CH 05
CH 05
CH 05
com
CHAPTER 5
Accounting for Merchandising Operations
Brief A B
Learning Objectives Questions Exercises Do It! Exercises Problems Problems
*5. Prepare an income 15, 16, 17, 7, 8, 9, 11 4 6, 9, 10, 2A, 3A, 8A 2B, 3B
statement for a 18 12, 13, 14
merchandiser.
*6. Explain the recording of 19, 20 10, 11, 12 15, 16, 17, 5A, 6A, 7A 5B, 6B, 7B
purchases and sales of 18, 19
inventory under a periodic
inventory system.
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
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*5A Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.
*7A Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.
*5B Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.
*7B Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.
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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
E5-3 P5-4A
4. Explain the steps in the Q5-1 Q5-13 E5-6 P5-8A P5-3A
accounting cycle for a Q5-12 BE5-5 E5-7 P5-4B P5-3B
merchandising company. Q5-14 BE5-6 E5-8
DI5-3 P5-4A
5. Prepare an income statement Q5-18 Q5-17 Q5-15 E5-10 P5-2B E5-14
for a merchandiser. BE5-8 Q5-16 E5-12 P5-5A P5-3A
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the Organization Across
the Organization
Ethics Case
5-5
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ANSWERS TO QUESTIONS
1. (a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.
2. The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.
Cost of
Sales Gross Operating Net
Less Goods Equals Less Equals
Revenue Profit Expenses Income
Sold
4. Income measurement for a merchandising company differs from a service company as follows:
(a) sales are the primary source of revenue and (b) expenses are divided into two main
categories: cost of goods sold and operating expenses.
5. In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.
6. The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on
board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB
destination means that the goods are placed free on board to the buyer’s place of business.
Thus, the seller pays the freight and debits Freight-out.
7. Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.
9. Agree. In accordance with the revenue recognition principle, companies record sales revenue
when the performance obligation is satisfied. The performance obligation is satisfied when the
goods transfer from the seller to the buyer; that is, when the exchange transaction occurs. The
earning of revenue is not dependent on the collection of credit sales.
10. (a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales—
sales invoice.
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12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.
14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.
17. There are three distinguishing features in the income statement of a merchandising company:
(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.
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*18. (a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
(b) The nonoperating activities part consists of two sections: other income and expense, and
interest expense.
*
*19.
Accounts Added/Deducted
Purchase Returns and Allowances Deducted
Purchase Discounts Deducted
Freight-In Added
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Giovanni Company
Inventory............................................................... 780
Accounts Payable ........................................ 780
Gordon Company
Accounts Receivable ........................................... 780
Sales Revenue .............................................. 780
Cost of Goods Sold ............................................. 560
Inventory ....................................................... 560
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YANGTZE COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2014
Sales revenues
Sales revenue (¥280,000 + ¥100,000) ................ ¥380,000
Less: Sales returns and allowances ................ ¥18,000
Sales discounts ....................................... 5,000 23,000
Net sales .............................................................. ¥357,000
Item Section
(a) Gain on sale of equipment Other income and expense
(b) Interest expense After other income and expenses
(c) Casualty loss from vandalism Other income and expense
(d) Cost of goods sold Cost of goods sold
(e) Depreciation expense Operating expenses
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(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Statement of financial position debit column.
(b) Inventory: Trial balance debit column; Adjusted trial balance debit
column; Statement of financial position debit column.
(c) Sales revenue: Trial balance credit column; Adjusted trial balance
credit column, Income statement credit column.
(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.
DO IT! 5-1
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DO IT! 5-2
DO IT! 5-3
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DO IT! 5-4
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SOLUTIONS TO EXERCISES
EXERCISE 5-1
1. True.
2. False. For a merchandiser, sales less cost of goods sold is called
gross profit.
3. True.
4. True.
5. False. The operating cycle of a merchandiser differs from that of a
service company. The operating cycle of a merchandiser is ordinarily
longer.
6. False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
7. True.
8. False. A perpetual inventory system provides better control over inven-
tories than a periodic system.
