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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.

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 435

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).

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.436 Fundamental Accounting Principles, Twelfth Canadian Edition

QUICK STUDY

Quick Study 6-1A B C D E

Net sales...............$14,000

$102,000

$68,000

$540,000$398,000

Cost of goods sold......................

8,00 0

64,00 0

31,0 00

320,000 215,000

Gross profit from sales.....................

$ 6,000

$ 38,000

$37,000

$220,000$183,000

Operating expenses..............

9,00 0

31,00 0

22,0 00

261,000 106,000

Net income (loss). . $ (3,000

) $ 7,000

$15,000

$(41,000)$ 77,000

Quick Study 6-2a. Periodic AND perpetual inventory systemsb. Perpetual inventory systemsc. Perpetual inventory systemsd. Periodic inventory systemse. Perpetual inventory systems

Quick Study 6-3a. 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 6-4a. 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 6-5May 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


30


Merchandise Inventory.......... 60 Cash..................................... 2,940 To record payment of credit purchase within discount period; $3,000 x 2% = $60 discount.

Quick Study 6-6Aug. 2 Merchandise Inventory................ 14,000


4 Accounts Payable........................ 1,500 Merchandise Inventory.......... 1,500 To record allowance regarding August 2 credit purchase.

1 Accounts Payable........................ 12,500


7 Cash..................................... 12,500 To record payment of credit purchase less allowance; 14,000 – 1,500 = 12,500.


Quick Study 6-7Mar. 5 Merchandise Inventory ............ 2,000

Accounts Payable ............... 2,000(500 $5) × 80% = $2,000

7 Accounts Payable .................... 200Merchandise Inventory ........ 200

(50/500) × $2,000 = $20015 Accounts Payable .................... 1,800

Cash .................................. 1,764Merchandise Inventory ........ 36

$2,000 - $200 = $1,800; $1,800 – ($1,800 × 2%) = $1,764

Quick Study 6-8Sept. 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


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 6-9Oct. 1

5Accounts 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 6-10Apr. 1 Accounts Receivable ................ 2,000

Sales .................................. 2,000To record credit sale.

1 Cost of Goods Sold .................. 1,400Merchandise Inventory ........ 1,400

To record cost of sale.4 Sales Returns and Allowances... 500

Accounts Receivable ........... 500To record sales return.

4 Merchandise Inventory ............ 350Cost of Goods Sold .............. 350

To restore goods to inventory.11 Cash ....................................... 1,470

Sales Discounts ....................... 30Accounts 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$245,700Sales 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 .........................$241,500Cost of goods sold ........... (76,600) (326,700) (21,300) (125,900)Gross profit from sales.....$ 32,200$163,800$ 9,000$115,600Gross profit ratio.............. 29.60%1 33.39%2 29.70%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 6-12July31 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 6-13a. Classified Multi-Step Income Statement

JETCOIncome Statement

For Year Ended December 31, 2011Sales.............................................. $1

00Less: Sales discounts.....................

4Net sales........................................ $

96Cost of goods sold.......................... 6

0Gross profit from sales.................... $

36Operating 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........................................

1 3

Total operating expenses............. 3 4

Income from operations.................. $ 2

Other revenues/expenses: Interest revenue......................... 5 Net income..................................... $

7

b. Single-Step Income StatementJETCO

Income StatementFor Year Ended December 31, 2011

Revenues:


Net sales.................................... $ 96

Interest revenue......................... 5 Total revenues........................... $10

1Expenses: 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 6-15Dec.31 Sales ...................................... 70

Income Summary................. 70To close Sales.

31 Income Summary ..................... 41Sales Discounts .................. 3Sales Returns and Allowances

4Cost of Goods Sold.............. 25Amortization Expense ......... 2Advertising Expense ........... 7

To close income statement accounts withdebit balances.

31 Income Summary ..................... 29Tony Ingram, Capital............ 29

To close income summary account to capital.31 Tony Ingram, Capital ............... 1

Tony Ingram, Withdrawals. . . 1To close withdrawals account to capital.


*Quick Study 6-16a. QS6-5 – Periodic

May 1 Purchases................................... 1,200 Accounts Payable.................. 1,200 To record purchase; terms 1/10, n30.

14


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


Purchase Discounts............... 60 Cash..................................... 2,940 To record payment within discount period; $3,000 x 2% = $60 discount.

b. QS6-6 – PeriodicAug. 2 Purchases................................... 14,000


4 Accounts Payable........................ 1,500 Purchase Returns and Allowances..................................

1,500

To record allowance.

17


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 = $20015


Cash.................................... 1,764 Purchase Discounts.............. 36 $1,800 – ($1,800 × 2%) = $1,764

*Quick Study 6-17a. QS6-8 - PeriodicSept. 1 Accounts Receivable – JenAir........ 6,000


14

Cash........................................... 6,000

Accounts Receivable – JenAir.. 6,000 To record collection from credit customer.

15

Accounts Receivable – Dennis Leval...........................................

1,800


25

Cash........................................... 1,764

Sales Discounts........................... 36 Accounts Receivable – Dennis Leval...........................................

1,800



*Quick Study 6-17 (concluded)b. QS6-9 - PeriodicOct

. 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 - PeriodicApr

.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 6-18Merchandise inventory, January 1, 2011.. $

40,000Purchases.............................................. $180,0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.450 Fundamental Accounting Principles, Twelfth Canadian Edition

00Less: Purchase discounts...................... 1,400Add: Transportation-in.......................... 14,0

00Net Purchases....................................... 192,60

0Cost of Goods Available for Sale............. $232,6

00Less: Merchandise inventory, December 31, 2011................................

22,00 0

Cost of Goods Sold................................. $210,600


*Quick Study 6-19Dec

31 Sales............................................ 450,000

Purchase Discounts...................... 1,400Merchandise Inventory................. 22,000 Income Summary................... 473,40

0 To close all credit balance temporary accounts.

31 Income Summary.......................... 412,000

Merchandise Inventory.......... 40,000 Sales Returns and Allowances 27,000 Purchases............................. 180,00

0 Transportation-In.................. 14,000 Salaries Expense................... 120,00

0 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 6-20a b c d

Sales............................... $ 130,00

0

$ 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 $160,50

0 $

6,450 $114,10

0 Gross profit ratio.............. 7.39%1 32.39%

218.27%

347.11%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 ............. 5,000GST Receivable ........................ 300

Accounts Payable ................. 5,300To record credit purchase; $5,000 x 6% = 300 GST.

*Quick Study 6-22


Mar.17 Accounts Receivable ................. 6,696PST Payable ........................ 348GST Payable ........................ 348Sales ................................... 5,800

To record credit sale; $5,800 x 6% = 348 PST; $5,800 x 6% = $348 GST.

17 Cost of Goods Sold.................... 5,000Merchandise Inventory ......... 5,000

To record cost of sale.


*Quick Study 6-23

Mar. 1 Purchases ............................... 5,000GST Receivable ....................... 300

Accounts Payable ............... 5,300To record credit purchase; $5,000 x 6% = 300 GST.

*Quick Study 6-24

Mar.17 Accounts Receivable ................ 6,696PST Payable ....................... 348GST Payable ....................... 348Sales .................................. 5,800



EXERCISES

Exercise 6-1 (15 minutes)a b c d e

Sales............................ $ 240,000

$ 140,000

$ 75,000

$462,000

$85,000

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


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


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


Cash..................................... 10,000 To record payment.


Exercise 6-3 (30 minutes)2011Mar. 2 Merchandise Inventory ............ 3,600

Accounts Payable — Blanton Company3,600

Purchased merchandise on credit.

3 Merchandise Inventory ............ 200Cash................................... 200

Paid shipping charges on purchased merchandise.

4 Accounts Payable — Blanton Company 600Merchandise Inventory ........ 600

Returned unacceptable merchandise.

17 Accounts Payable — Blanton Company 3,000Merchandise Inventory........ 60Cash................................... 2,940

Paid balance within the discount period;3,600 – 600 = 3,000; 3,000 x 2% = 60.

18 Merchandise Inventory ............ 7,500Accounts Payable — Fleming Corp.

7,500Purchased merchandise on credit.

21 Accounts Payable — Fleming Corp. 2,100Merchandise Inventory ........ 2,100

Received an allowance on purchase.

28 Accounts Payable — Fleming Corp. 5,400Merchandise Inventory........ 108Cash................................... 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



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; $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.


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.


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........ 11,000Purchased merchandise on credit.

11 Accounts Payable - Raintree........... 11,000Merchandise Inventory............... 330Cash.......................................... 10,670

Paid account payable within the discount period;11,000 x 3% = 330.

b.Mar. 1 Accounts Receivable – Sundown Company11,000

Sales......................................... 11,000Sold merchandise on account.

1 Cost of Goods Sold ........................ 7,500Merchandise Inventory .............. 7,500


11 Cash.............................................. 10,670Sales Discounts............................. 330

Accounts Receivable – Sundown Company11,000

Collected account receivable.

Analysis component:

Amount borrowed to pay the balance owing$10,670.00Annual rate of interest ........................ × 8% Interest per year.................................$ 853.60

Interest per day ($853.60/365).............$ 2.34

Discount taken....................................$ 330.00Interest 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.2011May11 Merchandise Inventory ............ 30,000

Accounts Payable – Hostel Sales30,000

Purchased merchandise on credit.

11 Merchandise Inventory ............ 335Cash................................... 335


12 Accounts Payable – Hostel Sales.. 1,200Merchandise Inventory .......... 1,200


20 Accounts Payable – Hostel Sales.. 28,800Merchandise Inventory........... 864Cash...................................... 27,936


b.2011May11 Accounts Receivable – Wilson Purchasing 30,000

Sales..................................... 30,000Sold merchandise on account.

11 Cost of Goods Sold..................... 20,000Merchandise Inventory........... 20,000


12 Sales Returns and Allowances..... 1,200Accounts Receivable – Wilson Purchasing

1,200Accepted a return from a customer.

12 Merchandise Inventory .............. 800Cost of Goods Sold................. 800

Returned goods to inventory.

21 Cash.......................................... 27,936Sales Discounts.......................... 864


Accounts Receivable – Wilson Purchasing28,800

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...................................$ 864.00Interest paid on the 80-day* loan (80 $3.83) (306.40)Net savings from borrowing to pay within

the discount period.........................$ 557.60


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 InventoryBalance, 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 ................. 32,000Balance, Dec. 31, 2011.......................

7,900

Cost of Goods SoldRepresents all entries to record the cost component of sales transactions...........

186,000

Represents all entries to record merchandise returned by customers and restored to inventory during 2011

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 salesb)28,000 + 124,000 = 152,000 total operating expensesc) 480,000 – 124,000 = 356,000 cost of goods soldd) (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 B2011 2010 2011 2010

Sales............................256,000

160,000

110,000

50,000

Sales discounts.............2,56

01,60

01,10

0 500Sales 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...........17,9

2016,0

0024,2

009,00

0Administrative expenses......................

