Chapter 1
Chapter 6 Accounting for
Merchandising Activities
Questions
1. WestJet is not a merchandiser since its main source of revenue is through the sale of services and not generated by the sale of merchandise inventory.
2. The calculation of the cost of goods sold is not provided.
3. Additional accounts of a merchandising company include Merchandise Inventory, Sales, Cost of Goods Sold, Sales Discounts, and Sales Returns and Allowances.
4. Only merchandising companies present merchandise inventory on the balance sheet. Only merchandising companies present sales and cost of goods sold on the income statement.
5. A company can have a net loss if its operating expenses are greater than its gross profit from sales of merchandise.
6. Cash discounts are granted in return for early payment and reduce the amount paid below the negotiated price. Trade discounts are deducted from the list or catalogue price to determine the purchase price. Trade discounts are not recorded in the accounting records.
7. A company’s manager should be concerned about the quantity of its purchase returns because the company incurs costs in receiving, inspecting, identifying, and returning the merchandise. Therefore, more returns create more expenses. By knowing more about the returns, the manager can decide if they are a problem.
8. Leon’s should attempt to negotiate the shipping terms to FOB destination. Title will pass after the goods are safely delivered to his store and transportation charges will be the responsibility of the vendor he is buying from.
9. The sender of a debit memorandum records a debit and the recipient records a credit.
10. Sales discount is a term used by a seller to describe a cash discount granted to a customer. Purchase discount is a term used by a purchaser to describe a cash discount received from a supplier.
11. A cash discount would be offered to encourage customers to pay promptly, which provides the cash more quickly to the seller and avoids the costs of additional billing.
12. In today’s business world, organizations must concentrate on meeting their customers’ needs and avoiding the possibility of their dissatisfaction. If the needs aren’t met and dissatisfaction grows, the customers will deal with other companies or entities.
One measure of the dissatisfaction of a merchandiser’s customers is the amount of sold goods that are later returned by those customers. Their dissatisfaction needs to be understood and then dealt with promptly to encourage them to remain loyal to the company. The reasons for the return also need to be determined to allow the problem to be avoided in the future. For example, the returns might arise from product defects, shipping damage, misleading information provided at the time of sale, or fickle customers.
An important early step in controlling returns is to have information about their dollar amount. In addition, managers can set goals for reducing the dollar amount of sales returns. Both purposes can be helped by having the company’s accounting system record the sales value of returned goods in a separate contra account instead of the Sales account. Although this information can be gathered in other ways, this approach captures the information at the time of the return and allows it to be easily reported.
Although a company’s sales return record can be highly important for managers, there is relatively little value in the information for external decision makers because they are not concerned with day-to-day operating details. Although management might choose to report the amount of sales returns as evidence of the effectiveness of a program to reduce them, their amount is virtually never reported in financial statements provided to investors, creditors, and other external users.
13. Inventory shrinkage is determined by taking a physical count of the inventory on hand and comparing the cost of that inventory with the amount recorded in the Merchandise Inventory account.
14. The single-step format presents the cost of goods sold and operating expenses in one list, totals the list, and subtracts the total from net sales in one step. The multiple-step format presents intermediate totals, including gross profit (the difference between net sales and cost of goods sold).
Quick Study
QUICK STUDY 6-1
| |A |B |C |D |E |
|Net sales |$14,000 | |$102,000 |$68,000 |$540,000 |$398,000 |
|Cost of goods sold | 8,000 | | 64,000 | 31,000 | 320,000 | 215,000 |
|Gross profit from sales |$ 6,000 | |$ 38,000 |$37,000 |$220,000 |$183,000 |
|Operating expenses | 9,000 | | 31,000 | 22,000 | 261,000 | 106,000 |
|Net income (loss) |$ (3,000 |) |$ 7,000 |$15,000 |$(41,000) |$ 77,000 |
Quick Study 6-2
a. Periodic AND perpetual inventory systems
b. Perpetual inventory systems
c. Perpetual inventory systems
d. Periodic inventory systems
e. Perpetual inventory systems
Quick Study 6-3
a. This information reflects a perpetual inventory system.
150 + 340 – 60 = 430 Cost of Goods Sold (credit to Merchandise Inventory and
debit to Cost of Goods Sold)
b. This information reflects a periodic inventory system.
150 + 340 – 60 = 430 Cost of Goods Sold
Quick Study 6-4
a. This information reflects a periodic inventory system.
170 + 700 – 120 = 750 Cost of goods sold
b. This information reflects a perpetual inventory system.
200 + 1,000 – 75 = 1,125 Cost of Goods Sold
Quick Study 6-5
|May |1 |Merchandise Inventory |1,200 | |
| | | Accounts Payable | |1,200 |
| | | To record purchase of merchandise; terms | | |
| | |1/10, n30. | | |
| | | | | |
| |14 |Accounts Payable |1,200 | |
| | | Cash | |1,200 |
| | | To record payment of credit purchase. | | |
| | | | | |
| |15 |Merchandise Inventory |3,000 | |
| | | Accounts Payable | |3,000 |
| | | To record purchase of merchandise; terms | | |
| | |2/15, n30. | | |
| | | | | |
| |30 |Accounts Payable |3,000 | |
| | | Merchandise Inventory | |60 |
| | | Cash | |2,940 |
| | | To record payment of credit purchase within | | |
| | |discount period; $3,000 x 2% = $60 discount. | | |
Quick Study 6-6
|Aug. |2 |Merchandise Inventory |14,000 | |
| | | Accounts Payable | |14,000 |
| | | To record purchase of merchandise; terms 1/5, | | |
| | |n15. | | |
| | | | | |
| |4 |Accounts Payable |1,500 | |
| | | Merchandise Inventory | |1,500 |
| | | To record allowance regarding August 2 credit | | |
| | |purchase. | | |
| | | | | |
| |17 |Accounts Payable |12,500 | |
| | | Cash | |12,500 |
| | | To record payment of credit purchase less | | |
| | |allowance; 14,000 – 1,500 = 12,500. | | |
Quick Study 6-7
Mar. 5 Merchandise Inventory 2,000
Accounts Payable 2,000
(500 ( $5) × 80% = $2,000
7 Accounts Payable 200
Merchandise Inventory 200
(50/500) × $2,000 = $200
15 Accounts Payable 1,800
Cash 1,764
Merchandise Inventory 36
$2,000 - $200 = $1,800;
$1,800 – ($1,800 × 2%) = $1,764
Quick Study 6-8
|Sept. |1 |Accounts Receivable – JenAir |6,000 | |
| | | Sales | |6,000 |
| | | To record sale; terms 2/10, n30. | | |
| | | | | |
| |1 |Cost of Goods Sold |4,200 | |
| | | Merchandise Inventory | |4,200 |
| | | To record cost of sales. | | |
| | | | | |
| |14 |Cash |6,000 | |
| | | Accounts Receivable – JenAir | |6,000 |
| | | To record collection from credit customer. | | |
| | | | | |
| |15 |Accounts Receivable – Dennis Leval |1,800 | |
| | | Sales | |1,800 |
| | | To record sale; terms 2/10, n30. | | |
| | | | | |
| |15 |Cost of Goods Sold |1,500 | |
| | | Merchandise Inventory | |1,500 |
| | | To record cost of sales. | | |
| | | | | |
| |25 |Cash |1,764 | |
| | |Sales Discounts |36 | |
| | | Accounts Receivable – Dennis Leval | |1,800 |
| | | To record collection within discount period; | | |
| | |$1,800 x 2% = $36 discount. | | |
Quick Study 6-9
|Oct. |15 |Accounts Receivable – Leslie Garth |900 | |
| | | Sales | |900 |
| | | To record sale; terms 1/5, n20. | | |
| | | | | |
| |15 |Cost of Goods Sold |600 | |
| | | Merchandise Inventory | |600 |
| | | To record cost of sales. | | |
| | | | | |
| |16 |Sales Returns and Allowances |100 | |
| | | Accounts Receivable – Leslie Garth | |100 |
| | | To record allowance. | | |
| | | | | |
| |25 |Cash |800 | |
| | | Accounts Receivable – Leslie Garth | |800 |
| | | To record collection; 900 – 100 = 800. | | |
Quick Study 6-10
Apr. 1 Accounts Receivable 2,000
Sales 2,000
To record credit sale.
1 Cost of Goods Sold 1,400
Merchandise Inventory 1,400
To record cost of sale.
4 Sales Returns and Allowances 500
Accounts Receivable 500
To record sales return.
4 Merchandise Inventory 350
Cost of Goods Sold 350
To restore goods to inventory.
11 Cash 1,470
Sales Discounts 30
Accounts Receivable 1,500
To record payment on account;
$2,000 – $500 = $1,500; $1,500 × 98% = $1,470.
Quick Study 6-11
(a) (b) (c) (d)
Sales $130,000 $512,000 $35,700 $245,700
Sales discounts (4,200) (16,500) (400) (3,500)
Sales returns and allowances (17,000) (5,000) (5,000) (700)
Net sales $108,800 $490,500 $30,300 $241,500
Cost of goods sold (76,600) (326,700) (21,300) (125,900)
Gross profit from sales $ 32,200 $163,800 $ 9,000 $115,600
Gross profit ratio 29.60%1 33.39%2 29.70%3 47.87%4
Gross profit ratio calculations*:
1. ($32,200/$108,800) x 100 = 29.60%
2. ($163,800/$490,500)) x 100 = 33.39%
3. ($9,000/$30,300) x 100 = 29.70%
4. ($115,600/$241,500) x 100 = 47.87%
*rounded to two decimal places
Quick Study 6-12
July 31 Cost of Goods Sold 1,900
Merchandise Inventory 1,900
$34,800 – $32,900 = $1,900
Gross profit from sales = Net sales – Cost of goods sold
= (157,200 – 1,700 – 3,500) – (102,000 + 1,900)
= 152,000 – 103,900
= 48,100
Quick Study 6-13
a. Classified Multi-Step Income Statement
|JETCO |
|Income Statement |
|For Year Ended December 31, 2011 |
|Sales | |$100 |
|Less: Sales discounts | | 4 |
|Net sales | | |$ 96 |
|Cost of goods sold | | 60 |
|Gross profit from sales | |$ 36 |
|Operating expenses: | | |
| Selling expenses: | | |
| Sales salaries expense |$ 15 | | |
| Advertising expense | 6 | | |
| Total selling expenses |$ 21 | |
| General and administrative expenses: | | | |
| Office salaries expense |$ 10 | | |
| Office supplies expense | 3 | | |
| Total general and administrative expenses | | 13 | |
| Total operating expenses | | | 34 |
|Income from operations | | |$ 2 |
|Other revenues/expenses: | | | |
| Interest revenue | | | 5 |
|Net income | | |$ 7 |
b. Single-Step Income Statement
|JETCO |
|Income Statement |
|For Year Ended December 31, 2011 |
|Revenues: | | |
| Net sales |$ 96 | |
| Interest revenue | 5 | |
| Total revenues | | |$101 |
|Expenses: | | |
| Cost of goods sold |$ 60 | |
| Selling expenses |21 | |
| General and administrative expenses | 13 | |
| Total expenses | | | 94 |
|Net income | | |$ 7 |
Quick Study 6-14
($248,000 – $114,080)/$248,000 = 0.54 or 54%
This means that Willaby realizes a gross margin of 54¢ for each $1 of sales. Willaby’s gross profit ratio of 54% is favourable in comparison to the industry average of 53%, or 53¢ for each $1 of sales.
Quick Study 6-15
Dec. 31 Sales 70
Income Summary 70
To close Sales.
31 Income Summary 41
Sales Discounts 3
Sales Returns and Allowances 4
Cost of Goods Sold 25
Amortization Expense 2
Advertising Expense 7
To close income statement accounts with
debit balances.
31 Income Summary 29
Tony Ingram, Capital 29
To close income summary account to capital.
31 Tony Ingram, Capital 1
Tony Ingram, Withdrawals 1
To close withdrawals account to capital.
*Quick Study 6-16
a. QS6-5 – Periodic
|May |1 |Purchases |1,200 | |
| | | Accounts Payable | |1,200 |
| | | To record purchase; terms 1/10, n30. | | |
| | | | | |
| |14 |Accounts Payable |1,200 | |
| | | Cash | |1,200 |
| | | To record payment of credit purchase. | | |
| | | | | |
| |15 |Purchases |3,000 | |
| | | Accounts Payable | |3,000 |
| | | To record purchase; terms 2/15, n30. | | |
| | | | | |
| |30 |Accounts Payable |3,000 | |
| | | Purchase Discounts | |60 |
| | | Cash | |2,940 |
| | | To record payment within discount period; | | |
| | |$3,000 x 2% = $60 discount. | | |
b. QS6-6 – Periodic
|Aug. |2 |Purchases |14,000 | |
| | | Accounts Payable | |14,000 |
| | | To record purchase; terms 1/5, n15. | | |
| | | | | |
| |4 |Accounts Payable |1,500 | |
| | | Purchase Returns and Allowances | |1,500 |
| | | To record allowance. | | |
| | | | | |
| |17 |Accounts Payable |12,500 | |
| | | Cash | |12,500 |
| | | To record payment less allowance. | | |
*Quick Study 6-16 (concluded)
c. QS6-7 - Periodic
| Mar. |5 |Purchases |2,000 | |
| | | Accounts Payable | |2,000 |
| | | (500 × $5) × 80% = $2,000 | | |
| | | | | |
| |7 |Accounts Payable |200 | |
| | | Purchase Returns and Allowances | |200 |
| | | (50/500) × $2,000 = $200 | | |
| | | | | |
| |15 |Accounts Payable |1,800 | |
| | | Cash | |1,764 |
| | | Purchase Discounts | |36 |
| | | $1,800 – ($1,800 × 2%) = $1,764 | | |
*Quick Study 6-17
a. QS6-8 - Periodic
|Sept. |1 |Accounts Receivable – JenAir |6,000 | |
| | | Sales | |6,000 |
| | | To record sale; terms 2/10, n30. | | |
| | | | | |
| |14 |Cash |6,000 | |
| | | Accounts Receivable – JenAir | |6,000 |
| | | To record collection from credit customer. | | |
| | | | | |
| |15 |Accounts Receivable – Dennis Leval |1,800 | |
| | | Sales | |1,800 |
| | | To record sale; terms 2/10, n30. | | |
| | | | | |
| |25 |Cash |1,764 | |
| | |Sales Discounts |36 | |
| | | Accounts Receivable – Dennis Leval | |1,800 |
| | | To record collection within discount period; | | |
| | |$1,800 x 2% = $36 discount. | | |
*Quick Study 6-17 (concluded)
b. QS6-9 - Periodic
|Oct. |15 |Accounts Receivable – Leslie Garth |900 | |
| | | Sales | |900 |
| | | To record sale; terms 1/5, n20. | | |
| | | | | |
| |16 |Sales Returns and Allowances |100 | |
| | | Accounts Receivable – Leslie Garth | |100 |
| | | To record sales allowance. | | |
| | | | | |
| |25 |Cash |800 | |
| | | Accounts Receivable – Leslie Garth | |800 |
| | | To record payment less allowance. | | |
c. QS6-10 - Periodic
|Apr. |1 |Accounts Receivable |2,000 | |
| | | Sales | |2,000 |
| | | To record sale; terms 2,10, EOM. | | |
| | | | | |
| |4 |Sales Returns and Allowances |500 | |
| | | Accounts Receivable | |500 |
| | | To record sales return; returned to inventory. | | |
| | | | | |
| |11 |Cash |1,470 | |
| | |Sales Discounts |30 | |
| | | Accounts Receivable | |1,500 |
| | | To record payment less return and discount. | | |
*Quick Study 6-18
|Merchandise inventory, January 1, 2011 | |$ 40,000 |
|Purchases |$180,000 | |
|Less: Purchase discounts |1,400 | |
|Add: Transportation-in | 14,000 | |
|Net Purchases | | 192,600 |
|Cost of Goods Available for Sale | |$232,600 |
|Less: Merchandise inventory, December 31, 2011 | | 22,000 |
|Cost of Goods Sold | |$210,600 |
*Quick Study 6-19
|Dec |31 |Sales |450,000 | |
| | |Purchase Discounts |1,400 | |
| | |Merchandise Inventory |22,000 | |
| | | Income Summary | |473,400 |
| | | To close all credit balance temporary accounts. | | |
| | | | | |
| |31 |Income Summary |412,000 | |
| | | Merchandise Inventory | |40,000 |
| | | Sales Returns and Allowances | |27,000 |
| | | Purchases | |180,000 |
| | | Transportation-In | |14,000 |
| | | Salaries Expense | |120,000 |
| | | Amortization Expense | |31,000 |
| | | To close all debit balance temporary accounts. | | |
| | | | | |
| |31 |Income Summary |61,400 | |
| | | Kay Bondar, Capital | |61,400 |
| | | To close the income summary to capital. | | |
| | | | | |
| |31 |Kay Bondar, Capital |65,000 | |
| | | Kay Bondar, Withdrawals | |65,000 |
| | | To close the withdrawals account to capital. | | |
*Quick Study 6-20
| |a |b |c |d |
|Sales |$ 130,000 |$ 512,000 |$ 35,700 |$ 245,700 |
|Sales discounts |(4,200) |(16,500) |(400) |(3,500) |
|Net Sales |$125,800 |$495,500 |$35,300 |$242,200 |
| | | | | |
|Merchandise inventory, Jan. 1, 2011 |8,000 |21,000 |1,500 |4,300 |
|Purchases |120,000 |350,000 |29,000 |131,000 |
|Purchase returns and allowances |(4,000) |(14,000) |(750) |(3,100) |
|Cost of goods available for sale |$ 124,000 |$ 357,000 |$ 29,750 |$ 132,200 |
|Merchandise inventory, Dec. 31, 2011 |(7,500) |(22,000) |(900) |(4,100) |
|Cost of goods sold |116,500 |335,000 |28,850 |128,100 |
| | | | | |
|Gross profit from sales |$ 9,300 |$160,500 |$ 6,450 |$114,100 |
|Gross profit ratio |7.39%1 |32.39%2 |18.27%3 |47.11%4 |
| | | | | |
|Calculations*: | | | | |
|1. 9,300/125,800 x 100 = 7.39% |
|2. 160,500/495,500 x 100 = 32.39% |
|3. 6,450/35,300 x 100 = 18.27% |
|4. 114,100/242,200 x 100 = 47.11% |
|*Rounded to two decimal places |
*QUICK STUDY 6-21
MAR. 1 MERCHANDISE INVENTORY 5,000
GST Receivable 300
Accounts Payable 5,300
To record credit purchase; $5,000 x 6% = 300 GST.
*Quick Study 6-22
Mar. 17 Accounts Receivable 6,696
PST Payable 348
GST Payable 348
Sales 5,800
To record credit sale; $5,800 x 6% = 348 PST;
$5,800 x 6% = $348 GST.
17 Cost of Goods Sold 5,000
Merchandise Inventory 5,000
To record cost of sale.
*Quick Study 6-23
Mar. 1 Purchases 5,000
GST Receivable 300
Accounts Payable 5,300
To record credit purchase; $5,000 x 6% = 300 GST.
*Quick Study 6-24
Mar. 17 Accounts Receivable 6,696
PST Payable 348
GST Payable 348
Sales 5,800
To record credit sale; $5,800 x 6% = 348 PST;
$5,800 x 6% = $348 GST.
EXERCISES
EXERCISE 6-1 (15 MINUTES)
| |a |b |c |d |e |
|Cost of goods sold |126,000 |86,000 |42,000 |268,000 |46,000 |
|Gross profit from sales |$ 114,000 |$ 54,000 |$33,000 |$194,000 |$ 39,000 |
|Operating expenses |95,000 |82,000 |41,000 |146,000 |53,000 |
|Net Income (Loss) |$ 19,000 |$ (28,000) |($ 8,000) |$ 48,000 |($ 14,000) |
Exercise 6-2 (25 minutes)
|Feb. |1 |Merchandise Inventory |7,000 | |
| | | Accounts Payable | |7,000 |
| | | To record purchase; terms 1/10, n30. | | |
| | | | | |
| |5 |Merchandise Inventory |2,400 | |
| | | Cash | |2,400 |
| | | To record purchase for cash. | | |
| | | | | |
| |6 |Merchandise Inventory |10,000 | |
| | | Accounts Payable | |10,000 |
| | | To record purchase; terms 2/15, n45. | | |
| | | | | |
| |9 |Office Supplies |900 | |
| | | Accounts Payable | |900 |
| | | To record purchase; n15. | | |
| | | | | |
| |10 |No entry. | | |
| | | | | |
| |11 |Accounts Payable |7,000 | |
| | | Cash | |6,930 |
| | | Merchandise Inventory | |70 |
| | | To record payment within discount period; | | |
| | |$7,000 x 1% = $70 discount. | | |
| | | | | |
| |24 |Accounts Payable |900 | |
| | | Cash | |900 |
| | | To record payment. | | |
| | | | | |
|Mar. |23 |Accounts Payable |10,000 | |
| | | Cash | |10,000 |
| | | To record payment. | | |
Exercise 6-3 (30 minutes)
2011
Mar. 2 Merchandise Inventory 3,600
Accounts Payable — Blanton Company 3,600
Purchased merchandise on credit.
