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CHA= PTER 5

 

Accounting for Merchandising Operations

 

 

SOLUTIONS TO BRIEF EXERCISES

 

 

BRIEF EXERCISE 5-1

 

(a)   Cost of goods sold =3D $45,000 ($75,000 – $30,000).

        Operating expenses =3D $19,200 ($30,000 – $10,800).

 

(b)   Gross profit =3D $38,000 ($108,000 – $70,000).

        Operating expenses =3D $8,500 ($38,000 – $29,500).

 

(c)   Sales =3D $151,500 ($71,900 + $79,600).

        Net income =3D $40,100 ($79,600 – $39,500).

 

 

BRIEF EXERCISE 5-2

 

Hollins Company

        Merchandise Inventory...........................= ............         &= nbsp;     780

        &= nbsp;       Accounts Payable.............................= ...........         &= nbsp;           &nbs= p;            &= nbsp; 780

 

Gordon Company

        Accounts Receivable..........................= .................         &= nbsp;     780

        &= nbsp;       Sales..........................................= .....................         &= nbsp;           &nbs= p;            &= nbsp; 780

        Cost of Goods Sold.......................= .......................         &= nbsp;     520

        &= nbsp;       Merchandise Inventory...........................= ....         &= nbsp;           &nbs= p;            &= nbsp; 520

 

 

BRIEF EXERCISE 5-3

 

(a)   Accounts Receivable..........................................= .        900,0= 00

        &= nbsp;       Sales..........................................= .....................         &= nbsp;           &nbs= p;       900,000

        Cost of Goods Sold.......................= ......................        620,0= 00

        &= nbsp;       Merchandise Inventory...........................= ....         &= nbsp;           &nbs= p;       620,000

 

(b)   Sales Returns and Allowances<= span style=3D'mso-tab-count:1 dotted'>.........................        120,0= 00

        &= nbsp;       Accounts Receivable..........................= .........         &= nbsp;           &nbs= p;       120,000

        Merchandise Inventory...........................= ............        ̳= 4;90,000

        &= nbsp;       Cost of Goods Sold.......................= ..............         &= nbsp;           &nbs= p;        90,000

 

BRIEF EXERCISE 5-3 (Continued)

 

(c)   Cash ($780,000 – $15,60= 0).................................. =        764,4= 00

        Sales Discounts ($780,000 X 2%)...........= ..........        ̳= 4;15,600

        &= nbsp;       Accounts Receivable..........................= .........         &= nbsp;           &nbs= p;       780,000

        &= nbsp;         ($900,000 – $120,000)

 

 

BRIEF EXERCISE 5-4

 

(a)   Merchandise Inventory.......................................        900,0= 00

        &= nbsp;       Accounts Payable.............................= ...........         &= nbsp;           &nbs= p;       900,000

 

(b)   Accounts Payable..........................................= ......        120,0= 00

        &= nbsp;       Merchandise Inventory...........................= ....         &= nbsp;           &nbs= p;       120,000

 

(c)   Accounts Payable ($900,000 &#= 8211; $120,000)........        780,0= 00

        &= nbsp;       Merchandise Inventory...........................= ....         &= nbsp;           &nbs= p;        15,600

        &= nbsp;         ($780,000 X 2%)

        &= nbsp;       Cash ($780,000 – $15,600)..........= ................         &= nbsp;           &nbs= p;       764,400

 

 

BRIEF EXERCISE 5-5

 

Cost of Goods Sold.......................= ..............................         &= nbsp;  1,500

        Merchandise Inventory...........................= ................................         &= nbsp;   1,500

 

 

BRIEF EXERCISE 5-6

 

Sales..........................................= .....................................        195,0= 00

        Income Summary.............................= ....................         &= nbsp;           &nbs= p;       195,000

 

Income Summary.............................= ............................        107,0= 00

        Cost of Goods Sold.......................= ......................         &= nbsp;           &nbs= p;       105,000

        Sales Discounts...........................= ........................         &= nbsp;           &nbs= p;         2,000

 

 

BRIEF EXERCISE 5-7

 

MAULDER COM= PANY

Income Stat= ement (Partial)

For the Mon= th Ended October 31, 2008

  &nb= sp;            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;            =             &nb= sp;    

 

Sales revenues

        Sales ($280,000 + $100,000)...............= ................         &= nbsp;           &nbs= p;     $380,000

        Less:  Sales returns and allowances..............        $11,000            =         

        &= nbsp;           Sa= les discounts...........................= .............          13,000         24,000

        Net sales...............................= .................................         &= nbsp;           &nbs= p;     $356,000

 

 

BRIEF EXERCISE 5-8

 

As the name suggests, num= erous steps are required in determining net income in a multiple-step income statement. In contrast, only one step is required to compute net income in a single-step income statement. A multiple-= step statement has five sections whereas a single-step statement has only two sections. The multiple-step statement pr= ovides more detail than a single-step statement, but net income is the same under both statements.