25,600

24,000

29,700

11,000

Total operating expenses......................

43,520

40,000

53,900

20,000

Net income (loss)..........5,12

014,4

00(5,50

0)2,00

0

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

$ 160,00

0

$ 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 16,0

00Cost 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

$ 166,40

0

$ 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 B2011 2010 2011 2010

Sales............................120,000

180,000

90,000

45,000

Cost of goods sold: Merchandise inventory (beginning)...............

18,700

22,300

9,875

9,000

Net cost of merchandise purchases.................

72,000

104,400

49,500

26,100

Merchandise inventory (ending).........

(16,400)

(18,700)

(8,920)

(9,875)

Cost of goods sold......74,3

00108,000

50,455

25,225

Gross profit from sales. .45,7

0072,0

0039,5

4519,7

75

Operating expenses.......36,0

0054,0

0027,0

0013,5

00

Net income (loss)..........9,70

018,0

0012,5

456,27

5

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-SOFTIncome Statement

For Month Ended November 30, 2011

Net sales..................................... $26,935*

Cost of goods sold....................... 14,8 00

Gross profit from sales................ $12,135

Operating expenses: Wages expense...................... $4,2

00 Utilities expense.................... 2,10

0 Amortization expense, store equipment...................................

12 0

Total operating expenses..... 6,4 20

Income from operations............... $ 5,715

Other revenues and expenses: Rent revenue......................... 8

50Net income.................................. $

6,565*Calculated as: 27,700 – 45 – 720 = 26,935b)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................ 14,80

0 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 SalesWork Sheet

For Year Ended December 31, 2011

Account

UnadjustedTrial

BalanceAdjustment

s

Income Statement

Balance Sheet and Statement of Owner’s

EquityDebit Credi

tDebit Credi

tDebit Credi

tDebi

tCredi

tCash 26,0

0026,0

00Merchandise inventory 2,00

02,00

0Prepaid selling expenses 8,00

01,50

06,50

0Store equipment 40,0

0040,0

00Accumulated amortization, store eq.

9,000

2,500

11,500

Accounts payable 14,840

14,840

Salaries payable 0 3,200

3,200

Eldon Perdu, capital 45,600

45,600

Eldon Perdu, withdrawals 3,600

3,600

Sales 858,000

858,000

Sales returns and allowances

33,000

33,000

Copyright © 2007 by M

cGraw

-Hill Ryerson Lim

ited. All rights reserved.464

Fundamental Accounting Principles, Tw

elfth Canadian Edition

Sales discounts 8,000

8,000

Cost of goods sold 424,840

424,840

Sales salaries expense 94,000

3,200

97,200

Utilities expense, store 28,000

28,000

Amortization expense, store equip.

- 2,500

2,500

Other selling expenses 70,000

1,500

71,500

Other administrative expenses

190,000

190, 000

Totals 927,440

927,440

7,200

7,200

855,040

858,000

78,100

75,140

Net Income 2,9 60

2,9 60

Totals 858,000

858,000

75,600

75,600

Exercise 6-16 (continued)b) Classified multiple-step income statement:

PERDU SALESIncome Statement

For Year Ended December 31, 2011Sales.............................................. $858,0

00Less: Sales returns and allowances $33,00

0Sales discounts............. 8,000 41,0

00Net sales........................................ $817,0

00Cost of goods sold.......................... 424,84

0Gross profit from sales.................... $392,1

60Operating expenses: Selling expenses: Sales salaries expense............... $97,

200 Other selling expenses............... 71,

500 Utilities expense, store............. 28,0

00 Amortization expense, store..... 2,5

00 Total selling expenses............... $199,2

00 General and administrative expenses:.......................................

190,0 00

Total operating expenses............. 389,2 00

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.................... 424,84

0 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 StatementFor Year Ended January 31, 2011

Revenues: Net sales............................... $510,00

0Expenses: Cost of goods sold................. $301,

000 Selling expenses..................... 117,00

0 General and administrative expenses..................................

109,000

Interest expense..................... 75 0

Total expenses....................... 527,75 0

Net loss.................................... $ 17,750


*Exercise 6-18 (20 minutes)1) Periodic PerpetualNov.

1 Purchases................ 2,800

Merchandise Inventory 2,800

Accounts Payable 2,800

Accounts Payable 2,800

To record purchases on account.

To record purchases on 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 discount period; 2,800 x 2% = 56.

To record cash payment within discount period; 2,800 x 2% = 56.

3)Nov.

7 Cash....................... 196 Cash......................... 196

Purchases Returns and Allowances....

196

Merchandise Inventory.................. To record cheque received for

196

To record cheque received for return of purchases previously paid for with discount already taken; 200 – 2% = 196.

return of merchandise previously paid for with discount already taken; 200 – 2% = 196.

4)Nov.

10

Transportation-In.... 160 Merchandise Inventory 160

Cash.................. 160 Cash.................... 160 To record payment of freight charges.

To record payment of freight charges.


5)Nov.

13

Accounts Receivable 3,000

Accounts Receivable. 3,000

Sales................. 3,000

Sales................... 3,000

To record sale of merchandise on credit.

To record sale of merchandise 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 merchandise bought on account.

To record return of merchandise bought on 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


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



*Exercise 6-20 (25 minutes)2011Mar

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


17 Accounts Payable — Blanton Company.........................................

3,000

Purchase Discounts.......................... 60Cash................................................ 2,940

Paid balance within the discount period; 3,600 – 600 = 3,000; 3,000 x 2% = 60.

18 Purchases........................................ 7,500Accounts 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.. . . 5,400Purchase Discounts.......................... 108Cash................................................ 5,292



*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.



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)2011Mar.

1Purchases........................................ 11,000

Accounts Payable – Raintree..... 11,000 Purchased merchandise on credit.

11 Accounts Payable – Raintree............. 11,000Purchase Discounts ................. 330Cash........................................ 10,670

Paid account payable within the discount period; 11,000 x 3% = 330.

b)2011Mar.

1Accounts Receivable – Sundown Company.........................................

11,000

Sales....................................... 11,000 Sold merchandise on account.

11 Cash................................................ 10,670Sales Discounts............................... 330

Accounts Receivable – Sundown Company..................................

11,000

Collected account receivable.


*Exercise 6-24 (20 minutes) a)

2011May

11Purchases........................................ 30,000

Accounts Payable – Hostel Sales 30,000 Purchased merchandise on credit.

11 Transportation-In............................. 335Cash........................................ 335


13 Accounts Payable – Hostel Sales....... 1,200Purchase Returns and Allowances...............................

1,200


20 Accounts Payable – Hostel Sales....... 28,800Purchase Discounts.................. 864Cash........................................ 27,936


b)

2011May

11Accounts Receivable – Wilson Purchasing......................................

30,000

Sales....................................... 30,000 Sold merchandise on account.

12 Sales Returns and Allowances.......... 1,200Accounts Receivable – Wilson Purchasing...............................

1,200

Accepted a return from a customer.

21 Cash................................................ 27,936Sales Discounts............................... 864

Accounts Receivable – Wilson 28,800


Purchasing............................... Collected account receivable; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864.


*Exercise 6-25 (35 minutes)a. Gross profit from sales...............

$145,000Less: Operating expenses..........

? Net income................................ $

65,000Therefore:Total operating expenses........... $

80,000

b. Sales.........................................$340,000Less:..................Sales discounts $ 5,500

Sales returns....................... 14,000 19,500

Net sales...................................$320,500Less: Cost of goods sold.............

? Gross profit from sales...............$145,000Therefore:Cost of goods sold.....................$175,500

c. Merchandise inventory (beginning) $ 30,000

Invoice cost of merchandise purchases $175,000Less:............Purchase discounts 3,600

Purchase returns................. 6,000Net purchases ........................... $165,400Add: Transportation-in .............. 11,000Total cost of merchandise purchased

176,400Goods available for sale ............$206,400Less: Merchandise inventory (ending)

? Cost of goods sold (from b)........$175,500Therefore: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 SheetFor Year Ended December 31, 2011

Unadjusted Trial

Balance Adjustments

Income Statement

Balance Sheet and Statement of Owner’s

Equity No. Account Debit Credi

tDebit Credit Debi

tCredit Debi

tCredit

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 900201 Accounts payable. 280 280209 Salaries payable... (b)

120120

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 250507 Transportation-in. 160 160


cGraw

-Hill Ryerson Lim

ited. All rights reserved.Solutions M

anual for Chapter 6475

622 Salaries expense. . 1,400 (b) 120

1,520

640 Rent expense....... 500 500651 Store supplies

expense...............

(a) 300

30 0

Totals............... 24,100

24,100

4 20

420 11,570

14,970

15,370

11,970

Net income.......... 3,400

3,400

Totals 14,970

14,970

15,370

15,370

Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.494 Fundamental Accounting Principles, Tenth Canadian Edition


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, 2011Net sales...................................... $404,000Cost of goods sold........................ 265,400Gross profit from sales.................. $138,600Operating expenses: Selling expenses........................ $69,000 General and administrative expenses 33,500 Total operating expenses........ 102,500Income from operations................ $ 36,100Other revenues and expenses: Interest revenue........................ 1,200Net 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 ELECTRONICSIncome Statement

For Month Ended April 30, 2011Sales............................................. $33,7

00Less: Sales returns and allowances 1,

740Net sales........................................ $31,9

60Cost 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............. 16,9

18 Cost of goods available for sale... $23,1

18 Less: Merchandise inventory, April 30, 2011 2,46

0Cost of goods sold.......................... 20,6

58Gross 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................. $8,98

0 General and administrative expenses: Wages expense, office................. 2,800 Telephone expense, office........... 150 Total general and administrative expenses 2,950 Total operating expenses............ 11,9

30Operating loss................................ $

628Other revenues and expenses: Interest expense........................ 1

30Net loss......................................... $

758


*Exercise 6-28 (concluded)d)2011 Closing entries:Apr.

30

Merchandise Inventory............... 2,460

Purchases Returns and Allowances.................................

110

Purchases Discounts................... 28Sales......................................... 33,70

0Income Summary..................... 36,298


30

Income Summary........................ 37,056

Merchandise Inventory............ 6,200Sales Returns and Allowances. . 1,740Purchases............................... 16,676Transportation-In.................... 380Amortization Expense, Delivery

Trucks.......................................640

Wages Expense, Office............. 2,800Wages Expense, Selling........... 8,000Telephone Expense, Office....... 150Telephone Expense, Store........ 340Interest Expense..................... 130


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.)



June 1 Merchandise Inventory ............ 2,000GST Receivable ....................... 120

Accounts Payable ............... 2,120To record credit purchase; $2,000 x 6% = 120 GST.