3 Merchandise Inventory 200
Cash 200
Paid shipping charges on purchased
merchandise.
4 Accounts Payable — Blanton Company 600
Merchandise Inventory 600
Returned unacceptable merchandise.
17 Accounts Payable — Blanton Company 3,000
Merchandise Inventory 60
Cash 2,940
Paid balance within the discount period;
3,600 – 600 = 3,000; 3,000 x 2% = 60.
18 Merchandise Inventory 7,500
Accounts Payable — Fleming Corp. 7,500
Purchased merchandise on credit.
21 Accounts Payable — Fleming Corp. 2,100
Merchandise Inventory 2,100
Received an allowance on purchase.
28 Accounts Payable — Fleming Corp. 5,400
Merchandise Inventory 108
Cash 5,292
Paid balance within the discount period;
7,500 – 2,100 = 5,400; 5,400 x 2% = 108.
Exercise 6-4 (25 minutes)
|Jan. |5 |Accounts Receivable |4,000 | |
| | | Sales | |4,000 |
| | | To record sale; terms 1/10, n30. | | |
| | | | | |
| |5 |Cost of Goods Sold |3,200 | |
| | | Merchandise Inventory | |3,200 |
| | | To record cost of sales. | | |
| | | | | |
| |7 |Cash |3,600 | |
| | | Sales | |3,600 |
| | | To record cash sale. | | |
| | | | | |
| |7 |Cost of Goods Sold |3,000 | |
| | | Merchandise Inventory | |3,000 |
| | | To record cost of sales. | | |
| | | | | |
| |8 |Accounts Receivable |9,600 | |
| | | Sales | |9,600 |
| | | To record sale; terms 1/10, n30. | | |
| | | | | |
| |8 |Cost of Goods Sold |8,200 | |
| | | Merchandise Inventory | |8,200 |
| | | To record cost of sales. | | |
| | | | | |
| |15 |Cash |3,960 | |
| | |Sales Discounts |40 | |
| | | Accounts Receivable | |4,000 |
| | | To record collection within discount period; | | |
| | |$4,000 x 1% = $40 discount. | | |
| | | | | |
|Feb. |4 |Cash |9,600 | |
| | | Accounts Receivable | |9,600 |
| | | To record collection. | | |
Exercise 6-5 (30 minutes)
|Feb. |1 |Accounts Receivable |2,400 | |
| | | Sales | |2,400 |
| | | To record sale; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |1 |Cost of Goods Sold |2,000 | |
| | | Merchandise Inventory | |2,000 |
| | | To record cost of sales. | | |
| | | | | |
| |2 |Delivery Expense or Freight-Out |150 | |
| | | Cash | |150 |
| | | To record delivery expenses for goods sold. | | |
| | | | | |
| |3 |Sales Returns and Allowances |1,200 | |
| | | Accounts Receivable | |1,200 |
| | | To record return of merchandise. | | |
| | | | | |
| |3 |Merchandise Inventory |1,000 | |
| | | Cost of Goods Sold | |1,000 |
| | | To return merchandise to inventory. | | |
| | | | | |
| |4 |Accounts Receivable |3,800 | |
| | | Sales | |3,800 |
| | | To record sale; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |4 |Cost of Goods Sold |3,100 | |
| | | Merchandise Inventory | |3,100 |
| | | To record cost of sales. | | |
| | | | | |
| |11 |Cash |1,176 | |
| | |Sales Discounts |24 | |
| | | Accounts Receivable | |1,200 |
| | | To record collection, less return and discount; | | |
| | |$2,400 - $1,200 = $1,200 x 2% = $24 discount. | | |
| | | | | |
| |23 |Cash |1,200 | |
| | | Sales | |1,200 |
| | | To record cash sale. | | |
| | | | | |
| |23 |Cost of Goods Sold |950 | |
| | | Merchandise Inventory | |950 |
| | | To record cost of sales. | | |
| | | | | |
| |28 |Cash |3,800 | |
| | | Accounts Receivable | |3,800 |
| | | To record collection. | | |
Exercise 6-6 (30 minutes)
a.
Mar. 1 Merchandise Inventory 11,000
Accounts Payable - Raintree 11,000
Purchased merchandise on credit.
11 Accounts Payable - Raintree 11,000
Merchandise Inventory 330
Cash 10,670
Paid account payable within the discount period;
11,000 x 3% = 330.
b.
Mar. 1 Accounts Receivable – Sundown Company 11,000
Sales 11,000
Sold merchandise on account.
1 Cost of Goods Sold 7,500
Merchandise Inventory 7,500
To record cost of sale.
11 Cash 10,670
Sales Discounts 330
Accounts Receivable – Sundown Company 11,000
Collected account receivable.
Analysis component:
Amount borrowed to pay the balance owing $10,670.00
Annual rate of interest × 8%
Interest per year $ 853.60
Interest per day ($853.60/365) $ 2.34
Discount taken $ 330.00
Interest paid on the 50-day* loan (50 × $2.34) (117.00)
Net savings from borrowing to pay within
the discount period $ 213.00
*60 days in credit period – 10 days in discount period = 50 days.
Exercise 6-7 (25 minutes)
a.
2011
May 11 Merchandise Inventory 30,000
Accounts Payable – Hostel Sales 30,000
Purchased merchandise on credit.
11 Merchandise Inventory 335
Cash 335
Paid shipping charges on purchased
merchandise.
12 Accounts Payable – Hostel Sales 1,200
Merchandise Inventory 1,200
Returned unacceptable merchandise.
20 Accounts Payable – Hostel Sales 28,800
Merchandise Inventory 864
Cash 27,936
Paid balance within the discount period;
30,000 – 1,200 = 28,800; 28,800 x 3% = 864.
b.
2011
May 11 Accounts Receivable – Wilson Purchasing 30,000
Sales 30,000
Sold merchandise on account.
11 Cost of Goods Sold 20,000
Merchandise Inventory 20,000
To record cost of sale.
12 Sales Returns and Allowances 1,200
Accounts Receivable – Wilson Purchasing 1,200
Accepted a return from a customer.
12 Merchandise Inventory 800
Cost of Goods Sold 800
Returned goods to inventory.
21 Cash 27,936
Sales Discounts 864
Accounts Receivable – Wilson Purchasing 28,800
Collected account receivable;
30,000 – 12,000 = 28,800; 28,800 x 3% = 864.
Exercise 6-7 (concluded)
Analysis Component
Amount borrowed to pay the amount owing $27,936.00
Annual rate of interest × 5%
Interest per year $ 1,396.80
Interest per day ($1,396.80/365) $ 3.83
Discount taken $ 864.00
Interest paid on the 80-day* loan (80 × $3.83) (306.40)
Net savings from borrowing to pay within
the discount period $ 557.60
*90 days in credit period – 10 days in discount period = 80 days.
Exercise 6-8 (10 minutes)
| 1. |d. | 6. | |e. |
| 2. |c. |7. | |j. |
| 3. |f. |8. | |i. |
| 4. |a. |9. | |b. |
| 5. |h. |10. | |g. |
Exercise 6-9 (30 minutes)
Merchandise Inventory
|Balance, Dec. 31, 2010 |37,000 |Purchase discounts received |1,600 |
|Invoice cost of purchases |190,500 |Purchase returns and | |
|Returns by customers |2,200 | allowances received |4,100 |
|Transportation-in |1,900 |Cost of sales transactions |186,000 |
| | |Shrinkage |32,000 |
|Balance, Dec. 31, 2011 |7,900 | | |
Cost of Goods Sold
|Represents all entries to record the cost component| |Represents all entries to record merchandise returned | |
|of sales transactions | |by customers and restored to inventory during 2011 | |
| |186,000 | |2,200 |
|Inventory shrinkage recorded in December 31, 2011, | | | |
|adjusting entry | | | |
| |32,000 | | |
|Balance |215,800 | | |
Analysis component:
The shrinkage was $32,000. The cost of merchandise actually sold to customers was $186,000. The cost of goods sold was $215,800. Shrinkage therefore was 17% of the actual cost of merchandise sold ($32,000/$186,000 × 100) or 15% of the total cost of goods sold ($32,000/$215,800 × 100). As the inventory manager, I would want to know the cause of this significant shrinkage. Is it breakage or spoilage that can be controlled? Is it theft caused by weak internal controls? Reviewing the numbers allows the inventory manager to ask appropriate questions for the purpose of making good decisions.
Exercise 6-10 (10 minutes)
a) 500,000 – 17,000 – 3,000 = 480,000 net sales
b) 28,000 + 124,000 = 152,000 total operating expenses
c) 480,000 – 124,000 = 356,000 cost of goods sold
d) (124,000/480,000) × 100 = 25.83%
Analysis component:
The change in the gross profit ratio for the year ended May 31, 2010 was 2.83% (from 23% to 25.83%). This is a favourable change because Westlawn is generating more gross profit per sales dollar that will contribute towards the covering of operating expenses.
Exercise 6-11 (30 minutes)
| |Company A |Company B |
| |2011 |2010 |2011 |2010 |
|Sales |256,000 |160,000 |110,000 |50,000 |
|Sales discounts |2,560 |1,600 |1,100 |500 |
|Sales returns and allowances |51,200 |16,000 |5,500 |2,500 |
|Net sales |202,240 |142,400 |103,400 |47,000 |
|Cost of goods sold |153,600 |88,000 |55,000 |25,000 |
|Gross profit from sales |48,640 |54,400 |48,400 |22,000 |
|Selling expenses |17,920 |16,000 |24,200 |9,000 |
|Administrative expenses |25,600 |24,000 |29,700 |11,000 |
|Total operating expenses |43,520 |40,000 |53,900 |20,000 |
|Net income (loss) |5,120 |14,400 |(5,500) |2,000 |
|Gross profit ratio |24.05%1 |38.20%2 |46.81%3 |46.81%4 |
Calculations:
1. (48,640/202,240) × 100 = 24.05%
2. (54,400/142,400) × 100 = 38.20%
3. (48,400/103,400) × 100 = 46.81%
4. (22,000/47,000) × 100 = 46.81%
Analysis component:
Company B has more favourable gross profit ratios for both 2010 and 2011. Company A is showing a lower gross profit ratio than Company B and decreasing gross profit as a percentage of net sales.
Note to instructor:
You may wish to engage students in a discussion of other interesting comparisons in this information. For example:
— COGS as a percentage of sales is lower for Company B than Company A.
— Sales discounts as a percentage of sales is constant for both companies.
— Sales returns and allowances are higher as a percentage of sales for Company A than Company B (which is particularly interesting considering that Company A has a higher COGS than Company B … you might assume higher quality but then why the higher returns/allowances?).
— Company B has higher operating expenses as a percentage of sales than Company A.
Company B has more than doubled its sales from 2010 to 2011 in comparison to the growth for Company A.
Exercise 6-12 (20 minutes)
| | |(a) | |(b) | |(c) |
|Purchases | |$ 90,000 | |$ 160,000 | |$ 122,000 | |
|Purchases discounts | |(4,000 |) |(10,000 |) |(2,600 |)|
|Purchases returns and allowances | |(3,000 |) |(6,000 |) |(4,400 |)|
|Transportation-in | | 6,400 | | 14,000 | | 16,000 | |
|Cost of goods purchased | |$ 89,400 | |$ 158,000 | |$ 131,000 | |
|Beginning inventory | |$ 7,000 | |$38,400 | |$ 36,000 | |
|Cost of goods purchased | |89,400 | |158,000 | |131,000 | |
|Ending inventory | | (4,400 |) | (30,000 |) | (30,480 |)|
|Cost of goods sold | |$92,000 | |$ 166,400 | |$ 136,520 | |
a. Transportation-in is calculated as the amount needed to make cost of goods purchased equal the given amount. Cost of goods sold is calculated the usual way.
b. Purchases discounts is calculated as the amount needed to make cost of goods purchased equal the given amount. The beginning inventory is calculated as the amount needed to make cost of goods sold equal the given amount.
c. Cost of goods purchased is calculated the usual way. Then, that amount is transferred to the lower section and the ending inventory is calculated as the amount needed to make cost of goods sold equal the given amount.
Exercise 6-13 (30 minutes)
| |Company A |Company B |
| |2011 |2010 |2011 |2010 |
|Sales |120,000 |180,000 |90,000 |45,000 |
|Cost of goods sold: | | | | |
| Merchandise inventory |18,700 |22,300 |9,875 |9,000 |
|(beginning) | | | | |
| Net cost of merchandise |72,000 |104,400 |49,500 |26,100 |
|purchases | | | | |
| Merchandise inventory (ending) |(16,400) |(18,700) |(8,920) |(9,875) |
| Cost of goods sold |74,300 |108,000 |50,455 |25,225 |
|Gross profit from sales |45,700 |72,000 |39,545 |19,775 |
|Operating expenses |36,000 |54,000 |27,000 |13,500 |
|Net income (loss) |9,700 |18,000 |12,545 |6,275 |
|Gross profit ratio |38.08%1 |40.00%2 |43.94%3 |43.94%4 |
Calculations:
1. (45,700/120,000) × 100 = 38.08%
2. (72,000/180,000) × 100 = 40.00%
3. (39,545/90,000) × 100 = 43.94%
4. (25,225/45,000) × 100 = 43.94%
Analysis component:
Company B has a stable and more favourable gross profit ratio than Company A. Company A’s gross profit ratio decreased from 2010 to 2011 which is unfavourable.
Exercise 6-14 (20 minutes)
| |(a) | |(b) | |(c) | |
|Invoice cost of merchandise purchases |$ 45,000 | |$ 20,000 | |$ 15,250 | |
|Purchase discounts received |(2,000 |) |(1,250) | |(325 |) |
|Purch. returns and allow. received |(1,500 |) |(750 |) |(550 |) |
|Cost of transportation-in | 3,200 | | 1,750 | | 2,000 | |
|Total cost of merchandise purchases |$ 44,700 | |$ 19,750 | |$ 16,375 | |
|Merchandise inventory (beginning) |$ 3,500 | |$ 4,800 | |$ 4,500 | |
|Total cost of merchandise purchases |44,700 | |19,750 | |16,375 | |
|Merchandise inventory (ending) | (2,200 |) | (3,750 |) | (3,810 |) |
|Cost of goods sold |$46,000 | |$ 20,800 | |$ 17,065 | |
a. Transportation-in is calculated as the amount needed to make cost of merchandise purchased equal the given amount. Cost of goods sold is calculated the usual way.
b. Purchase discounts is calculated as the amount needed to make cost of merchandise purchases equal the given amount. The merchandise inventory (beginning) is calculated as the amount needed to make cost of goods sold equal the given amount.
c. Total cost of merchandise purchases is calculated the usual way. Then, that amount is transferred to the lower section and the merchandise inventory (ending) is calculated as the amount needed to make cost of goods sold equal the given amount.
Exercise 6-15 (30 minutes)
a) Multiple-step income statement:
|COMPU-SOFT |
|Income Statement |
|For Month Ended November 30, 2011 |
|Net sales | |$26,935* |
|Cost of goods sold | | 14,800 |
|Gross profit from sales | |$12,135 |
|Operating expenses: | | |
| Wages expense |$4,200 | |
| Utilities expense |2,100 | |
| Amortization expense, store equipment | 120 | |
| Total operating expenses | | 6,420 |
|Income from operations | |$ 5,715 |
|Other revenues and expenses: | | |
| Rent revenue | | 850 |
|Net income | |$ 6,565 |
*Calculated as: 27,700 – 45 – 720 = 26,935
b)
|2011 | |Closing entries: | | |
|Nov. |30 |Rent Revenue |850 | |
| | |Sales |27,700 | |
| | | Income Summary | |28,550 |
| | | To close temporary credit balance accounts. | | |
| | | | | |
| |30 |Income Summary |21,985 | |
| | | Sales returns and allowances | |720 |
| | | Sales discounts | |45 |
| | | Cost of goods sold | |14,800 |
| | | Amortization expense, store equipment | |120 |
| | | Wages expense | |4,200 |
| | | Utilities expense | |2,100 |
| | | To close temporary debit balance accounts. | | |
| | | | | |
| |30 |Income Summary |6,565 | |
| | | Peter Delta, capital | |6,565 |
| | | To close income summary to capital. | | |
| | | | | |
| |30 |Peter Delta, capital |3,500 | |
| | | Peter Delta, withdrawals | |3,500 |
| | | To close withdrawals to capital. | | |
Exercise 6-15 (concluded)
c)
| | |Peter Delta, Capital |
| | | |1,635 |(Beg. bal.) |
|$1,635 – $3,500 + $6,565 = $4,700 OR |(With.) |3,500 |6,565 |(Net income) |
| | | |4,700 |(End. bal.) |
| | | | | |
Analysis component:
The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800 gross profit; $12,800/$32,000 × 100 = 40%). The gross profit ratio for November is 45% ($12,135/$26,935 × 100 = 45.05%). Compu-Soft generated a higher gross profit per sales dollar in November than in October which is favourable because this represents a greater contribution towards the coverage of operating expenses.
Exercise 6-16 (60 minutes)
|a) |Perdu Sales |
| |Work Sheet |
| |For Year Ended December 31, 2011 |
| | | | |Balance Sheet and Statement |
| | | | |of Owner’s Equity |
| |Unadjusted | |Income Statement | |
| |Trial Balance |Adjustments | | |
|Account | | | | |
| |
|Sales | |$858,000 |
|Less: Sales returns and allowances |$33,000 | |
| Sales discounts | 8,000 | 41,000 |
|Net sales | | |$817,000 |
|Cost of goods sold | |424,840 |
|Gross profit from sales | |$392,160 |
|Operating expenses: | | |
| Selling expenses: | | |
| Sales salaries expense |$97,200 | | |
| Other selling expenses | 71,500 | | |
| Utilities expense, store |28,000 | | |
| Amortization expense, store | 2,500 | | |
| Total selling expenses |$199,200 | |
| General and administrative expenses: | | 190,000 | |
| Total operating expenses | | | 389,200 |
|Net income | | |$ 2,960 |
|c) 2011 |Closing entries: | | |
|Dec. |31 |Sales |858,000 | |
| | | Income Summary | |858,000 |
| | | To close sales. | | |
| | | | | |
| |31 |Income Summary |855,040 | |
| | | Sales Returns and Allowances | |33,000 |
| | | Sales Discounts | |8,000 |
| | | Cost of Goods Sold | |424,840 |
| | | Sales Salaries Expense | |97,200 |
| | | Utilities Expense | |28,000 |
| | | Selling Expenses | |71,500 |
| | | Amortization Expense, Store Equipment | |2,500 |
| | | Administrative Expenses | |190,000 |
| | | To close temporary debit balance accounts. | | |
| | | | | |
| |31 |Income Summary |2,960 | |
| | | Eldon Perdu, Capital | |2,960 |
| | | To close the Income Summary account to capital. | | |
| | | | | |
| |31 |Eldon Perdu, Capital |3,600 | |
| | | Eldon Perdu, Withdrawals | |3,600 |
| | | To close withdrawals to capital. | | |
Exercise 6-16 (concluded)
Analysis component:
The gross profit ratio for 2011 is $392,160/$817,000 × 100 = 48%. The gross profit ratio for 2010 was $330,000*/$600,000 × 100 = 55%. The gross profit ratio decreased from 2010 to 2011 which is unfavourable since the gross profit generated per net sales dollar has decreased thereby contributing less towards the coverage of operating expenses in 2011 than in 2010.
*Sales – COGS = GP – Operating Expenses = Net Loss, therefore, $600,000 - ? =
? - $344,000 = -$14,000; GP - $344,000 = -$14,000 so GP = $330,000.