 

Some of the differences i= n presentation can be seen from the comparative information presented below.

 

(1)   Multiple-Step Income State= ment

 

&nbs= p;

Item

Section

 

 

  

 

Gain on sale of equipment

Casualty loss from vandalism

Cost of goods sold

Other revenues and gains

Other expenses and losses

Cost of goods sold

 

(2)   <= /span>Single-Step Income Statement

 

&nbs= p;

Item

Section

 

 

  

 

Gain on sale of equipment

Casualty loss from vandalism

Cost of goods sold

Revenues

Expenses

Expenses

 

 

BRIEF EXERCISE 5-9

 

(a)   Net sales =3D $510,000 – $15,000 =3D $495,000.

 

(b)   Gr= oss profit =3D $495,000 – $350,000 =3D $145,000.

BRIEF EXERCISE 5-9 (Continued)

 

(c)   Income from operations =3D $145,000 – $70,000 – $40,000 =3D $35,000= .

 

(= d)      =    Gross profit rate =3D $145,000 ÷ $495= ,000 =3D 29.3%.

 

 

BRIEF EXERCISE 5-10

 

Purchases..........................................= ...............................         &= nbsp;           &nbs= p;  $450,000

Less:  Purchase returns and allowances..................      $11,000

        &= nbsp;   Purchase discounts...........................= ................          8,000        19= ,000

Net purchases...........................= .......................................         &= nbsp;           &nbs= p;  $431,000

 

Net purchases...........................= .......................................         &= nbsp;           &nbs= p;  $431,000

Add:  Freight-in................................................................ =         &= nbsp;           &nbs= p;       16,000

Cost of goods purchased..................= ............................         &= nbsp;           &nbs= p;  $447,000

 

 

BRIEF EXERCISE 5-11

 

Net sales...............................= .............................................         &= nbsp;           &nbs= p;  $630,000

Beginning inventory...........................= ............................    $  60,000

Add:  Cost of goods purchased*................................. <= span style=3D'mso-tab-count:1'>     447,000

Cost of goods available for sale.........= .........................      507,000

Ending inventory...........................= ..................................        90,000

Cost of goods sold.......................= ...................................         &= nbsp;           &nbs= p;    417,000

Gross profit..............................= ........................................         &= nbsp;           &nbs= p;  $213,000

 

*Information taken from Brief Exercise 5-10.

 

 

*BRIEF EXERCISE 5-12

 

(a)     Purchases..........................................= .....................   1,000,000

        &= nbsp;        Accounts Payable.............................= .............         &= nbsp;           &nbs= p; 1,000,000

 

(b)     Accounts Payable<= span style=3D'mso-tab-count:1 dotted'>..........................................= ........      130,000

        &= nbsp;        Purchase Returns and Allowances............ <= /span>        &= nbsp;           &nbs= p;    130,000

&nbs= p;

(c)     Accounts Payable ($1,000,000 – $130,000)...... =      870,000

        &= nbsp;        Purchase Discounts ($870,000 X 2%)........         &= nbsp;           &nbs= p;       17,400

        &= nbsp;        Cash ($870,000 – $17,400)..........= ..................         &= nbsp;           &nbs= p;    852,600

*BRIEF EXERCISE 5-13

 

(a)   <= /span>Cash: Trial balance debit column; Adjusted trial balance debit column; Balance sheet de= bit column.

 

(b)   <= /span>Merchandise inventory: Trial balance d= ebit column; Adjusted trial balance debit column; Balance sheet debit col= umn.

 

(c)   <= /span>Sales: Trial balance credit column; Ad= justed trial balance credit column, Income statement credit column.

 

(d)   <= /span>Cost of goods sold: Trial balance debit column, Adjusted trial balance deb= it column, Income statement debit column.

 

SOLUTIONS TO EXERCISES

 

 

EXERCISE 5-1

 

= 1.&n= bsp;            True.

= 2.&n= bsp;            False. For merchandising company, sales less= cost of goods sold is called gross profit.

= 3.&n= bsp;            True.

= 4.&n= bsp;            True.

5.        &n= bsp;    False. = The operating cycle of a merchandising company differs from that that of a service comp= any. The operating cycle of a merchandising company is ordinarily longer.

= 6.&n= bsp;            False. In a periodic inventory system, no detailed inventory records of goods on hand are maintained.

= 7.&n= bsp;            True.