5 Accounts Receivable ................ 1,596PST Payable ....................... 112GST Payable ....................... 84Sales .................................. 1,400


5 Cost of Goods Sold................... 1,000Merchandise Inventory ........ 1,000



June 1 Purchases ............................... 2,000GST Receivable ....................... 120

Accounts Payable ............... 2,120To record credit purchase; $2,000 x 6% = $120 GST.




PROBLEMS

Problem 6-1A (40 minutes) Part 1June 1 Accounts Receivable – Avery & Wiest 7,00

0 Sales.................................... 7,00

0 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


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 2

0Cash........................................... 11,0

00 Accounts Receivable – Gelgar. 11,0

00 To record collection.

30

Accounts Payable – Bastille Sales. 14,500

Cash..................................... 14,500

To record payment.

Part 2a. 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................................... 1,600Sold goods on credit.

2 Cost of Goods Sold................... 1,000Merchandise Inventory........ 1,000

To record the cost of the July 2 sale.3 Merchandise Inventory............. 200

Cash................................... 200Paid freight on incoming goods.

8 Cash........................................ 3,200Sales................................... 3,200

Sold goods for cash.8 Cost of Goods Sold................... 2,400

Merchandise Inventory........ 2,400To record the cost of the July 8 sale.

9 Merchandise Inventory............. 4,600Accounts Payable—Keene Co.

4,600Purchased goods on credit.

12 Accounts Payable—Keene Co. . . 400Merchandise Inventory........ 400

Received credit memo.12 Cash........................................ 1,568

Sales Discounts........................ 32Accounts Receivable—Terra Co.

1,600Collected receivable within the discount period; 1,600 x 2% = 32.

13 Office Supplies ........................ 960Accounts Payable—East Co... 960

Purchased goods on credit.16 Accounts Payable—Jones Co. .... 12,000

Merchandise Inventory........ 120Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.504 Fundamental Accounting Principles, Twelfth Canadian Edition

Cash................................... 11,880Paid payable within the discount period; 12,000 x

1% = 120.


Problem 6-2A (continued)19 Accounts Receivable—Urban Co. 2,500

Sales................................... 2,500Sold goods on credit.


To record the cost of the July 19 sale.

21 Sales Returns and Allowances... 300Accounts Receivable—Urban Co.

300Issued credit memo.

22 Sales....................................... 100Accounts Receivable—Urban Co.

100Received debit memo for error.

29 Accounts Payable—Keene Co. . . 4,200Cash................................... 4,200

Paid payable beyond the discount period.

30 Cash........................................ 2,058Sales 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. 10,000Sales................................... 10,000

Sold goods on credit.




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

$ 4,116.00Annual rate of interest ............................ × 6% Interest per year......................................$ 246.96

Interest per day ($246.96/365).................$ 0.6766

Discount..................................................$ 84.00Interest 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 Company3,000

Purchased goods on credit.

4 Accounts Payable—Dickson Company 50Cash.......................................... 50

Paid freight for Dickson.

5 Accounts Receivable—Griften Corp.. 2,100Sales......................................... 2,100


5 Cost of Goods Sold.......................... 1,500Merchandise Inventory............... 1,500


8 Merchandise Inventory.................... 2,650Accounts Payable—Kendall Corporation


9 Delivery Expense or Freight-Out...... 60Cash.......................................... 60

Paid shipping charges on August 5 sale.

10 Sales Returns and Allowances......... 350Accounts Receivable—Griften Corp.

350Customer returned merchandise.

10 Merchandise Inventory.................... 250Cost of Goods Sold..................... 250


12 Accounts Payable—Kendall Corporation 400Merchandise Inventory............... 400

Received a credit memorandum for August 8 purchase.

15 Cash............................................... 1,715Sales 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.......... 600Purchased office equipment on credit.

18 Accounts Payable—Kendall Corporation 2,250Merchandise Inventory............... 22.50Cash..........................................

2,227.50Paid payable within the discount period; 2,650 – 400 = 2,250; 1% × 2,250 = 22.50.

19 Accounts Receivable—Farley........... 1,800Sales......................................... 1,800


19 Cost of Goods Sold.......................... 1,250Merchandise Inventory............... 1,250

To record the cost of the August 19 sale.

22 Sales Returns and Allowances......... 300Accounts Receivable—Farley....... 300

Issued credit memo.

29 Cash............................................... 1,485Sales Discounts.............................. 15

Accounts Receivable—Farley....... 1,500Collected receivable within the discount period; 1,800 – 300 = 1,500; 1% × 1,500 = 15.

30 Accounts Payable—Dickson Company 2,950Cash.......................................... 2,950

Paid payable; $3,000 – $50 = 2,950.


Problem 6-4A (80 minutes) 1.

JUMBO’SWork Sheet

For Year Ended December 31, 2011Unadjusted

Trial Balance Adjustment

s

Income Statement

Balance Sheet and

Statement of Owner’s Equity

Debit Credit Debit Credit Debit Credit Debit CreditCash..................................... 10,275 10,275Accounts receivable............... 22,665 22,665Merchandise inventory........... 54,365 (e)

56553,800

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 74,490Accumulated amortization, equipment

13,655 (c) 6,000

19,655

Accounts payable.................. 8,000 8,000Salaries payable.................... (d)

655655

Sally Fowler, capital............... 166,015

166,015

Sally Fowler, withdrawals....... 15,000 15,000Interest revenue.................... 310 310Sales..................................... 502,14

0502,14

0Sales returns and allowances. 5,070 5,070Cost of goods sold.................. 381,16

0(e)

565381,72

5Salaries expense.................... 91,550 (d)

65592,205

Rent expense........................ 29,100 29,100


cGraw

-Hill Ryerson Lim



Supplies expense................... (a) 2,700

2,700

Amortization expense, equipment.............................

(c) 6,000

6,000

Insurance expense.................

(b) 2,800

2,80 0

Totals................................. 690,120

690,120

12,7 20

12,7 20

519,600

502,450

177,175

194,325

Net loss.................................

17,15 0

17,15 0

Totals................................. 519,600

519,600

194,325

194,325

Problem 6-4A (concluded) 2. Multiple-step income statement:

JUMBO’SIncome Statement


Net sales1................................... $497,070

Cost of goods sold.......................................................................

381,7 25

Gross profit from sales.................................................................

$115,345

Operating expenses: Salaries expense...................... $92,20

5 Rent expense........................... 29,100 Supplies expense..................... 2,700 Amortization expense, equipment..................................

6,000

Insurance expense................... 2,800 Total operating expenses.......... 132,8

05 Loss from operations....................................................................

$ 17,460

Other revenues and expenses: Interest revenue.................... 3

10 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 COMPANYIncome Statement

For Year Ended October 31, 2011Sales............................................ $424,000 Less: Sales discounts................ $ 6,500 Sales returns and allowances 28,000...................................... 34,500 Net sales................................... $389,500Cost of goods sold........................ 165,200Gross profit from sales.................. $224,300Operating expenses:

Selling expenses:Sales salaries expense............. $58,000Advertising expense................ 36,000Rent expense, selling space...... 20,000Store supplies expense............ 5,000Total selling expenses.............. $ 119,000

General and administrative expenses:Office salaries expense............. $53,000Rent expense, office space....... 5,200Office supplies expense............ 1,600Total general and administrative expenses

59,800 ...................................Total operating expenses............ 178,800

Income from operations................ $ 45,500Other revenues and expenses: Interest revenue...................... 1,120Net income................................... $ 46,620


Problem 6-5A (concluded)2. Single-step income statement:

DAVISON COMPANYIncome Statement

For Year Ended October 31, 2011 Revenues:

Net sales.................................... $389,500Interest revenue......................... 1,120 Total revenues......................... $390,620

Expenses:Cost of goods sold......................$165,200Selling expenses........................119,000General 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 ...................................... 424,000Income Summary................. 425,120

To close temporary accounts with credit balances.

31 Income Summary..................... 378,500Sales Discounts .................. 6,500Sales Returns and Allowances

28,000Cost of Goods Sold.............. 165,200Sales Salaries Expense......... 58,000Rent Expense, Selling Space. 20,000Store Supplies Expense........ 5,000Advertising Expense............ 36,000Office Salaries Expense........ 53,000Rent Expense, Office Space. . 5,200Office Supplies Expense....... 1,600

To close temporary accounts with debit balances.

31 Income Summary..................... 46,620Brenda Davison, Capital....... 46,620

To close the Income Summary account.

31 Brenda Davison, Capital........... 32,000


Brenda Davison, Withdrawals32,000

To close the withdrawals account.


Problem 6-7A (60 minutes)1. Classified, multiple-step income statement:

PLYMOUTH ELECTRONICSIncome Statement


Sales........................................................................................

$963,000

Less: Sales returns and allowances................................

$ 5,715

Sales discounts............................................................

14,580 20,2 95

Net sales.............................. $942,705

Cost of goods sold.....................................................................

652,0 25

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.........................................................

1,62 0

Total selling expenses...........................................................

$123,610

General and administrative expenses: Office salaries expense.........................................................

$ 65,94

5 Insurance expense................................................................

3,390

Rent expense, office space.... 3,000 Amortization expense, office equipment.................................

2,760

Office supplies expense.........................................................

73 5

Total general and administrative expenses............

75,83 0

Total operating expenses......... 199,4 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 517

................................................ 40 Income from operations............. $

91,240Other revenues and expenses: Dividend revenue................. 7

20 Net income................................ $

91,960


Problem 6-7A (concluded)2. Single-step income statement:

PLYMOUTH ELECTRONICSIncome Statement


Revenues: Net sales....................................... $942,70

5 Dividend revenue........................... 72

0 Total revenues............................ 943,425Expenses: Cost of Goods sold......................... $652,02

5 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.................... 652,02

5 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


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 ServicingIncome Statement


Sales........................................................................................

$180,000

Less: Sales discounts............ _2,00 0

Net sales.............................. $178,000

Cost of goods sold.....................................................................

74,80 0

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.........................................................

$ 12,00

0 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 19,6


administrative expenses............ 00 Total operating expenses.........................................................

70,00 0

Net income................................ $33,200


Problem 6-9A (concluded) 2. Multiple-step income statement



Net sales.................................. $178,000

Cost of goods sold.................... 74,80 0

Gross profit from sales.............. $103,200

Operating expenses: Salaries expense.................... $32,00

0 Advertising expense............... 17,6

00 Rent expense......................... 10,000 Insurance expense................. 3,600 Supplies expense................... 3,600 Amortization expense, equipment...............................

3,200

Total operating expenses..... 70,00 0

Net income............................... $33,200

3. Single-step income statement



Revenues: Net sales............................... $178,0

00Expenses: Cost of goods sold................. $74,80

0 Selling expenses.................... 50,400 General and administrative expenses.................................

19,60 0


Total expenses.................... 144,8 00

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


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........................................... 6,860Sales Discounts........................... 140 Accounts Receivable – Avery & Wiest.......................................