Exercise 6-17 (25 minutes)
a) 531,000 – 14,000 – 7,000 = 510,000
b) Single-step income statement:
|SABBA CO. |
|Income Statement |
|For Year Ended January 31, 2011 |
|Revenues: | | |
| Net sales | |$510,000 |
|Expenses: | | |
| Cost of goods sold | $301,000 | |
| Selling expenses |117,000 | |
| General and administrative expenses | 109,000 | |
| Interest expense | 750 | |
| Total expenses | | 527,750 |
|Net loss | |$ 17,750 |
*Exercise 6-18 (20 minutes)
|1) | |Periodic | | | |Perpetual | | |
|Nov. |1 |Purchases |2,800 | | |Merchandise Inventory |2,800 | |
| | | Accounts Payable | |2,800 | | Accounts Payable | |2,800 |
| | | To record purchases on | | | | To record purchases on | | |
| | |account. | | | |account. | | |
| | | | | | | | | |
|2) | | | | | | | | |
|Nov. |5 |Accounts Payable |2,800 | | |Accounts Payable |2,800 | |
| | | Purchases Discount | |56 | | Merchandise Inventory | |56 |
| | | Cash | |2,744 | | Cash | |2,744 |
| | | To record cash payment within | | | | To record cash payment within | | |
| | | discount period; | | | |discount period; | | |
| | |2,800 x 2% = 56. | | | |2,800 x 2% = 56. | | |
| | | | | | | | | |
|3) | | | | | | | | |
|Nov. |7 |Cash |196 | | |Cash |196 | |
| | | Purchases Returns and | | | | Merchandise Inventory | |196 |
| | | Allowances | |196 | | To record cheque received for | | |
| | |To record cheque received for return of | | | | return of merchandise | | |
| | |purchases previously paid for with discount| | | | previously paid for with | | |
| | |already taken; 200 – 2% = 196. | | | | discount already taken; | | |
| | | | | | | 200 – 2% = 196. | | |
| | | | | | | | | |
|4) | | | | | | | | |
|Nov. |10 |Transportation-In |160 | | |Merchandise Inventory |160 | |
| | | Cash | |160 | | Cash | |160 |
| | | To record payment of freight | | | | To record payment of freight | | |
| | | charges. | | | | charges. | | |
| | | | | | | | | |
|5) | | | | | | | | |
|Nov. |13 |Accounts Receivable |3,000 | | |Accounts Receivable |3,000 | |
| | | Sales | |3,000 | | Sales | |3,000 |
| | | To record sale of merchandise | | | | To record sale of merchandise | | |
| | | on credit. | | | | on credit. | | |
| | | | | | | | | |
| |13 |No entry. | | | |Cost of Goods Sold |1,500 | |
| | | | | | | Merchandise Inventory | |1,500 |
| | | | | | | To record cost of merchandise | | |
| | | | | | | sold. | | |
*Exercise 6-18 (concluded)
|6) | | | | | | | | |
|Nov. |16 |Sales Returns and Allowances |400 | | |Sales Returns and Allowances |400 | |
| | | Accounts Receivable | |400 | | Accounts Receivable | |400 |
| | | To record return of | | | | To record return of | | |
| | | merchandise bought on | | | | merchandise bought on | | |
| | | account. | | | |account. | | |
| | | | | | | | | |
| |16 |No entry. | | | |Merchandise Inventory |200 | |
| | | | | | | Cost of Goods Sold | |200 |
| | | | | | | To record return of | | |
| | | | | | |merchandise by customer. | | |
*Exercise 6-19
|Feb. |1 |Purchases |7,000 | |
| | | Accounts Payable | |7,000 |
| | | To record purchase; terms 1/10, n30. | | |
| | | | | |
| |5 |Purchases |2,400 | |
| | | Cash | |2,400 |
| | | To record purchase for cash. | | |
| | | | | |
| |6 |Purchases |10,000 | |
| | | Accounts Payable | |10,000 |
| | | To record purchase; terms 2/15, n45. | | |
| | | | | |
| |9 |Office Supplies |900 | |
| | | Accounts Payable | |900 |
| | | To record purchase; n15. | | |
| | | | | |
| |10 |No entry. | | |
| | | | | |
| |11 |Accounts Payable |7,000 | |
| | | Cash | |6,930 |
| | | Purchase Discounts | |70 |
| | | To record payment within discount period; | | |
| | |$3,500 x 1% = $35 discount. | | |
| | | | | |
| |24 |Accounts Payable |900 | |
| | | Cash | |900 |
| | | To record payment. | | |
| | | | | |
|Mar. |23 |Accounts Payable |10,000 | |
| | | Cash | |10,000 |
| | | To record payment. | | |
*Exercise 6-20 (25 minutes)
|2011 | | | |
|Mar |2 |Purchases |3,600 | |
| |Accounts Payable — Blanton Company | |3,600 |
| | Purchased merchandise on credit. | | |
| | | | |
| |3 |Transportation-in |200 | |
| | Cash | |200 |
| | Paid shipping charges on purchased merchandise. | | |
| | | | |
|4 |Accounts Payable — Blanton Company |600 | |
| |Purchase Returns and Allowances | |600 |
| | Returned unacceptable merchandise. | | |
| | | | |
|17 |Accounts Payable — Blanton Company |3,000 | |
| |Purchase Discounts | |60 |
| |Cash | |2,940 |
| | Paid balance within the discount period; | | |
| |3,600 – 600 = 3,000; 3,000 x 2% = 60. | | |
| | | | |
|18 |Purchases |7,500 | |
| |Accounts Payable — Fleming Corp. | |7,500 |
| | Purchased merchandise on credit. | | |
| | | | |
|21 |Accounts Payable — Fleming Corp. |2,100 | |
| |Purchase Returns and Allowances | |2,100 |
| | Received an allowance on purchase. | | |
| | | | |
|28 |Accounts Payable — Fleming Corp. |5,400 | |
| |Purchase Discounts | |108 |
| |Cash | |5,292 |
| | Paid balance within the discount period; | | |
| |7,500 – 2,100 = 5,400; 5,400 x 2% = 108. | | |
*Exercise 6-21 (20 minutes)
|Jan. |5 |Accounts Receivable |4,000 | |
| | | Sales | |4,000 |
| | | To record sale; terms 1/10, n30. | | |
| | | | | |
| |7 |Cash |3,600 | |
| | | Sales | |3,600 |
| | | To record cash sale. | | |
| | | | | |
| |8 |Accounts Receivable |9,600 | |
| | | Sales | |9,600 |
| | | To record sale; terms 1/10, n30. | | |
| | | | | |
| |15 |Cash |3,960 | |
| | |Sales Discounts |40 | |
| | | Accounts Receivable | |4,000 |
| | | To record collection within discount period; | | |
| | |$2,000 x 1% = $20 discount. | | |
| | | | | |
|Feb. |4 |Cash |9,600 | |
| | | Accounts Receivable | |9,600 |
| | | To record collection. | | |
*Exercise 6-22 (20 minutes)
|Feb. |1 |Accounts Receivable |2,400 | |
| | | Sales | |2,400 |
| | | To record sale; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |2 |Delivery Expense or Freight-Out |150 | |
| | | Cash | |150 |
| | | To record delivery expenses for goods sold. | | |
| | | | | |
| |3 |Sales Returns and Allowances |1,200 | |
| | | Accounts Receivable | |1,200 |
| | | To record return of merchandise. | | |
| | | | | |
| |4 |Accounts Receivable |3,800 | |
| | | Sales | |3,800 |
| | | To record sale; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |11 |Cash |1,176 | |
| | |Sales Discounts |24 | |
| | | Accounts Receivable | |1,200 |
| | | To record collection, less return and discount; | | |
| | |$2,400 - $1,200 = $1,200 x 2% = $24 discount. | | |
| | | | | |
| |23 |Cash |1,200 | |
| | | Sales | |1,200 |
| | | To record cash sale. | | |
| | | | | |
| |28 |Cash |3,800 | |
| | | Accounts Receivable | |3,800 |
| | | To record collection. | | |
*Exercise 6-23 (15 minutes)
a)
|2011 | | | |
|Mar. 1 |Purchases |11,000 | |
| |Accounts Payable – Raintree | |11,000 |
| | Purchased merchandise on credit. | | |
| | | | |
|11 |Accounts Payable – Raintree |11,000 | |
| |Purchase Discounts | |330 |
| |Cash | |10,670 |
| | Paid account payable within the discount period; | | |
| |11,000 x 3% = 330. | | |
b)
|2011 | | | |
|Mar. 1 |Accounts Receivable – Sundown Company |11,000 | |
| |Sales | |11,000 |
| | Sold merchandise on account. | | |
| | | | |
|11 |Cash |10,670 | |
| |Sales Discounts |330 | |
| |Accounts Receivable – Sundown Company | |11,000 |
| | Collected account receivable. | | |
*Exercise 6-24 (20 minutes)
a)
|2011 | | | |
|May 11 |Purchases |30,000 | |
| |Accounts Payable – Hostel Sales | |30,000 |
| | Purchased merchandise on credit. | | |
| | | | |
|11 |Transportation-In |335 | |
| |Cash | |335 |
| | Paid shipping charges on purchased merchandise. | | |
| | | | |
|13 |Accounts Payable – Hostel Sales |1,200 | |
| |Purchase Returns and Allowances | |1,200 |
| | Returned unacceptable merchandise. | | |
| | | | |
|20 |Accounts Payable – Hostel Sales |28,800 | |
| |Purchase Discounts | |864 |
| |Cash | |27,936 |
| | Paid balance within the discount period; | | |
| |30,000 – 1,200 = 28,800; 28,800 x 3% = 864. | | |
b)
|2011 | | | |
|May 11 |Accounts Receivable – Wilson Purchasing |30,000 | |
| |Sales | |30,000 |
| | Sold merchandise on account. | | |
| | | | |
|12 |Sales Returns and Allowances |1,200 | |
| |Accounts Receivable – Wilson Purchasing | |1,200 |
| | Accepted a return from a customer. | | |
| | | | |
|21 |Cash |27,936 | |
| |Sales Discounts |864 | |
| |Accounts Receivable – Wilson Purchasing | |28,800 |
| | Collected account receivable; | | |
| |30,000 – 1,200 = 28,800; 28,800 x 3% = 864. | | |
*Exercise 6-25 (35 minutes)
a. Gross profit from sales $145,000
Less: Operating expenses ?
Net income $ 65,000
Therefore:
Total operating expenses $ 80,000
b. Sales $340,000
Less: Sales discounts $ 5,500
Sales returns 14,000 19,500
Net sales $320,500
Less: Cost of goods sold ?
Gross profit from sales $145,000
Therefore:
Cost of goods sold $175,500
c. Merchandise inventory (beginning) $ 30,000
Invoice cost of merchandise purchases $175,000
Less: Purchase discounts 3,600
Purchase returns 6,000
Net purchases $165,400
Add: Transportation-in 11,000
Total cost of merchandise purchased 176,400
Goods available for sale $206,400
Less: Merchandise inventory (ending) ?
Cost of goods sold (from b) $175,500
Therefore:
Merchandise inventory (ending) $ 30,900
d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal places)
Analysis component:
The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross profit ratio of 47%, this represents an unfavourable change. This is unfavourable because the gross profit generated per net sales dollar decreased in 2011 from 2010 thereby contributing less towards the coverage of operating expenses in 2011 than in 2010.
*Exercise 6-26 (40 minutes)
DEWER’S STOP‘N SHOP
Work Sheet
For Year Ended December 31, 2011
| | | | | |Balance Sheet and |
| | |Unadjusted | | |Statement of Owner’s Equity |
| | |Trial | |Income Statement | |
| | | Balance | Adjustments | | |
|No. |Account |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |
|101 |Cash |7,400 | | | | | |7,400 | |
|106 |Accounts receivable |3,600 | | | | | |3,600 | |
|119 |Merchandise inventory |2,400 | | | |2,400 |2,720 |2,720 | |
|125 |Store supplies |1,200 | | |(a) 300 | | |900 | |
|201 |Accounts payable | |280 | | | | | |280 |
|209 |Salaries payable | | | |(b) 120 | | | |120 |
|301 |Mi Dewer, capital | |11,570 | | | | | |11,570 |
|302 |Mi Dewer, withdrawals |750 | | | | | |750 | |
|413 |Sales | |12,000 | | | |12,000 | | |
|414 |Sales returns and allowances |290 | | | |290 | | | |
|505 |Purchases |6,400 | | | |6,400 | | | |
|506 |Purchase discounts | |250 | | | |250 | | |
|507 |Transportation-in |160 | | | |160 | | | |
|622 |Salaries expense |1,400 | |(b) 120 | |1,520 | | | |
|640 |Rent expense |500 | | | |500 | | | |
|651 |Store supplies expense | | | (a) 300 | | 300 | | | |
| | Totals |24,100 |24,100 | 420 | 420 |11,570 |14,970 |15,370 |11,970 |
| |Net income | | | | |3,400 | | |3,400 |
| | Totals | | | | |14,970 |14,970 |15,370 |15,370 |
*Exercise 6-27 (30 minutes)
|a) | |Net Sales: | |
| | | Sales |$445,000 |
| | | Sales returns and allowances |(25,000) |
| | | Sales discounts |(16,000) |
| | | Net sales |$404,000 |
| | | | |
|b) | |Cost of goods purchased: | |
| | |Purchases |$286,000 |
| | |Purchases returns and allowances |(22,000) |
| | |Purchase discounts |(11,400) |
| | |Transportation-in | 8,800 |
| | |Cost of goods purchased |$261,400 |
| | | | |
|c) | |Cost of goods sold: | |
| | |Beginning inventory |$ 15,000 |
| | |Cost of goods purchased |261,400 |
| | |Goods available for sale |$276,400 |
| | |Ending inventory | (11,000) |
| | |Cost of goods sold |$265,400 |
d) Multiple-step income statement:
FOX FIXTURES CO.
Income Statement
For Year Ended March 31, 2011
Net sales $404,000
Cost of goods sold 265,400
Gross profit from sales $138,600
Operating expenses:
Selling expenses $69,000
General and administrative expenses 33,500
Total operating expenses 102,500
Income from operations $ 36,100
Other revenues and expenses:
Interest revenue 1,200
Net income $ 37,300
*Exercise 6-28 (40 minutes)
|a) | | |
|$33,700 – $1,740 = $31,960 Net sales | | |
| | | |
|b) | | |
|$6,200 + $16,676 – $110 – $28 + $380 – $2,460 = $20,658 Cost of goods sold |
| | | |
|c) Classified multiple-step income statement: | | |
|JOHN’S ELECTRONICS |
|Income Statement |
|For Month Ended April 30, 2011 |
|Sales | |$33,700 |
|Less: Sales returns and allowances | | 1,740 |
|Net sales | |$31,960 |
|Cost of goods sold: | | |
| Merchandise inventory, March 31, 2011 |$ 6,200 | |
| Purchases $16,676 | | |
| Less: Purchase discounts 28 | | |
| Purchase returns and allowances 110 | | |
| Net purchases $16,538 | | |
| Add: Transportation-in 380 | | |
| Cost of goods purchased | 16,918 | |
| Cost of goods available for sale |$23,118 | |
| Less: Merchandise inventory, April 30, 2011 | 2,460 | |
|Cost of goods sold | | 20,658 |
|Gross profit from sales | |$ 11,302 |
|Operating expenses:. | | |
| Selling expenses: | | |
| Wages expense, selling $8,000 | | |
| Amortization expense, delivery trucks 640 | | |
| Telephone expense, store 340 | | |
| Total selling expenses |$8,980 | |
| General and administrative expenses: | | |
| Wages expense, office 2,800 | | |
| Telephone expense, office 150 | | |
| Total general and administrative expenses |2,950 | |
| Total operating expenses | | 11,930 |
|Operating loss | |$ 628 |
|Other revenues and expenses: | | |
| Interest expense | | 130 |
|Net loss | |$ 758 |
*Exercise 6-28 (concluded)
|d) | | |
|2011 |Closing entries: | | |
|Apr. |30 |Merchandise Inventory |2,460 | |
| | |Purchases Returns and Allowances |110 | |
| | |Purchases Discounts |28 | |
| | |Sales |33,700 | |
| | | Income Summary | |36,298 |
| | | To close temporary credit balance accounts. | | |
| | | | | |
| |30 |Income Summary |37,056 | |
| | | Merchandise Inventory | |6,200 |
| | | Sales Returns and Allowances | |1,740 |
| | | Purchases | |16,676 |
| | | Transportation-In | |380 |
| | | Amortization Expense, Delivery Trucks | |640 |
| | | Wages Expense, Office | |2,800 |
| | | Wages Expense, Selling | |8,000 |
| | | Telephone Expense, Office | |150 |
| | | Telephone Expense, Store | |340 |
| | | Interest Expense | |130 |
| | | To close temporary debit balance accounts. | | |
| | | | |
| |30 |John Yu, Capital |758 | |
| | | Income Summary | |758 |
| | | To close income summary to capital. | | |
| | | | | |
| |30 |John Yu, Capital |9,200 | |
| | | John Yu, Withdrawals | |9,200 |
| | | To close withdrawals to capital. | | |
| | | | | |
|Part e: | | |
| | |John Yu, Capital | |
| |(Net loss) |758 |30,300 |(Beg. bal.) |
|$30,300 – $9,200 - $758 = $20,342 OR |(With.) |9,200 | | |
| | | |20,342 |(End. bal.) |
*Exercise 6-29 (15 minutes)
June 1 Merchandise Inventory 2,000
GST Receivable 120
Accounts Payable 2,120
To record credit purchase;
$2,000 x 6% = 120 GST.
5 Accounts Receivable 1,596
PST Payable 112
GST Payable 84
Sales 1,400
To record credit sale; $1,400 x 8% = 112 PST;
$1,400 x 6% = $84 GST.
5 Cost of Goods Sold 1,000
Merchandise Inventory 1,000
To record cost of sale.
*Exercise 6-30 (15 minutes)
June 1 Purchases 2,000
GST Receivable 120
Accounts Payable 2,120
To record credit purchase;
$2,000 x 6% = $120 GST.
5 Accounts Receivable 1,596
PST Payable 112
GST Payable 84
Sales 1,400
To record credit sale; $1,400 x 8% = 112 PST;
$1,400 x 6% = $84 GST.
PROBLEMS
PROBLEM 6-1A (40 MINUTES) PART 1
|June |1 |Accounts Receivable – Avery & Wiest |7,000 | |
| | | Sales | |7,000 |
| | | To record sales; terms 2/5, n15, FOB destination. | | |
| | | | | |
| |1 |Cost of Goods Sold |6,250 | |
| | | Merchandise Inventory | |6,250 |
| | | To record cost of sales. | | |
| | | | | |
| |2 |Merchandise Inventory |3,500 | |
| | | Accounts Payable – Angolac Suppliers | |3,500 |
| | | To record purchase of merchandise; terms 1/10, | | |
| | |n20, FOB shipping point. | | |
| | | | | |
| |4 |Merchandise Inventory |14,500 | |
| | | Accounts Payable – Bastille Sales | |14,500 |
| | | To record purchase of merchandise; terms 1/15, | | |
| | |n45, FOB Bastille Sales. | | |
| | | | | |
| |5 |Accounts Receivable – Gelgar |11,000 | |
| | | Sales | |11,000 |
| | | To record sales; terms 2/5, n15, FOB destination. | | |
| | | | | |
| |5 |Cost of Goods Sold |9,000 | |
| | | Merchandise Inventory | |9,000 |
| | | To record cost of sales. | | |
| | | | | |
| |6 |Cash |6,860 | |
| | |Sales Discounts |140 | |
| | | Accounts Receivable – Avery & Wiest | |7,000 |
| | | To record collection within discount period; | | |
| | |$7,000 x 2% = $140 discount. | | |
| | | | | |
| |12 |Accounts Payable – Angolac Suppliers |3,500 | |
| | | Cash | |3,465 |
| | | Merchandise Inventory | |35 |
| | | To record payment within discount period; | | |
| | |$3,500 x 1% = $35 discount. | | |
| | | | | |
Problem 6-1A (concluded)
|June |20 |Cash |11,000 | |
| | | Accounts Receivable – Gelgar | |11,000 |
| | | To record collection. | | |
| | | | | |
| |30 |Accounts Payable – Bastille Sales |14,500 | |
| | | Cash | |14,500 |
| | | To record payment. | | |
Part 2
a. Net sales = $17,860 ($7,000 + $11,000 - $140)
b. Cost of goods sold = $15,250 ($6,250 + $9,000)
c. Gross profit from sales = $2,610 ($17,860 - $15,250)
Problem 6-2A (40 minutes)
July 1 Merchandise Inventory 12,000
Accounts Payable—Jones Co. 12,000
Purchased goods on credit.