8= .      =        False. A perpetual inventory system provides better control over inven­tories than a periodic system.

 

 

EXERCISE 5-2

 

(a)   (1)   April  5&= nbsp;    Merchandise Inventory................... =       25,000

        &= nbsp;           &nbs= p;            &= nbsp;         Accounts Payable.................... <= span style=3D'mso-tab-count:2'>        &= nbsp;           &nbs= p;  25,000

 

        (2)   April  6    = Merchandise Inventory................... =        Q= 94; 900

        &= nbsp;           &nbs= p;            &= nbsp;         Cash..........................................= ..         &= nbsp;           &nbs= p;     900

 

        (3)   April  7    = Equipment..........................................=       26,000

        &= nbsp;           &nbs= p;            &= nbsp;         Accounts Payable.................... <= span style=3D'mso-tab-count:2'>        &= nbsp;           &nbs= p;  26,000

 

        (4)   April  8    = Accounts Payable............................ =        4,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;         Merchandise Inventory...........         &= nbsp;           &nbs= p;   4,000

 

        (5)   April 15     Accounts Payable............................ =       21,000

        &= nbsp;           &nbs= p;            &= nbsp;   ($25,000 – $4,000)

        &= nbsp;           &nbs= p;            &= nbsp;         Merchandise Inventory...........         &= nbsp;           &nbs= p;     420

        &= nbsp;           &nbs= p;            &= nbsp;           = [($25,000 – $4,000) X 2%]

        &= nbsp;           &nbs= p;            &= nbsp;         Cash ($21,000 – $420)............. =         &= nbsp;           &nbs= p;  20,580

 

(b)   May  4    Accounts Payable......................................       21,000

        &= nbsp;           &nbs= p;             = Cash..........................................= ...........         &= nbsp;           &nbs= p;  21,000

EXERCISE 5-3

 

Sept.  6&= nbsp;    Merchandise Inventory (80 X $20)............... =        1,60= 0

        &= nbsp;           &nbs= p;      Cash..........................................= ..................         &= nbsp;           &nbs= p;   1,600

 

        &= nbsp;  9     Merchandise Inven= tory.................................. =        Q= 94;  80

        &= nbsp;           &nbs= p;      Cash..........................................= ..................         &= nbsp;           &nbs= p;      80

 

        &= nbsp; 10     Accounts Payable = (2 X $21)...........................        Q= 94;  42

        &= nbsp;           &nbs= p;      Merchandise Inventory.......................... =         &= nbsp;           &nbs= p;      42

 

        &= nbsp; 12     Accounts Receivab= le (26 X $31)...................        Q= 94; 806

        &= nbsp;           &nbs= p;      Sales..........................................= .................         &= nbsp;           &nbs= p;     806

        &= nbsp;          Cost of Goods Sold (26 X $21)............= ..........        Q= 94; 546

        &= nbsp;           &nbs= p;      Merchandise Inventory.......................... =         &= nbsp;           &nbs= p;     546

 

        &= nbsp; 14     Sales Returns and Allowances.....................            31

        &= nbsp;           &nbs= p;      Accounts Receivable..........................= ....         &= nbsp;           &nbs= p;        31

        &= nbsp;          Merchand= ise Inventory...........................= .......         &= nbsp;   21

        &= nbsp;           &nbs= p;      Cost of Goods Sold.......................= ..........         &= nbsp;           &nbs= p;        21

 

        &= nbsp; 20     Accounts Receivab= le (30 X $31)...................           930

        &= nbsp;           &nbs= p;      Sales..........................................= .................         &= nbsp;           &nbs= p;       930

        &= nbsp;          Cost of Goods Sold (30 X $21)............= ..........           630

        &= nbsp;           &nbs= p;      Merchandise Inventory.......................... =         &= nbsp;           &nbs= p;       630

 

 

EXERCISE 5-4

 

(a)   June 10     Merchandise Inventory..........................         8,000        &= nbsp;       

        &= nbsp;           &nbs= p;            &= nbsp; Accounts Payable............................ =         &= nbsp;           &nbs= p;     8,000

 

        &= nbsp;        11     Merchandise Inven= tory..........................           400

        &= nbsp;           &nbs= p;            &= nbsp; Cash..........................................= .........         &= nbsp;           &nbs= p;       400

 

        &= nbsp;        12     Accounts Payable<= span style=3D'mso-tab-count:1 dotted'>....................................           300

        &= nbsp;           &nbs= p;            &= nbsp; Merchandise Inventory.................. <= span style=3D'mso-tab-count:2'>        &= nbsp;           &nbs= p;       300

 