EXERCISE 5-2
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EXERCISE 5-3
9 Inventory.......................................................... 180
Cash ......................................................... 180
EXERCISE 5-4
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EXERCISE 5-5
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EXERCISE 5-6
Sales revenues
Sales revenue .................................................. $820,000
Less: Sales returns and allowances ........... $28,000
Sales discounts .................................. 13,000 41,000
Net sales ......................................................... $779,000
EXERCISE 5-7
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EXERCISE 5-8
EXERCISE 5-9
Sales revenues
Sales revenue ................................................... £380,000
Less: Sales returns and allowances .............. £13,000
Sales discounts .................................... 6,600 19,600
Net sales ............................................................ 360,400
Cost of goods sold ................................................ 212,000
Gross profit ............................................................ 148,400
Operating expenses
Salaries and wages expense ........................... 58,000
Rent expense .................................................... 32,000
Freight-out ........................................................ 9,000
Insurance expense ........................................... 6,000
Total operating expenses .................... 105,000
Net income ........................................................ £ 43,400
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EXERCISE 5-10
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EXERCISE 5-11
4. Inventory ............................................................................. 20
Cash .................................................................................... 180
Freight-Out .................................................................. 200
EXERCISE 5-12
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EXERCISE 5-13
Boru’s Company
Gross profit ÷ Net sales = py 37,500 ÷ py 98,000 = 38.3%
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EXERCISE 5-14
(*Missing amount)
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EXERCISE 5-15
EXERCISE 5-16
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EXERCISE 5-17
*EXERCISE 5-18
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*EXERCISE 5-19
*EXERCISE 5-20
Statement of
Adjusted Income Financial
Accounts Trial Balance Statement Position
Debit Credit Debit Credit Debit Credit
Cash 9,000 9,000
Inventory 76,000 76,000
Sales Revenue 460,000 460,000
Sales Returns and Allowances 10,000 10,000
Sales Discounts 9,000 9,000
Cost of Goods Sold 288,000 288,000
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*EXERCISE 5-21
BARBOSA COMPANY
Worksheet
For the Month Ended June 30, 2014
Adj. Trial Income Statement of
Account Titles Trial Balance Adjustments Balance Statement Financial Position
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 2,120 2,120 2,120
Accounts Receivable 2,440 2,440 2,440
Inventory 11,640 11,640 11,640
Accounts Payable 1,120 1,500 2,620 2,620
Share Capital—Ordinary 4,000 4,000 4,000
Sales Revenue 42,500 42,500 42,500
Cost of Goods Sold 20,560 20,560 20,560
Operating Expenses 10,860 1,500 12,360 12,360
Totals 47,620 47,620 1,500 1,500 49,120 49,120 32,920 42,500 16,200 6,620
Net Income 9,580 9,580
Totals 42,500 42,500 16,200 16,200
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SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
12 Cash................................................................ 2,178
Sales Discounts............................................. 22
Accounts Receivable............................. 2,200
21 Cash................................................................ 1,386
Sales Discounts............................................. 14
Accounts Receivable............................. 1,400
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PROBLEM 5-2A
(a)
General Journal J1
Date Account Titles Ref. Debit Credit
Apr. 2 Inventory ............................................. 120 6,200
Accounts Payable ...................... 201 6,200
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General Journal J1
Date Account Titles Ref. Debit Credit
Apr. 23 Cash ..................................................... 101 7,400
Sales Revenue ............................ 401 7,400
Cost of Goods Sold ............................ 505 4,120
Inventory ...................................... 120 4,120
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(b)
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Sales revenues
Sales revenue ..................................................... €16,300
Less: Sales returns and allowances ............... €90
Sales discounts ...................................... 55 145