2 Accounts Receivable—Terra Co. 1,600
Sales 1,600
Sold goods on credit.
2 Cost of Goods Sold. 1,000
Merchandise Inventory 1,000
To record the cost of the July 2 sale.
3 Merchandise Inventory 200
Cash 200
Paid freight on incoming goods.
8 Cash 3,200
Sales 3,200
Sold goods for cash.
8 Cost of Goods Sold. 2,400
Merchandise Inventory 2,400
To record the cost of the July 8 sale.
9 Merchandise Inventory 4,600
Accounts Payable—Keene Co. 4,600
Purchased goods on credit.
12 Accounts Payable—Keene Co. 400
Merchandise Inventory. 400
Received credit memo.
12 Cash 1,568
Sales Discounts 32
Accounts Receivable—Terra Co. 1,600
Collected receivable within the discount
period; 1,600 x 2% = 32.
13 Office Supplies 960
Accounts Payable—East Co. 960
Purchased goods on credit.
16 Accounts Payable—Jones Co. 12,000
Merchandise Inventory 120
Cash 11,880
Paid payable within the discount period; 12,000 x 1% = 120.
Problem 6-2A (continued)
19 Accounts Receivable—Urban Co. 2,500
Sales 2,500
Sold goods on credit.
19 Cost of Goods Sold. 1,800
Merchandise Inventory 1,800
To record the cost of the July 19 sale.
21 Sales Returns and Allowances 300
Accounts Receivable—Urban Co. 300
Issued credit memo.
22 Sales 100
Accounts Receivable—Urban Co. 100
Received debit memo for error.
29 Accounts Payable—Keene Co. 4,200
Cash 4,200
Paid payable beyond the discount period.
30 Cash 2,058
Sales Discounts 42
Accounts Receivable—Urban Co. 2,100
Collected receivable within the discount
period; 2,500 – 300 – 100 = 2,100;
2% × 2,100 = 42.
31 Accounts Receivable—Terra Co. 10,000
Sales 10,000
Sold goods on credit.
31 Cost of Goods Sold. 6,400
Merchandise Inventory 6,400
To record the cost of the July 31 sale.
Problem 6-2A (concluded)
Analysis component:
The cost of the lost discount regarding the July 9 purchase is $53.55*. By itself, the $53.55 does not appear to be a significant amount. However, if you multiply this by the number of lost discounts it could be a large sum that does impact net income. If a net savings results from borrowing to enable paying within the discount period, the company should borrow. Otherwise, payment should be made on the last day of the payment period.
*Calculations:
Amount borrowed to pay within the discount period $ 4,116.00
Annual rate of interest × 6%
Interest per year $ 246.96
Interest per day ($246.96/365) $ 0.6766
Discount $ 84.00
Interest that would be paid on the 45-day** loan (45 × $0.6766) (30.4461)
Net savings from borrowing to pay within
the discount period $ 53.5539
**60 days in credit period – 15 days in discount period = 45 days.
Problem 6-3A (40 minutes)
Aug. 1 Merchandise Inventory 3,000
Accounts Payable—Dickson Company 3,000
Purchased goods on credit.
4 Accounts Payable—Dickson Company 50
Cash 50
Paid freight for Dickson.
5 Accounts Receivable—Griften Corp. 2,100
Sales 2,100
Sold goods on credit.
5 Cost of Goods Sold. 1,500
Merchandise Inventory 1,500
To record the cost of the July 5 sale.
8 Merchandise Inventory 2,650
Accounts Payable—Kendall Corporation 2,650
Purchased goods on credit.
9 Delivery Expense or Freight-Out 60
Cash 60
Paid shipping charges on August 5 sale.
10 Sales Returns and Allowances 350
Accounts Receivable—Griften Corp. 350
Customer returned merchandise.
10 Merchandise Inventory 250
Cost of Goods Sold 250
Returned goods to inventory.
12 Accounts Payable—Kendall Corporation 400
Merchandise Inventory 400
Received a credit memorandum for
August 8 purchase.
15 Cash 1,715
Sales Discounts 35
Accounts Receivable—Griften Corp. 1,750
Collected receivable within the
discount period; 2,100 – 350 = 1,750;
2% × 1,750 = 35.
Problem 6-3A (concluded)
17 Office Equipment 600
Accounts Payable–West Co. 600
Purchased office equipment on credit.
18 Accounts Payable—Kendall Corporation 2,250
Merchandise Inventory 22.50
Cash 2,227.50
Paid payable within the discount period;
2,650 – 400 = 2,250; 1% × 2,250 = 22.50.
19 Accounts Receivable—Farley 1,800
Sales 1,800
Sold goods on credit.
19 Cost of Goods Sold. 1,250
Merchandise Inventory 1,250
To record the cost of the August 19 sale.
22 Sales Returns and Allowances 300
Accounts Receivable—Farley 300
Issued credit memo.
29 Cash 1,485
Sales Discounts 15
Accounts Receivable—Farley 1,500
Collected receivable within the discount
period; 1,800 – 300 = 1,500; 1% × 1,500 = 15.
30 Accounts Payable—Dickson Company 2,950
Cash 2,950
Paid payable; $3,000 – $50 = 2,950.
Problem 6-4A (80 minutes)
1.
JUMBO’S
Work Sheet
For Year Ended December 31, 2011
| |Unadjusted | | |Balance Sheet and |
| |Trial | | Income |Statement of |
| | Balance |Adjustments | Statement |Owner’s Equity |
| |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |
|Cash |10,275 | | | | | |10,275 | |
|Accounts receivable |22,665 | | | | | |22,665 | |
|Merchandise inventory |54,365 | | |(e) 565 | | |53,800 | |
|Store supplies |2,415 | | |(a) 2,000 | | |415 | |
|Office Supplies |775 | | |(a) 700 | | |75 | |
|Prepaid insurance |3,255 | | |(b) 2,800 | | |455 | |
|Equipment |74,490 | | | | | |74,490 | |
|Accumulated amortization, equipment | |13,655 | |(c) 6,000 | | | |19,655 |
|Accounts payable | |8,000 | | | | | |8,000 |
|Salaries payable | | | |(d) 655 | | | |655 |
|Sally Fowler, capital | |166,015 | | | | | |166,015 |
|Sally Fowler, withdrawals |15,000 | | | | | |15,000 | |
|Interest revenue | |310 | | | |310 | | |
|Sales | |502,140 | | | |502,140 | | |
|Sales returns and allowances |5,070 | | | |5,070 | | | |
|Cost of goods sold |381,160 | |(e) 565 | |381,725 | | | |
|Salaries expense |91,550 | |(d) 655 | |92,205 | | | |
|Rent expense |29,100 | | | |29,100 | | | |
|Supplies expense | | |(a) 2,700 | |2,700 | | | |
|Amortization expense, equipment | | |(c) 6,000 | |6,000 | | | |
|Insurance expense | | |(b) 2,800 | | 2,800 | | | |
| Totals |690,120 |690,120 | 12,720 | 12,720 |519,600 |502,450 |177,175 |194,325 |
|Net loss | | | | | | 17,150 | 17,150 | |
| Totals | | | | |519,600 |519,600 |194,325 |194,325 |
Problem 6-4A (concluded)
2. Multiple-step income statement:
JUMBO’S
Income Statement
For Year Ended December 31, 2011
|Net sales1 | | | |$497,070 |
|Cost of goods sold | | | | 381,725 |
|Gross profit from sales | | | |$115,345 |
|Operating expenses: | | | | |
| Salaries expense | | |$92,205 | |
| Rent expense | | |29,100 | |
| Supplies expense | | |2,700 | |
| Amortization expense, equipment | | |6,000 | |
| Insurance expense | | | 2,800 | |
| Total operating expenses | | | | 132,805 |
|Loss from operations | | | |$ 17,460 |
|Other revenues and expenses: | | | | |
| Interest revenue | | | | 310 |
|Net loss | | | |$ 17,150 |
Calculations:
1. 502,140 – 5,070 = 497,070
Analysis component:
Interest Revenue is shown under Other revenues and expenses because it is not a day-to-day operating activity for Jumbo’s. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses.
Problem 6-5A
1. Classified, multiple-step income statement:
DAVISON COMPANY
Income Statement
For Year Ended October 31, 2011
Sales $424,000
Less: Sales discounts $ 6,500
Sales returns and allowances 28,000 34,500
Net sales $389,500
Cost of goods sold 165,200
Gross profit from sales $224,300
Operating expenses:
Selling expenses:
Sales salaries expense $58,000
Advertising expense 36,000
Rent expense, selling space 20,000
Store supplies expense 5,000
Total selling expenses $ 119,000
General and administrative expenses:
Office salaries expense $53,000
Rent expense, office space 5,200
Office supplies expense 1,600
Total general and administrative expenses 59,800
Total operating expenses 178,800
Income from operations $ 45,500
Other revenues and expenses:
Interest revenue 1,120
Net income $ 46,620
Problem 6-5A (concluded)
2. Single-step income statement:
DAVISON COMPANY
Income Statement
For Year Ended October 31, 2011
Revenues:
Net sales $389,500
Interest revenue 1,120
Total revenues $390,620
Expenses:
Cost of goods sold $165,200
Selling expenses 119,000
General and administrative expenses 59,800
Total expenses 344,000
Net income $ 46,620
Problem 6-6A (30 minutes)
Oct. 31 Interest Revenue 1,120
Sales 424,000
Income Summary 425,120
To close temporary accounts with credit
balances.
31 Income Summary 378,500
Sales Discounts 6,500
Sales Returns and Allowances 28,000
Cost of Goods Sold 165,200
Sales Salaries Expense 58,000
Rent Expense, Selling Space 20,000
Store Supplies Expense 5,000
Advertising Expense 36,000
Office Salaries Expense 53,000
Rent Expense, Office Space 5,200
Office Supplies Expense 1,600
To close temporary accounts with debit
balances.
31 Income Summary 46,620
Brenda Davison, Capital 46,620
To close the Income Summary account.
31 Brenda Davison, Capital 32,000
Brenda Davison, Withdrawals 32,000
To close the withdrawals account.
Problem 6-7A (60 minutes)
1. Classified, multiple-step income statement:
PLYMOUTH ELECTRONICS
Income Statement
For Year Ended December 31, 2011
|Sales | | | |$963,000 |
| Less: Sales returns and allowances | | |$ 5,715 | |
| Sales discounts | | | 14,580 | 20,295 |
| Net sales | | | |$942,705 |
|Cost of goods sold | | | | 652,025 |
|Gross profit from sales | | | |$290,680 |
|Operating expenses: | | | | |
| Selling expenses: | | | | |
| Sales salaries expense | |$80,080 | | |
| Rent expense, selling space | |33,000 | | |
| Amortization expense, store equipment | | 8,910 | | |
| Store supplies expense | | 1,620 | | |
| Total selling expenses | | |$123,610 | |
| General and administrative expenses: | | | | |
| Office salaries expense | |$ 65,945 | | |
| Insurance expense | |3,390 | | |
| Rent expense, office space | |3,000 | | |
| Amortization expense, office equipment | | 2,760 | | |
| Office supplies expense | | 735 | | |
| Total general and administrative expenses | | | 75,830 | |
| Total operating expenses | | | | 199,440 |
|Income from operations | | | |$ 91,240 |
|Other revenues and expenses: | | | | |
| Dividend revenue | | | | 720 |
|Net income | | | |$ 91,960 |
Problem 6-7A (concluded)
2. Single-step income statement:
PLYMOUTH ELECTRONICS
Income Statement
For Year Ended December 31, 2011
|Revenues: | | |
| Net sales | | $942,705 |
| Dividend revenue | | 720 |
| Total revenues | |943,425 |
|Expenses: | | |
| Cost of Goods sold |$652,025 | |
| Selling expenses |123,610 | |
| General and administrative expenses | 75,830 | |
| Total expenses | | 851,465 |
|Net income | |$ 91,960 |
Analysis component:
The gross profit ratio for Plymouth Electronics’ year ended December 31, 2011 is 30.83% ($942,705 - $652,025 = $290,680 gross profit; $290,680/$942,705 × 100 = 69.17%). This represents an unfavourable change when compared to the 32% gross profit ratio for the prior year.
Problem 6-8A (20 minutes)
|2011 | |Closing entries: | | |
|Dec. |31 | |Dividend Revenue |720 | |
| | | |Sales |963,000 | |
| | | | Income Summary | |963,720 |
| | | | To close temporary accounts with credit balances. | | |
| | | | | | |
| |31 | |Income Summary |871,760 | |
| | | | Sales Returns and Allowances | |5,715 |
| | | | Sales Discounts | |14,580 |
| | | | Cost of goods sold | |652,025 |
| | | | Sales Salaries Expense | |80,080 |
| | | | Rent Expense, Selling Space | |33,000 |
| | | | Store Supplies Expense | |1,620 |
| | | | Amortization Expense, Store Equipment | |8,910 |
| | | | Office Salaries Expense | |65,945 |
| | | | Rent Expense, Office Space | |3,000 |
| | | | Office Supplies Expense | |735 |
| | | | Insurance Expense | |3,390 |
| | | | Amortization Expense, Office Equipment | |2,760 |
| | | | To close temporary accounts with debit balances. | | |
| | | | | | |
| |31 | |Income Summary |91,960 | |
| | | | Celine Plymouth, Capital | |91,960 |
| | | | To close Income Summary to capital. | | |
| | | | | | |
| |31 | |Celine Plymouth, Capital |50,000 | |
| | | | Celine Plymouth, Withdrawals | |50,000 |
| | | | To close withdrawals to capital. | | |
Problem 6-9A (60 minutes)
1. Classified multiple-step income statement
Bell Servicing
Income Statement
For Year Ended December 31, 2011
|Sales | | | |$180,000 |
| Less: Sales discounts | | | | _2,000 |
| Net sales | | | |$178,000 |
|Cost of goods sold | | | | 74,800 |
|Gross profit from sales | | | |$103,200 |
|Operating expenses: | | | | |
| Selling expenses: | | | | |
| Sales salaries expense | |$20,000 | | |
| Advertising expense | |17,600 | | |
| Rent expense, selling space | |7,000 | | |
| Store supplies expense | |2,400 | | |
| Insurance expense, store | |2,000 | | |
| Amortization expense, store equipment | | 1,400 | | |
| Total selling expenses | | |$50,400 | |
| General and administrative expenses: | | | | |
| Office salaries expense | |$ 12,000 | | |
| Rent expense, office space | |3,000 | | |
| Amortization expense, office equipment | | 1,800 | | |
| Insurance expense, office | |1,600 | | |
| Office supplies expense | | 1,200 | | |
| Total general and administrative expenses | | | 19,600 | |
| Total operating expenses | | | | 70,000 |
|Net income | | | |$33,200 |
Problem 6-9A (concluded)
2. Multiple-step income statement
Bell Servicing
Income Statement
For Year Ended December 31, 2011
|Net sales | | |$178,000 | |
|Cost of goods sold | | | 74,800 | |
|Gross profit from sales | | |$103,200 | |
|Operating expenses: | | | | |
| Salaries expense |$32,000 | | | |
| Advertising expense | 17,600 | | | |
| Rent expense |10,000 | | | |
| Insurance expense |3,600 | | | |
| Supplies expense |3,600 | | | |
| Amortization expense, equipment | 3,200 | | | |
| Total operating expenses | | | 70,000 | | | | |
|Net income | | | $33,200 | | | | |
| | | | | | | | |
| | | | | | | | |
3. Single-step income statement
Bell Servicing
Income Statement
For Year Ended December 31, 2011
|Revenues: | | | | |
| Net sales | | |$178,000 | |
|Expenses: | | | | |
| Cost of goods sold |$74,800 | | | |
| Selling expenses |50,400 | | | |
| General and administrative expenses | 19,600 | | | |
| Total expenses | | | 144,800 | |
|Net income | | |$33,200 | |
Analysis component:
If I were a decision maker external to Bell Servicing, I would prefer the classified multi-step income statement format because it provides the greatest level of detail of the three income statement formats. As an external user, I would expect the single-step income statement format because it provides information but without giving details that might provide Bell’s competition with an edge. For example, total Selling Expenses is provided without disclosing how much Bell spends on advertising.