        &= nbsp;        19     Accounts Payable ($8,000 – $300)....... =         7,700

        &= nbsp;           &nbs= p;            &= nbsp; Merchandise Inventory.................. <= span style=3D'mso-tab-count:2'>        &= nbsp;           &nbs= p;       154

        &= nbsp;           &nbs= p;            &= nbsp;   ($7,700 X 2%)

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($7,700 – $154)...............= ........         &= nbsp;           &nbs= p;     7,546

EXERCISE 5-4 (Continued)

 

(b)   June 10     Accounts Receivable.............................          8,000

        &= nbsp;           &nbs= p;              Sales..........................................= ........         &= nbsp;           &nbs= p;      8,000

        &= nbsp;           &nbs= p;      Cost of Goods Sold.......................= .........          = 5,000

        &= nbsp;           &nbs= p;            &= nbsp; Merchandise Inventory.................         &= nbsp;           &nbs= p;      5,000

 

        &= nbsp;        12     Sales Returns and Allowances............          =   300

        &= nbsp;           &nbs= p;            &= nbsp; Accounts Receivable.....................         &= nbsp;           &nbs= p;        300

        &= nbsp;           &nbs= p;      Merchandise Inventory......................... <= /span>         =   150

        &= nbsp;           &nbs= p;            &= nbsp; Cost of Goods Sold.......................= .         &= nbsp;           &nbs= p;        150

 

        &= nbsp;        19     Cash ($7,700 R= 11; $154).............................. =          = 7,546

        &= nbsp;           &nbs= p;      Sales Discounts ($7,700 X 2%)............ =          =   154

        &= nbsp;           &nbs= p;            &= nbsp; Accounts Receivable.....................         &= nbsp;           &nbs= p;      7,700

        &= nbsp;           &nbs= p;            &= nbsp;   ($8,000 – $300)

 

 

EXERCISE 5-5

 

(a)   1.     Dec.  3&= nbsp;    Accounts Receivable......................      500,000

        &= nbsp;           &nbs= p;            &= nbsp;        Sales..........................................= .         &= nbsp;           &nbs= p; 500,000

        &= nbsp;           &nbs= p;             = Cost of Goods Sold.......................= ..      350,000

        &= nbsp;           &nbs= p;            &= nbsp;        Merchandise Inventory..........         &= nbsp;           &nbs= p; 350,000

 

        2.     Dec.  8&= nbsp;    Sales Returns and Allowances..... <= span style=3D'mso-tab-count:1'>      27,000

        &= nbsp;           &nbs= p;            &= nbsp;        Accounts Receivable..............         &= nbsp;           &nbs= p;  27,000

 

        3.     Dec. 13 &= nbsp;   Cash ($473,000 – $9,460)...........= ....      463,540

        &= nbsp;           &nbs= p;             = Sales Discounts...........................= ....        9,4= 60

        &= nbsp;           &nbs= p;             =   [($500,000 – $27,000) X 2%]

        &= nbsp;           &nbs= p;            &= nbsp;        Accounts Receivable..............         &= nbsp;           &nbs= p; 473,000

        &= nbsp;           &nbs= p;            &= nbsp;          ($500,= 000 – $27,000)

 

(b)   Cash.................................................................= ............      473,000

        &= nbsp;       Accounts Receivable..........................= ..............         &= nbsp;           &nbs= p; 473,000

        &= nbsp;         ($500,000 – $27,000)

 

EXERCISE 5-6

 

(a)            =             &nb= sp;            =         ZAMBRANA COMPANY

            =             &nb= sp;            =          Income Statement (Partial)

            =             &nb= sp;           For the Year Ended October 31, 2008

  = ;              &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;   

 

        Sales revenues

        &= nbsp;       Sales..........................................= ........................         &= nbsp;           &nbs= p;  $800,000

        &= nbsp;       Less:  Sales returns and allowances.........      $25,000&= nbsp;           &nbs= p;      

        &= nbsp;           &nbs= p;       Sales discounts...........................= ........        15,000        40,000

        &= nbsp;       Net sales...............................= .............................         &= nbsp;           &nbs= p;  $760,000

 

        Note: Freight-out is a selling expense.