7,000


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



*Problem 6-11A (30 minutes)Oct.

1 Purchases...................................... 14,400

Accounts Payable — Zeon Company.......................................

14,400

2 Cash.............................................. 1,500 Sales........................................ 1,50

07 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....... 48015

Accounts Receivable — Tom Willis. . . 4,200

Sales........................................ 4,200

15

Accounts Payable — Billings Co....... 9,000

Purchases Discounts................. 180 Cash........................................ 8,82

0 $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 COMPANYIncome Statement

For Year Ended October 31, 2011

Net Sales....................................... $76,375

Cost of goods sold......................... 42,50 0

Gross profit from sales................... $ 33,875

Operating expenses: Salaries expense........................ $22,00

0 Advertising expense................... 9,000 Rent expense............................. 6,250 Supplies expense....................... 1,950 Total operating expenses.......... 39,20

0 Loss from operations...................... $ 5,325Other revenues and expenses: Interest revenue.......................... 15

0 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 529

Net loss......................................... $ 5,175


*Problem 6-12A (concluded)5. Single-step income statement:

MENDELSTEIN COMPANYIncome Statement

For Year Ended October 31, 2011Revenues:

Net sales..................................... $76,375Interest revenue..........................

150 Total revenues.......................... $76,525

Expenses:....................................Cost of goods sold....................... $42,500Selling expenses.......................... 29,500General 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.................. 13,500Sales............................................ 85,000Purchases Returns and Allowances. 2,150Purchases Discounts...................... 900 Income Summary..................... 101,7

00 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................................ 45,00

0 Transportation-In..................... 1,550 Sales Salaries Expense............. 14,00

0 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 1WOODSTOCK STORE

Work SheetFor Year Ended December 31, 2011

Unadjusted Trial

Balance Adjustments

Income Statement

Balance Sheet and


Debit Credit

Debit Credit Debit Credit

Debit Credit

Cash.............................................. 7,305 7,305Merchandise inventory................... 47,00

047,000 48,98

048,98

0Store supplies................................ 1,715 (a)

1,330385

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 4,000Zen Woodstock, capital................... 89,08

089,08

0Zen Woodstock, withdrawals........... 31,50

031,50

0Rental revenue............................... 680 680Sales.............................................. 478,8

50478,8

50Sales returns and allowances.......... 2,915 2,915Sales discounts............................... 5,190 5,190Purchases...................................... 331,3

15331,31

5Purchases returns and allowances... 1,845 1,845


cGraw

-Hill Ryerson Lim



Purchases discounts....................... 4,725 4,725Transportation-in........................... 2,810 2,810Sales salaries expenses.................. 34,71

034,710

Rent expense, selling space............ 24,000

24,000

Advertising expense....................... 1,220 1,220Store supplies expense................... (a)

1,3301,330

Amortization expense, store equipment......................................

(d) 3,500

3,500

Office salaries expense................... 27,630

27,630

Rent expense, office space.............. 3,000 3,000Office supplies expense................... (b)

465465

Insurance expense.......................... (c) 880

880

Amortization expense, office equipment......................................

(e) 3,600

3,600

Totals.......................................... 596,930

596,930

9,7 75

9,77 5

489,565

535,080

163,445

117,930

Net income..................................... 45,51 5

45,5 15

Totals.......................................... 535,080

535,080

163,445

163,445

*Problem 6-14A (concluded) Part 22011 Closing entries: Page

G10Dec.

31

Rental Revenue.................................. 680

Merchandise Inventory........................48,980Sales..................................................478,85

0Purchase Returns and Allowances........ 1,845Purchase Discounts............................. 4,725 Income Summary........................... 535,08

0 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..................................... 331,31

5 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


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 3Merchandise Inventory Account No.

110Date

Explanation PR Debit Credit Balance

2010Dec.

31

December 31, 2010 Balance

47,000.00

2011Dec.

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 STOREIncome Statement


Sales............................................. $478,850

Less:Sales returns and allowances.

$2,915

Sales discounts..................... 5,190 8,1 05

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

6,5 70

Net purchases............................. $324,745


Add: Transportation-in............ 2,8 10

Cost of goods purchased.............. 327,555

Goods available for sale............... $374,555

Less: Merchandise inventory, December 31, 2011........................

48,9 80

Cost of goods sold....................... 325,575

Gross profit from sales................... $145,170

Operating expenses: Selling expenses: Sales salaries expense............... $34,7

10 Rent expense, selling space....... 24,00

0 Amortization expense, store equipment.....................................

3,500

Store supplies expense.............. 1,330 Advertising expense.................. 1,22

0 Total selling expenses................ $64,7

60 General and administrative expenses: Office salaries expense.............. $27,6

30 Rent expense, office space......... 3,000 Insurance expense..................... 880 Amortization expense, office equipment.....................................

3,600

Office supplies expense.............. 465 Total general and administrative expenses.......................................

35,5 75

Total operating expenses.......... 100, 335

Income from operations.................. $ 44,83

5Other revenues and expenses: Rental revenue............................ 6

80 Net income.................................... $

45,51


5

*Problem 6-16A (40 minutes)Aug.1 Merchandise Inventory ............ 1000

GST Receivable ....................... 60Cash .................................. 1060

To record cash purchase; $1,000 x 6% = $60 GST.

2 Merchandise Inventory ............ 3,400GST Receivable ....................... 204



To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST.


To record cost of sale.12 Accounts Payable..................... 3,604

Merchandise Inventory ........ 68Cash .................................. 3,536

To record payment within discount period; $3,400* x 2% = $68.

15 Cash........................................ 2,886Sales Discounts ....................... 26

Accounts Receivable ........... 2,912To record collection within discount period; $2,600* x 1% = $26.

17 Merchandise Inventory ............ 6,000GST Receivable ....................... 360



*Problem 6-16A (concluded)Aug.19 Cash ....................................... 7,840

PST Payable ....................... 420GST Payable ....................... 420Sales .................................. 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.


*Problem 6-17AAug.1 Purchases ............................... 1,000

GST Receivable ....................... 60Cash .................................. 1060

To record cash purchase; $1,000 x 6% = $60 GST.2 Purchases ............................... 3,400

GST Receivable ....................... 204Accounts Payable ............... 3,604

To record credit purchase; $3,400 x 6% = $204 GST.


To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST.

12 Accounts Payable..................... 3,604Purchase Discounts ............. 68Cash .................................. 3,536


15 Cash........................................ 2,886Sales Discounts ....................... 26

Accounts Receivable ........... 2,912To record collection within discount period; $2,600* x 1% = $26.

17 Purchases ............................... 6,000GST Receivable ....................... 360

Accounts Payable ............... 6,360To record credit purchase; $6,000 x 6% = $360

GST.19 Cash ....................................... 7,910

PST Payable ....................... 420GST Payable ....................... 420Sales .................................. 7,000



*Discounts are applied to the before tax value.


ALTERNATE PROBLEMS

Problem 6-1B (40 minutes)Part 1Mar. 5 Merchandise Inventory.................... 25,0

00 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


Problem 6-1B (concluded)Mar. 1

7Accounts 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


31

Cash........................................... 28,000

Accounts Receivable – Parker Company.....................................

28,000

To record collection.

Part 2a. 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.. 9,000Purchased goods on credit.

4 Accounts Receivable—Cornerstone Co. 1,200Sales...................................... 1,200


4 Cost of Goods Sold...................... 750Merchandise Inventory............ 750

To record the cost of the May 4 sale.

4 Merchandise Inventory................ 150Cash....................................... 150

Paid freight on incoming goods.

9 Cash........................................... 2,400Sales...................................... 2,400

Sold goods for cash.

9 Cost of Goods Sold...................... 1,800Merchandise Inventory............ 1,800


10 Merchandise Inventory................ 3,450Accounts Payable—Richter Co.. 3,450

Purchased goods on credit.

12 Accounts Payable—Richter Co...... 300Merchandise Inventory............ 300

Received credit memo.

14 Cash........................................... 1,176Sales Discounts........................... 24

Accounts Receivable—Cornerstone Co.1,200

Collected receivable within discount period; 1,200 x 2% = 24.

15 Cash........................................... 500Office Equipment..................... 500

To record sale of office equipment at cost.


Problem 6-2B (continued)May17 Accounts Payable—Mobley Co.........9,000

Merchandise Inventory.............. 90Cash......................................... 8,910

Paid payable within the discount period; 1% × $9,000 = $90.

18 Cleaning Supplies.......................... 820Accounts Payable–A & Z Suppliers

820Purchased supplies on credit.

20 Accounts Receivable—Harrill Co......1,875Sales........................................ 1,875


20 Cost of Goods Sold.........................1,350Merchandise Inventory.............. 1,350


22 Sales Returns and Allowances........ 300Accounts Receivable—Harrill Co.

300Issued credit memo.

23 Sales............................................. 75Accounts Receivable—Harrill Co.

75Received debit memo for error.

25 Accounts Payable—Richter Co.........3,150Merchandise Inventory.............. 63Cash......................................... 3,087

Paid within the discount period; 3,450 – 300 = 3,150; 2% × $3,150 = 63.

31 Cash..............................................1,470Sales 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. 7,500Sales........................................ 7,500

Sold goods on credit....................


31 Cost of Goods Sold.........................4,800Merchandise Inventory.............. 4,800



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

$3,087.00Annual rate of interest ............................_ × 6% Interest per year......................................$ 185.22 Interest per day ($185.22/365).................$ 0.51

Discount..................................................$ 63.00Interest 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



Problem 6-3B (40 minutes)July 3 Merchandise Inventory................15,000

Accounts Payable—CMP Corp. . 15,000Purchased goods on credit.

4 Accounts Payable—CMP Corp. ..... 250Cash....................................... 250

Paid freight for supplier.

7 Accounts Receivable—Harbison Co. 10,500Sales...................................... 10,500


7 Cost of Goods Sold...................... 7,500Merchandise Inventory............ 7,500


10 Merchandise Inventory................13,250Accounts Payable—Cimarron Corporation


11 Delivery Expense or Freight-Out... 300Cash....................................... 300

Paid shipping charges on July 7 sale.

12 Sales Returns and Allowances...... 1,750Accounts Receivable—Harbison Co.

1,750Customer returned merchandise.

12 Merchandise Inventory................ 1,250Cost of Goods Sold.................. 1,250


14 Accounts Payable—Cimarron Corporation 2,050Merchandise Inventory............ 2,050

Received a credit memorandum for July 10 purchase.

17 Cash........................................... 8,575Sales Discounts........................... 175

Accounts Receivable—Harbison Co. 8,750


Collected receivable withindiscount period; 10,500 – 1,750 = 8,750; 8,750 x 2% = 175.


Problem 6-3B (concluded)July18 Cash........................................ 15,000

Land................................... 15,000Sold land at cost.