*Problem 6-10A (40 minutes)
|June |1 |Accounts Receivable – Avery & Wiest |7,000 | |
| | | Sales | |7,000 |
| | | To record sales; terms 2/5, n15, FOB | | |
| | |destination. | | |
| | | | | |
| |2 |Purchases |3,500 | |
| | | Accounts Payable – Angolac Suppliers | |3,500 |
| | | To record purchase of merchandise; | | |
| | |terms 1/10, n20, FOB shipping point. | | |
| | | | | |
| |4 |Purchases |14,500 | |
| | | Accounts Payable – Bastille Sales | |14,500 |
| | | To record purchase of merchandise; | | |
| | |terms 1/15, n45, FOB Bastille Sales. | | |
| | | | | |
| |5 |Accounts Receivable – Gelgar |11,000 | |
| | | Sales | |11,000 |
| | | To record sales; terms 2/5, n15, FOB | | |
| | |destination. | | |
| | | | | |
| |6 |Cash |6,860 | |
| | |Sales Discounts |140 | |
| | | Accounts Receivable – Avery & Wiest | |7,000 |
| | | To record collection within discount period; | | |
| | |$7,000 x 2% = $140 discount. | | |
| | | | | |
| |12 |Accounts Payable – Angolac Suppliers |3,500 | |
| | | Cash | |3465 |
| | | Purchase Discounts | |35 |
| | | To record payment within discount period; | | |
| | |$3,500 x 1% = $35 discount. | | |
| | | | | |
| |20 |Cash |11,000 | |
| | | Accounts Receivable – Gelgar | |11,000 |
| | | To record collection. | | |
| | | | | |
| |30 |Accounts Payable – Bastille Sales |14,500 | |
| | | Cash | |14,500 |
| | | To record payment. | | |
*Problem 6-11A (30 minutes)
|Oct. |1 | |Purchases |14,400 | | | |
| | | | Accounts Payable — Zeon Company | | |14,400 | |
| |2 | |Cash |1,500 | | | |
| | | | Sales | | |1,500 | |
| |7 | |Purchases |10,500 | | | |
| | | | Accounts Payable — Billings Company | | |10,500 | |
| |7 | |Transportation-In |450 | | | |
| | | | Cash | | |450 | |
| |8 | |Delivery Equipment |24,000 | | | |
| | | | Accounts Payable — Finlay Supplies | | |24,000 | |
| |12 | |Accounts Receivable — Comry Holdings |6,000 | | | |
| | | | Sales | | |6,000 | |
| |13 | |Accounts Payable — Billings Co. |1,500 | | | |
| | | | Purchases Returns and Allowances | | |1,500 | |
| |13 | |Office Supplies |480 | | | |
| | | | Accounts Payable — Staples | | |480 | |
| |15 | |Accounts Receivable — Tom Willis |4,200 | | | |
| | | | Sales | | |4,200 | |
| |15 | |Accounts Payable — Billings Co |9,000 | | | |
| | | | Purchases Discounts | | |180 | |
| | | | Cash | | |8,820 | |
| | | | $10,500 – $1,500 = $9,000; $9,000 × 2% = $180. | | | | |
| |16 | |Accounts Payable — Staples |120 | | | |
| | | | Office Supplies | | |120 | |
| |19 | |Sales Returns and Allowances |420 | | | |
| | | | Accounts Receivable — Tom Willis | | |420 | |
| |25 | |Cash |3,704 |.40 | | |
| | | |Sales Discounts |75 |.60 | | |
| | | | Accounts Receivable — Tom Willis | | |3,780 |.00 |
| | | | $4,200 – $420 = $3,780; $3,780 × 2% = $75.60. | | | | |
| |27 | |Cash |5,880 | | | |
| | | |Sales Discounts |120 | | | |
| | | | Accounts Receivable — Comry Holdings | | |6,000 | |
| | | | $6,000 × 2% = $120. | | | | |
| |31 | |Accounts Payable — Zeon Company |14,400 | | | |
| | | | Cash | | |14,400 | |
*Problem 6-12A (40 minutes)
|1. |Net sales: | |
| | Sales |$85,000 |
| | Less: Sales returns and allowances |7,500 |
| | Sales discounts | 1,125 |
| | Net sales |$76,375 |
|2. |Cost of goods purchased: | |
| | Purchases |$ 45,000 |
| | Less: Purchases returns and allowances |2,150 |
| | Purchases discounts |900 |
| | Transportation-in | 1,550 |
| | Cost of goods purchased |$ 43,500 |
|3. |Cost of goods sold: | |
| | Beginning inventory |$ 12,500 |
| | Cost of goods purchased (from 2) |43,500 |
| | Less: Ending inventory | 13,500 |
| | Cost of goods sold |$ 42,500 |
|4. |Multiple-step income statement: | |
MENDELSTEIN COMPANY
Income Statement
For Year Ended October 31, 2011
| |Net Sales | |$76,375 | |
| |Cost of goods sold | | 42,500 | |
| |Gross profit from sales | |$ 33,875 | |
| |Operating expenses: | | | |
| | Salaries expense |$22,000 | | |
| | Advertising expense | 9,000 | | |
| | Rent expense |6,250 | | |
| | Supplies expense | 1,950 | | |
| | Total operating expenses | | 39,200 | |
| |Loss from operations | |$ 5,325 | |
| |Other revenues and expenses: | | | |
| | Interest revenue | | 150 | |
| |Net loss | |$ 5,175 | |
*Problem 6-12A (concluded)
5. Single-step income statement:
MENDELSTEIN COMPANY
Income Statement
For Year Ended October 31, 2011
|Revenues: | | |
|Net sales | | $76,375 |
|Interest revenue | | 150 |
| Total revenues | |$76,525 |
|Expenses: | | |
|Cost of goods sold |$42,500 | |
|Selling expenses |29,500 | |
|General and administrative expenses | 9,700 | |
| Total expenses | | 81,700 |
|Net loss | |$ 5,175 |
*Problem 6-13A (30 minutes)
|2011 | |Closing entries: | | |
|Oct. |31 |Interest Revenue |150 | |
| | |Merchandise Inventory |13,500 | |
| | |Sales |85,000 | |
| | |Purchases Returns and Allowances |2,150 | |
| | |Purchases Discounts |900 | |
| | | Income Summary | |101,700 |
| | | To close temporary accounts with credit | | |
| | | balances and record the ending inventory. | | |
| |31 |Income Summary |106,875 | |
| | | Merchandise Inventory | |12,500 |
| | | Sales Returns and Allowances | |7,500 |
| | | Sales Discounts | |1,125 |
| | | Purchases | |45,000 |
| | | Transportation-In | |1,550 |
| | | Sales Salaries Expense | |14,000 |
| | | Rent Expense, Selling Space | |5,000 |
| | | Store Supplies Expense | |1,500 |
| | | Advertising Expense | |9,000 |
| | | Office Salaries Expense | |8,000 |
| | | Rent Expense, Office Space | |1,250 |
| | | Office Supplies Expense | |450 |
| | | To close temporary accounts with debit balances | | |
| | | and to remove the beginning inventory balance. | | |
| | | | |
| |31 |Joe Mendelstein, Capital |5,175 | |
| | | Income Summary | |5,175 |
| | | To close the Income Summary Account. | | |
| |31 |Joe Mendelstein, Capital |8,500 | |
| | | Joe Mendelstein, Withdrawals | |8,500 |
| | | To close the withdrawals account. | | |
*Problem 6-14A (60 minutes) Part 1
WOODSTOCK STORE
Work Sheet
For Year Ended December 31, 2011
| |Unadjusted | | |Balance Sheet and Statement |
| |Trial | | Income |of |
| | Balance |Adjustments | Statement |Owner’s Equity |
| |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |
|Cash |7,305 | | | | | |7,305 | |
|Merchandise inventory |47,000 | | | |47,000 |48,980 |48,980 | |
|Store supplies |1,715 | | |(a) 1,330 | | |385 | |
|Office supplies |645 | | |(b) 465 | | |180 | |
|Prepaid insurance |3,960 | | |(c) 880 | | |3,080 | |
|Store equipment |57,615 | | | | | |57,615 | |
|Accumulated amortization, store equipment | |8,750 | |(d) 3,500 | | | |12,250 |
|Office equipment |14,400 | | | | | |14,400 | |
|Accumulated amortization, office equipment | |9,000 | |(e) 3,600 | | | |12,600 |
|Accounts payable | |4,000 | | | | | |4,000 |
|Zen Woodstock, capital | |89,080 | | | | | |89,080 |
|Zen Woodstock, withdrawals |31,500 | | | | | |31,500 | |
|Rental revenue | |680 | | | |680 | | |
|Sales | |478,850 | | | |478,850 | | |
|Sales returns and allowances |2,915 | | | |2,915 | | | |
|Sales discounts |5,190 | | | |5,190 | | | |
|Purchases |331,315 | | | |331,315 | | | |
|Purchases returns and allowances | |1,845 | | | |1,845 | | |
|Purchases discounts | |4,725 | | | |4,725 | | |
|Transportation-in |2,810 | | | |2,810 | | | |
|Sales salaries expenses |34,710 | | | |34,710 | | | |
|Rent expense, selling space |24,000 | | | |24,000 | | | |
|Advertising expense |1,220 | | | |1,220 | | | |
|Store supplies expense | | |(a) 1,330 | |1,330 | | | |
|Amortization expense, store equipment | | |(d) 3,500 | |3,500 | | | |
|Office salaries expense |27,630 | | | |27,630 | | | |
|Rent expense, office space |3,000 | | | |3,000 | | | |
|Office supplies expense | | |(b) 465 | |465 | | | |
|Insurance expense | | |(c) 880 | |880 | | | |
|Amortization expense, office equipment | | |(e) 3,600 | | 3,600 | | | |
| | | | | | | | | |
| Totals |596,930 |596,930 | 9,775 | 9,775 |489,565 |535,080 |163,445 |117,930 |
|Net income | | | | | 45,515 | | | 45,515 |
| | | | | | | | | |
| Totals | | | | |535,080 |535,080 |163,445 |163,445 |
*Problem 6-14A (concluded) Part 2
|2011 |Closing entries: | |Page G10 |
|Dec. |31 |Rental Revenue |680 | |
| | |Merchandise Inventory |48,980 | |
| | |Sales |478,850 | |
| | |Purchase Returns and Allowances |1,845 | |
| | |Purchase Discounts |4,725 | |
| | | Income Summary | |535,080 |
| | | To close temporary credit balance accounts. | | |
| | | | | |
| |31 |Income Summary |489,565 | |
| | | Merchandise Inventory | |47,000 |
| | | Sales Returns and Allowances | |2,915 |
| | | Sales Discounts | |5,190 |
| | | Purchases | |331,315 |
| | | Transportation-In | |2,810 |
| | | Sales Salaries Expense | |34,710 |
| | | Rent Expense, Selling Space | |24,000 |
| | | Advertising Expense | |1,220 |
| | | Store Supplies Expense | |1,330 |
| | | Amortization Expense, Store Equipment | |3,500 |
| | | Office Salaries Expense | |27,630 |
| | | Rent Expense, Office Space | |3,000 |
| | | Office Supplies Expense | |465 |
| | | Insurance Expense | |880 |
| | | Amortization Expense, Office Equipment | |3,600 |
| | | To close temporary debit balance accounts. | | |
| | | | | |
| |31 |Income Summary |45,515 | |
| | | Zen Woodstock, Capital | |45,515 |
| | | To close the Income Summary account to capital. | | |
| | | | | |
| |31 |Zen Woodstock, Capital |31,500 | |
| | | Zen Woodstock, Withdrawals | |31,500 |
| | | To close withdrawals to capital. | | |
Part 3
| |Merchandise Inventory |Account No. 110 |
|Date |Explanation |PR |Debit |Credit |Balance |
|2010 | | | | | | |
|Dec. |31 |December 31, 2010 Balance | | | |47,000.00 |
|2011 | | | | | | |
|Dec. |31 |Closing-out December 31, 2010 Balance |G10 | |47,000.00 |0 |
| |31 |December 31, 2011 Balance |G10 |48,980.00 | |48,980.00 |
*Problem 6-15A (20 minutes)
Classified multiple-step income statement:
WOODSTOCK STORE
Income Statement
For Year Ended December 31, 2011
| |Sales | | | |$478,850 | |
| | Less: Sales returns and allowances | | |$2,915 | | |
| | Sales discounts | | | 5,190 | 8,105 | |
| |Net Sales | | | |$470,745 | |
| |Cost of goods sold: | | | | | |
| | Merchandise inventory, December 31, 2010 | | |$47,000 | | |
| | Purchases | |$331,315 | | | |
| | Less: Purchase returns and allowances |$1,845 | | | | |
| | Purchase discounts |4,725 | 6,570 | | | |
| | Net purchases | |$324,745 | | | |
| | Add: Transportation-in | | 2,810 | | | |
| | Cost of goods purchased | | |327,555 | | |
| | Goods available for sale | | |$374,555 | | |
| | Less: Merchandise inventory, December 31, 2011 | | | 48,980 | | |
| | Cost of goods sold | | | |325,575 | |
| |Gross profit from sales | | | |$145,170 | |
| |Operating expenses: | | | | | |
| | Selling expenses: | | | | | |
| | Sales salaries expense | |$34,710 | | | |
| | Rent expense, selling space | |24,000 | | | |
| | Amortization expense, store equipment | | 3,500 | | | |
| | Store supplies expense | |1,330 | | | |
| | Advertising expense | | 1,220 | | | |
| | Total selling expenses | | |$64,760 | | |
| | General and administrative expenses: | | | | | |
| | Office salaries expense | |$27,630 | | | |
| | Rent expense, office space | |3,000 | | | |
| | Insurance expense | |880 | | | |
| | Amortization expense, office equipment | | 3,600 | | | |
| | Office supplies expense | | 465 | | | |
| | Total general and administrative expenses | | | 35,575 | | |
| | Total operating expenses | | | | 100,335 | |
| |Income from operations | | | |$ 44,835 | |
| |Other revenues and expenses: | | | | | |
| | Rental revenue | | | | 680 | |
| |Net income | | | |$ 45,515 | |
*Problem 6-16A (40 minutes)
Aug. 1 Merchandise Inventory 1000
GST Receivable 60
Cash 1060
To record cash purchase;
$1,000 x 6% = $60 GST.
2 Merchandise Inventory 3,400
GST Receivable 204
Accounts Payable 3,604
To record credit purchase;
$3,400 x 6% = $204 GST.
5 Accounts Receivable 2,912
PST Payable 156
GST Payable 156
Sales 2,600
To record credit sale; $2,600 x 6% = $156 PST;
$2,600 x 6% = $156 GST.
5 Cost of Goods Sold 1,800
Merchandise Inventory 1,800
To record cost of sale.
12 Accounts Payable 3,604
Merchandise Inventory 68
Cash 3,536
To record payment within discount period;
$3,400* x 2% = $68.
15 Cash 2,886
Sales Discounts 26
Accounts Receivable 2,912
To record collection within discount period;
$2,600* x 1% = $26.
17 Merchandise Inventory 6,000
GST Receivable 360
Accounts Payable 6,360
To record credit purchase;
$6,000 x 6% = $360 GST.
*Problem 6-16A (concluded)
Aug. 19 Cash 7,840
PST Payable 420
GST Payable 420
Sales 7,000
To record cash sale; $7,000 x 6% = $420 PST;
$7,000 x 6% = $420 GST.
19 Cost of Goods Sold 5,800
Merchandise Inventory 5,800
To record cost of sale.
*Discounts are applied to the before tax value.
*Problem 6-17A
Aug. 1 Purchases 1,000
GST Receivable 60
Cash 1060
To record cash purchase; $1,000 x 6% = $60 GST.
2 Purchases 3,400
GST Receivable 204
Accounts Payable 3,604
To record credit purchase; $3,400 x 6% = $204 GST.
5 Accounts Receivable 2,912
PST Payable 156
GST Payable 156
Sales 2,600
To record credit sale; $2,600 x 6% = $156 PST;
$2,600 x 6% = $156 GST.
12 Accounts Payable 3,604
Purchase Discounts 68
Cash 3,536
To record payment within discount period;
$3,400* x 2% = $68.
15 Cash 2,886
Sales Discounts 26
Accounts Receivable 2,912
To record collection within discount period;
$2,600* x 1% = $26.
17 Purchases 6,000
GST Receivable 360
Accounts Payable 6,360
To record credit purchase; $6,000 x 6% = $360 GST.
19 Cash 7,910
PST Payable 420
GST Payable 420
Sales 7,000
To record cash sale; $7,000 x 6% = $420 PST;
$7,000 x 6% = $420 GST.
*Discounts are applied to the before tax value.
ALTERNATE PROBLEMS
Problem 6-1B (40 minutes)
Part 1
|Mar. |5 |Merchandise Inventory |25,000 | |
| | | Cash | |25,000 |
| | | To record purchase of merchandise for cash. | | |
| | | | | |
| |6 |Accounts Receivable – Tessier & Welsh |16,000 | |
| | | Sales | |16,000 |
| | | To record sales; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |6 |Cost of Goods Sold |12,800 | |
| | | Merchandise Inventory | |12,800 |
| | | To record cost of sales. | | |
| | | | | |
| |7 |Merchandise Inventory |32,000 | |
| | | Accounts Payable – Janz Company | |32,000 |
| | | To record purchase of merchandise; terms | | |
| | |1/10, N45, FOB shipping point. | | |
| | | | | |
| |8 |Merchandise Inventory |75 | |
| | | Cash | |75 |
| | | To record payment of shipping costs. | | |
| | | | | |
| |9 |Accounts Receivable – Parker Company |28,000 | |
| | | Sales | |28,000 |
| | | To record sales; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |9 |Cost of Goods Sold |23,000 | |
| | | Merchandise Inventory | |23,000 |
| | | To record cost of sales. | | |
| | | | | |
| |10 |Merchandise Inventory |7,000 | |
| | | Accounts Payable – Delton Suppliers | |7,000 |
| | | To record purchase; terms 2/10, n45, FOB | | |
| | |destination. | | |
| | | | | |
| |16 |Cash |15,680 | |
| | |Sales Discounts |320 | |
| | | Accounts Receivable – Tessier & Welsh | |16,000 |
| | | To record collection within discount period; | | |
| | |$16,000 x 2% = $320 discount. | | |
Problem 6-1B (concluded)
|Mar. |17 |Accounts Payable – Janz Company |32,000 | |
| | | Cash | |31,680 |
| | | Merchandise Inventory | |320 |
| | | To record payment within discount period; | | |
| | |$32,000 x 1% = $320 discount. | | |
| | | | | |
| |30 |Accounts Payable – Delton Suppliers |7,000 | |
| | | Cash | |7,000 |
| | | To record payment. | | |
| | | | | |
| |31 |Cash |28,000 | |
| | | Accounts Receivable – Parker Company | |28,000 |
| | | To record collection. | | |
Part 2
a. Net sales = $43,680 ($16,000 + $28,000 – $320)
b. Cost of goods sold = $35,800 ($12,800 + $23,000)
c. Gross profit from sales = $7,880 ($43,680 - $35,800)
Problem 6-2B (40 minutes)
May 2 Merchandise Inventory 9,000
Accounts Payable—Mobley Co. 9,000
Purchased goods on credit.
4 Accounts Receivable—Cornerstone Co. 1,200
Sales 1,200
Sold goods on credit.
4 Cost of Goods Sold. 750
Merchandise Inventory 750
To record the cost of the May 4 sale.
4 Merchandise Inventory 150
Cash 150
Paid freight on incoming goods.
9 Cash 2,400
Sales 2,400
Sold goods for cash.
9 Cost of Goods Sold. 1,800
Merchandise Inventory 1,800
To record the cost of the May 9 sale.
10 Merchandise Inventory 3,450
Accounts Payable—Richter Co. 3,450
Purchased goods on credit.
12 Accounts Payable—Richter Co. 300
Merchandise Inventory 300
Received credit memo.
14 Cash 1,176
Sales Discounts 24
Accounts Receivable—Cornerstone Co. 1,200
Collected receivable within discount period;
1,200 x 2% = 24.
15 Cash 500
Office Equipment 500
To record sale of office equipment at cost.
Problem 6-2B (continued)
May 17 Accounts Payable—Mobley Co. 9,000
Merchandise Inventory 90
Cash 8,910
Paid payable within the discount period;
1% × $9,000 = $90.
18 Cleaning Supplies 820
Accounts Payable–A & Z Suppliers 820
Purchased supplies on credit.
20 Accounts Receivable—Harrill Co. 1,875
Sales 1,875
Sold goods on credit.
20 Cost of Goods Sold. 1,350
Merchandise Inventory 1,350
To record the cost of the May 20 sale.
22 Sales Returns and Allowances 300
Accounts Receivable—Harrill Co. 300
Issued credit memo.
23 Sales 75
Accounts Receivable—Harrill Co. 75
Received debit memo for error.
25 Accounts Payable—Richter Co. 3,150
Merchandise Inventory 63
Cash 3,087
Paid within the discount period; 3,450 – 300 = 3,150; 2% × $3,150 = 63.
31 Cash 1,470
Sales Discounts 30
Accounts Receivable—Harrill Co. 1,500
Collected receivable within discount
period; 1,875 – 300 – 75 = 1,500; 1,500 x 2% = 30.
31 Accounts Receivable—Cornerstone Co. 7,500
Sales 7,500
Sold goods on credit.
31 Cost of Goods Sold. 4,800
Merchandise Inventory 4,800
To record the cost of the May 31 sale.
Problem 6-2B (concluded)
Analysis component:
If the Richter Co. invoice is not paid on May 25, the cost of the lost discount would be $40.05*. By itself, the $40.05 does not appear to be a significant amount. However, if you multiply this by the number of lost discounts it could be a large sum that does impact net income. If a net savings results from borrowing to enable paying within the discount period, the company should borrow. Otherwise, payment should be made on the last day of the payment period.
*Calculations:
Amount borrowed to pay within the discount period $3,087.00
Annual rate of interest _ × 6%
Interest per year $ 185.22
Interest per day ($185.22/365) $ 0.51
Discount $ 63.00
Interest that would be paid on the 45-day* loan (45 × $0.51) (22.95)
Net savings from borrowing to pay within
the discount period $ 40.05
*60 days in credit period – 15 days in discount period = 45 days.
Problem 6-3B (40 minutes)
July 3 Merchandise Inventory 15,000
Accounts Payable—CMP Corp. 15,000
Purchased goods on credit.
4 Accounts Payable—CMP Corp. 250
Cash 250
Paid freight for supplier.
7 Accounts Receivable—Harbison Co. 10,500
Sales 10,500
Sold goods on credit.
7 Cost of Goods Sold. 7,500
Merchandise Inventory 7,500
To record the cost of the July 7 sale.
10 Merchandise Inventory 13,250
Accounts Payable—Cimarron Corporation 13,250
Purchased goods on credit.
11 Delivery Expense or Freight-Out 300
Cash 300
Paid shipping charges on July 7 sale.
12 Sales Returns and Allowances 1,750
Accounts Receivable—Harbison Co. 1,750
Customer returned merchandise.
12 Merchandise Inventory 1,250
Cost of Goods Sold 1,250
Returned goods to inventory.
14 Accounts Payable—Cimarron Corporation 2,050
Merchandise Inventory 2,050
Received a credit memorandum for
July 10 purchase.
17 Cash 8,575
Sales Discounts 175
Accounts Receivable—Harbison Co. 8,750
Collected receivable within
discount period; 10,500 – 1,750 = 8,750;
8,750 x 2% = 175.
Problem 6-3B (concluded)
July 18 Cash 15,000
Land 15,000
Sold land at cost.
19 Van 18,000
Cash 5,000
Notes Payable 13,000
To record purchase of van.
20 Accounts Payable—Cimarron Corporation 11,200
Merchandise Inventory 112
Cash 11,088
Paid payable within the discount period;
$13,250 – 2,050 = $11,200; 11,200 x 1% = 112.
21 Accounts Receivable—Hess 9,000
Sales 9,000
Sold goods on credit.
21 Cost of Goods Sold. 6,250
Merchandise Inventory 6,250
To record the cost of the July 21 sale.
24 Sales Returns and Allowances 1,500
Accounts Receivable—Hess 1,500
Issued credit memo.
31 Cash 7,425
Sales Discounts 75
Accounts Receivable—Hess 7,500
Collected receivable within discount
period; 9,000 – 1,500 = 7,500; 7,500 x 1% = 75.
31 Accounts Payable—CMP Corp. 14,750
Cash 14,750
Paid payable; 15,000 – 250 = 14,750.
Analysis component:
The alternative to granting a credit memorandum would be to have the customer return the unsatisfactory merchandise and reissue the order. An advantage of having the customer return the merchandise and reissuing the order is that the customer will have the merchandise that meets their original specifications. A disadvantage of the alternative is that the cost and related efforts may be greater than issuing a credit memo.
