BUSINESS

Taos Company purchased merchandise for resale from Tuscon Company with an invoice price of $22,000 and credit terms of 3/10, n/60. The merchandise had cost Tuscon $15,000. Taos paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.

 

1(a) Prepare entries that the buyer should record for the purchase. (Omit the “$” sign in your response.)

 

1(b) Prepare entries that the buyer should record for the cash payment. (Omit the “$” sign in your response.)

 

2(a) Prepare entries that the seller should record for the sale. (Omit the “$” sign in your response.)

 

2(b) Prepare entries that the seller should record for the cash collection. (Omit the “$” sign in your response.)

 

3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 11% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Use 365 days a year. Round your intermediate calculations and final answer to 2 decimal places. Omit the “$” sign in your response.)

 

 

    Case A     Case B   Case C
  Cash $   800 $ 510 $ 3,200
  Short-term investments 0 0 1,100
  Current receivables 0 790 800
  Inventory 2,000 1,600 1,900
  Prepaid expenses 1,200 600 300









  Total current assets $ 4,000 $ 3,500 $ 7,300


















  Current liabilities $ 2,200 $ 1,100 $ 3,650



















 

Compute the current ratio and acid-test ratio for each of the above separate cases. (Round your answers to 2 decimal places.)

 

Which company case is in the best position to meet short-term obligations?

 

L’Oreal reports the following income statement accounts for the year ended December 31, 2009 (euros in millions).

 

  Net profit 1,794.9 Income tax expense 676.1
  Finance costs 76.0 Profit before tax expense 2,471.0
  Net sales 17,472.6 Research and development expense 609.2
  Gross profit 12,311.0 Selling, general and administrative expense 3,735.5
  Other expense 30.6 Advertising and promotion expense 5,388.7
  Cost of sales 5,161.6

 

Following the usual IFRS practices, prepare the income statement for the year ended December 31, 2009. (Enter your answers in millions. Input all amounts as positive values. Round your answers to 1 decimal place. Omit the “€” sign in your response.)

 

Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,000 units at a price of $10 per unit. On May 5, Spare Parts sold 600 of the units for $14 per unit to DeSoto Co. Terms of the sale were 2/10, n/60.

 

a. On May 7, DeSoto returns 200 units because they did not fit the customer’s needs. Spare Parts restores the units to its inventory.
b. On May 8, DeSoto discovers that 50 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $300 to compensate for the damage.
c. On May 15, DeSoto discovers that 72 units are the wrong color. DeSoto keeps 43 of these units because Spare Parts sends a $92 credit memorandum to compensate. DeSoto returns the remaining 29 units to Spare Parts. Spare Parts restores the 29 returned units to its inventory.

 

Prepare entries for Spare Parts to record the May 5 sale. (Omit the “$” sign in your response.)

 

Prepare entries for each of the above separate transactions a through c using a perpetual inventory system.(Omit the “$” sign in your response.)

 

Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,000 units at a price of $10 per unit. On May 5, Spare Parts sold 600 of the units for $14 per unit to DeSoto Co. Terms of the sale were 2/10, n/60.

 

a. On May 7, DeSoto returns 200 units because they did not fit their needs. Spare Parts restores the units to its inventory.
b. On May 8, DeSoto discovers that 50 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $300 to compensate for the damage.
c. On May 15, DeSoto discovers that 72 units are the wrong color. DeSoto keeps 43 of these units because Spare Parts sends a $92 credit memorandum to compensate. DeSoto returns the remaining 29 units to Spare Parts. Spare Parts restores the 29 returned units to its inventory.

 

Prepare the appropriate journal entries for DeSoto Co. to record the May 5 purchase. (Omit the “$” sign in your response.)

 

Assume DeSoto is a retailer that uses a perpetual inventory system and purchases these units for resale. Prepare the appropriate journal entries for DeSoto Co. to record the each of the above three separate transactions a through c. (Omit the “$” sign in your response.)

 

 

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