 

(b)   (1)   Oct. 31 &= nbsp;   Sales..........................................= .....      800,000

        &= nbsp;           &nbs= p;            &= nbsp;        Income Summary.................         &= nbsp;           &nbs= p;     800,000

 

        (2)        &= nbsp;   31     Income Summary.........................       40,000

        &= nbsp;           &nbs= p;            &= nbsp;        Sales Returns and

        &= nbsp;           &nbs= p;            &= nbsp;          Allowa= nces........................         &= nbsp;           &nbs= p;      25,000

        &= nbsp;           &nbs= p;            &= nbsp;        Sales Discounts....................         &= nbsp;           &nbs= p;      15,000

 

 

EXERCISE 5-7

 

(a)   Cost of Goods Sold..........................................= ......         &= nbsp;    900

        &= nbsp;       Merchandise Inventory...........................= ......         &= nbsp;           &nbs= p;            900

 

(b)   Sales.................................................................= .........      108,000

        &= nbsp;       Income Summary.............................= ..............         &= nbsp;           &nbs= p;     108,000

 

        Income Summary.............................= ......................        92,80= 0

        &= nbsp;       Cost of Goods Sold.......................= .................         &= nbsp;           &nbs= p;       60,900

        &= nbsp;       Operating Expenses............................= ..........         &= nbsp;           &nbs= p;       29,000

        &= nbsp;       Sales Returns and Allowances..............= ......         &= nbsp;           &nbs= p;         1,700

        &= nbsp;       Sales Discounts...........................= ...................         &= nbsp;           &nbs= p;         1,200

 

        Income Summary ($108,000 – $92,800)..= ...........        15,20= 0

        &= nbsp;       Peter Kalle, Capital......................= ...................         &= nbsp;           &nbs= p;       15,200

 

EXERCISE 5-8

 

(a)   Cost of Goods Sold..........................................= ......        = 194; 600

        &= nbsp;       Merchandise Inventory...........................= ......         &= nbsp;           &nbs= p;         600

 

(b)   Sales.................................................................= .........      350,000

        &= nbsp;       Income Summary.............................= ..............         &= nbsp;           &nbs= p;     350,000

 

        Income Summary.............................= ......................      341,600

        &= nbsp;       Cost of goods sold ($218,000 + $600).....= ...         &= nbsp;           &nbs= p;     218,600

        &= nbsp;       Freight-out..........................................= .............         &= nbsp;           &nbs= p;       7,000

        &= nbsp;       Insurance expense.............................= ...........         &= nbsp;           &nbs= p;      12,000

        &= nbsp;       Rent expense.............................= ......................         &= nbsp;           &nbs= p;      20,000

        &= nbsp;       Salary expense.............................= ..................         &= nbsp;           &nbs= p;      61,000

        &= nbsp;       Sales discounts...........................= ...................         &= nbsp;           &nbs= p;      10,000

        &= nbsp;       Sales returns and allowances..............= .......         &= nbsp;           &nbs= p;      13,000

 

        Income Summary ($350,000 – $341,600).= ..........        ̳= 4;8,400

        &= nbsp;       Rogers, Capital.............................= ...................         &= nbsp;           &nbs= p;        8,400

 

EXERCISE 5-9

 

(a)            =             &nb= sp;            =              PELE COMPANY

            =             &nb= sp;            =             &nb= sp;    Income Statement

            =             &nb= sp;         For the Year Ended December 31, 2008

  = ;              &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;   

 

        Net sales...............................= .................         &= nbsp;           &nbs= p;            &= nbsp;     $2,312,000

        Cost of goods sold.......................= .......         &= nbsp;           &nbs= p;            &= nbsp;        1,289,000

        Gross profit..............................= ............         &= nbsp;           &nbs= p;            &= nbsp;      1,023,000

        Operating expenses

                Selling expenses.........................         &= nbsp;           $4= 90,000        &= nbsp;           &nbs= p;

        &= nbsp;       Administrative expenses...........         &= nbsp;              435,000            =          

        &= nbsp;           &nbs= p;   Total operating expenses.         &= nbsp;           &nbs= p;            &= nbsp;           925,000

        Income from operations.................... =         &= nbsp;           &nbs= p;            &= nbsp;           98,000

        Other revenues and gains

        &= nbsp;       Interest revenue..........................         &= nbsp;           &#= 8194; 28,000        &= nbsp;           &nbs= p;

        Other expenses and losses

        &= nbsp;       Interest expense..........................    $70,000            =       

        &= nbsp;       Loss on sale of equipment........ =       10,000     &nbs= p; 80,000          52,0= 00

        Net income..............................= ..............         &= nbsp;           &nbs= p;            &= nbsp;      $     46,000

 

 

(b= )        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;    PELE COMPANY

            =             &nb= sp;            =             &nb= sp;    Income Statement

            =             &nb= sp;         For the Year Ended December 31, 2008

  = ;              &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;   

 

        Revenues

        &= nbsp;       Net sales...............................= .................         &= nbsp;           &nbs= p;          $2,312,000<= /p>

        &= nbsp;       Interest revenue.............................= .....         &= nbsp;           &nbs= p;                  28,0= 00

        &= nbsp;           &nbs= p;   Total revenues............................= .         &= nbsp;           &nbs= p;           2,34= 0,000

