
debit column.

(b) Inventory: Trial balance debit column; Adjusted trial

balance debitcolumn; Statement of financial position
debit column.

(c) Sales revenue: Trial balance credit column;

Adjusted trial balancecredit column, Income
statement credit column.

(d) Cost of goods sold: Trial balance debit column,

Adjusted trial balancedebit column, Income
statement debit column.