Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
Solutions to Problems
Chapters 5-8
EXERCISE 5-4
(a)
Young Company
Sales.......................................................................................
*Sales returns (1) ....................................................................
Net sales .................................................................................
$90,000)
(9,000)
$81,000)
Net sales .................................................................................
Cost of goods sold ..................................................................
*Gross profit (2) ......................................................................
$81,000)
(56,000)
$25,000)
Gross profit .............................................................................
Operating expenses................................................................ 0
Income tax expense................................................................
*Net earnings (3).....................................................................
$25,000)
,(15,000)
(4,000)
$ 6,000)
Rioux Company
*Sales (4) ................................................................................
Sales returns...........................................................................
Net sales .................................................................................
$100,000)
0 (5,000)
$ 95,000)
Net sales .................................................................................
*Cost of goods sold (5) ...........................................................
Gross profit .............................................................................
$95,000)
57,000)
$38,000)
Gross profit .............................................................................
*Operating expenses (6) .........................................................
Income tax expense................................................................
Net earnings ...........................................................................
$38,000)
(20,000)
(7,000)
$11,000)
*Indicates missing amount
(b)
Young
Rioux
Profit margin
$6,000 ÷ $81,000 = 7.4%
$11,000 ÷ $95,000 = 11.6%
Gross profit margin
$25,000 ÷ $81,000 = 30.9%
$38,000 ÷ $95,000 = 40.0%
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
EXERCISE 5-9*
(a)
(b)
(c)
(d)
$1,435 ($1,500  $40 - $25)
$1,545 ($1,435 + $110)
$1,485 ($1,795  $310)
$30 ($1,080  $20 - $1,030)
(g)
(h)
(i)
(j)
(e)
(f)
$200 ($1,230  $1,030)
$120 ($1,350  $1,230)
(k)
(l)
$7,650 ($7,210 + $150 + $290)
$730 ($7,940  $7,210)
$8,940 ($1,000 + $7,940)
$5,200 ($49,530  $44,330
from l)
$800 ($43,590  $700 - $42,090)
$44,330 ($42,090 + $2,240)
PROBLEM 5-2A
Oct. 1
5
8
10
12
15
Merchandise Inventory ...........................................
Accounts Payable ...........................................
75,000
Merchandise Inventory ...........................................
Cash ...............................................................
1,800
Accounts Payable ...................................................
Merchandise Inventory....................................
6,000
Accounts Receivable .............................................
Sales...............................................................
22,000
Cost of Goods Sold ................................................
Merchandise Inventory ...................................
16,500
Sales Returns and Allowances ...............................
Accounts Receivable ......................................
3,000
Merchandise Inventory ...........................................
Cost of Goods Sold .........................................
2,250
Inventory–Supplies .................................................
Cash ...............................................................
5,000
Merchandise Inventory ...........................................
Cash. ..............................................................
7,500
75,000
1,800
6,000
22,000
16,500
3,000
2,250
5,000
7,500
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Financial Accounting, Second Canadian Edition
PROBLEM 5-2A (Continued)
Oct. 17
20
25
28
Cash [($22,000 – $3,000) X 98%]...........................
Sales Discounts [($22,000 – $3,000) X 2%] ...........
Accounts Receivable ($22,000 – $3,000) .......
18,620
380
Delivery Equipment ................................................
Accounts Payable ...........................................
44,000
Accounts Payable ($75,000 - $6,000).....................
Cash ...............................................................
69,000
Accounts Receivable .............................................
Sales...............................................................
30,000
Cost of Goods Sold ................................................
Merchandise Inventory ...................................
22,500
19,000
44,000
69,000
30,000
22,500
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Financial Accounting, Second Canadian Edition
PROBLEM 5-3A
(a)
General Journal
Date
Apr. 4
6
8
10
11
13
14
15
17
Account Titles
Debit
Merchandise Inventory ...........................................
Accounts Payable...........................................
840
Merchandise Inventory ...........................................
Cash...............................................................
60
Accounts Receivable .............................................
Sales ..............................................................
900
Cost of Goods Sold ................................................
Merchandise Inventory ...................................
600
Accounts Payable ..................................................
Merchandise Inventory ...................................
140
Merchandise Inventory ...........................................
Cash...............................................................
300
Accounts Payable ($840 – $140) ...........................
Merchandise Inventory ($700 X 2%) ..............
Cash...............................................................
700
Merchandise Inventory ...........................................
Accounts Payable...........................................
700
Cash ......................................................................
Merchandise Inventory ...................................
50
Merchandise Inventory ...........................................
Cash...............................................................
80
Credit
840
60
900
600
140
300
14
686
700
50
80
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-3A (Continued)
(a) (Continued)
Date
Account Titles
Apr. 18
Accounts Receivable .............................................
Sales ..............................................................
800
Cost of Goods Sold ................................................
Merchandise Inventory ...................................
410
Cash ......................................................................
Accounts Receivable......................................
500
Accounts Payable ..................................................
Merchandise Inventory ($700 X 2%) ..............
Cash ..............................................................
700
Sales Returns and Allowances ..............................
Accounts Receivable......................................
50
Cash ......................................................................
Accounts Receivable......................................