19 Van......................................... 18,000Cash................................... 5,000Notes Payable..................... 13,000

To record purchase of van.

20 Accounts Payable—Cimarron Corporation 11,200Merchandise Inventory........ 112Cash................................... 11,088

Paid payable within the discount period;$13,250 – 2,050 = $11,200; 11,200 x 1% = 112.

21 Accounts Receivable—Hess....... 9,000Sales................................... 9,000




24 Sales Returns and Allowances... 1,500Accounts Receivable—Hess. . 1,500

Issued credit memo.

31 Cash........................................ 7,425Sales Discounts........................ 75

Accounts Receivable—Hess. . 7,500Collected receivable within discount period; 9,000 – 1,500 = 7,500; 7,500 x 1% = 75.

31 Accounts Payable—CMP Corp.... 14,750Cash................................... 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 1RESOURCE PRODUCTS COMPANY

Work SheetFor Year Ended October 31, 2011

Unadjusted Trial

Balance

Adjusting Entries

Adjusted Trial

Balance

Income Statement

Balance Sheet and


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


cGraw

-Hill Ryerson Lim

ited. All rights reserved.514

Fundamental Accounting Principles, Tw

elfth Canadian Edition

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 400Insurance expense........ (b)

3,0003,000 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 COMPANYIncome Statement

For Year Ended October 31, 2011Net sales.................................... $192,000Cost of goods sold...................... 75,600Gross profit from sales............... $116,400Operating 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.................. $ 5,550Other revenues and expenses: Interest expense...................... 400Net 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 COMPANYIncome Statement

For Year Ended May 31, 2011Sales..............................................

$318,000 Less:....................Sales discounts $ 4,875 . Sales returns and allowances 21,000.............................. 25,875 Net sales.....................................

$292,125Cost of goods sold......................... 123,900Gross profit from sales....................

$168,225Operating expenses:

Selling expenses:Sales salaries expense................$ 43,500Advertising expense................... 27,000Rent expense, selling space........ 15,000Store supplies expense............... 3,750Total selling expenses................ $ 89,250

General and administrative expenses:Office salaries expense...............$ 39,750Rent expense, office space.......... 3,900Office supplies expense.............. 1,200Total general and administrative expenses

44,850Total operating expenses..............

134,100Net income..................................... $ 34,125

2. Single-step income statement:REYNA COMPANYIncome Statement

For Year Ended May 31, 2011Net sales........................................ $292,125Expenses:


Cost of goods sold........................$123,900 Selling expenses.......................... 89,250 General and administrative expenses 44,850 Total expenses.......................... 258,000Net income..................................... $ 34,125


Problem 6-6B (30 minutes) 2011 Closing entries:May31 Sales ...................................... 318,000

Income Summary................. 318,000To close temporary account with credit balance.

31 Income Summary..................... 283,875Sales Discounts .................. 4,875Sales Returns and Allowances

21,000Cost of Goods Sold.............. 123,900Sales Salaries Expense......... 43,500Rent Expense, Selling Space. 15,000Store Supplies Expense........ 3,750Advertising Expense............ 27,000Office Salaries Expense........ 39,750Rent Expense, Office Space. . 3,900Office Supplies Expense....... 1,200


31 Income Summary..................... 34,125Paul Reyna, capital.............. 34,125

To close the Income Summary account.

31 Paul Reyna, Capital.................. 24,000Paul Reyna, Withdrawals..... 24,000



Problem 6-7B (50 minutes)1. Classified, multiple-step income statement:

BANDARA SALESIncome Statement

For Year Ended December 31, 2011Sales........................................ $946,3

00 Less:......................................Sales returns and allowances..............

$ 7,345

Sales discounts................ 1,390 8,7 35

Net sales................................ $937,565

Cost of goods sold..................... 649,8 20

Gross profit from sales............... $287,745

Operating expenses: Selling expenses: Sales salaries expense.......... $149,4

851

Rent expense, selling space. . 39,8082

Amortization expense, store equipment.................................

16,020

Store supplies expense......... 4,20 0

3

Total selling expenses........... $209,513

General and administrative expenses: Office salaries expense......... $

64,0654

Rent expense, office space.... 9,9525

Office supplies expense......... 7,8006

Insurance expense................ 6,200 Amortization expense, office equipment.................................

3,45 0

Total general and administrative expenses...................................

91,4 67

Total operating expenses......... 300,98 0

Net loss.................................... $ 13,235


1. 70% × 213,5502. 80% × 49,7603. 35% × 12,0004. 30% × 213,5505. 20% × 49,7606. 65% × 12,000


Problem 6-7B (concluded)2. Single-step income statement:

BANDARA SALESIncome Statement


Revenues: Net sales......................... $937,5

65Expenses: Cost of goods sold............. $649,

820 Selling expenses............... 209,5

13 General and administrative expenses.............

91,4 67

950,8 00

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 6-8B2011 Closing entries:

Dec.

31

Sales....................................... 946,300

Income Summary................. 946,300


31

Income Summary...................... 959,535

Sales Returns and Allowances...............................

7,345

Sales Discounts................... 1,390 Cost of goods sold............... 649,8

20 Salaries Expense................. 213,5

50 Rent Expense...................... 49,76

0 Supplies Expense................ 12,00

0 Amortization Expense, Store Equipment...............................

16,020

Insurance Expense............... 6,200 Amortization Expense, Office Equipment...............................

3,450


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 SALESIncome Statement

For Year Ended July 31, 2011Sales........................................ $78,50

0 Less:......................................Sales discounts..................................

1,000

Net sales................................ $77,500

Cost of goods sold..................... 47,400 Gross profit from sales............... $30,10

0Operating expenses: Selling expenses: Sales salaries expense......... $18,00

0 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........... $38,25

0 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...................................

13,9 50

Total operating expenses......... 52,200 Net loss.................................... $22,10

0


Problem 6-9B (concluded)2. Multiple-step income statement:

TINKER SALESIncome Statement

For Year Ended July 31, 2011

Net sales.................................... $77,500Cost of goods sold...................... 47,400Gross profit from sales............... $30,100Operating expenses:

Salaries expense .....................$23,000Rent expense........................... 12,000Advertising expense ................ 9,900Supplies expense .................... 2,800Amortization expense, equipment 3,500Insurance expense .................. 1,000 Total operating expenses....... 52,200

Net loss..................................... $ 22,100

3. Single-step income statement:TINKER SALES

Income StatementFor Year Ended July 31, 2011

Revenues:Net sales.................................... $77,500

Expenses:Cost of goods sold......................$47,400Selling expenses........................ 38,250General and administrative expenses 13,950 Total expenses....................... 99,600

Net loss....................................... $ 22,100


*Problem 6-10B (40 minutes)Mar. 5 Purchases................................... 25,00

0 Cash..................................... 25,000 To record purchase of merchandise for cash.

6 Accounts Receivable – Tessier & Welsh..........................................

16,000


7 Purchases................................... 32,000

Accounts Payable – Janz Company.....................................

32,000


8 Transportation-in or Freight-In..... 75 Cash..................................... 75 To record payment of shipping costs.

9 Accounts Receivable – Parker Company.....................................

28,000


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 16,000


& Welsh...................................... 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. 3

0Accounts Payable – Delton Suppliers.....................................

7,000


31

Cash........................................... 28,000

Accounts Receivable – Parker Company.....................................

28,000

To record collection.

*Problem 6-11B (30 minutes)Date Account Debit CreditMar.

1Purchases.................................... 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............................................ 15,680Sales 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............................. 4,7

00 Net sales........................................... $478,3

00 2. Cost of goods purchased:

Purchases.......................................... $ 240,00

0 Less:

Purchases returns and allowances..8,100

Purchases discounts...................... 2,300 Transportation-in............................... 9,7

00 Cost of goods purchased..................... $

239,300

3. Cost of goods sold: Beginning inventory........................... $

50,000 Cost of goods purchased (from 2)........ 239,30

0 Less: Ending inventory........................ 32,0

00 Cost of goods sold.............................. $

257,300

4. Multiple-step income statement:GARNEAU COMPANYIncome Statement

For Year Ended November 30, 2011

Net Sales....................................... $478,300

Cost of goods sold......................... 257,3 00


Operating expenses: Salaries expense....................... $120,0


00 Rent expense............................ 72,000 Advertising expense.................. 6,000 Supplies expense....................... 10,00

0 Total operating expenses.......... 208,0

00 Income from operations.................. $

13,000Other revenues and expenses......... Interest expense......................... 70

0 Net income.................................... $

12,300


*Problem 6-12B (concluded)5. Single-step income statement:

GARNEAU COMPANYIncome Statement

For Year Ended November 30, 2011

Revenues: Net sales....................................... $478,3

00Expenses:......................................... Cost of goods sold..........................$257,3

00 Selling expenses............................131,90

0 General and administrative expenses..........................................

76,100

Interest expense............................ 70 0

Total expenses............................. 466,00 0

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..... 8,100Purchases Discounts.......................... 2,300 Income Summary.......................... 582,4

00 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.................................... 240,0

00 Transportation-In......................... 9,700 Salaries Expense.......................... 120,0

00 Rent Expense............................... 72,00

0 Supplies Expense.......................... 10,00

0 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



*Problem 6-14B (60 minutes) Part 1THE DOWNTOWN STORE

Work SheetFor Year Ended March 31, 2011Unadjusted

Trial Balance Adjustments

Income Statement

Balance Sheet and Statement of Owner’s Equity

Debit Credit Debit Credit Debit Credit Debit CreditCash....................................... 14,000 14,000Merchandise inventory............. 96,000 96,00

018,000 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 46,000Accumulated amortization, office equipment...............................

13,000 (d) 6,500

19,500

Accounts payable..................... 32,000 32,000Lucy Baker, capital................... 269,20

0269,200

Lucy Baker, withdrawals........... 68,000 68,000Sales....................................... 998,00

0998,000

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 14,300Transportation-in..................... 32,000 32,00


cGraw

-Hill Ryerson Lim



0Salaries 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...............................

0

(d) 6,500

6, 500

Totals................................... 1,360,200

1,360,200

20,000

20,000

1,117,000

1,036,000

270,900 351,900

Net loss...................................

81,00 0

81,000

Totals................................... 1,117,000

1,107,000

351,900 351,900

*Problem 6-14B (concluded) Part 22011 Closing entries: Page

G14Mar.

31

Merchandise Inventory................... 18,000

Sales............................................. 998,000

Purchase Returns and Allowances.... 5,700Purchase 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................................. 692,00

0 Transportation-In...................... 32,000 Salaries Expense....................... 120,00

0 Rent Expense............................ 101,00

0 Advertising Expense.................. 14,000 Supplies Expense...................... 17,300 Amortization Expense, Store Equipment.....................................

3,200

Amortization Expense, Office Equipment.....................................