Net sales ............................................................. 16,155
Cost of goods sold .................................................... 9,390
Gross profit ................................................................ € 6,765
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PROBLEM 5-3A
Sales revenues
Sales.................................................... $724,000
Less: Sales returns and
allowances .............................. 8,000
Net sales ............................................. 716,000
Cost of goods sold ................................... 412,700
Gross profit ............................................... 303,300
Operating expenses
Salaries and wages expense...... $108,000
Depreciation expense ................. 23,700
Sales commissions expense ..... 14,500
Utilities expense .......................... 12,000
Insurance expense ...................... 7,200
Property tax expense .................. 4,800
Total operating expenses .... 170,200
Income from operations ........................... 133,100
Other income and expense
Interest revenue ................................. 4,000
Interest expense........................................ 8,600
Net income................................................. $ 128,500
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Assets
Property, plant, and equipment
Buildings .............................................. $290,000
Less: Accumulated depreciation—
buildings ................................... 52,500 $237,500
Equipment ............................................ 110,000
Less: Accumulated depreciation—
equipment ................................. 42,900 67,100 $304,600
Current assets
Prepaid insurance ................................ 2,400
Inventory............................................... 75,000
Accounts receivable ............................ 50,300
Cash ..................................................... 23,800 151,500
Total assets ................................ $456,100
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PROBLEM 5-4A
(a)
General Journal J1
Date Account Titles Ref. Debit Credit
Apr. 4 Inventory ............................................... 120 760
Accounts Payable ......................... 201 760
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General Journal J1
Date Account Titles Ref. Debit Credit
Apr. 20 Cash ..................................................... 101 600
Accounts Receivable .................. 112 600
(b)
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Debit Credit
Cash ......................................................................... ¥1,718
Accounts Receivable ............................................. 670
Inventory ................................................................. 2,392
Share Capital—Ordinary ........................................ ¥4,000
Sales Revenue ........................................................ 2,130
Sales Returns and Allowances ............................. 40
Cost of Goods Sold ................................................ 1,310
¥6,130 ¥6,130
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*PROBLEM 5-5A
Sales revenues
Sales revenue ........................... $718,000
Less: Sales returns and
allowances .................... 18,000
Net sales ................................... 700,000
Cost of goods sold
Inventory, January 1 ................ $ 40,500
Purchases ................................. $442,000
Less: Purchase returns
and allowances ............. $ 6,400
Purchase discounts ..... 12,000 18,400
Net purchases .......................... 423,600
Add: Freight-in ........................ 5,600
Cost of goods purchased ......... 429,200
Cost of goods available
for sale ............................... 469,700
Less: Inventory, December 31 65,000
Cost of goods sold............ 404,700
Gross profit ..................................... $295,300
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*PROBLEM 5-6A
(a)
2012 2013 2014
Cost of goods sold:
Beginning inventory $ 13,000 $ 11,300 $ 14,700
Plus: Purchases 141,000 150,000 132,000
Cost of goods available 154,000 161,300 146,700
Less: Ending inventory (11,300) (14,700) (12,200)
Cost of goods sold $142,700 $146,600 $134,500
(b)
2012 2013 2014
Sales revenue $225,700 $240,300 $235,000
Less: CGS 142,700 146,600 134,500
Gross profit $ 83,000 $ 93,700 $100,500
(c)
2012 2013 2014
Beginning accounts payable $ 20,000 $ 26,000 $ 15,000
Plus: Purchases 141,000 150,000 132,000
Less: Payments to suppliers 135,000 161,000 127,000
Ending accounts payable $ 26,000 $ 15,000 $ 20,000
1 2 3
(d) Gross profit rate 36.8% 39.0% 42.8%
1 2 3
$83,000 ÷ $93,700 ÷ $100,500 ÷
$225,700 $240,300 $235,000
No. Even though sales declined in 2014 from the prior year, the gross
profit rate increased. This means that cost of goods sold declined more
than sales did, reflecting better purchasing power or control of costs.
Therefore, in spite of declining sales, profitability, as measured by the
gross profit rate, actually improved.