        Expenses

        &= nbsp;       Cost of goods sold.......................= .......          = $1,289,000        &= nbsp;           &nbs= p;

        &= nbsp;       Selling expenses............................= .....          =    490,000      =             &nb= sp;  

        &= nbsp;       Administrative expenses................... <= span style=3D'mso-tab-count:1'>         =    435,000      =             &nb= sp;  

        &= nbsp;       Interest expense.............................= .....          =     70,000     =             &nb= sp;   

        &= nbsp;       Loss on sale of equipment................=         &= nbsp;        10,0= 00        &= nbsp;           &nbs= p;

        &= nbsp;           &nbs= p;   Total expenses............................=         &= nbsp;           &nbs= p;             2,294,000

        Net income..............................= ......................         &= nbsp;           &nbs= p;           $&= #8194;   46,000

 

EXERCISE 5-10

 

1.     Sales Returns and Allowances..........................= ...............         175

        &= nbsp;       Sales..........................................= ....................................         &= nbsp;           17= 5

 

2.     Supplies..........................................= ......................................         180

        Cash..........................................= .............................................         180

        &= nbsp;       Accounts Payable.............................= ..........................         &= nbsp;           18= 0

        &= nbsp;       Merchandise Inventory...........................= ...................         &= nbsp;           18= 0

 

3.     Sales Discounts..........................................= .........................        110<= /p>

        &= nbsp;       Sales..........................................= ....................................         &= nbsp;           11= 0

 

4.     Merchandise Inven= tory..........................................= ............          20

        Cash..........................................= .............................................         180

        &= nbsp;       Freight-out..........................................= ..........................         &= nbsp;           20= 0

 

 

EXERCISE 5-11

 

(a)   = $900,000 – $540,000 =3D $360,000.

(b)  $360,000/$900,000 =3D 40%. The gross profit= rate is generally considered to be more useful than the gross profit amount. The ra= te expresses a more meaningful (qualitative) relationship between net sales and gross profit. The g= ross profit rate tells how many cents of each sales dollar go to gross profit. T= he trend of the gross profit rate is closely watched by financial statement us= ers, and is compared with rates of competitors and with industry averages. Such comparisons provide information about <= span style=3D'letter-spacing:-.2pt'>the effectiveness of a company’s purch= asing function and the soundness of its pricing policies.

(c)   Income from operations is $130,000 ($360,000 – $230,000), and net inc= ome is $119,000 ($130,000 – $11,000).

(d)  The amount shown for net income is the same = in a multiple-step income statement and a single-step income statement. Both inc= ome statements report the same reve= nues and expenses, but in different order. Therefore, net income in Payton’s single-step income statement is also $119,000.

(e)   Merchandise inventory is reported as a curre= nt asset immediately below accounts receivable.

 

EXERCISE 5-12

 

(a)  (*missing amount)

 

a.      Sales..........................................= .......................................       $ 90,= 000)

        *Sales returns.............................= .....................................             (6,000)

        &= nbsp; Net sales...............................= ...........................................       $ = 84,000)

 

b.      Net sales..........................................= ................................       $ 84,= 000)

        &= nbsp; Cost of goods sold.......................= .................................          (56,000)

        *Gross profit..............................= .......................................       $ = 28,000)

 

c.      Gross profi= t..........................................= ...........................       $ 28,= 000)

        &= nbsp; Operating expenses............................= ..........................          (15,000)

        *Net income..............................= ........................................       $ = 13,000)

 

d.     *Sales..........................................= .......................................       $105,000)

        &= nbsp; Sales returns.............................= .....................................             (5,000)

        &= nbsp; Net sales...............................= ...........................................       $100,000= )

 

e.      Net sales..........................................= ................................       $100,000)

        *Cost of goods sold.......................= .................................          = ;  58,500)

        &= nbsp; Gross profit..............................= .......................................       $ = 41,500)

<= o:p> 

f.       Gross profit..............................= .......................................       $ 41,= 500)

        *Operating expenses............................= .........................          = ;  26,500)

        &= nbsp; Net income..............................= ........................................       $ = 15,000)

)

(b)  Nam Company

 Gross profit ÷ Net sales =3D $28,000 ÷ $84,000 =3D 33.33%

 

Mayo Company

 Gross profit &divid= e; Net sales =3D $41,500 ÷ $100,000 =3D 41.5%

 

EXERCISE 5-13

 

Inventory, September 1, 2007...................= ....................         &= nbsp;           &nbs= p;  $  17,200

Purchases..........................................= ...............................      $149,000

Less:  Purchase returns and allowances..................             2,000<= /p>

Net Purchases...........................= .......................................        147,000