6,500


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

2010Mar.

31March 31, 2010 balance (brought forward)

96,000.00

2011Mar.

31Close 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 STOREIncome Statement

For Year Ended March 31, 2011

Sales............................................. $998,000

Less:Sales returns and allowances.

$23,000

Sales discounts.....................

12,00 0

35,0 00

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

20,0 00

Net purchases............................. $672,000

Add: Transportation-in............ 32,00 0

Cost of goods purchased.............. 704,000

Goods available for sale............... $800,000

Less: Merchandise inventory, March 31, 2011..............................

18,00 0

Cost of goods sold....................... 782,000


Operating expenses: Selling expenses: Rent expense, selling space1...... $80,80

0 Sales salaries expense2.............. 72,000 Advertising expense.................. 14,000 Store supplies expense3............. 5,190Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 581

Amortization expense, store equipment.....................................

3,20 0

Total selling expenses................ $175,190

General and administrative expenses: Office salaries expense4............. $48,00

0 Rent expense, office space5........ 20,200 Office supplies expense6............. 12,110 Amortization expense, office equipment.....................................

6,500

Total general and administrative expenses.......................................

86,81 0

Total operating expenses.......... 262,0 00

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 .............................. 560GST Payable .............................. 420Sales ........................................ 7,000


2 Cost of Goods Sold.......................... 5,800Merchandise Inventory .............. 5,800

To record cost of sale.3 Merchandise Inventory ................... 8,000

GST Receivable .............................. 480Cash ......................................... 8,480

To record cash purchase; $8,000 x 6% = $480 GST.7 Merchandise Inventory ................... 5,000

GST Receivable .............................. 300Accounts Payable ...................... 5,300

To record credit purchase; $5,000 x 6% = $300 GST.

8 Accounts Receivable ...................... 17,100PST Payable .............................. 1,200GST Payable .............................. 900Sales ........................................ 15,000

To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST.

8 Cost of Goods Sold.......................... 13,200Merchandise Inventory .............. 13,200

To record cost of sale.17 Accounts Payable............................ 5,300

Merchandise Inventory .............. 50Cash ......................................... 5,250


18 Cash............................................... 16,800Sales Discounts .............................. 300

Accounts Receivable .................. 17,100To 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 .............................. 560GST Payable .............................. 420Sales ........................................ 7,000


3 Purchases ...................................... 8,000GST Receivable .............................. 480

Cash ......................................... 8,480To record cash purchase; $8,000 x 6% = $480 GST.

7 Purchases ...................................... 5,000GST Receivable .............................. 300

Accounts Payable ...................... 5,300To record credit purchase; $5,000 x 6% = $300

GST.8 Accounts Receivable ......................17,100

PST Payable .............................. 1,200GST Payable .............................. 900Sales ........................................ 15,000

To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST.

17 Accounts Payable............................ 5,300Purchase Discounts ................... 50Cash ......................................... 5,250


18 Cash...............................................16,800Sales Discounts .............................. 300

Accounts Receivable .................. 17,100To 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 – PerpetualMultiple-step income statement:

DEMO SALESIncome Statement

For Month Ended July 31, 2011

Net sales.................................... $559,340*Cost of goods sold...................... 394,000Gross profit from sales............... $165,340Operating expenses:

Advertising expense ................ $14,000Rent expense........................... 5,000Amortization expense, equipment 3,000Insurance expense .................. 2,500Interest 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 StatementsFFS 6-1Single-step income statement:

COLUMBIA TEXTILESIncome Statement

For Year Ended December 31, 2011(000’s)

Revenues: Net sales.................................. $614 Interest earned......................... 2 Total revenues $616Expenses: Cost of goods sold..................... $459 Selling expenses1...................... 193 General and administrative expense2 114 Interest expense....................... 4 Total expenses.......................... 770 Net loss......................................... $ 154

COLUMBIA TEXTILESStatement of Owner’s Equity

For Year Ended December 31, 2011(000’s)

Brandy Columbia, capital, January 1 $5403

Add: Investments by owner........... 0 Total......................................... $540Less: Withdrawals for the year..... $78 Net loss.............................. 154 232Brandy Columbia, capital, December 31 $308

1. $21 + $46 + $120 + $6 = $1932. $63 + $17 + $21 + $8 + $5 = $1143. 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 SheetDecember 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...................................... 6

2Total assets........................................... $

562

Liabilities Current liabilities: Accounts payable............................ $

17 Unearned sales................................ 12 Current portion of notes long-term notes payable........................................

4 5

Total current liabilities.................. $ 74 Long-term liabilities:Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.588 Fundamental Accounting Principles, Twelfth Canadian Edition

Notes payable, less current portion.. 18 0

Total liabilities.................................. $ 254

Owner’s Equity Brandy Columbia, capital.................... 30

8Total 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 6-2a. 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 QuestionCT 6-1Note 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.84,0

00320,000 COGS COGS

320,000

22,400

Sales Ret

Purchases

240,000

14,000

Shrinkage

Shrinkage

14,000

TI12,0

002,40

0 Purch discAdj. Bal.

311,600

Sales Ret

22,400

1,200

Purch ret

End. Inv.

20,800

2011: Merchandise Inventory Cost of Goods Sold

Beg20,8

00480,000 COGS COGS

480,000

115,000

Sales Ret

Purchases

510,000

2,500

Shrinkage

Shrinkage

2,500

TI 25,5 5,10 Purch 367,


00 0 disc 500Sales Ret

115,000

2,550

Purch ret

End181,150

*The goal is highly dependent on “perspective.”


CT 6-1 (concluded)Conclusion(s)/Consequence(s):

— Sales returns in 2011 were $115,000 which is 413% greater than in 2010 (115,000 – 22,400 = 92,600/22,400 × 100). This is an unfavourable change and requires immediate attention; questions need to be asked to determine the cause(s) so that the appropriate corrective action can be taken

— Shrinkage decreased by $11,500 or 82% from 2010 to 2011 (14,000 – 2,500 = 11,500/14,000 × 100); this is a favourable change and the inventory manager should find out how this occurred and improve on it, if possible


Perpetual Serial Problem, Echo Systems (150 minutes) Part 1Journal entries:

General Journal Page G7Date Account Titles and Explanations PR DebitCredit2012Jan. 4 Wages Expense ....................623 200

Wages Payable ....................210 800Cash ...............................101 1,000

Paid employee.5 Cash ....................................101 48,000

Mary Graham, Capital ......301 48,000Investment by owner.

7 Merchandise Inventory .........119 11,200Accounts Payable—Shephard Corp. 201


9 Cash ....................................101 3,000Accounts Receivable—Fostek Co. 106.6

3,000Collected accounts receivable.

11 Accounts Receivable—Alamo Eng. Co. 106.19,000

Unearned Computer Services Revenue 2363,000

Computer Services Revenue 40312,000

Completed work on project.13 Accounts Receivable—Elite Corp. 106.5

8,400Sales ..............................413 8,400

Sold merchandise on credit.13 Cost of Goods Sold ...............502 6,720

Merchandise Inventory ....119 6,720To record the cost of the January 13 sale.

15 Merchandise Inventory .........119 1,400Cash ...............................101 1,400

Paid freight on incoming merchandise.16 Cash ....................................101 6,000



Collected cash revenue from customer.17 Accounts Payable—Shephard Corp. 201

11,200Merchandise Inventory ....119 112Cash ...............................101 11,088

Paid account payable within discount period.


Perpetual Serial Problem (continued)General Journal G8

Date Account Titles and Explanations PR DebitCredit2012Jan.20 Sales Returns and Allowances 415 800

Accounts Receivable—Elite Corp. 106.5800

Customer returned defective goods.22 Cash ....................................101 7,524

Sales Discounts ...................414 76Accounts Receivable—Elite Corp. 106.5


24 Accounts Payable—Shephard Corp. 201792

Merchandise Inventory.....119 792Returned merchandise for credit.

26 Merchandise Inventory .........119 16,000Accounts Payable—Shephard Corp. 201

16,000Purchased merchandise for resale.

26 Accounts Receivable—Hacienda, Inc. 106.811,600

Sales ..............................413 11,600Sold merchandise on credit.

26 Cost of Goods Sold ...............502 9,280Merchandise Inventory ....119 9,280

To record the cost of the January 26 sale.29 No entry recorded in the journal.31 Wages Expense ....................623 2,000

Cash ...............................101 2,000Paid employee.

Feb. 1 Prepaid Rent .......................131 6,750Cash ...............................101 6,750

Paid three months’ rent in advance.3 Accounts Payable—Shephard Corp. 201

15,208Merchandise Inventory ....119 160Cash ...............................101 15,048



5 Advertising Expense ............655 1,600Cash ...............................101 1,600

Purchased ad in local newspaper.



Date Account Titles and Explanations PR DebitCredit2012Feb.11 Cash ....................................101 9,000

Accounts Receivable—Alamo Engin. Co. .................106.1 9,000

Collected accounts receivable.

15 Mary Graham, Withdrawals . .302 9,600Cash ...............................101 9,600

Owner withdrew cash.

23 Accounts Receivable—Grandview Co. 106.76,400


23 Cost of Goods Sold ...............502 5,120Merchandise Inventory ....119 5,120

To record the cost of the February 23 sale.

26 Wages Expense ....................623 1,600Cash ...............................101 1,600

Paid employee.

27 Mileage Expense ..................676 600Cash ...............................101 600

Reimbursed Mary Graham for use of auto.

Mar. 8 Computer Supplies ...............126 4,800Accounts Payable—Abbot Office Prod. ..............................201 4,800

Purchased supplies on credit.

Mar. 9 Cash ....................................101 6,400Accounts Receivable—Grandview Co. 106.7


11 Repairs Expense, Computer ..684 1,720Cash ...............................101 1,720

Paid for computer repairs.


16 Cash ....................................101 8,520Computer Services Revenue 403

8,520Collected cash revenue from customer.


Date Account Titles and ExplanationsPR Debit Credit2012Mar.19 Accounts Payable .....................201 7,110

Cash ....................................101 7,110Paid accounts payable.

24 Accounts Receivable—Capital Leasing 106.311,800

Computer Services Revenue . 403 11,800Billed customer for services.

25 Accounts Receivable—Buckman Services 106.23,600

Sales ...................................413 3,600Sold merchandise on credit.

25 Cost of Goods Sold ...................502 2,004Merchandise Inventory .........119 2,004

To record the cost of the March 25 sale.

30 Accounts Receivable—Decker Co. 106.4 4,440Sales ...................................413 4,440

Sold merchandise on credit.

30 Cost of Goods Sold ...................502 2,200Merchandise Inventory .........119 2,200

To record the cost of the March 30 sale.

31 Mileage Expense ......................676 400Cash ....................................101 400



Perpetual Serial Problem (continued) Part 2Cash Acct. No. 101

Date

Explanation PR Debit Credit

Balance

2011Dec.

