Chapter 5 Accounting for Merchandising Businesses
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Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 7. Each account
number is three digits: the first digit is to indicate the major classification 1 for assets, and so on; the second digit is to indicate the subclassification 11 for current assets,
and so on; and the third digit is to identify the specific account 110 for Cash, 112 for Accounts Receivable, 114 for Merchandise Inventory, 115 for Store Supplies, and so on.
EX 5-17 Sales tax
OBJ. 2
A sale of merchandise on account for 36,000 is subject to an 8 sales tax. a Should the sales tax be recorded at the time of sale or when payment is received? b What is
the amount of the sale? c What is the amount debited to Accounts Receivable? d What is the title of the account to which the 2,880 36,000 × 8 is credited?
EX 5-18 Sales tax transactions
OBJ. 2
Journalize the entries to record the following selected transactions: a. Sold 22,600 of merchandise on account, subject to a sales tax of 5. The cost of the
merchandise sold was 13,600. b. Paid 51,668 to the state sales tax department for taxes collected.
EX 5-19 Normal balances of merchandise accounts
OBJ. 2
What is the normal balance of the following accounts: a Cost of Merchandise Sold, b Delivery Expense, c Merchandise Inventory, d Sales, e Sales Discounts, f Sales
Returns and Allowances, g Sales Tax Payable?
EX 5-20 Income statement for merchandiser
OBJ. 3
For the fiscal year, sales were 8,135,000, sales discounts were 795,000, sales returns and allowances were 475,000, and the cost of merchandise sold was 5,100,000.
a. What was the amount of net sales? b. What was the amount of gross profit?
c. If total operating expenses were 1,350,000, could you determine net income?
EX 5-21 Income statement for merchandiser
OBJ. 3
The following expenses were incurred by a merchandising business during the year. In which expense section of the income statement should each be reported: a selling, b
administrative, or c other? 1. Advertising expense
2. Depreciation expense on store equipment 3. Insurance expense on office equipment
4. Interest expense on notes payable 5. Rent expense on office building
6. Salaries of office personnel 7. Salary of sales manager
8. Sales supplies used
EX 5-22 Determining amounts for items omitted from income statement
OBJ. 3
Two items are omitted in each of the following four lists of income statement data. Determine the amounts of the missing items, identifying them by letter.
Sales 525,000
733,000 1,440,000
g Sales returns and allowances
a 28,000
e 85,000
Sales discounts 41,350
17,500 100,000
65,000 Net sales
463,400 c
1,295,000 h
Cost of merchandise sold b
410,000 f
900,000 Gross proit
83,500 d
275,000 600,000
c. 38,880
a. 20,250 h. 1,500,000
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