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*PROBLEM 5-7A
(a)
General Journal
Date Account Titles Debit Credit
Apr. 4 Purchases ......................................................... 860
Accounts Payable .................................... 860
6 Freight-In .......................................................... 74
Cash .......................................................... 74
15 Cash .................................................................. 50
Purchase Returns and Allowances ........ 50
17 Freight-In .......................................................... 30
Cash .......................................................... 30
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(b)
Cash Accounts Payable
4/1 Bal. 2,500 4/6 74 4/10 60 4/4 860
4/15 50 4/11 300 4/13 800 4/14 700
4/20 500 4/13 776 4/21 700
4/30 620 4/17 30 4/30 Bal. 0
4/21 686
4/30 Bal. 1,804 Share Capital—Ordinary
4/1 Bal. 4,200
Accounts Receivable 4/30 Bal. 4,200
4/8 900 4/20 500
4/18 1,200 4/27 25 Sales Revenue
4/30 620 4/8 900
4/30 Bal. 955 4/18 1,200
4/30 Bal. 2,100
Inventory
4/1 Bal. 1,700 Purchase Discounts
4/30 Bal. 1,700 4/13 24
4/21 14
Sales Returns and Allowances 4/30 Bal. 38
4/27 25
4/30 Bal. 25 Freight-In
4/6 74
Purchases 4/17 30
4/4 860 4/30 Bal. 104
4/11 300
4/14 700
4/30 Bal. 1,860
Purchase
Returns and Allowances
4/10 60
4/15 50
4/30 Bal. 110
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Debit Credit
Cash ........................................................................ CHF1,804
Accounts Receivable ............................................. 955
Inventory ................................................................. 1,700
Share Capital—Ordinary........................................ CHF4,200
Sales Revenue ........................................................ 2,100
Sales Returns and Allowances ............................. 25
Purchases ............................................................... 1,860
Purchase Returns and Allowances ...................... 110
Purchase Discounts............................................... 38
Freight-In................................................................. 104
CHF 6,448 CHF 6,448
Sales revenues
Sales revenue .............................. CHF2,100
Less: Sales returns and
allowances ....................... 25
Net sales ...................................... 2,075
Cost of goods sold
Inventory, April 1 ......................... CHF1,700
Purchases .................................... CHF1,860
Less: Purchase returns
and allowances ................ CHF110
Purchase discounts ........ 38 148
Net purchases ............................. 1,712
Add: Freight-in ........................... 104
Cost of goods purchased ........... 1,816
Cost of goods available
for sale .................................. 3,516
Less: Inventory, April 30 ............ 2,296
Cost of goods sold............... 1,220
Gross profit ........................................ CHF 855
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(a) MR. ROSIAK FASHION CENTER
Worksheet
For the Year Ended November 30, 2014
Adjusted Income Statement of
Account Titles Trial Balance Adjustments Trial Balance Statement Financial Position
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 8,700 8,700 8,700
Accounts Receivable 27,700 27,700 27,700
Inventory 44,700 (d) 180 44,520 44,520
Supplies 6,200 (a) 4,100 2,100 2,100
Equipment 133,000 133,000 133,000
Accum. Depreciation—
Equipment 23,000 (b) 11,500 34,500 34,500
Notes Payable 51,000 51,000 51,000
Accounts Payable 48,500 48,500 48,500
Share Capital—Ordinary 50,000 50,000 50,000
Retained Earnings 38,000 38,000 38,000
Dividends 8,000 8,000 8,000
Sales Revenue 755,200 755,200 755,200
Sales Returns and
Allowances 12,800 12,800 12,800
Cost of Goods Sold 497,400 (d) 180 497,580 497,580
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Net Loss 1,980 1,980
Totals 757,180 757,180 226,000 226,000
Key: (a) Supplies used, (b) Depreciation expense, (c) Accrued interest payable, (d) Adjustment of inventory.
