Accounting I   ©

Assignments for Principles of Accounting I Chapter 7

Assignment 1

A wine wholesaler sells its products on credit terms of 2/10, n/30. Consider the following transactions:

June 9: Sales on credit to AB Wines, $20,000

June 11: Sales on credit to Marty's Liquors, $10,000

June 18: Collected from AB Wines

June 26: Accepted the return of six cases from Marty's, $1,000

July 10: Collected from Marty's

July 12: AB Wines returned some defective wine that it had acquired on June 9 for $100. The Wholesaler issued a cash refund immediately.

Prepare journal entries for these transactions. Explain the transaction, when needed.

Assignment 2

A clothing Store has extended credit to customers on open account. Its average experience for each of the past 3 years has been:

Bad debts expense
Administrative expense

The Store is considering whether to accept bank cards (e.g. VISA, MasterCard). However, the manager resisted because she does not want to bear the cost of the service, which would be 5% of gross sales.

A representative of VISA claims that the availability of bank cards would have increased overall sales by at least 10%. However, regardless of the level of sales, the new mix of the sales would be 50% bank card and 50% cash.

1.   How would a bank card sale of $200 affect the accounting equation? Where would the discount appear on the income statement?

2.   Should the Store adopt the bank card if sales do not increase? Base your answers solely on the facts given here.

3.   Repeat requirement 2, but assume that total sales would increase 10%.

Assignment 3

Consider the following data taken from the adjusted trial balance of ABC Company, December 31, 20X7 (in millions):

Purchases $ 125
Sales returns and allowances $ 5
Freight in $ 14
Cash discounts on purchases $ 1
Inventory (beginning of the year) $ 25
Sales $ 239
Purchase returns and allowances $ 6
Cash discounts on sales $ 8
Other expenses $ 80

Prepare summary journal entries. The ending inventory was $40 million.