31

Beginning balance 89,090

2012Jan. 4 G7 1,00

088,090

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

1 G9 8,520 125,12Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.600 Fundamental Accounting Principles, Twelfth Canadian Edition

6 819

G10

7,110

118,018

31

G10

400 117,618

Accounts Receivable—Alamo Engineering Co.

Acct. No. 106.1

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 1

1 G7 9,000 9,000

Feb.

11

G9 9,000

0

Accounts Receivable—Buckman Services

Acct. No. 106.2

Date


Balance

2011Dec.

31

Beginning balance 0

2012Mar.

25

G10

3,600 3,600


Perpetual Serial Problem (continued) Part 2Accounts Receivable—Capital

LeasingAcct. No.

106.3Date


Balance

2011Dec.

31

Beginning balance 0

2012Mar.

24

G10

11,800

11,800

Accounts Receivable—Decker Co. Acct. No. 106.4

Date


Balance

2011Dec.

31


2012Mar.

30

G10

4,440 7,140

Accounts Receivable—Elite Corporation

Acct. No. 106.5

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 1

3G7 8,400 8,400

20

G8 800 7,600

22

G8 7,600

0


Accounts Receivable—Fostek Co. Acct. No. 106.6

Date


Balance

2011Dec.

31


2012Jan.

9 G7 3,00

0 0

Accounts Receivable—Grandview Co. Acct. No. 106.7

Date


Balance

2011Dec.

31

Beginning balance 0

2012Feb.

23

G9 6,400 6,400

Mar.

9

G9 6,400

0

Accounts Receivable—Hacienda, Inc. Acct. No. 106.8

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 2

6 G8 11,6

0011,600

Perpetual Serial Problem (continued) Part 2Accounts Receivable—Images, Inc. Acct. No.

106.9Date


Balance


2011Dec.

31

Beginning balance 0

Merchandise Inventory Acct. No. 119Date


Balance

2012Jan.

7G7 11,20

011,200

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. 126Date


Balance

2011Dec.

31


2012Mar.

8

G9 4,800 6,240

Prepaid Insurance Acct. No. 128Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.604 Fundamental Accounting Principles, Twelfth Canadian Edition

Date


Balance

2011Dec.

31


Prepaid Rent Acct. No. 131Date


Balance

2011Dec.

31


2012Feb.

1

G8 6,750

9,000

Office Equipment Acct. No. 163Date


Balance

2011Dec.

31


Perpetual Serial Problem (continued) Part 2Accumulated Amortization, Office

EquipmentAcct. No. 164

Date


Balance

2011Dec.

31


Computer Equipment Acct. No. 167Date


Balance

2011Dec.

31



Accumulated Amortization, Computer Equipment

Acct. No. 168

Date


Balance

2011Dec.

31


Accounts Payable Acct. No. 201Date


Balance

2011Dec.

31


2012Jan.

7 G7 11,2

0013,510

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. 210Date


Balance

2011Dec.

31

Beginning balance 800

2012Jan.

4 G7 800 0


Unearned Computer Services Revenue

Acct. No. 236

Date


Balance

2011Dec.

31


2012Jan. 1

1 G7 3,000 0


Perpetual Serial Problem (continued) Part 2Mary Graham, Capital Acct. No. 301

Date


Balance

2011Dec.

31


2012Jan.

5 G7 48,0

00193,86

0

Mary Graham, Withdrawals Acct. No. 302Date


Balance

2012Feb.

15

G9 9,600 9,600

Computer Services Revenue Acct. No. 403Date


Balance

2012Jan. 1

1 G7 12,0

00 12,000

16

G7 6,000

18,000

Mar.

16

G9 8,520

26,520

24

G10

11,800

38,320

Sales Acct. No. 413Date


Balance

2012Jan. 1

3 G7 8,40

08,400

26

G8 11,600

20,000

Feb 2 G9 6,40 26,400Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.608 Fundamental Accounting Principles, Twelfth Canadian Edition

. 3 0Mar.

25

G10

3,600

30,000

30

G10

4,440

34,440

Sales Discounts Acct. No. 414Date


Balance

2012Jan. 2

2 G8 76 76

Sales Returns and Allowances Acct. No. 415Date


Balance

2012Jan. 2

0 G8 800 800


Perpetual Serial Problem (continued) Part 2Cost of Goods Sold Acct. No. 502

Date


Balance

2012Jan. 1

3 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


Balance

Amortization Expense, Computer Equipment

Acct. No. 613

Date


Balance

Wages Expense Acct. No. 623Date


Balance

2012Jan.

4G7 200 200

31

G8 2,000 2,200

Feb.

26

G9 1,600 3,800

Insurance Expense Acct. No. 637Date


Balance

Rent Expense Acct. No. 640Dat Explanation PR Debit Cred Balanc


e it e

Computer Supplies Expense Acct. No. 652Date


Balance

Advertising Expense Acct. No. 655Date


Balance

2012Feb.

5

G8 1,600 1,600

Mileage Expense Acct. No. 676Date


Balance

2012Feb.

27

G9 600 600

Mar.

31

G10

400 1,000


Perpetual Serial Problem (continued) Part 2Repairs Expense, Computer Acct. No. 684

Date


Balance

2012Mar.

11

G9 1,720 1,720

Charitable Donations Expense Acct. No. 699Date


Balance


Perpetual Serial Problem (continued) Part 3

ECHO SYSTEMSPartial Work Sheet

For Three Months Ended March 31, 2012Unadjusted Trial Adjusted Trial

Balance Adjustments BalanceAccount Debit Credit Debit Credit Debit Credit

101 Cash........................ 117,618 117,618106.1 Alamo Engineering Co. 0 0106.2 Buckman Services... 3,600 3,600106.3 Capital Leasing....... 11,800 11,800106.4 Decker Co. ............. 7,140 7,140106.5 Elite Corporation..... 0 0106.6 Fostek Co. ............. 0 0106.7 Grandview Co......... 0 0106.8 Hacienda, Inc. ........ 11,600 11,600106.9 Images, Inc. ........... 0 0119 Merchandise inventory 2,212 (g) 252 1,960126 Computer supplies..... 6,240 (a)2,010 4,230128 Prepaid insurance...... 3,240 (b)1,080 2,160131 Prepaid rent.............. 9,000 (d)6,750 2,250163 Office equipment....... 18,000 18,000164 Accumulated amortization,

office equipment..... 1,500 (f)1,500 3,000167 Computer equipment. 36,000 36,000168 Accumulated amortization,

computer equipment 2,250 (e) 2,2504,500

201 Accounts payable...... 0 0210 Wages payable.......... 0 (c)1,400 1,400236 Unearned computer services

revenue................. 0 0301 Mary Graham, capital. 193,860 193,860302 May Graham, withdrawals 9,600 9,600403 Computer services revenue 38,320

38,320413 Sales........................ 34,440 34,440414 Sales discounts......... 76 76415 Sales returns and allowances 800 800502 Cost of goods sold...... 25,324 (g) 252 25,576612 Amortization expense,

office equipment..... 0 (f)1,500 1,500613 Amortization expense,

computer equipment 0 (e)2,250 2,250623 Wages expense......... 3,800 (c)1,400 5,200637 Insurance expense..... 0 (b)1,080 1,080640 Rent expense............ 0 (d)6,750 6,750652 Computer supplies expense 0 (a)2,010 2,010655 Advertising expense... 1,600 1,600676 Mileage expense........ 1,000 1,000


684 Repairs expense, computer 1,720 1,720.................

699 Charitable donations expense 0 .... 0 Totals.................... 270,370270,370 15,242 15,242 275,520 275,520

Perpetual Serial Problem (continued) Part 4: Single-step income statement

ECHO SYSTEMSIncome Statement

For Three Months Ended March 31, 2012

Revenues:Computer services revenue ........$38,320Net sales.................................... 33,564 Total revenues......................... $71,884

Expenses:Cost of goods sold......................$25,576Rent 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 SYSTEMSStatement of Owner’s Equity


Mary Graham, capital, December 31, 2011................................$ 145,860

Add:..........................Net income $23,198


Investment by owner .......... 48,000 71,198 Total....................................... $217,058Less: Withdrawals by owner........ 9,600Mary Graham, capital, March 31, 2012

$207,458


Perpetual Serial Problem (concluded) Part 6

ECHO SYSTEMSBalance SheetMarch 31, 2012

AssetsCurrent assets:

Cash............................................... $117,618Accounts receivable........................ 34,140Merchandise inventory ................... 1,960Computer supplies ......................... 4,230Prepaid insurance .......................... 2,160Prepaid rent .................................. 2,250Total current assets........................ $

162,358Property, 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

LiabilitiesCurrent liabilities:

Wages payable .............................. $ 1,400Owner’s Equity Mary Graham, capital........................ 207,458Total liabilities and owner’s equity.......

$208,858


*Periodic Serial Problem, Echo Systems (150 minutes) Part 1Journal entries:

General Journal G7Date Account Titles and Explanations PR DebitCredit2012Jan. 4 Wages Expense ....................623 200

Wages Payable ....................210 800Cash ...............................101 1,000

Paid employee.

5 Cash ....................................101 48,000Mary Graham, Capital ......301 48,000

Investment by owner.

7 Purchases ............................505 11,200Accounts Payable—Shephard Corp. 201


9 Cash ....................................101 3,000Accounts Receivable—Fostek Co. 106.6


11 Accounts Receivable—Alamo Eng. Co. 106.19,000

Unearned Computer Services Revenue 2363,000


Completed work on project.

13 Accounts Receivable—Elite Corp. 106.58,400


15 Transportation-In .................508 1,400Cash ...............................101 1,400

Paid freight on incoming merchandise.

16 Cash ....................................101 6,000



Collected cash revenue from customer.

17 Accounts Payable—Shephard Corp. 20111,200

Purchase Discounts .........507 112Cash ...............................101 11,088



Periodic Serial Problem (continued)General Journal G8

Date Account Titles and Explanations PR DebitCredit2012Jan.20 Sales Returns and Allowances 415 800

Accounts Receivable—Elite Corp. 106.5800

Customer returned defective goods.

22 Cash ....................................101 7,524Sales Discounts ...................414 76

Accounts Receivable—Elite Corp. 106.57,600


24 Accounts Payable—Shephard Corp. 201792

Purchase Returns and Allowances 506792

Returned merchandise for credit.

26 Purchases ............................505 16,000Accounts Payable—Shephard Corp. 201

16,000Purchased merchandise for resale.

26 Accounts Receivable—Hacienda, Inc. 106.811,600


29 No entry recorded in the journal.


Paid employee.

Feb. 1 Prepaid Rent .......................131 6,750Cash ...............................101 6,750

Paid three months’ rent in advance.