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Sales revenues
Sales revenue .............................................. $755,200
Less: Sales returns and
allowances ....................................... 12,800
Net sales ...................................................... 742,400
Cost of goods sold ............................................ 497,580
Gross profit ........................................................ 244,820
Operating expenses
Salaries and wages expense............... $136,000
Advertising expense ............................ 24,400
Rent expense ........................................ 24,000
Freight-out ............................................ 16,700
Utilities expense ................................... 14,000
Maintenance and repairs expense...... 12,100
Depreciation expense .......................... 11,500
Supplies expense ................................. 4,100
Total operating expenses ............. 242,800
Income from operations .................................... 2,020
Interest expense................................................. 4,000
Net loss ............................................................... $ (1,980)
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Assets
Property, plant, and equipment
Equipment ........................................ $133,000
Accumulated depreciation—
equipment.................................... 34,500 $98,500
Current assets
Supplies ............................................ 2,100
Inventory........................................... 44,520
Accounts receivable ........................ 27,700
Cash .................................................. 8,700 83,020
Total assets .............................. $181,520
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Debit Credit
Cash ................................................................. $ 8,700
Accounts Receivable ...................................... 27,700
Inventory .......................................................... 44,520
Supplies ........................................................... 2,100
Equipment........................................................ 133,000
Accumulated Depreciation—Equipment ....... $ 34,500
Notes Payable.................................................. 51,000
Accounts Payable ........................................... 48,500
Interest Payable............................................... 4,000
Share Capital—Ordinary................................. 50,000
Retained Earnings........................................... 28,020
$216,020 $216,020
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PROBLEM 5-1B
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Inventory ....................................................... 72
Cost of Goods Sold .............................. 72
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PROBLEM 5-2B
(a)
General Journal J1
Date Account Titles Ref. Debit Credit
May 1 Inventory............................................ 120 4,200
Accounts Payable ..................... 201 4,200
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General Journal J1
Date Account Titles Ref. Debit Credit
May 24 Cash ..................................................... 101 3,200
Sales Revenue ............................ 401 3,200
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(b)
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Sales revenues
Sales revenue ..................................................... $6,500
Less: Sales returns and allowances ............... $90
Sales discounts ...................................... 23 113
Net sales ............................................................. 6,387
Cost of goods sold .................................................... 3,820
Gross profit ................................................................ $2,567
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PROBLEM 5-3B
Sales revenues
Sales.................................................... £706,000
Less: Sales returns & allowances ... 9,000
Net sales ............................................. 697,000
Cost of goods sold ................................... 507,000
Gross profit ............................................... 190,000
Operating expenses
Salaries and wages expense...... £96,000
Rent expense ............................... 15,000
Sales commissions expense ..... 13,500
Depreciation expense ................. 11,000
Utilities expense .......................... 8,500
Insurance expense ...................... 7,000
Freight–out .................................. 6,500
Property tax expense .................. 3,500
Total oper. expenses ........... 161,000
Income from operations ........................... 29,000
Other income and expense
Interest revenue ................................. 8,000
Interest expense........................................ 6,100
Net income................................................. £ 30,900
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Assets
Property, plant, and equipment
Equipment .......................................... £154,300
Less: Accumulated depreciation—
equipment ............................... 33,000 £121,300
Current assets
Prepaid insurance .............................. 3,500
Inventory............................................. 26,000
Accounts receivable .......................... 30,500
Cash .................................................... 26,000 86,000
Total assets ................................ £207,300
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PROBLEM 5-4B
(a)
General Journal J1
Date Account Titles Ref. Debit Credit
Apr. 5 Inventory ............................................. 120 1,200
Accounts Payable ....................... 201 1,200
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J1
Date Account Titles Ref. Debit Credit
Apr. 27 Sales Returns and Allowances...... 412 20
Accounts Receivable .............. 112 20
(b)
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Debit Credit
Cash ......................................................................... $ 1,063
Accounts Receivable.............................................. 560
Inventory ................................................................. 2,987
Share Capital—Ordinary ........................................ $4,000
Sales Revenue ........................................................ 1,540
Sales Returns and Allowances.............................. 20
Cost of Goods Sold ................................................ 910
$5,540 $5,540
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*PROBLEM 5-5B
Sales revenues
Sales revenue ......................... $1,000,000
Less: Sales returns and
allowances................... 28,000
Net sales ................................. 972,000
Cost of goods sold
Inventory, Dec. 1, 2013........... $40,000
Purchases ............................... $585,000
Less: Purchase returns
and allowances........... $2,900
Purchase discounts ... 5,300 8,200
Net purchases ........................ 576,800
Add: Freight-in ...................... 7,500
Cost of goods purchased ...... 584,300
Cost of goods available
for sale ........................ 624,300
Less: Inventory, Nov. 30,
2014 .......................... 54,600
Cost of goods sold..... 569,700
Gross profit ................................... $402,300
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*PROBLEM 5-6B
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(2) A decline in sales does not necessarily mean that profitability declined.
