Page 267 - Accounting Principles (A Business Perspective)

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➢ (Appendix) After closing entries are posted to the ledger, which types of accounts have balances?
Why?

➢ The Limited, Inc. Based on the financial statements of The Limited in the Annual Report
Appendix, what were the 2000 operating expenses? For each of the three years shown, what
percentage of net sales were these expenses? Is the trend favorable or unfavorable?
➢ The Limited, Inc. Based on the financial statements of The Limited, Inc., in the Annual Report
Appendix, what were the 2000 cost of goods sold, occupancy, and buying costs? For each of the three
years shown, what percentage of net sales were these expenses? Is the trend favorable or
unfavorable?

Exercises
Exercise A In the following table, indicate how to increase or decrease (debit or credit) each account, and
indicate its normal balance (debit or credit).
Increased Decreased Normal
by by Balance
(debit (debit (debit
Title of Account or credit) or credit) or credit)
Merchandise Inventory
Sales
Sales Returns and Allowances
Sales Discounts
Accounts Receivable
Purchases
Purchase Returns and Allowances
Purchase Discounts
Accounts Payable
Transportation-In
Exercise B a. Silver Company purchased USD 56,000 of merchandise from Milton Company on account.
Before paying its account, Silver Company returned damaged merchandise with an invoice price of USD 11,680.
Assuming use of periodic inventory procedure, prepare entries on both companies' books to record both the
purchase/sale and the return.
b. Show how any of the required entries would change assuming that Milton Company granted an allowance of

USD 3,360 on the damaged goods instead of giving permission to return the merchandise.
Exercise C What is the last payment date on which the cash discount can be taken on goods sold on March 5
for USD 51,200; terms 3/10/EOM, n/60? Assume that the bill is paid on this date and prepare the correct entries
on both the buyer's and seller's books to record the payment.
Exercise D You have purchased merchandise with a list price of USD 36,000. Because you are a wholesaler,
you are granted a trade discount of 49.6 per cent. The cash discount terms are 2/EOM, n/60. How much will you
remit if you pay the invoice by the end of the month of purchase? How much will discounts on payment you remit if

you do not pay the invoice until the following month?
Exercise E Lasky Company sold merchandise with a list price of USD 60,000 on July 1. For each of the
following independent assumptions, calculate (1) the gross selling price used to record the sale and (2) the amount
that the buyer would have to remit when paying the invoice.
Trade Discount Credit Date

Accounting Principles: A Business Perspective 268 A Global Text