Problem 6-4B (60 minutes) Part 1
RESOURCE PRODUCTS COMPANY
Work Sheet
For Year Ended October 31, 2011
| | | | | |Balance Sheet and Statement |
| |Unadjusted Trial Balance|Adjusting Entries |Adjusted Trial Balance |Income |of |
| | | | |Statement |Owner’s Equity |
|Account |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |
|Cash |6,400 | | | |6,400 | | | |6,400 | |
|Merchandise inventory |23,000 | | |(d) 800 |22,200 | | | |22,200 | |
|Store supplies |9,450 | | |(a) 6,150 |3,300 | | | |3,300 | |
|Prepaid insurance |4,750 | | |(b) 3,000 |1,750 | | | |1,750 | |
|Store equipment |83,800 | | | |83,800 | | | |83,800 | |
|Accumulated amortization, store | | | | | | | | | | |
| equipment | |30,000 | |(c) 3,000 | |33,000 | | | |33,000 |
|Accounts payable | |16,000 | | | |16,000 | | | |16,000 |
|Jan Smithers, capital | |80,400 | | | |80,400 | | | |80,400 |
|Jan Smithers, withdrawals |6,000 | | | |6,000 | | | |6,000 | |
|Sales | |198,000 | | | |198,000 | |198,000 | | |
|Sales discounts |2,000 | | | |2,000 | |2,000 | | | |
|Sales returns and allowances |4,000 | | | |4,000 | |4,000 | | | |
|Cost of goods sold |74,800 | |(d) 800 | |75,600 | |75,600 | | | |
|Amortization expense, store equipment | | |(c) 3,000 | |3,000 | |3,000 | | | |
|Salaries expense |62,000 | | | |62,000 | |62,000 | | | |
|Interest expense |400 | | | |400 | |400 | | | |
|Insurance expense | | |(b) 3,000 | |3,000 | |3,000 | | | |
|Rent expense |28,000 | | | |28,000 | |28,000 | | | |
|Store supplies expense | | |(a) 6,150 | |6,150 | |6,150 | | | |
|Advertising expense |19,800 | | | |19,800 | |19,800 | | | |
| Totals |324,400 |324,400 |12,950 |12,950 |327,400 |327,400 |203,950 |198,000 |123,450 |129,400 |
|Net loss | | | | | | | |5,950 |5,950 | |
| Totals | | | | | | |203,950 |203,950 |129,400 |129,400 |
Problem 6-4B (concluded)
Part 2 Multiple-step income statement:
RESOURCE PRODUCTS COMPANY
Income Statement
For Year Ended October 31, 2011
Net sales $192,000
Cost of goods sold 75,600
Gross profit from sales $116,400
Operating expenses:
Salaries expense $62,000
Rent expense 28,000
Advertising expense 19,800
Store supplies expense 6,150
Insurance expense 3,000
Amortization expense, store equipment 3,000
Total operating expenses 121,950
Loss from operations $ 5,550
Other revenues and expenses:
Interest expense 400
Net loss $ 5,950
Analysis component:
Interest Expense is shown under Other revenues and expenses because it is not a day-to-day operating activity for Resource Products Company. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses.
Problem 6-5B (40 minutes)
1. Classified, multiple-step income statement:
REYNA COMPANY
Income Statement
For Year Ended May 31, 2011
Sales $318,000
Less: Sales discounts $ 4,875
Sales returns and allowances 21,000 25,875
Net sales $292,125
Cost of goods sold 123,900
Gross profit from sales $168,225
Operating expenses:
Selling expenses:
Sales salaries expense $ 43,500
Advertising expense 27,000
Rent expense, selling space 15,000
Store supplies expense 3,750
Total selling expenses $ 89,250
General and administrative expenses:
Office salaries expense $ 39,750
Rent expense, office space 3,900
Office supplies expense 1,200
Total general and administrative expenses 44,850
Total operating expenses 134,100
Net income $ 34,125
2. Single-step income statement:
REYNA COMPANY
Income Statement
For Year Ended May 31, 2011
Net sales $292,125
Expenses:
Cost of goods sold $123,900
Selling expenses 89,250
General and administrative expenses 44,850
Total expenses 258,000
Net income $ 34,125
Problem 6-6B (30 minutes)
2011 Closing entries:
May 31 Sales 318,000
Income Summary 318,000
To close temporary account with credit
balance.
31 Income Summary 283,875
Sales Discounts 4,875
Sales Returns and Allowances 21,000
Cost of Goods Sold 123,900
Sales Salaries Expense 43,500
Rent Expense, Selling Space 15,000
Store Supplies Expense 3,750
Advertising Expense 27,000
Office Salaries Expense 39,750
Rent Expense, Office Space 3,900
Office Supplies Expense 1,200
To close temporary accounts with debit
balances.
31 Income Summary 34,125
Paul Reyna, capital 34,125
To close the Income Summary account.
31 Paul Reyna, Capital 24,000
Paul Reyna, Withdrawals 24,000
To close the withdrawals account.
Problem 6-7B (50 minutes)
1. Classified, multiple-step income statement:
BANDARA SALES
Income Statement
For Year Ended December 31, 2011
|Sales | | | |$946,300 |
| Less: Sales returns and allowances | | |$ 7,345 | |
| Sales discounts | | | 1,390 | 8,735 |
| Net sales | | | |$937,565 |
|Cost of goods sold | | | | 649,820 |
|Gross profit from sales | | | |$287,745 |
|Operating expenses: | | | | |
| Selling expenses: | | | | |
| Sales salaries expense |$149,485 |1 | | |
| Rent expense, selling space |39,808 |2 | | |
| Amortization expense, store equipment | 16,020 | | | |
| Store supplies expense | 4,200 |3 | | |
| Total selling expenses | | |$209,513 | |
| General and administrative expenses: | | | | |
| Office salaries expense |$ 64,065 |4 | | |
| Rent expense, office space |9,952 |5 | | |
| Office supplies expense |7,800 |6 | | |
| Insurance expense |6,200 | | | |
| Amortization expense, office equipment | 3,450 | | | |
| Total general and administrative expenses | | | 91,467 | |
| Total operating expenses | | | | 300,980 |
|Net loss | | | |$ 13,235 |
1. 70% × 213,550
2. 80% × 49,760
3. 35% × 12,000
4. 30% × 213,550
5. 20% × 49,760
6. 65% × 12,000
Problem 6-7B (concluded)
2. Single-step income statement:
BANDARA SALES
Income Statement
For Year Ended December 31, 2011
|Revenues: | | |
| Net sales | |$937,565 |
|Expenses: | | |
| Cost of goods sold |$649,820 | |
| Selling expenses |209,513 | |
| General and administrative expenses | 91,467 | 950,800 |
|Net loss | |$ 13,235 |
Analysis component:
The gross profit ratio for Bandara Sales’ year ended December 31, 2011 is 30.69% ($287,745/$937,565 × 100 = 30.69%). This represents a favourable change when compared to the 28% gross profit ratio for the prior year.
Problem 6-8B
|2011 |Closing entries: | | |
|Dec. |31 |Sales |946,300 | |
| | | Income Summary | |946,300 |
| | | To close temporary credit balance accounts. | | |
| | | | | |
| |31 |Income Summary |959,535 | |
| | | Sales Returns and Allowances | |7,345 |
| | | Sales Discounts | |1,390 |
| | | Cost of goods sold | |649,820 |
| | | Salaries Expense | |213,550 |
| | | Rent Expense | |49,760 |
| | | Supplies Expense | |12,000 |
| | | Amortization Expense, Store Equipment | |16,020 |
| | | Insurance Expense | |6,200 |
| | | Amortization Expense, Office Equipment | |3,450 |
| | | To close temporary debit balance accounts. | | |
| | | | | |
| |31 |Diego Amara, Capital |13,235 | |
| | | Income Summary | |13,235 |
| | | To close the Income Summary account to | | |
| | | capital. | | |
| | | | | |
| |31 |Diego Amara, Capital |102,500 | |
| | | Diego Amara, Withdrawals | |102,500 |
| | | To close withdrawals to capital. | | |
Problem 6-9B (60 minutes)
1. Classified, multiple-step income statement:
TINKER SALES
Income Statement
For Year Ended July 31, 2011
|Sales | | | |$78,500 |
| Less: Sales discounts | | | | 1,000 |
| Net sales | | | |$77,500 |
|Cost of goods sold | | | |47,400 |
|Gross profit from sales | | | |$30,100 |
|Operating expenses: | | | | |
| Selling expenses: | | | | |
| Sales salaries expense |$18,000 | | | |
| Advertising expense |9,900 | | | |
| Rent expense, selling space |7,000 | | | |
| Store supplies expense |1,600 | | | |
| Amortization expense, store equipment |1,000 | | | |
| Insurance expense, store | 750 | | | |
| Total selling expenses | | |$38,250 | |
| General and administrative expenses: | | | | |
| Office salaries expense | $ 5,000 | | | |
| Rent expense, office space |5,000 | | | |
| Amortization expense, office equipment |2,500 | | | |
| Office supplies expense |1,200 | | | |
| Insurance expense, office | 250 | | | |
| Total general and administrative expenses | | | 13,950 | |
| Total operating expenses | | | |52,200 |
|Net loss | | | |$22,100 |
Problem 6-9B (concluded)
2. Multiple-step income statement:
TINKER SALES
Income Statement
For Year Ended July 31, 2011
Net sales $77,500
Cost of goods sold 47,400
Gross profit from sales $30,100
Operating expenses:
Salaries expense $23,000
Rent expense 12,000
Advertising expense 9,900
Supplies expense 2,800
Amortization expense, equipment 3,500
Insurance expense 1,000
Total operating expenses 52,200
Net loss $ 22,100
3. Single-step income statement:
TINKER SALES
Income Statement
For Year Ended July 31, 2011
Revenues:
Net sales $77,500
Expenses:
Cost of goods sold $47,400
Selling expenses 38,250
General and administrative expenses 13,950
Total expenses 99,600
Net loss $ 22,100
*Problem 6-10B (40 minutes)
|Mar. |5 |Purchases |25,000 | |
| | | Cash | |25,000 |
| | | To record purchase of merchandise for cash. | | |
| | | | | |
| |6 |Accounts Receivable – Tessier & Welsh |16,000 | |
| | | Sales | |16,000 |
| | | To record sales; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |7 |Purchases |32,000 | |
| | | Accounts Payable – Janz Company | |32,000 |
| | | To record purchase of merchandise; | | |
| | |terms 1/10, n45, FOB shipping point. | | |
| | | | | |
| |8 |Transportation-in or Freight-In |75 | |
| | | Cash | |75 |
| | | To record payment of shipping costs. | | |
| | | | | |
| |9 |Accounts Receivable – Parker Company |28,000 | |
| | | Sales | |28,000 |
| | | To record sales; terms 2/10, n30, FOB destination. | | |
| | | | | |
| |10 |Purchases |7,000 | |
| | | Accounts Payable – Delton Suppliers | |7,000 |
| | | To record purchase; terms 2/10, n45, FOB | | |
| | |destination. | | |
| | | | | |
| |16 |Cash |15,680 | |
| | |Sales Discounts |320 | |
| | | Accounts Receivable – Tessier & Welsh | |16,000 |
| | | To record collection within discount period; | | |
| | |$16,000 x 2% = $320 discount. | | |
| | | | | |
| |17 |Accounts Payable – Janz Company |32,000 | |
| | | Cash | |31,680 |
| | | Purchase Discounts | |320 |
| | | To record payment within discount period; | | |
| | |$32,000 x 1% = $320 discount. | | |
| | | | | |
*Problem 6-10B (concluded)
|Mar. |30 |Accounts Payable – Delton Suppliers |7,000 | |
| | | Cash | |7,000 |
| | | To record payment. | | |
| | | | | |
| |31 |Cash |28,000 | |
| | | Accounts Receivable – Parker Company | |28,000 |
| | | To record collection. | | |
*Problem 6-11B (30 minutes)
|Date |Account |Debit |Credit |
|Mar. 1 |Purchases |20,000 | |
| | Accounts Payable — Zender Holdings | |20,000 |
| | Purchased merchandise terms 1/10, n/15. | | |
| | | | |
|2 |Cash |1,800 | |
| | Sales | |1,800 |
| | Sold merchandise for cash. | | |
| | | | |
|7 |Purchases |16,000 | |
| | Accounts Payable — Red River Co. | |16,000 |
| | Purchased merchandise terms 2/10, n/30. | | |
| | | | |
|8 |Transportation-in or Freight-In |350 | |
| | Accounts Payable — Dan’s Shipping | |350 |
| | Paid freight charges on purchase of March 7. | | |
| | | | |
|12 |Accounts Receivable — Bev Dole |9,000 | |
| | Sales | |9,000 |
| | Sold merchandise on credit, terms 2/10, n/45. | | |
| | | | |
|13 |Accounts Payable — Red River Co. |500 | |
| | Purchase Returns and Allowances | |500 |
| | Received credit memo re purchase of March 7. | | |
| | | | |
|14 |Office Furniture |1,600 | |
| | Accounts Payable — Wilson Supplies | |1,600 |
| | Purchased office furniture on credit. | | |
| | | | |
|15 |Accounts Receivable — Ted Smith |17,000 | |
| | Sales | |17,000 |
| | Sold merchandise terms 2/10, n/45. | | |
*Problem 6-11B (concluded)
|Mar. 16 |Accounts Payable — Red River Co. |15,500 | |
| | Purchase Discounts | |310 |
| | Cash | |15,190 |
| | Paid for merchandise purchased on March 7; | | |
| | 16,000 – 500 = 15,500; 15,500 – 2% = 15,190. | | |
| | | | |
|17 |Sales Returns and Allowances |1,000 | |
| | Accounts Receivable — Ted Smith | |1,000 |
| | Issued credit memo to customer of March 15. | | |
| | | | |
|19 |Accounts Payable — Wilson Supplies |750 | |
| | Office Furniture | |750 |
| | To record memorandum regarding damaged | | |
| | furniture purchased on March 14. | | |
| | | | |
|24 |Cash |15,680 | |
| |Sales Discounts |320 | |
| | Accounts Receivable — Ted Smith | |16,000 |
| | To record receipt of payment regarding March 15 | | |
| | sale less return and discount; | | |
| |17,000 – 1,000 = 16,000; 16,000 x 2% = 320. | | |
| | | | |
|27 |Cash |9,000 | |
| | Accounts Receivable — Bev Dole | |9,000 |
| | Received payment from customer regarding | | |
| | March 12 sale. | | |
| | | | |
|31 |Accounts Payable — Zender Holdings |20,000 | |
| | Cash | |20,000 |
| | Paid for merchandise purchased on March 1. | | |
*Problem 6-12B (40 minutes)
|1. |Net sales: | |
| | Sales |$540,000 |
| | Less: Sales returns and allowances | 57,000 |
| | Sales discounts | 4,700 |
| | Net sales |$478,300 |
|2. |Cost of goods purchased: | |
| | Purchases |$ 240,000 |
| | Less: Purchases returns and allowances |8,100 |
| | Purchases discounts |2,300 |
| | Transportation-in | 9,700 |
| | Cost of goods purchased |$ 239,300 |
|3. |Cost of goods sold: | |
| | Beginning inventory |$ 50,000 |
| | Cost of goods purchased (from 2) |239,300 |
| | Less: Ending inventory | 32,000 |
| | Cost of goods sold |$ 257,300 |
|4. |Multiple-step income statement: | |
GARNEAU COMPANY
Income Statement
For Year Ended November 30, 2011
| |Net Sales | |$478,300 | |
| |Cost of goods sold | | 257,300 | |
| |Gross profit from sales | |$221,000 | |
| |Operating expenses: | | | |
| | Salaries expense |$120,000 | | |
| | Rent expense |72,000 | | |
| | Advertising expense | 6,000 | | |
| | Supplies expense | 10,000 | | |
| | Total operating expenses | | 208,000 | |
| |Income from operations | |$ 13,000 | |
| |Other revenues and expenses | | | |
| | Interest expense | | 700 | |
| |Net income | |$ 12,300 | |
*Problem 6-12B (concluded)
5. Single-step income statement:
GARNEAU COMPANY
Income Statement
For Year Ended November 30, 2011
|Revenues: | | |
| Net sales | |$478,300 |
|Expenses: | | |
| Cost of goods sold |$257,300 | |
| Selling expenses |131,900 | |
| General and administrative expenses | 76,100 | |
| Interest expense | 700 | |
| Total expenses | | 466,000 |
|Net income | |$ 12,300 |
*Problem 6-13B (30 minutes)
|2011 |Closing entries: | | |
|Nov. |30 |Merchandise Inventory |32,000 | |
| | |Sales |540,000 | |
| | |Purchases Returns and Allowances |8,100 | |
| | |Purchases Discounts |2,300 | |
| | | Income Summary | |582,400 |
| | | To close temporary accounts with credit balances | | |
| | | and record the ending inventory. | | |
| |30 |Income Summary |570,100 | |
| | | Merchandise Inventory | |50,000 |
| | | Sales Returns and Allowances | |57,000 |
| | | Sales Discounts | |4,700 |
| | | Purchases | |240,000 |
| | | Transportation-In | |9,700 |
| | | Salaries Expense | |120,000 |
| | | Rent Expense | |72,000 |
| | | Supplies Expense | |10,000 |
| | | Advertising Expense | |6,000 |
| | | Interest Expense | |700 |
| | | To close temporary accounts with debit balances and | | |
| | | to remove the beginning inventory balance. | | |
| |30 |Income Summary |12,300 | |
| | | Teresa Garneau, Capital | |12,300 |
| | | To close the Income Summary Account. | | |
| |30 |Teresa Garneau, Capital |20,000 | |
| | | Teresa Garneau, Withdrawals | |20,000 |
| | | To close the withdrawals account. | | |
*Problem 6-14B (60 minutes) Part 1
THE DOWNTOWN STORE
Work Sheet
For Year Ended March 31, 2011
| |Unadjusted | | |Balance Sheet and Statement of |
| |Trial | | Income |Owner’s Equity |
| | Balance |Adjustments | Statement | |
| |Debit |Credit |Debit |Credit |Debit |Credit |Debit |Credit |
|Cash |14,000 | | | | | |14,000 | |
|Merchandise inventory |96,000 | | | |96,000 |18,000 |18,000 | |
|Supplies |1,200 | | |(a) 300 | | |900 | |
|Prepaid rent |14,000 | | | (b) 10,000 | | |4,000 | |
|Store equipment |120,000 | | | | | |120,000 | |
|Accumulated amortization, store equipment | |28,000 | |(c) 3,200 | | | |31,200 |
|Office equipment |46,000 | | | | | |46,000 | |
|Accumulated amortization, office equipment | |13,000 | |(d) 6,500 | | | |19,500 |
|Accounts payable | |32,000 | | | | | |32,000 |
|Lucy Baker, capital | |269,200 | | | | | |269,200 |
|Lucy Baker, withdrawals |68,000 | | | | | |68,000 | |
|Sales | |998,000 | | | |998,000 | | |
|Sales returns and allowances |23,000 | | | |23,000 | | | |
|Sales discounts |12,000 | | | |12,000 | | | |
|Purchases |692,000 | | | |692,000 | | | |
|Purchases returns and allowances | |5,700 | | | |5,700 | | |
|Purchases discounts | |14,300 | | | |14,300 | | |
|Transportation-in |32,000 | | | |32,000 | | | |
|Salaries expenses (60% selling; 40% office) |120,000 | | | |120,000 | | | |
|Rent expense (80% selling; 20% office) |91,000 | |(b) 10,000 | |101,000 | | | |
|Advertising expense |14,000 | | | |14,000 | | | |
|Supplies expense (30% selling; 70% office) |17,000 | |(a) 300 | |17,300 | | | |
|Amortization expense, store equipment |0 | |(c) 3,200 | |3,200 | | | |
|Amortization expense, office equipment | | |(d) 6,500 | | 6,500 | | | |
| | 0 | | | | | | | |
| Totals |1,360,200 |1,360,200 | 20,000 | 20,000 |1,117,000 |1,036,000 |270,900 |351,900 |
|Net loss | | | | | | 81,000 | 81,000 | |
| | | | | | | | | |
| Totals | | | | |1,117,000 |1,107,000 |351,900 |351,900 |
*Problem 6-14B (concluded) Part 2
|2011 |Closing entries: | |Page G14 |
|Mar. |31 |Merchandise Inventory |18,000 | |
| | |Sales |998,000 | |
| | |Purchase Returns and Allowances |5,700 | |
| | |Purchase Discounts |14,300 | |
| | | Income Summary | |1,036,000 |
| | | To close temporary credit balance accounts. | | |
| | | | | |
| |31 |Income Summary |1,117,000 | |
| | | Merchandise Inventory | |96,000 |
| | | Sales Returns and Allowances | |23,000 |
| | | Sales Discounts | |12,000 |
| | | Purchases | |692,000 |
| | | Transportation-In | |32,000 |
| | | Salaries Expense | |120,000 |
| | | Rent Expense | |101,000 |
| | | Advertising Expense | |14,000 |
| | | Supplies Expense | |17,300 |
| | | Amortization Expense, Store Equipment | |3,200 |
| | | Amortization Expense, Office Equipment | |6,500 |
| | | To close temporary debit balance accounts. | | |
| | | | | |
| |31 |Lucy Baker, Capital |81,000 | |
| | | Income Summary | |81,000 |
| | | To close the Income Summary account to capital. | | |
| | | | | |
| |31 |Lucy Baker, Capital |68,000 | |
| | | Lucy Baker, Withdrawals | |68,000 |
| | | To close withdrawals to capital. | | |
Part 3 Merchandise Inventory Account No. 110
|Date |Explanation |PR |Debit |Credit |Balance |
|2010 | | | | | | |
|Mar. 31 | |March 31, 2010 balance (brought forward) | | | |96,000.00 |
| | | | | | | |
|2011 | | | | | | |
|Mar. 31 | |Close out March 31, 2010 balance |G14 | |96,000.00 |0 |
|31 | |March 31, 2011 balance |G14 |18,000.00 | |18,000.00 |
*Problem 6-15B (40 minutes)
Classified multiple-step income statement:
THE DOWNTOWN STORE
Income Statement
For Year Ended March 31, 2011
| |Sales | | | |$998,000 | |
| | Less: Sales returns and allowances | | |$23,000 | | |
| | Sales discounts | | | 12,000 | 35,000 | |
| |Net Sales | | | |$963,000 | |
| |Cost of goods sold: | | | | | |
| | Merchandise inventory, March 31, 2010 | | |$96,000 | | |
| | Purchases | |$692,000 | | | |
| | Less: Purchase returns and allowances |$ 5,700 | | | | |
| | Purchase discounts |14,300 | 20,000 | | | |
| | Net purchases | |$672,000 | | | |
| | Add: Transportation-in | | 32,000 | | | |
| | Cost of goods purchased | | |704,000 | | |
| | Goods available for sale | | |$800,000 | | |
| | Less: Merchandise inventory, March 31, 2011 | | | 18,000 | | |
| | Cost of goods sold | | | |782,000 | |
| |Gross profit from sales | | | |$181,000 | |
| |Operating expenses: | | | | | |
| | Selling expenses: | | | | | |
| | Rent expense, selling space1 | |$80,800 | | | |
| | Sales salaries expense2 | |72,000 | | | |
| | Advertising expense | |14,000 | | | |
| | Store supplies expense3 | |5,190 | | | |
| | Amortization expense, store equipment | | 3,200 | | | |
| | Total selling expenses | | |$175,190 | | |
| | General and administrative expenses: | | | | | |
| | Office salaries expense4 | |$48,000 | | | |
| | Rent expense, office space5 | |20,200 | | | |
| | Office supplies expense6 | |12,110 | | | |
| | Amortization expense, office equipment | | 6,500 | | | |
| | Total general and administrative expenses | | | 86,810 | | |
| | Total operating expenses | | | | 262,000 | |
| |Net loss | | | |$ 81,000 | |
Calculations:
1. 101,000 X 80% 4. 120,000 X 40%
2. 120,000 x 60% 5. 101,000 x 20%
3. 17,300 X 30% 6. 17,300 X 70%
*Problem 6-16B (40 minutes)
Sept. 2 Cash 7,980
PST Payable 560
GST Payable 420
Sales 7,000
To record cash sale; $7,000 x 8% = $560 PST;
$7,000 x 6% = $420 GST.
