Question

Use the data for Valley Company in Problem 5-4 to complete the following requirements.
In Problem 5-4, Valley Company’s adjusted trial balance on August 31, 2013, its fiscal year- end, follows.


On August 31, 2012, merchandise inventory was $ 25,400. Supplementary records of merchandising activities for the year ended August 31, 2013, reveal the following itemized costs.
Invoice cost of merchandise purchases . . . . . . . . $ 92,000
Purchase discounts received . . . . . . . . . . . . . . . . . 2,000
Purchase returns and allowances . . . . . . . . . . . . . 4,500
Costs of transportation- in . . . . . . . . . . . . . . . . . . 4,600

Required
1. Prepare closing entries as of August 31, 2013 (the perpetual inventory system is used). Analysis Component
2. The company makes all purchases on credit, and its suppliers uniformly offer a 3% sales discount. Does it appear that the company’s cash management system is accomplishing the goal of taking all available discounts? Explain.
3. In prior years, the company experienced a 4% returns and allowance rate on its sales, which means approximately 4% of its gross sales were eventually returned outright or caused the company to grant allowances to customers. How do this year’s results compare to prior years’results?


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  • CreatedNovember 26, 2013
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