3 Accounts Payable—Shephard Corp. 20115,208

Purchase Discounts .........507 160


Cash ...............................101 15,048Paid account payable within discount period.

5 Advertising Expense ............655 1,600Cash ...............................101 1,600

Purchased ad in local newspaper.



Date Account Titles and Explanations PR DebitCredit2012Feb.11 Cash ....................................101 9,000

Accounts Receivable—Alamo Engin. Co. 106.1 9,000


15 Mary Graham, Withdrawals . .302 9,600Cash ...............................101 9,600

Owner withdrew cash.

23 Accounts Receivable—Grandview Co. 106.76,400



Paid employee.

27 Mileage Expense ..................676 600Cash ...............................101 600


Mar. 8 Computer Supplies ...............126 4,800Accounts Payable—Abbot Office Prod. ..............................201 4,800

Purchased supplies on credit.

9 Cash ....................................101 6,400Accounts Receivable—Grandview Co. 106.7


11 Repairs Expense, Computer ..684 1,720Cash ...............................101 1,720

Paid for computer repairs.

16 Cash ....................................101 8,520Computer Services Revenue 403

8,520Collected cash revenue from customer.



Date Account Titles and Explanations PR DebitCredit2012

19 Accounts Payable .................201 7,110Cash ...............................101 7,110

Paid accounts payable.

24 Accounts Receivable—Capital Leasing 106.311,800


Billed customer for services.

25 Accounts Receivable—Buckman Services 106.23,600

Sales .............................413 3,600Sold merchandise on credit.

30 Accounts Receivable—Decker Co. 106.4 4,440Sales.............................413 4,440

Sold merchandise on credit.

31 Mileage Expense ................676 400Cash .............................101 400



Periodic Serial Problem (continued) Part 2Cash Acct. No. 101

Date


Balance

2011Dec.

31


2012Jan. 4 G7 1,00

088,090

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

1 G9 8,520 125,12


6 819

G10

7,110

118,018

31

G10

400 117,618

Accounts Receivable—Alamo Engineering Co.

Acct. No. 106.1

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 1

1 G7 9,000 9,000

Feb.

11

G9 9,000

0

Accounts Receivable—Buckman Services

Acct. No. 106.2

Date


Balance

2011Dec.

31

Beginning balance 0

2012Mar.

25

G10

3,600 3,600


Periodic Serial Problem (continued) Part 2Accounts Receivable—Capital

LeasingAcct. No.

106.3Date


Balance

2011Dec.

31

Beginning balance 0

2012Mar.

24

G10

11,800

11,800

Accounts Receivable—Decker Co. Acct. No. 106.4

Date


Balance

2011Dec.

31


2012Mar.

30

G10

4,440 7,140

Accounts Receivable—Elite Corporation

Acct. No. 106.5

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 1

3G7 8,400 8,400

20

G8 800 7,600

22

G8 7,600

0


Accounts Receivable—Fostek Co. Acct. No. 106.6

Date


Balance

2011Dec.

31


2012Jan.

9 G7 3,00

0 0

Accounts Receivable—Grandview Co. Acct. No. 106.7

Date


Balance

2011Dec.

31

Beginning balance 0

2012Feb.

23

G9 6,400 6,400

Mar.

9

G9 6,400

0

Accounts Receivable—Hacienda, Inc. Acct. No. 106.8

Date


Balance

2011Dec.

31

Beginning balance 0

2012Jan. 2

6 G8 11,6

0011,600

Periodic Serial Problem (continued) Part 2Accounts Receivable—Images, Inc. Acct. No.

106.9Date


Balance


2011Dec.

31

Beginning balance 0

Merchandise Inventory Acct. No. 119Date


Balance

2011Dec.

31

Beginning balance 0

Computer Supplies Acct. No. 126Date


Balance

2011Dec.

31


2012Mar.

8

G9 4,800 6,240

Prepaid Insurance Acct. No. 128Date


Balance

2011Dec.

31


Prepaid Rent Acct. No. 131Date


Balance

2011Dec.

31


2012Feb.

1

G8 6,750

9,000


Office Equipment Acct. No. 163Date


Balance

2011Dec.

31


Accumulated Amortization, Office Equipment

Acct. No. 164

Date


Balance

2011Dec.

31



Periodic Serial Problem (continued) Part 2Computer Equipment Acct. No. 167

Date


Balance

2011Dec.

31


Accumulated Amortization, Computer Equipment

Acct. No. 168

Date


Balance

2011Dec.

31


Accounts Payable Acct. No. 201Date


Balance

2011Dec.

31


2012Jan.

7 G7 11,2

0013,510

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. 210Date


Balance


2011Dec.

31

Beginning balance 800

2012Jan.

4 G7 800 0

Unearned Computer Services Revenue

Acct. No. 236

Date


Balance

2011Dec.

31


2012Jan. 1

1 G7 3,000 0

Mary Graham, Capital Acct. No. 301Date


Balance

2011Dec.

31


2012Jan.

5 G7 48,0

00193,86

0

Periodic Serial Problem (continued) Part 2Mary Graham, Withdrawals Acct. No. 302

Date


Balance

2012Feb.

15

G9 9,600 9,600

Computer Services Revenue Acct. No. 403Dat Explanation PR Debit Cred Balanc


e it e2012Jan. 1

1 G7 12,0

00 12,000

16

G7 6,000

18,000

Mar.

16

G9 8,520

26,520

24

G10

11,800

38,320

Sales Acct. No. 413Date


Balance

2012Jan. 1

3 G7 8,40

08,400

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. 414Date


Balance

2012Jan. 2

2 G8 76 76

Sales Returns and Allowances Acct. No. 415Date


Balance

2012Jan. 2

0 G8 800 800

Purchases Acct. No. 505


Date


Balance

2012Jan. 7 G7 11,20

011,200

26

G8 16,000

27,200

Purchase Returns and Allowance Acct. No. 506Date


Balance

2012Jan. 2

4G8 792 792

Periodic Serial Problem (continued) Part 2Purchase Discounts Acct. No. 507

Date


Balance

2012Jan. 1

7G7 112 112

Feb.

3 G8 160 272

Transportation-In Acct. No. 508Date


Balance

2012Jan. 1

5G7 1,400 1,400

Amortization Expense, Office Equipment

Acct. No. 612

Date


Balance

Amortization Expense, Computer Equipment

Acct. No. 613

Dat Explanation PR Debit Cred BalancCopyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.632 Fundamental Accounting Principles, Twelfth Canadian Edition

e it e

Wages Expense Acct. No. 623Date


Balance

2012Jan.

4G7 200 200

31

G8 2,000 2,200

Feb.

26

G9 1,600 3,800

Insurance Expense Acct. No. 637Date


Balance

Rent Expense Acct. No. 640Date


Balance

Computer Supplies Expense Acct. No. 652Date


Balance

Advertising Expense Acct. No. 655Date


Balance

2012Feb.

5

G8 1,600 1,600

Mileage Expense Acct. No. 676Date


Balance

2012Feb.

27

G9 600 600

Mar.

31

G10

400 1,000

Periodic Serial Problem (continued) Part 2Repairs Expense, Computer Acct. No. 684


Date


Balance

2012Mar.

11

G9 1,720 1,720

Charitable Donations Expense Acct. No. 699Date


Balance


Periodic Serial Problem (continued) Part 3ECHO SYSTEMS

Partial Work SheetFor Three Months Ended March 31, 2012

Unadjusted Trial Adjusted TrialBalance Adjustments Balance

Account Debit Credit Debit Credit Debit Credit101 Cash............................ 117,618 117,618106.1 Alamo Engineering Co. .. 0 0106.2 Buckman Services......... 3,600 3,600106.3 Capital Leasing............. 11,800 11,800106.4 Decker Co. ................... 7,140 7,140106.5 Elite Corporation........... 0 0106.6 Fostek Co. ................... 0 0106.7 Grandview Co............... 0 0106.8 Hacienda, Inc. .............. 11,600 11,600106.9 Images, Inc. ................. 0 0119 Merchandise inventory. . 0 0126 Computer supplies........ 6,240 (a)2,010 4,230128 Prepaid insurance......... 3,240 (b)1,080 2,160131 Prepaid rent................. 9,000 (d)6,750 2,250163 Office equipment.......... 18,000 18,000164 Accumulated amortization,

office equipment........ 1,500 (f)1,500 3,000167 Computer equipment.... 36,000 36,000168 Accumulated amortization,

computer equipment.. 2,250 (e)2,250 4,500201 Accounts payable.......... 0 0210 Wages payable............. 0 (c)1,400 1,400236 Unearned computer services

revenue.................... 0 0301 Mary Graham, capital.... 193,860 193,860302 May Graham, withdrawals 9,600 9,600403 Computer services revenue 38,320

38,320413 Sales........................... 34,440 34,440414 Sales discounts............. 76 76415 Sales returns and allowances 800 800505 Purchases.................... 27,200 27,200506 Purchase returns and allowances 792

792507 Purchase discounts....... 272 272508 Transportation-In.......... 1,400 1,400612 Amortization expense,

office equipment........ 0 (f)1,500 1,500613 Amortization expense,

computer equipment.. 0 (e)2,250 2,250623 Wages expense............ 3,800 (c)1,400 5,200637 Insurance expense........ 0 (b)1,080 1,080640 Rent expense............... 0 (d)6,750 6,750652 Computer supplies expense 0 (a)2,010 2,010655 Advertising expense...... 1,600 1,600676 Mileage expense........... 1,000 1,000684 Repairs expense, computer 1,720 1,720699 Charitable donations expense 0

0 ..........


Totals....................... 271,434271,434 14,990 14,990 276,584 276,584

Periodic Serial Problem (continued) Part 4

ECHO SYSTEMSIncome Statement


Revenues:Computer services revenue ........$38,320Net sales.................................... 33,564 Total revenues......................... $71,884

Operating Expenses:Cost of goods sold1..................... $25,576Rent 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 27,200Less: .....Purchase Returns and Allowances..............................

792

Purchase Discounts........... 272Add: .............Transportation-In 1,400Less: .............Ending Inventory 1,96

0$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 5ECHO SYSTEMS

Statement of Owner’s EquityFor 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....................................... $217,058Less: Withdrawals by owner........ 9,600Mary Graham, capital, March 31, 2012

$207,458

Part 6

ECHO SYSTEMSBalance SheetMarch 31, 2012

AssetsCurrent assets:

Cash............................................... $117,618Accounts receivable........................ 34,140Merchandise inventory ................... 1,960Computer supplies ......................... 4,230Prepaid insurance .......................... 2,160Prepaid rent .................................. 2,250Total current assets........................ $

162,358Property, plant and equipment:

Office equipment ............................$ 18,000Less: 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

LiabilitiesCurrent liabilities:


Wages payable .............................. $ 1,400Owner’s Equity Mary Graham, capital........................ 207,458Total liabilities and owner’s equity.......

$208,858


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