Add:  Freight-in................................................................ =             4,000<= /p>

Cost of goods purchased..................= ............................         &= nbsp;           &nbs= p;    151,000

Cost of goods available for sale.........= .........................         &= nbsp;           &nbs= p;    168,200

Inventory, August 31, 2008.....................= .......................         &= nbsp;           &nbs= p;       25,000

        Cost of goods sold.......................= ..........................         &= nbsp;           &nbs= p;  $143,200

 

 

EXERCISE 5-14

 

(a)     Sales..........................................= ..............         &= nbsp;           &nbs= p;            &= nbsp;      $800,000

        &= nbsp; Less: Sales returns and allowances &n= bsp;            = ;          $ 10,000

        &= nbsp;            Sales discounts.......................... =         &= nbsp;           &nbs= p;       5,= 000      15,000

        &= nbsp; Net sales...............................= ..................         &= nbsp;           &nbs= p;            &= nbsp;        785,000

        &= nbsp; Cost of goods sold

        &= nbsp;       Inventory, January 1......................         &= nbsp;           &nbs= p;     50,000

        &= nbsp;       Purchases........................................ <= /span>   $500,000

        &= nbsp;       Less: Purch. rets. and alls...........         (2,000)

        &= nbsp;           &nbs= p;    = ;  Purch. discounts......= ............         (6,000)    492,000

        &= nbsp;       Add: Freight-in..........................= .......         &= nbsp;           &nbs= p;       4,= 000

        &= nbsp;       Cost of goods available for sale..         &= nbsp;           &nbs= p;   546,000

        &= nbsp;       Inventory, December 31................ <= span style=3D'mso-tab-count:2'>        &= nbsp;           &nbs= p;   (60,000)

        &= nbsp;           &nbs= p;  Cost of goods sold..................         &= nbsp;           &nbs= p;            &= nbsp;        486,000

        &= nbsp;       Gross profit..............................= ........         &= nbsp;           &nbs= p;            &= nbsp;      $299,000

 

(b)     Gross profit $299= ,000 – Operating expenses =3D Net income $130,000.

        &= nbsp; Operating expenses =3D $169,000.

 

 

EXERCISE 5-15<= /p>

 

(a)   = $1,560    ($1,600 – $40)<= /p>

(b)  $1,670    ($1,560 + $110)

(c)   = $1,510    ($1,820 – $310)=

 

(g) = ; $6,500    ($290 + $6,210)

(h) = ; $1,730    ($7,940 – $6,21= 0)

(i) = ;   $8,940    ($1,000 + $7,940)

(d) = ; $50        = ; ($1,080 – $1,030)

(e) = ;  $250       ($1= ,280 – $1,030)

(f)   = $120       ($1= ,350 – $1,230)

 

(j) = ;   $6,200    ($49,530 – $43,= 330 from (I))

(k) = ;  $2,500    ($43,590 – $41,= 090)

(l) = ;   $43,330 ($41,090 + $2,240)

*EXERCISE 5-16

 

(a)   1.    April  5&n= bsp;     Purchases........................................ <= /span>       20,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;       Accounts Payable..................... =         &= nbsp;           &nbs= p;    20,000

 

        2.    April  6    &= nbsp; Freight-in..........................................=         &= nbsp;  900

        &= nbsp;           &nbs= p;            &= nbsp;       Cash..........................................= ...         &= nbsp;           &nbs= p;         900

 

        3.    April  7    &= nbsp; Equipment........................................ <= /span>       26,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;       Accounts Payable..................... =         &= nbsp;           &nbs= p;    26,000

 

        4.    April  8    &= nbsp; Accounts Payable........................... <= /span>         = 2,800

        &= nbsp;           &nbs= p;            &= nbsp;       Purchase Returns and

        &= nbsp;           &nbs= p;            &= nbsp;        Allowances.............................         &= nbsp;           &nbs= p;      2,800

 =

        5.    April 15     = Accounts Payable........................... <= /span>       17,20= 0

        &= nbsp;           &nbs= p;            &= nbsp;  ($20,000 – $2,800)

        &= nbsp;           &nbs= p;            &= nbsp;       Purchase Discounts.................         &= nbsp;           &nbs= p;         344

        &= nbsp;           &nbs= p;            &= nbsp;        [($20,000 – $2,800) X 2%)]

        &= nbsp;           &nbs= p;            &= nbsp;       Cash ($17,200 – $344)..............=         &= nbsp;           &nbs= p;    16,856

 

(b)        &= nbsp;  May   4      Accounts Payable........................... <= /span>       17,20= 0

        &= nbsp;           &nbs= p;            &= nbsp;  ($20,000 – $2,800)