2 Cost of Goods Sold 5,800
Merchandise Inventory 5,800
To record cost of sale.
3 Merchandise Inventory 8,000
GST Receivable 480
Cash 8,480
To record cash purchase; $8,000 x 6% = $480 GST.
7 Merchandise Inventory 5,000
GST Receivable 300
Accounts Payable 5,300
To record credit purchase; $5,000 x 6% = $300 GST.
8 Accounts Receivable 17,100
PST Payable 1,200
GST Payable 900
Sales 15,000
To record credit sale; $15,000 x 8% = $1,200 PST;
$15,000 x 6% = $900 GST.
8 Cost of Goods Sold 13,200
Merchandise Inventory 13,200
To record cost of sale.
17 Accounts Payable 5,300
Merchandise Inventory 50
Cash 5,250
To record payment within discount period;
$5,000* x 1% = $50.
18 Cash 16,800
Sales Discounts 300
Accounts Receivable 17,100
To record collection within discount period;
$15,000* x 2% = $300.
*The discount applies only to the amount before tax.
*Problem 6-17B (40 minutes)
Sept. 2 Cash 7,980
PST Payable 560
GST Payable 420
Sales 7,000
To record cash sale; $7,000 x 8% = $560 PST;
$7,000 x 6% = $420 GST.
3 Purchases 8,000
GST Receivable 480
Cash 8,480
To record cash purchase; $8,000 x 6% = $480 GST.
7 Purchases 5,000
GST Receivable 300
Accounts Payable 5,300
To record credit purchase; $5,000 x 6% = $300 GST.
8 Accounts Receivable 17,100
PST Payable 1,200
GST Payable 900
Sales 15,000
To record credit sale; $15,000 x 8% = $1,200 PST;
$15,000 x 6% = $900 GST.
17 Accounts Payable 5,300
Purchase Discounts 50
Cash 5,250
To record payment within discount period;
$5,000* x 1% = $50.
18 Cash 16,800
Sales Discounts 300
Accounts Receivable 17,100
To record collection within discount period;
$15,000* x 2% = $300.
*The discount applies only to the amount before tax.
ANALYTICAL AND REVIEW PROBLEMS
A&R PROBLEM 6-1 – PERPETUAL
Multiple-step income statement:
DEMO SALES
Income Statement
For Month Ended July 31, 2011
Net sales $559,340*
Cost of goods sold 394,000
Gross profit from sales $165,340
Operating expenses:
Advertising expense $14,000
Rent expense 5,000
Amortization expense, equipment 3,000
Insurance expense 2,500
Interest expense 1,700
Total operating expenses 26,200
Net income $139,140
*$562,140 - $2,800 = $559,340
Ethics Challenge
1. Some students may feel that Claire has devised a clever way to beat the system. She appears to be succeeding in getting something for free. Other students will feel that Claire is definitely abusing the system and that her ethical code needs a major overhaul. Their instructor may wish to point out that customer abuses such as Claire’s usually result in stores adopting stringent return policies that will impact all customers who have legitimate needs to return unused products. At some point Claire will probably suffer discomfort when questioned about items that are returned in less than perfect condition. Also if store managers suspect Claire’s behaviour over time they may no longer allow her to shop at their store. If Claire is banned from the store she will likely suffer humiliation for herself and her family. Probably Claire’s parents do not know of her scheme and she may suffer additional consequences once they learn of her practices.
2. The store must account for sales returns using a contra-revenue account called Sales Returns and Allowances. A dress returned with a sales bill of $100 would be accounted for as follows:
Sales Returns and Allowances……….. $100
Accounts Receivable……………….. $100
Focus on Financial Statements
FFS 6-1
Single-step income statement:
|COLUMBIA TEXTILES |
|Income Statement |
|For Year Ended December 31, 2011 |
|(000’s) |
|Revenues: | | |
| Net sales |$614 | |
| Interest earned | 2 | |
| Total revenues | |$616 |
|Expenses: | | |
| Cost of goods sold |$459 | |
| Selling expenses1 |193 | |
| General and administrative expense2 |114 | |
| Interest expense | 4 | |
| Total expenses | | 770 |
|Net loss | |$ 154 |
|COLUMBIA TEXTILES |
|Statement of Owner’s Equity |
|For Year Ended December 31, 2011 |
|(000’s) |
|Brandy Columbia, capital, January 1 | |$5403 |
|Add: Investments by owner | | 0 |
| Total | |$540 |
|Less: Withdrawals for the year |$78 | |
| Net loss |154 |232 |
|Brandy Columbia, capital, December 31 | |$308 |
1. $21 + $46 + $120 + $6 = $193
2. $63 + $17 + $21 + $8 + $5 = $114
3. Calculated as post-closing capital balance of $308 + withdrawals of $78 + net loss of $154 = $540 capital at January 1.
FFS 6-1 (continued)
|COLUMBIA TEXTILES |
|Balance Sheet |
|December 31, 2011 |
|(000’s) |
|Assets | | | |
| Current assets: | | | |
| Cash | |$ 48 | |
| Accounts receivable | |106 | |
| Merchandise inventory | |236 | |
| Office supplies | |5 | |
| Prepaid rent | |32 | |
| Current portion of notes receivable | | 3 | |
| Total current assets | | |$ 430 |
| Long-term investments: | | | |
| Notes receivable, less current portion | | |11 |
| Property, plant and equipment: | | | |
| Office furniture |$ 52 | | |
| Less: Accumulated amortization, office furniture | 38 |$ 14 | |
| Store fixtures |$106 | | |
| Less: Accumulated amortization, store fixtures | 61 | 45 | |
| Total property, plant and equipment | | |59 |
| Intangible assets: | | | |
| Franchise | | | 62 |
|Total assets | | |$ 562 |
| | | | |
|Liabilities | | | |
| Current liabilities: | | | |
| Accounts payable |$ 17 | | |
| Unearned sales |12 | | |
| Current portion of notes long-term notes payable | 45 | | |
| Total current liabilities | |$ 74 | |
| Long-term liabilities: | | | |
| Notes payable, less current portion | | 180 | |
| Total liabilities | | |$ 254 |
| | | | |
|Owner’s Equity | | | |
| Brandy Columbia, capital | | | 308 |
|Total liabilities and owner’s equity | | |$ 562 |
FFS 6-1 (concluded)
Analysis component:
Although Danier Leather has more total liabilities than Columbia Textiles, $28,428,000 vs. $254,000, Danier Leather’s total liabilities represent 34.10% of total assets ($28,428,000/$83,365,000 × 100) which is less than Columbia Textiles. Columbia Textiles’s total liabilities represent 45.20% of total assets ($254,000/$562,000 × 100). Therefore, Danier Leather has the stronger balance sheet. However, Danier is in the retail clothing industry while Columbia is in the textile industry; similar but different therefore there is a question of how valid the comparison is.
FFS 6-2
a. Danier sells products because the income statement includes Cost of sales, another term used to describe Cost of goods sold, the expense account that represents the cost of the goods actually sold.
b. WestJet sells services since its expense accounts on the income statement do not include an account for Cost of sales or Cost of goods sold.
c. The gross profit of $83,487 (thousand) represents the profit earned on the sale of goods before deducting operating expenses.
d. Yes, Danier had sufficient gross profit to cover operating expenses for the year ended June 25, 2005, since net earnings before discontinued operations for the year totalled $2,583 (thousand).
e. Danier has prepared its income statement using the single-step format.
f. According to note 3, inventory for Danier represents raw materials, work-in-process, and finished goods whereas inventory for WestJet, according to note 1(f), represents materials and supplies.
Critical Thinking Question
CT 6-1
Note to instructor: Student responses will vary therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity.
Problem(s):
— Review and assess the inventory information
Goal(s)*:
— To review and assess the inventory information so that appropriate questions can be asked and answered to effectively manage the inventory
Assumption(s)/Principle(s):
— That the information provided is correct; given that the cost of merchandise sold to customers increased by 50% from 2010 to 2011 (480,000 – 320,000 = 160,000/320,000 × 100 = 50%), it can be assumed that there was a corresponding increase in sales from 2010 to 2011
Facts:
— The information provided was reorganized into the following T-accounts:
2010:
|Merchandise Inventory | |Cost of Goods Sold |
|Beg. |84,000 |320,000 |COGS | |COGS |320,000 |22,400 |
|Sales Ret |22,400 |1,200 |Purch ret | | | | |
| | | |
|2011: | | |
|Beg |20,800 |480,000 |COGS | |COGS |480,000 |115,000 |
| | |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |89,090 |
|2012 | | | | | | |
|Jan. |4 | |G7 | |1,000 |88,090 |
| |5 | |G7 |48,000 | |136,090 |
| |9 | |G7 |3,000 | |139,090 |
| |15 | |G7 | |1,400 |137,690 |
| |16 | |G7 |6,000 | |143,690 |
| |17 | |G7 | |11,088 |132,602 |
| |22 | |G8 |7,524 | |140,126 |
| |31 | |G8 | |2,000 |138,126 |
|Feb. | 1 | |G8 | |6,750 |131,376 |
| | 3 | |G8 | |15,048 |116,328 |
| | 5 | |G8 | |1,600 |114,728 |
| |11 | |G9 |9,000 | |123,728 |
| |15 | |G9 | |9,600 |114,128 |
| |26 | |G9 | |1,600 |112,528 |
| |27 | |G9 | |600 |111,928 |
|Mar. | 9 | |G9 |6,400 | |118,328 |
| |11 | |G9 | |1,720 |116,608 |
| |16 | |G9 |8,520 | |125,128 |
| |19 | |G10 | |7,110 |118,018 |
| |31 | |G10 | |400 |117,618 |
| | | | | | | |
| | |Accounts Receivable—Alamo Engineering Co. |Acct. No. 106.1 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |11 | |G7 |9,000 | |9,000 |
|Feb. |11 | |G9 | |9,000 |0 |
| | | | | | | |
| | |Accounts Receivable—Buckman Services |Acct. No. 106.2 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Mar. |25 | |G10 |3,600 | |3,600 |
| | | | | | | |
Perpetual Serial Problem (continued) Part 2
| | |Accounts Receivable—Capital Leasing |Acct. No. 106.3 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Mar. |24 | |G10 |11,800 | |11,800 |
| | | | | | | |
| | |Accounts Receivable—Decker Co. |Acct. No. 106.4 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,700 |
|2012 | | | | | | |
|Mar. |30 | |G10 |4,440 | |7,140 |
| | | | | | | |
| | |Accounts Receivable—Elite Corporation |Acct. No. 106.5 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |13 | |G7 |8,400 | |8,400 |
| |20 | |G8 | |800 |7,600 |
| |22 | |G8 | |7,600 |0 |
| | | | | | | |
| | |Accounts Receivable—Fostek Co. |Acct. No. 106.6 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,000 |
|2012 | | | | | | |
|Jan. | 9 | |G7 | |3,000 |0 |
| | | | | | | |
| | |Accounts Receivable—Grandview Co. |Acct. No. 106.7 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Feb. |23 | |G9 |6,400 | |6,400 |
|Mar. | 9 | |G9 | |6,400 |0 |
| | | | | | | |
| | |Accounts Receivable—Hacienda, Inc. |Acct. No. 106.8 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |26 | |G8 | 11,600 | |11,600 |
Perpetual Serial Problem (continued) Part 2
| | |Accounts Receivable—Images, Inc. |Acct. No. 106.9 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
| | | | | | | |
| | |Merchandise Inventory |Acct. No. 119 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. | 7 | |G7 |11,200 | |11,200 |
| |13 | |G7 | |6,720 |4,480 |
| |15 | |G7 |1,400 | |5,880 |
| |17 | |G7 | |112 |5,768 |
| |24 | |G8 | |792 |4,976 |
| |26 | |G8 |16,000 | |20,976 |
| |26 | |G8 | |9,280 |11,696 |
|Feb. | 3 | |G8 | |160 |11,536 |
| |23 | |G9 | |5,120 |6,416 |
|Mar. |25 | |G10 | |2,004 |4,412 |
| |30 | |G10 | |2,200 |2,212 |
| | | | | | | |
| | |Computer Supplies |Acct. No. 126 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |1,440 |
|2012 | | | | | | |
|Mar. | 8 | |G9 |4,800 | |6,240 |
| | | | | | | |
| | |Prepaid Insurance |Acct. No. 128 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,240 |
| | | | | | | |
| | |Prepaid Rent |Acct. No. 131 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,250 |
|2012 | | | | | | |
|Feb. | 1 | |G8 | 6,750 | |9,000 |
| | | | | | | |
| | |Office Equipment |Acct. No. 163 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |18,000 |
| | | | | | | |
Perpetual Serial Problem (continued) Part 2
| | |Accumulated Amortization, Office Equipment |Acct. No. 164 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |1,500 |
| | | | | | | |
| | |Computer Equipment |Acct. No. 167 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |36,000 |
| | | | | | | |
| | |Accumulated Amortization, Computer Equipment |Acct. No. 168 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,250 |
| | | | | | | |
| | |Accounts Payable | | |Acct. No. 201 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,310 |
|2012 | | | | | | |
|Jan. | 7 | |G7 | |11,200 |13,510 |
| |17 | |G7 |11,200 | |2,310 |
| |24 | |G8 |792 | |1,518 |
| |26 | |G8 | |16,000 |17,518 |
|Feb. | 3 | |G8 |15,208 | |2,310 |
|Mar. | 8 | |G9 | |4,800 |7,110 |
| |19 | |G10 |7,110 | |0 |
| | | | | | | |
| | |Wages Payable |Acct. No. 210 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |800 |
|2012 | | | | | | |
|Jan. | 4 | |G7 |800 | |0 |
| | | | | | | |
| | |Unearned Computer Services Revenue |Acct. No. 236 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,000 |
|2012 | | | | | | |
|Jan. |11 | |G7 |3,000 | |0 |
Perpetual Serial Problem (continued) Part 2
| | |Mary Graham, Capital |Acct. No. 301 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |145,860 |
|2012 | | | | | | |
|Jan. | 5 | |G7 | |48,000 |193,860 |
| | | | | | | |
| | |Mary Graham, Withdrawals |Acct. No. 302 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. |15 | |G9 |9,600 | |9,600 |
| | | | | | | |
| | |Computer Services Revenue |Acct. No. 403 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |11 | |G7 | |12,000 |12,000 |
| |16 | |G7 | |6,000 |18,000 |
|Mar. |16 | |G9 | |8,520 |26,520 |
| |24 | |G10 | |11,800 |38,320 |
| | | | | | | |
| | |Sales |Acct. No. 413 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |13 | |G7 | |8,400 |8,400 |
| |26 | |G8 | |11,600 |20,000 |
|Feb. |23 | |G9 | |6,400 |26,400 |
|Mar. |25 | |G10 | |3,600 |30,000 |
| |30 | |G10 | |4,440 |34,440 |
| | | | | | | |
| | |Sales Discounts |Acct. No. 414 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |22 | |G8 |76 | |76 |
| | | | | | | |
| | |Sales Returns and Allowances |Acct. No. 415 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |20 | |G8 |800 | |800 |
Perpetual Serial Problem (continued) Part 2
| | |Cost of Goods Sold |Acct. No. 502 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |13 | |G7 |6,720 | |6,720 |
| |26 | |G8 |9,280 | |16,000 |
|Feb. |23 | |G9 |5,120 | |21,120 |
|Mar. |25 | |G10 |2,004 | |23,124 |
| |30 | |G10 |2,200 | |25,324 |
| | | | | | | |
| | |Amortization Expense, Office Equipment |Acct. No. 612 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Amortization Expense, Computer Equipment |Acct. No. 613 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Wages Expense |Acct. No. 623 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. | 4 | |G7 |200 | |200 |
| |31 | |G8 |2,000 | |2,200 |
|Feb. |26 | |G9 |1,600 | |3,800 |
| | | | |
| | |Insurance Expense |Acct. No. 637 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Rent Expense |Acct. No. 640 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Computer Supplies Expense |Acct. No. 652 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Advertising Expense |Acct. No. 655 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. | 5 | |G8 |1,600 | |1,600 |
| | | | | | | |
| | |Mileage Expense |Acct. No. 676 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. |27 | |G9 |600 | |600 |
|Mar. |31 | |G10 |400 | |1,000 |
Perpetual Serial Problem (continued) Part 2
| | |Repairs Expense, Computer |Acct. No. 684 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Mar. |11 | |G9 |1,720 | |1,720 |
| | |Charitable Donations Expense |Acct. No. 699 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
Perpetual Serial Problem (continued) Part 3
ECHO SYSTEMS
Partial Work Sheet
For Three Months Ended March 31, 2012
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
101 Cash 117,618 117,618
106.1 Alamo Engineering Co. 0 0
106.2 Buckman Services 3,600 3,600
106.3 Capital Leasing 11,800 11,800
106.4 Decker Co. 7,140 7,140
106.5 Elite Corporation 0 0
106.6 Fostek Co. 0 0
106.7 Grandview Co. 0 0
106.8 Hacienda, Inc. 11,600 11,600
106.9 Images, Inc. 0 0
119 Merchandise inventory 2,212 (g) 252 1,960
126 Computer supplies 6,240 (a) 2,010 4,230
128 Prepaid insurance 3,240 (b) 1,080 2,160
131 Prepaid rent 9,000 (d) 6,750 2,250
163 Office equipment 18,000 18,000
164 Accumulated amortization,
office equipment 1,500 (f) 1,500 3,000
167 Computer equipment 36,000 36,000
168 Accumulated amortization,
computer equipment 2,250 (e) 2,250 4,500
201 Accounts payable 0 0
210 Wages payable 0 (c) 1,400 1,400
236 Unearned computer services
revenue 0 0
301 Mary Graham, capital 193,860 193,860
302 May Graham, withdrawals 9,600 9,600
403 Computer services revenue 38,320 38,320
413 Sales 34,440 34,440
414 Sales discounts 76 76
415 Sales returns and allowances 800 800
502 Cost of goods sold 25,324 (g) 252 25,576
612 Amortization expense,
office equipment 0 (f) 1,500 1,500
613 Amortization expense,
computer equipment 0 (e) 2,250 2,250
623 Wages expense 3,800 (c) 1,400 5,200
637 Insurance expense 0 (b) 1,080 1,080
640 Rent expense 0 (d) 6,750 6,750
652 Computer supplies expense 0 (a) 2,010 2,010
655 Advertising expense 1,600 1,600
676 Mileage expense 1,000 1,000
684 Repairs expense, computer 1,720 1,720
699 Charitable donations expense 0 0
Totals 270,370 270,370 15,242 15,242 275,520 275,520
Perpetual Serial Problem (continued)
Part 4: Single-step income statement
ECHO SYSTEMS
Income Statement
For Three Months Ended March 31, 2012
Revenues:
Computer services revenue $38,320
Net sales 33,564
Total revenues $71,884
Expenses:
Cost of goods sold $25,576
Rent expense 6,750
Wages expense 5,200
Amortization expense1 3,750
Computer supplies expense 2,010
Repairs expense, computer 1,720
Advertising expense 1,600
Insurance expense 1,080
Mileage expense 1,000
Total expenses 48,686
Net income $23,198
1. Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = Total amortization expense of $3,750.