Profitability is affected by sales, cost of goods sold, and operating
expenses. If cost of goods sold or operating expenses decline more
than sales, profitability can increase even when sales decline. In this
particular case, the sales decline was offset by cost savings to improve
profitability. Therefore, profitability increased for Psang Inc. from 2012
to 2014.
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*PROBLEM 5-7B
(a)
General Journal
Date Account Titles Debit Credit
Apr. 5 Purchases ...................................................... 1,300
Accounts Payable ................................. 1,300
7 Freight-In ....................................................... 70
Cash........................................................ 70
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(b)
Cash Share Capital—Ordinary
4/1 Bal. 3,000 4/7 70 4/1 Bal. 7,000
4/30 630 4/14 1,176 4/30 Bal. 7,000
4/21 396
4/30 Bal. 1,988 Sales Revenue
4/10 670
Accounts Receivable 4/20 600
4/10 670 4/27 55 4/30 Bal. 1,270
4/20 600 4/30 630
4/30 Bal. 585 Sales Returns and Allowances
4/27 55
Inventory 4/30 Bal. 55
4/1 Bal. 4,000
4/30 Bal. 4,000 Purchases
4/5 1,300
Accounts Payable 4/12 450
4/9 100 4/5 1,300 4/30 Bal. 1,750
4/14 1,200 4/12 450
4/17 50 Freight-In
4/21 400 4/7 70
4/30 Bal. 0 4/30 Bal. 70
Purchase
Returns and Allowances
4/9 100
4/17 50
4/30 Bal. 150
Purchase Discounts
4/14 24
4/21 4
4/30 Bal. 28
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Debit Credit
Cash ....................................................................... €1,988
Accounts Receivable ........................................... 585
Inventory ............................................................... 4,000
Share Capital—Ordinary ...................................... €7,000
Sales Revenue ...................................................... 1,270
Sales Returns and Allowances ........................... 55
Purchases ............................................................. 1,750
Purchase Returns and Allowances..................... 150
Purchase Discounts ............................................. 28
Freight-In ............................................................... 70
€8,448 €8,448
Sales revenues
Sales revenue ................................ €1,270
Less: Sales returns and
allowances .......................... 55
Net sales ......................................... 1,215
Cost of goods sold
Inventory, April 1 ........................... €4,000
Purchases ...................................... €1,750
Less: Purchase returns
and allowances .................. €150
Purchase discounts ........... 28 178
Net purchases ................................ 1,572
Add: Freight-in .............................. 70
Cost of goods purchased ............... 1,642
Cost of goods available
for sale ........................................ 5,642
Less: Inventory, April 30 ............... 4,824
Cost of goods sold ................. 818
Gross profit ........................................... € 397
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Cash
Equipment
12/1 Bal. 7,200 12/6 1,600
12/8 2,100 12/15 2,000 12/1 Bal. 22,000
12/10 6,600 12/20 1,800 12/31 Bal.22,000
12/27 11,640 12/23 8,820
12/31 Bal. 13,320 Accumulated Depr.—Equipment
12/1 Bal. 2,200
Accounts Receivable 12/31 200
12/1 Bal. 4,600 12/8 2,100 12/31 Bal. 2,400
12/18 12,000 12/27 12,000
12/31 Bal. 2,500 Accounts Payable
12/23 9,000 12/1 Bal. 4,500
Inventory 12/13 9,000
12/1 Bal. 12,000 12/10 4,100 12/31 Bal. 4,500
12/13 9,000 12/18 8,400
12/23 180 Salaries and Wages Payable
12/31 Bal. 8,320 12/6 1,000 12/1 Bal. 1,000
12/31 800
Supplies 12/31 Bal. 800
12/1 Bal. 1,200 12/31 1,500
12/15 2,000
12/31 Bal. 1,700
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Sales Discounts
12/27 360
12/31 Bal. 360
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DR. CR.