        &= nbsp;           &nbs= p;            &= nbsp;       Cash..........................................= ...         &= nbsp;           &nbs= p;    17,200

 

 

*EXERCISE 5-17

 

(a)   1.    April  5&n= bsp;     Purchases........................................ <= /span>       22,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;       Accounts Payable..................... =         &= nbsp;           &nbs= p;    22,000

 =

        2.    April  5    &= nbsp; Freight-in..........................................=         &= nbsp;  800

        &= nbsp;           &nbs= p;            &= nbsp;       Cash..........................................= ...         &= nbsp;           &nbs= p;         800

 =

        3.    April  7    &= nbsp; Equipment........................................ <= /span>       26,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;       Accounts Payable..................... =         &= nbsp;           &nbs= p;    26,000

 =

        4.    April  8    &= nbsp; Accounts Payable........................... <= /span>         = 4,000

        &= nbsp;           &nbs= p;            &= nbsp;       Purchase Returns and

        &= nbsp;           &nbs= p;            &= nbsp;        Allowances.............................         &= nbsp;           &nbs= p;      4,000

 =


*EXERCISE 5-17 (Continued)

 =

        5.    April 15     = Accounts Payable........................... <= /span>       18,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;  ($22,000 – $4,000)

        &= nbsp;           &nbs= p;            &= nbsp;       Purchase Discounts.................         &= nbsp;           &nbs= p;         360

        &= nbsp;           &nbs= p;            &= nbsp;        [($22,000 – $4,000) X 2%)]

        &= nbsp;           &nbs= p;            &= nbsp;       Cash ($18,000 – $360)..............=         &= nbsp;           &nbs= p;    17,640

 

(b)        &= nbsp;  May   4      Accounts Payable........................... <= /span>       18,00= 0

        &= nbsp;           &nbs= p;            &= nbsp;  ($22,000 – $4,000)

        &= nbsp;           &nbs= p;            &= nbsp;       Cash..........................................= ...         &= nbsp;           &nbs= p;    18,000

 

 

*EXERCISE 5-18

 

 

Accounts

 

Adjusted

Trial Balance

 

Income

Statement

 

Balance

Sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debit

 

Credit

 

Debit

 

Credit

 

Debit

 

Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

Merchandise Inventor= y

Sales

Sales Returns and Al= lowances

Sales Discounts=

Cost of Goods Sold

 

   9,000

 76,000

 

 10,000
  9,000

300,000

 

  

 

450,000

 

  

 

 

 10,000
  9,000

300,000

 

  

 

450,000

 

  9,000

76,000

 

  

 

 

*EXERCISE 5-19

 

GREEN COMPANY

Worksheet

For the Month Ended June 3= 0, 2008

  &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;     

Acco= unt Titles

Trial Balance

Adjustments

Adj. Trial   Balance  

Income = Statement

Bala= nce Sheet

 

Dr.<= o:p>

Cr.=

Dr.<= o:p>

Cr.<= o:p>

Dr.<= o:p>

Cr.<= o:p>

Dr.<= o:p>

Cr.<= o:p>

Dr.<= o:p>

Cr.
Cash

2,320

 

 

 

2,320

 

 

 

2,320

 

= Accounts Receivable

2,440

 

 

 

2,440

 

 

 

2,440

 

Merchandise Inventory=


11,640

 

 

 


11,640

 

 

 


11,640

 

Accounts Payable=

&n= bsp;

1,120

 

1,500

&n= bsp;

2,620

 

 

 

2,620

Ed Green, Capital

&n= bsp;

3,600

 

&n= bsp;

&n= bsp;

3,600

 

 

 

3,600

Sales

&n= bsp;

42,400<= o:p>

 

&n= bsp;

&n= bsp;

42,400

 

42,400<= o:p>

 

&n= bsp;

Cost of Goods Sold

20,560<= o:p>

&n= bsp;

 

&n= bsp;

20,560<= o:p>

 

20,560<= o:p>

&n= bsp;

 

&n= bsp;

Operating Expenses

10,1= 60

&nbs= p;          

1,50= 0

&nbs= p;        

11,6= 60

       &nbs= p;   

11,6= 60

&nbs= p;          

       &nbs= p;   

&nbs= p;          

      Totals

47,1= 20

47,1= 20

1,50= 0

1,50= 0

48,6= 20

48,620

32,220<= o:p>

42,400<= o:p>

16,400

6,220

Net Inc= ome

 

 

 

&n= bsp;

 

 

10,1= 80

&nbs= p;          

       &nbs= p;   

10,1= 80
  &n= bsp;   Totals

 

 

 

 

 

 

42,4= 00

42,4= 00

16,400

16,4= 00

 

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