Part 5
ECHO SYSTEMS
Statement of Owner’s Equity
For Three Months Ended March 31, 2012
Mary Graham, capital, December 31, 2011 $ 145,860
Add: Net income $23,198
Investment by owner 48,000 71,198
Total $217,058
Less: Withdrawals by owner 9,600
Mary Graham, capital, March 31, 2012 $207,458
Perpetual Serial Problem (concluded) Part 6
ECHO SYSTEMS
Balance Sheet
March 31, 2012
Assets
Current assets:
Cash $117,618
Accounts receivable 34,140
Merchandise inventory 1,960
Computer supplies 4,230
Prepaid insurance 2,160
Prepaid rent 2,250
Total current assets $ 162,358
Property, plant and equipment:
Office equipment $ 18,000
Less: Accumulated amortization 3,000 $ 15,000 Computer equipment $36,000
Less: Accumulated amortization 4,500 31,500
Total property, plant and equipment 46,500
Total assets $208,858
Liabilities
Current liabilities:
Wages payable $ 1,400
Owner’s Equity
Mary Graham, capital 207,458
Total liabilities and owner’s equity $208,858
*Periodic Serial Problem, Echo Systems (150 minutes) Part 1
Journal entries:
General Journal G7
DATE ACCOUNT TITLES AND EXPLANATIONS PR DEBIT CREDIT
2012
Jan. 4 Wages Expense 623 200
Wages Payable 210 800
Cash 101 1,000
Paid employee.
5 Cash 101 48,000
Mary Graham, Capital 301 48,000
Investment by owner.
7 Purchases 505 11,200
Accounts Payable—Shephard Corp. 201 11,200
Purchased merchandise on credit.
9 Cash 101 3,000
Accounts Receivable—Fostek Co. 106.6 3,000
Collected accounts receivable.
11 Accounts Receivable—Alamo Eng. Co. 106.1 9,000
Unearned Computer Services Revenue 236 3,000
Computer Services Revenue 403 12,000
Completed work on project.
13 Accounts Receivable—Elite Corp. 106.5 8,400
Sales 413 8,400
Sold merchandise on credit.
15 Transportation-In 508 1,400
Cash 101 1,400
Paid freight on incoming merchandise.
16 Cash 101 6,000
Computer Services Revenue 403 6,000
Collected cash revenue from customer.
17 Accounts Payable—Shephard Corp. 201 11,200
Purchase Discounts 507 112
Cash 101 11,088
Paid account payable within discount period.
Periodic Serial Problem (continued)
General Journal G8
DATE ACCOUNT TITLES AND EXPLANATIONS PR DEBIT CREDIT
2012
Jan. 20 Sales Returns and Allowances 415 800
Accounts Receivable—Elite Corp. 106.5 800
Customer returned defective goods.
22 Cash 101 7,524
Sales Discounts 414 76
Accounts Receivable—Elite Corp. 106.5 7,600
Collected accounts receivable.
24 Accounts Payable—Shephard Corp. 201 792
Purchase Returns and Allowances 506 792
Returned merchandise for credit.
26 Purchases 505 16,000
Accounts Payable—Shephard Corp. 201 16,000
Purchased merchandise for resale.
26 Accounts Receivable—Hacienda, Inc. 106.8 11,600
Sales 413 11,600
Sold merchandise on credit.
29 No entry recorded in the journal.
31 Wages Expense 623 2,000
Cash 101 2,000
Paid employee.
Feb. 1 Prepaid Rent 131 6,750
Cash 101 6,750
Paid three months’ rent in advance.
3 Accounts Payable—Shephard Corp. 201 15,208
Purchase Discounts 507 160
Cash 101 15,048
Paid account payable within discount
period.
5 Advertising Expense 655 1,600
Cash 101 1,600
Purchased ad in local newspaper.
Periodic Serial Problem (continued)
General Journal G9
DATE ACCOUNT TITLES AND EXPLANATIONS PR DEBIT CREDIT
2012
Feb. 11 Cash 101 9,000
Accounts Receivable—Alamo
Engin. Co. 106.1 9,000
Collected accounts receivable.
15 Mary Graham, Withdrawals 302 9,600
Cash 101 9,600
Owner withdrew cash.
23 Accounts Receivable—Grandview Co. 106.7 6,400
Sales 413 6,400
Sold merchandise on credit.
26 Wages Expense 623 1,600
Cash 101 1,600
Paid employee.
27 Mileage Expense 676 600
Cash 101 600
Reimbursed Mary Graham for use of auto.
Mar. 8 Computer Supplies 126 4,800
Accounts Payable—Abbot Office
Prod. 201 4,800
Purchased supplies on credit.
9 Cash 101 6,400
Accounts Receivable—Grandview Co. 106.7 6,400
Collected accounts receivable.
11 Repairs Expense, Computer 684 1,720
Cash 101 1,720
Paid for computer repairs.
16 Cash 101 8,520
Computer Services Revenue 403 8,520
Collected cash revenue from customer.
Periodic Serial Problem (continued)
General Journal G10
DATE ACCOUNT TITLES AND EXPLANATIONS PR DEBIT CREDIT
2012
19 Accounts Payable 201 7,110
Cash 101 7,110
Paid accounts payable.
24 Accounts Receivable—Capital Leasing 106.3 11,800
Computer Services Revenue 403 11,800
Billed customer for services.
25 Accounts Receivable—Buckman Services 106.2 3,600
Sales 413 3,600
Sold merchandise on credit.
30 Accounts Receivable—Decker Co. 106.4 4,440
Sales 413 4,440
Sold merchandise on credit.
31 Mileage Expense 676 400
Cash 101 400
Reimbursed Mary Graham for use of auto.
Periodic Serial Problem (continued) Part 2
|Cash |Acct. No. 101 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |89,090 |
|2012 | | | | | | |
|Jan. |4 | |G7 | |1,000 |88,090 |
| |5 | |G7 |48,000 | |136,090 |
| |9 | |G7 |3,000 | |139,090 |
| |15 | |G7 | |1,400 |137,690 |
| |16 | |G7 |6,000 | |143,690 |
| |17 | |G7 | |11,088 |132,602 |
| |22 | |G8 |7,524 | |140,126 |
| |31 | |G8 | |2,000 |138,126 |
|Feb. | 1 | |G8 | |6,750 |131,376 |
| | 3 | |G8 | |15,048 |116,328 |
| | 5 | |G8 | |1,600 |114,728 |
| |11 | |G9 |9,000 | |123,728 |
| |15 | |G9 | |9,600 |114,128 |
| |26 | |G9 | |1,600 |112,528 |
| |27 | |G9 | |600 |111,928 |
|Mar. | 9 | |G9 |6,400 | |118,328 |
| |11 | |G9 | |1,720 |116,608 |
| |16 | |G9 |8,520 | |125,128 |
| |19 | |G10 | |7,110 |118,018 |
| |31 | |G10 | |400 |117,618 |
| | | | | | | |
| | |Accounts Receivable—Alamo Engineering Co. |Acct. No. 106.1 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |11 | |G7 |9,000 | |9,000 |
|Feb. |11 | |G9 | |9,000 |0 |
| | | | | | | |
| | |Accounts Receivable—Buckman Services |Acct. No. 106.2 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Mar. |25 | |G10 |3,600 | |3,600 |
| | | | | | | |
Periodic Serial Problem (continued) Part 2
| | |Accounts Receivable—Capital Leasing |Acct. No. 106.3 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Mar. |24 | |G10 |11,800 | |11,800 |
| | | | | | | |
| | |Accounts Receivable—Decker Co. |Acct. No. 106.4 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,700 |
|2012 | | | | | | |
|Mar. |30 | |G10 |4,440 | |7,140 |
| | | | | | | |
| | |Accounts Receivable—Elite Corporation |Acct. No. 106.5 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |13 | |G7 |8,400 | |8,400 |
| |20 | |G8 | |800 |7,600 |
| |22 | |G8 | |7,600 |0 |
| | | | | | | |
| | |Accounts Receivable—Fostek Co. |Acct. No. 106.6 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,000 |
|2012 | | | | | | |
|Jan. | 9 | |G7 | |3,000 |0 |
| | | | | | | |
| | |Accounts Receivable—Grandview Co. |Acct. No. 106.7 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Feb. |23 | |G9 |6,400 | |6,400 |
|Mar. | 9 | |G9 | |6,400 |0 |
| | | | | | | |
| | |Accounts Receivable—Hacienda, Inc. |Acct. No. 106.8 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
|2012 | | | | | | |
|Jan. |26 | |G8 | 11,600 | |11,600 |
Periodic Serial Problem (continued) Part 2
| | |Accounts Receivable—Images, Inc. |Acct. No. 106.9 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
| | | | | | | |
| | |Merchandise Inventory |Acct. No. 119 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |0 |
| | | | |
| | |Computer Supplies |Acct. No. 126 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |1,440 |
|2012 | | | | | | |
|Mar. | 8 | |G9 |4,800 | |6,240 |
| | | | | | | |
| | |Prepaid Insurance |Acct. No. 128 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,240 |
| | | | | | | |
| | |Prepaid Rent |Acct. No. 131 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,250 |
|2012 | | | | | | |
|Feb. | 1 | |G8 | 6,750 | |9,000 |
| | | | | | | |
| | |Office Equipment |Acct. No. 163 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |18,000 |
| | | | | | | |
| | |Accumulated Amortization, Office Equipment |Acct. No. 164 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |1,500 |
| | | | | | | |
Periodic Serial Problem (continued) Part 2
| | |Computer Equipment |Acct. No. 167 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |36,000 |
| | | | | | | |
| | |Accumulated Amortization, Computer Equipment |Acct. No. 168 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,250 |
| | | | | | | |
| | |Accounts Payable | | |Acct. No. 201 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |2,310 |
|2012 | | | | | | |
|Jan. | 7 | |G7 | |11,200 |13,510 |
| |17 | |G7 |11,200 | |2,310 |
| |24 | |G8 |792 | |1,518 |
| |26 | |G8 | |16,000 |17,518 |
|Feb. | 3 | |G8 |15,208 | |2,310 |
|Mar. | 8 | |G9 | |4,800 |7,110 |
| |19 | |G10 |7,104 | |0 |
| | | | | | | |
| | |Wages Payable |Acct. No. 210 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |800 |
|2012 | | | | | | |
|Jan. | 4 | |G7 |800 | |0 |
| | | | | | | |
| | |Unearned Computer Services Revenue |Acct. No. 236 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |3,000 |
|2012 | | | | | | |
|Jan. |11 | |G7 |3,000 | |0 |
| | |Mary Graham, Capital |Acct. No. 301 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2011 | | | | | | |
|Dec. |31 |Beginning balance | | | |145,860 |
|2012 | | | | | | |
|Jan. | 5 | |G7 | |48,000 |193,860 |
| | | | | | | |
Periodic Serial Problem (continued) Part 2
| | |Mary Graham, Withdrawals |Acct. No. 302 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. |15 | |G9 |9,600 | |9,600 |
| | | | | | | |
| | |Computer Services Revenue |Acct. No. 403 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |11 | |G7 | |12,000 |12,000 |
| |16 | |G7 | |6,000 |18,000 |
|Mar. |16 | |G9 | |8,520 |26,520 |
| |24 | |G10 | |11,800 |38,320 |
| | | | | | | |
| | |Sales |Acct. No. 413 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |13 | |G7 | |8,400 |8,400 |
| |26 | |G8 | |11,600 |20,000 |
|Feb. |23 | |G9 | |6,400 |26,400 |
|Mar. |25 | |G10 | |3,600 |30,000 |
| |30 | |G10 | |4400 |34,440 |
| | | | | | | |
| | |Sales Discounts |Acct. No. 414 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |22 | |G8 |76 | |76 |
| | | | | | | |
| | |Sales Returns and Allowances |Acct. No. 415 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |20 | |G8 |800 | |800 |
| | |Purchases |Acct. No. 505 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |7 | |G7 |11,200 | |11,200 |
| |26 | |G8 |16,000 | |27,200 |
| | | | | | | |
| | |Purchase Returns and Allowance |Acct. No. 506 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |24 | |G8 | |792 |792 |
| | | | | | | |
| | | | | | | |
Periodic Serial Problem (continued) Part 2
| | |Purchase Discounts |Acct. No. 507 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |17 | |G7 | |112 |112 |
|Feb. |3 | |G8 | |160 |272 |
| | | | | | | |
| | |Transportation-In |Acct. No. 508 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. |15 | |G7 |1,400 | |1,400 |
| | |Amortization Expense, Office Equipment |Acct. No. 612 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Amortization Expense, Computer Equipment |Acct. No. 613 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Wages Expense |Acct. No. 623 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Jan. | 4 | |G7 |200 | |200 |
| |31 | |G8 |2,000 | |2,200 |
|Feb. |26 | |G9 |1,600 | |3,800 |
| | | | |
| | |Insurance Expense |Acct. No. 637 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Rent Expense |Acct. No. 640 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Computer Supplies Expense |Acct. No. 652 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
| | |Advertising Expense |Acct. No. 655 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. | 5 | |G8 |1,600 | |1,600 |
| | | | | | | |
| | |Mileage Expense |Acct. No. 676 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Feb. |27 | |G9 |600 | |600 |
|Mar. |31 | |G10 |400 | |1,000 |
Periodic Serial Problem (continued) Part 2
| | |Repairs Expense, Computer |Acct. No. 684 |
|Date | |Explanation |PR |Debit |Credit |Balance |
|2012 | | | | | | |
|Mar. |11 | |G9 |1,720 | |1,720 |
| | |Charitable Donations Expense |Acct. No. 699 |
|Date | |Explanation |PR |Debit |Credit |Balance |
| | | | | | | |
Periodic Serial Problem (continued) Part 3
ECHO SYSTEMS
Partial Work Sheet
For Three Months Ended March 31, 2012
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
101 Cash 117,618 117,618
106.1 Alamo Engineering Co. 0 0
106.2 Buckman Services 3,600 3,600
106.3 Capital Leasing 11,800 11,800
106.4 Decker Co. 7,140 7,140
106.5 Elite Corporation 0 0
106.6 Fostek Co. 0 0
106.7 Grandview Co. 0 0
106.8 Hacienda, Inc. 11,600 11,600
106.9 Images, Inc. 0 0
119 Merchandise inventory 0 0
126 Computer supplies 6,240 (a) 2,010 4,230
128 Prepaid insurance 3,240 (b) 1,080 2,160
131 Prepaid rent 9,000 (d) 6,750 2,250
163 Office equipment 18,000 18,000
164 Accumulated amortization,
office equipment 1,500 (f) 1,500 3,000
167 Computer equipment 36,000 36,000
168 Accumulated amortization,
computer equipment 2,250 (e) 2,250 4,500
201 Accounts payable 0 0
210 Wages payable 0 (c) 1,400 1,400
236 Unearned computer services
revenue 0 0
301 Mary Graham, capital 193,860 193,860
302 May Graham, withdrawals 9,600 9,600
403 Computer services revenue 38,320 38,320
413 Sales 34,440 34,440
414 Sales discounts 76 76
415 Sales returns and allowances 800 800
505 Purchases 27,200 27,200
506 Purchase returns and allowances 792 792
507 Purchase discounts 272 272
508 Transportation-In 1,400 1,400
612 Amortization expense,
office equipment 0 (f) 1,500 1,500
613 Amortization expense,
computer equipment 0 (e) 2,250 2,250
623 Wages expense 3,800 (c) 1,400 5,200
637 Insurance expense 0 (b) 1,080 1,080
640 Rent expense 0 (d) 6,750 6,750
652 Computer supplies expense 0 (a) 2,010 2,010
655 Advertising expense 1,600 1,600
676 Mileage expense 1,000 1,000
684 Repairs expense, computer 1,720 1,720
699 Charitable donations expense 0 0
Totals 271,434 271,434 14,990 14,990 276,584 276,584
Periodic Serial Problem (continued) Part 4
ECHO SYSTEMS
Income Statement
For Three Months Ended March 31, 2012
Revenues:
Computer services revenue $38,320
Net sales 33,564
Total revenues $71,884
Operating Expenses:
Cost of goods sold1 $25,576
Rent expense 6,750
Wages expense 5,200
Amortization expense2 3,750
Computer supplies expense 2,010
Repairs expense, computer 1,720
Advertising expense 1,600
Insurance expense 1,080
Mileage expense 1,000
Total operating expenses 48,686
Net income $23,198
| | | | |
|1. |COGS = |Beginning Merchandise Inventory |$ 0 |
| | |Add: Purchases |27,200 |
| | |Less: Purchase Returns and Allowances |792 |
| | | Purchase Discounts |272 |
| | |Add: Transportation-In |1,400 |
| | |Less: Ending Inventory | 1,960 |
| | | |$25,576 |
| | | | |
|2. |Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = |
| |Total amortization expense of $3,750. |
Periodic Serial Problem (concluded) Part 5
ECHO SYSTEMS
Statement of Owner’s Equity
For Three Months Ended March 31, 2012
Mary Graham, capital, December 31, 2011 $ 145,860
Add: Net income $23,198
Investment by owner 48,000 71,198
Total $217,058
Less: Withdrawals by owner 9,600
Mary Graham, capital, March 31, 2012 $207,458
Part 6
ECHO SYSTEMS
Balance Sheet
March 31, 2012
Assets
Current assets:
Cash $117,618
Accounts receivable 34,140
Merchandise inventory 1,960
Computer supplies 4,230
Prepaid insurance 2,160
Prepaid rent 2,250
Total current assets $ 162,358
Property, plant and equipment:
Office equipment $ 18,000
Less: Accumulated amortization 3,000 $ 15,000 Computer equipment $36,000
Less: Accumulated amortization 4,500 31,500 Total property, plant and equipment 46,500
Total assets $208,858
Liabilities
Current liabilities:
Wages payable $ 1,400
Owner’s Equity
Mary Graham, capital 207,458
Total liabilities and owner’s equity $208,858
-----------------------
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
464 Fundamental Accounting Principles, Twelfth Canadian Edition
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 475
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 487
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 501
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
514 Fundamental Accounting Principles, Twelfth Canadian Edition
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 529
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