Accounting for Inventory Orders, Purchases, Sales, Returns, and Discounts (Chapters 5 and 6)
(1) On October 1, the Business Students' Society (BSS) placed an order for 100 golf shirts at a unit cost 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 $ 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 were unhappy 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 by customers to BSS.
(9) On October 22, the remaining 40 customers were granted the allowance on account.
(10) The customers paid their remaining balances during the week of October 25.
Required:
1. Prepare journal entries for the transactions described above, using the date of each transaction as its reference. Assume BSS uses perpetual inventory accounts. If you complete this problem in Connect, these journal entries will be summarized for you in T-accounts and a trial balance.
2. Report the financial effects of the above transactions in a multi step income statement for the month ended October 31 prepared for internal use. Assume operating expenses, other than cost of goods sold, are $ 100 and income tax expense is $ 45.
3. Determine the percentage of net sales that is available to cover operating expenses other than cost of goods sold. By what name is this percentage commonly known?
4. As of October 31, the check dated October 13 had not cleared the bank. How should BSS report this on its October 31 bank reconciliation? Give the journal entry, if any, needed as a result of including this item in the bank reconciliation.