Cash ................................................................ $13,320
Accounts Receivable ..................................... 2,500
Inventory ......................................................... 8,320
Supplies .......................................................... 1,700
Equipment....................................................... 22,000
Accumulated Depreciation—Equipment...... $ 2,400
Accounts Payable .......................................... 4,500
Salaries and Wages Payable......................... 800
Share Capital—Ordinary................................ 30,000
Retained Earnings .......................................... 9,300
Sales Revenue ................................................ 18,600
Sales Discounts ............................................. 360
Cost of Goods Sold........................................ 12,500
Depreciation Expense.................................... 200
Salaries and Wages Expense........................ 3,200
Supplies Expense .......................................... 1,500
$65,600 $65,600
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Assets
Equity
Share Capital—Ordinary .......................... $ 30,000
Retained earnings ..................................... 10,140 $40,140
Current liabilities
Accounts payable ..................................... $4,500
Salaries and wages payable .................... 800 5,300
Total equity and liabilities ............................... $45,440
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CCC5 (Continued)
(b) (Continued)
18 Inventory ............................................... 80
Cash.................................................. 80
31 Accounts Payable
($2,875 – $595 + $2,300).................... 4,580
Cash.................................................. 4,580
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CCC5 (Continued)
Cash
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 1,180
6 J1 100 1,080
8 J1 375 1,455
14 J1 75 1,380
17 J1 1,000 2,380
18 J1 80 2,300
20 J1 2,300 4,600
28 J1 216 4,384
28 J1 3,450 7,834
30 J1 145 7,689
31 J1 4,580 3,109
31 J1 750 2,359
Accounts Receivable
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 875
8 J1 375 500
12 J1 3,450 3,950
28 J1 3,450 500
Inventory
Date Explanation Ref. Debit Credit Balance
Jan. 4 J1 2,875 2,875
6 J1 100 2,975
7 J1 595 2,380
12 J1 1,785 595
14 J1 2,300 2,895
18 J1 80 2,975
20 J1 1,190 1,785
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CCC5 (Continued)
Prepaid Insurance
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 1,210
31 Adjusting entry J2 110 1,100
Equipment
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 1,200
Accumulated Depreciation—Equipment
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 40
31 Adjusting entry J2 20 60
Accounts Payable
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 75
4 J1 2,875 2,950
7 J1 595 2,355
14 J1 2,300 4,655
30 J1 75 4,580
31 J1 4,580 0
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CCC5 (Continued)
Jan. 1 Balance 9 56
28 J1 56 0
Interest Payable
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance 9 15
31 Adjusting entry J2 10 25
Notes Payable
Date Explanation Ref. Debit Credit Balance
Share Capital—Ordinary
Date Explanation Ref. Debit Credit Balance
Dividends
Date Explanation Ref. Debit Credit Balance
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CCC5 (Continued)
Sales Revenue
Date Explanation Ref. Debit Credit Balance
Utilities Expense
Date Explanation Ref. Debit Credit Balance
Jan. 30 J1 70 70
Depreciation Expense
Date Explanation Ref. Debit Credit Balance
Insurance Expense
Date Explanation Ref. Debit Credit Balance
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CCC5 (Continued)
Freight-Out
Date Explanation Ref. Debit Credit Balance
Jan. 14 J1 75 75
Interest Expense
Date Explanation Ref. Debit Credit Balance
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CCC5 (Continued)
(c)
Cookie Creations
Trial Balance
January 31, 2014
Debit Credit
Cash ............................................................................ $ 2,359
Accounts Receivable ................................................. 500
Inventory .................................................................... 1,785
Supplies ...................................................................... 350
Prepaid Insurance ...................................................... 1,210
Equipment .................................................................. 1,200
Accumulated Depreciation—Equipment ................. $ 40
Accounts Payable......................................................
Salaries and Wages Payable ....................................
Unearned Service Revenue....................................... 300
Interest Payable ......................................................... 15
Notes Payable ............................................................ 2,000
Share Capital—Ordinary ........................................... 3,329
Dividends .................................................................... 750
Sales Revenue............................................................ 5,750
Cost of Goods Sold ................................................... 2,975
Salaries and Wages Expense ................................... 160
Utilities Expense ........................................................ 70
Depreciation Expense ...............................................
Insurance Expense ....................................................
Freight-Out ................................................................. 75
Interest Expense ........................................................
