Exercises Answer general questions about merchandisers. E5.1 (LO 1), C Mr. Etemadi has prepared the following list of statements about service companies and merchandisers. 1. Measuring net income for a merchandiser is conceptually the same as for a service company. 2. For a merchandiser, sales less operating expenses is called gross profit. 3. For a merchandiser, the primary source of revenue is the sale of inventory. 4. Sales salaries and wages is an example of an operating expense. 5. The operating cycle of a merchandiser is the same as that of a service company. 6. In a perpetual inventory system, no detailed inventory records of goods on hand are maintained in the Inventory account. 7. In a periodic inventory system, the cost of goods sold is determined only at the end of the reporting period. 8. A periodic inventory system provides better control over inventories than a perpetual system. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. Journalize purchase transactions. E5.2 (LO 2), AP Information related to Rice Co. is presented below. 1. On April 5, purchased merchandise on account from Jax Company for $28,000, terms 2/10, net/30, FOB shipping point. 2. On April 6, paid freight costs of $700 on merchandise purchased from Jax. 3. On April 7, purchased equipment on account for $30,000. 4. On April 8, returned $3,600 of merchandise to Jax Company. 5. On April 15, paid the amount due to Jax Company in full. Instructions a. Prepare the journal entries to record these transactions on the books of Rice Co. under a perpetual inventory system. b. Assume that Rice Co. paid the balance due to Jax Company on May 4 instead of April 15. Prepare the journal entry to record this payment. Journalize perpetual inventory entries. E5.4 (LO 2, 3), AP On June 10, Pais Company purchased $9,000 of merchandise on account from McGiver Company, FOB shipping point, terms 3/10, n/30. Pais pays the freight costs of $400 on June 11. Goods totaling $600 are returned to McGiver for credit on June 12. On June 19, Pais pays McGiver Company in full, less the discount. Both companies use a perpetual inventory system. Instructions a. Prepare separate entries for each transaction on the books of Pais Company. b. Prepare separate entries for each transaction for McGiver Company. The merchandise purchased by Pais on June 10 cost McGiver $5,000, and the goods returned cost McGiver $310. Prepare adjusting and closing entries. E5.7 (LO 4), AP Juan Morales Company had the following account balances at year-end: Cost of Goods Sold $60,000, Inventory $15,000, Utilities Expense $29,000, Sales Revenue $115,000, Sales Discounts $1,200, and Sales Returns and Allowances $1,700. A physical count of inventory determines that merchandise inventory on hand is $13,900. Instructions a. Prepare the adjusting entry necessary as a result of the physical count. b. Prepare closing entries. Exercises Answer general questions about merchandisers. E5.1 (LO 1), C Mr. Etemadi has prepared the following list of statements about service companies and merchandisers. 1. Measuring net income for a merchandiser is conceptually the same as for a service company. 2. For a merchandiser, sales less operating expenses is called gross profit. 3. For a merchandiser, the primary source of revenue is the sale of inventory. 4. Sales salaries and wages is an example of an operating expense. 5. The operating cycle of a merchandiser is the same as that of a service company. 6. In a perpetual inventory system, no detailed inventory records of goods on hand are maintained in the Inventory account. 7. In a periodic inventory system, the cost of goods sold is determined only at the end of the reporting period. 8. A periodic inventory system provides better control over inventories than a perpetual system. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. Journalize purchase transactions. E5.2 (LO 2), AP Information related to Rice Co. is presented below. 1. On April 5, purchased merchandise on account from Jax Company for $28,000, terms 2/10, net/30, FOB shipping point. 2. On April 6, paid freight costs of $700 on merchandise purchased from Jax. 3. On April 7, purchased equipment on account for $30,000. 4. On April 8, returned $3,600 of merchandise to Jax Company. 5. On April 15, paid the amount due to Jax Company in full. Instructions a. Prepare the journal entries to record these transactions on the books of Rice Co. under a perpetual inventory system. b. Assume that Rice Co. paid the balance due to Jax Company on May 4 instead of April 15. Prepare the journal entry to record this payment