Question

1. On October 1, the Business Students’ Society (BSS) placed an order for 100 golf shirts at a unitcost of $20, under terms 2/10, n/30.2. The order was received on October 10, but 20 golf shirts had been damaged in shipment.3. On October 11, the damaged golf shirts were returned.4. On October 12, BSS complained that the remaining golf shirts were slightly defective so the supplier granted a GL $100 allowance.5. BSS paid for the golf shirts on October 13.6. During the first week of October, BSS received student and faculty orders for 80 golf shirts, at a unit price of $37.50, on terms 2/10, n/30.7. The golf shirts were delivered to these customers on October 18. Unfortunately, customers wereunhappy with the golf shirts, so BSS permitted them to be returned or gave an allowance of $12.50 per shirt.8. On October 21, one-half of the golf shirts were returned.9. On October 22, the remaining 40 customers were granted the allowance on account.10.The customers paid their remaining balances d

Answer 1

1.

Oct 1 No entry

Oct. 10 Dr Purchased 2,000

Cr Accounts Payable 2,000

Oct. 11 Dr Accounts Payable 400

Cr Purchase returns 400

Oct. 12 Dr Accounts Payable 100

Cr Purchase allowance 100

Oct. 13 Dr Accounts Payable 1,400 Cr Cash 1,470

Cr Purchase discount 30

Oct. 18 Dr Accounts Receivable 3,000

Cr Sales Revenue 3,000

Oct. 21 Dr Sales Returns and Allowances

1,500

Cr Accounts Receivable 1,500

Oct. 22 Dr Sales allowance 500

Cr Account receivable 500

Oct .25 Dr Cash 1,000

Cr Account receivable 1,000

2. Net income 120

3. Percentage of net sales=3.77%

4. In a situation where the check that was dated October 13 had not yet cleared the bank BSS should report this on its October 31 bank reconciliation by reducing it from balance as per bank statement.

5. No journal entry

Step-by-step explanation:

1. Preparation of Journal entries

Oct 1 No entry

Oct. 10 Dr Purchased 2,000

Cr Accounts Payable 2,000 (100 shirts x $20 each)

Oct. 11 Dr Accounts Payable 400

Cr Purchase returns 400

(20 shirts x $20 each)

Oct. 12 Dr Accounts Payable 100

Cr Purchase allowance 100

Oct. 13 Dr Accounts Payable 1,500

($2,000 - $400 - $100 = $1,500)

Cr Cash 1,470

Cr Purchase discount 30

( $1,500 x 2% = $30)

Oct. 18 Dr Accounts Receivable 3,000

Cr Sales Revenue 3,000

( 80 shirts x $37.50 each)

Oct. 21 Dr Sales Returns and Allowances

(80 x $37.50 x ½) 1,500

Cr Accounts Receivable 1,500

Oct. 22 Dr Sales allowance 500

(40*12.5)

Cr Account receivable 500

Oct .25 Dr Cash 1,000

Cr Account receivable 1,000

[3,000-(1,500+500)]

2. Preparation of Income summary

INCOME SUMMARY

Sales 3,000

Less sales return and allowance 2,000

Net sales 1,000

(3,000-2,000)

Less cost of good sold 735

(1,470-735)

(½ x $1,470 original COGS=735)

Gross profit 265

(1,000-735)

Less operating expenses 100

Operating income 165

Less income tax expenses 45

Net income 120

3. Calculation to Determine the percentage of net sales

Using this formula

Percentage of net sales =Net sales/Gross profit

Let plug in the formula

Percentage of net sales =1,000/265

Percentage of net sales=3.77%

4. In a situation where the check that was dated October 13 had not yet cleared the bank BSS should report this on its October 31 bank reconciliation by reducing it from balance as per bank statement.

5. No journal entry