Challenge Exercise 1of 3

Information related to Pagnucci Co. is presented below.

1. On April 5, purchased merchandise from Mockingbird Company for $20,000 terms 2/10, net/30, FOB shipping point.

2. On April 6 paid freight costs of $500 on merchandise purchased from Mockingbird.

3. On April 7, purchased equipment on account for $29,000.

4. On April 8, returned damaged merchandise to Mockingbird Company and was granted a $3,000 credit for returned merchandise.

5. On April 15 paid the amount due to Mockingbird Company in full.

Instructions:

(a) Prepare the journal entries to record these transactions on the books of Pagnucci Co. under a perpetual inventory system.

(b) On April 20, Pagnucci sold 60% of the goods purchased from Mockingbird. What amount would they record as cost of goods sold?

(c) How would the April 6 entry be different if the $500 was paid to ship goods to a customer (rather than for shipping costs for goods purchased)?

(d) Assume that Pagnucci Co. paid the balance due to Mockingbird Company on May 4 instead of April 15. Prepare the journal entry to record this payment.

Challenge Exercise 2 of 3

On September 1, Rhea Office Supply had an inventory of 30 calculators at a cost of $20 each. The company uses a perpetual inventory system. During September, the following transactions occurred.

Sept. 6. Purchased 70 calculators at $22 each from Danny Co. for cash.

Sept. 9. Paid freight of $70 on calculators purchased from Danny Co.

Sept. 10. Returned 2 calculators to Danny Co. for $46 credit (including freight) because they did not meet specifications.

Sept. 12. Sold 33 calculators (30 costing $20, and 3 costing $23 including freight) for $33 each to Great Big Book Store, terms n/30.

Sept. 14. Granted credit of $33 to Great Big Book Store for the return of one calculator that was not ordered.

Sept. 20. Sold 40 calculators costing $23 for $33 each to Bushs Card Shop, terms n/30.

Instructions:

a) Journalize the September transactions.

b) What amount would Rhea report as net sales in the September income statement?

c) What amount would Rhea report as gross profit in the September income statement?

Challenge Exercise 3

Presented below are transactions related to Stealers Company.

1. On December 3, Stealers Company sold $400,000 of merchandise to Sharif Co., terms 2/10, n/30, FOB shipping point. The cost of the merchandise sold was $240,000.

2. On December 8, Sharif Co. was granted an allowance of $19,000 for merchandise purchased on December 3.

3. On December 13, Stealers Company received the balance due from Sharif Co.

Instructions:

(a) Prepare the journal entries to record these transactions on the books of Stealers Company using a perpetual inventory system.

(b) Assume that Stealers Company received the balance due from Sharif Co. on January 2 of the following year instead of December 13. Prepare the journal entry to record the receipt of payment on January 2.

(c) 1) what is the difference between a Sales Return and a Sales Allowance? 2) How would the journal entry on December 8 be different if it was a Sales Return instead of a Sales Allowance?