$11,434 $11,434
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CCC5 (Continued)
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CCC5 (Continued)
(e)
Cookie Creations
Adjusted Trial Balance
January 31, 2014
Debit Credit
Cash ........................................................................... $ 2,359
Accounts Receivable ................................................ 500
Inventory .................................................................... 1,785
Supplies ..................................................................... 350
Prepaid Insurance ..................................................... 1,100
Equipment ................................................................. 1,200
Accumulated Depreciation—Equipment................. $ 60
Accounts Payable.....................................................
Salaries and Wages Payable....................................
Unearned Service Revenue...................................... 300
Interest Payable ........................................................ 25
Notes Payable ........................................................... 2,000
Share Capital—Ordinary .......................................... 3,329
Dividends ................................................................... 750
Sales Revenue........................................................... 5,750
Cost of Goods Sold .................................................. 2,975
Salaries and Wages Expense .................................. 160
Utilities Expense ....................................................... 70
Depreciation Expense .............................................. 20
Insurance Expense ................................................... 110
Freight-Out ................................................................ 75
Interest Expense ....................................................... 10
$11,464 $11,464
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CCC5 (Continued)
(f)
COOKIE CREATIONS
Income Statement
For the Month Ended January 31, 2014
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2009 2010
(a) (1) Percentage change in sales:
(W154,630,328 – W136,323,670) ÷ 13.4% increase
W136,323,670
Comment
The percentage of net income to sales increased 44.4% from 2009 to 2010
(7.2% to 10.4%). The gross profit rate increased 9.8% during this time. (30.6%
to 33.6%)
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Zetar Nestlé
(£ 000) (CHF in Millions)
(a) (1) Gross profit £27,321 CHF63,8731
(b) Because the companies report using different currencies, direct com-
parisons of total gross profit, or total operating income are difficult.
Comparisons of ratios and percentages can be performed. Nestlé
reported a significantly higher gross profit rate, and a much bigger
percentage increase in operating income.
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The answers to this assignment will be dependent upon the articles selected
from the Internet by the student.
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(b) Debbie’s proposed changes will increase net income by $29,400. Mike’s
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Debbie’s plan and Mike’s plan, Debbie’s plan should be
adopted. While Mike’s plan will increase net income, it may also have an
adverse effect on sales personnel. Under Mike’s plan, sales personnel
will be taking a cut of $16,000 in compensation [$60,000 – ($30,000 +
$14,000)].
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(a), (b)
President
Boardin Co.
Dear Sir:
As you know, the financial statements for Boardin USA Co. are prepared in
accordance with IFRS. One of these principles is the revenue recognition
principle, which provides that revenues should be recognized when the
performance obligation is satisfied.
Typically, sales revenues are recognized when the goods are transferred to
the buyer from the seller. At this point, the sales transaction is completed
and the sales price is established. Thus, in the typical situation, revenue on
the surfboard ordered by Dexter is earned at event No. 8, when Dexter
picks up the surfboard.
If you have further questions about the accounting for this sale, please let
me know.
Sincerely,
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1. Tell the treasurer (her boss) that she will attempt to take every allow-
able cash discount by preparing and mailing checks within the
discount period—the ethical thing to do. This will offend her boss
and may jeopardize her continued employment.
2. Join the team and continue the unethical practice of taking undeserved
cash discounts.
3. Go over her boss’s head and take the chance of receiving just and
reasonable treatment from an officer superior to Chris. The company
may not condone this practice. Anita definitely has a choice, but
probably not without consequence. To continue the practice is
definitely unethical. If Anita submits to this request, she may be
asked to perform other unethical tasks. If Anita stands her ground
and refuses to participate in this unethical practice, she probably
won’t be asked to do other unethical things—if she isn’t fired.
Maybe nobody has ever challenged Chris’s unethical behavior and
his reaction may be one of respect rather than anger and retribution.
Being ethically compromised is no way to start a new job.
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GAAP EXERCISES
GAAP 5-1
GAAP5-2
GAAP5-3
ATLANTIS COMPANY
Comprehensive Income Statement
For the Year Ended 2014
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GAAP 5-4
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