350
20
21
27
30
Debit
Credit
800
410
500
14
686
50
350
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-3A (Continued)
(b)
Cash
Apr. 1 Bal. 2,500 Apr. 6
Apr. 15
50 Apr. 11
Apr. 20
500 Apr. 13
Apr. 30
350 Apr. 17
Apr. 21
Apr. 30 Bal. 1,588
60
300
686
80
686
Accounts Receivable
Apr. 8
900 Apr. 20
Apr. 18
800 Apr. 27
Apr. 30
Apr. 30 Bal. 800
500
50
350
Merchandise Inventory
Apr. 1 Bal. 1,700 Apr. 8
Apr. 4
840 Apr. 10
Apr. 6
60 Apr. 13
Apr. 11
300 Apr. 15
Apr. 14
700 Apr. 18
Apr. 17
80 Apr. 21
Apr. 30 Bal. 2,452
600
140
14
50
410
14
Sales
Apr. 8
900
Apr. 18
800
Apr. 30 Bal. 1,700
Sales Returns and Allowances
Apr. 27
50
Apr. 30 Bal. 50
Cost of Goods Sold
Apr. 8
600
Apr. 18
410
Apr. 30 Bal.1,010
Accounts Payable
Apr. 10
140 Apr. 4
840
Apr. 13
700 Apr. 14
700
Apr. 21
700
Apr. 30 Bal.
0
Common Shares
Apr. 1 Bal. 4,200
Apr. 30 Bal. 4,200
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Chapter 5
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-3A (Continued)
(c)
J’s TENNIS SHOP
Trial Balance
April 30, 2004
Cash ........................................................................
Accounts Receivable ...............................................
Merchandise Inventory .............................................
Common Shares ......................................................
Sales........................................................................
Sales Returns and Allowances ................................
Cost of Goods Sold ..................................................
Debit
$1,588
800
2,452
Credit
$4,200
1,700
50
1,010
$5,900
___ __
$5,900
(d)
J.’s TENNIS SHOP
Statement of Earnings (Partial)
Month Ended April 30, 2004
Sales revenues
Sales ....................................................................................
Less: Sales returns and allowances ....................................
Net sales ..............................................................................
Cost of goods sold .......................................................................
Gross profit ..................................................................................
$1,700
50
1,650
1,010
640
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Kimmel, Weygandt, Kieso, Trenholm
(a) General Journal
Date
Apr. 2
4
5
6
11
13
14
16
18
20
Financial Accounting, Second Canadian Edition
PROBLEM 5-4A
Account Titles
Debit
Credit
Merchandise Inventory ........................................... 6,300
Accounts Payable ...........................................
6,300
Accounts Receivable .............................................. 5,000
Sales ..............................................................
5,000
Cost of Goods Sold ................................................ 4,000
Merchandise Inventory ...................................
4,000
Freight-out ..............................................................
Cash ...............................................................
200
Accounts Payable ..................................................
Merchandise Inventory ...................................
300
200
300
Accounts Payable ($6,300 – $300)......................... 6,000
Merchandise Inventory ($6,000 X 2%) ............
Cash ...............................................................
120
5,880
Cash....................................................................... 4,900
Sales Discounts ($5,000 X 2%) ..............................
100
Accounts Receivable ......................................
5,000
Merchandise Inventory ........................................... 4,400
Cash ...............................................................
4,400
Cash.......................................................................
Merchandise Inventory ...................................
500
500
Merchandise Inventory ........................................... 4,200
Accounts Payable ...........................................
Merchandise Inventory ...........................................
Cash ...............................................................
4,200
100
100
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-4A (Continued)
(a) (Continued)
General Journal
Date
Apr. 23
26
27
29
30
30
30
Account Titles
Debit
Credit
Cash ....................................................................... 8,100
Sales ...............................................................
8,100
Cost of Goods Sold ................................................ 6,700
Merchandise Inventory ....................................
6,700
Merchandise Inventory ........................................... 2,300
Cash ...............................................................
2,300
Accounts Payable ................................................... 4,200
Merchandise Inventory ($4,200 X 2%) ............
Cash ...............................................................
84
4,116
Sales Returns and Allowances ...............................
Cash ...............................................................
110
Merchandise Inventory ...........................................
Cost of Goods Sold .........................................
75
110
75
Accounts Receivable .............................................. 3,700
Sales ...............................................................
3,700
Cost of Goods Sold ................................................ 3,000
Merchandise Inventory ....................................
3,000
Operating Expenses ............................................... 1,400
Cash ...............................................................
1,400
Income Tax Expense .............................................. 1,000
Cash ...............................................................
1,000
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-4A (Continued)
(b)
Cash
Apr. 1 Bal. 9,000 Apr. 5
Apr. 13
4,900 Apr. 11
Apr. 16
500 Apr. 14
Apr. 23
8,100 Apr. 20
Apr. 26
Apr. 27
Apr. 29
Apr. 30
Apr. 30
Apr. 30 Bal. 2,994
200
5,880
4,400
100
2,300
4,116
110
1,400
1,000
Accounts Receivable
Apr. 4
5,000 Apr. 13
5,000
Apr. 30
3,700
Apr. 30 Bal. 3,700
Apr. 1 Bal. 9,000
Apr. 30 Bal. 9,000
Sales
Apr. 24
5,000
Apr. 23
8,100
Apr. 30
3,700
Apr. 30 Bal. 16,800
Sales Returns and Allowances
Apr. 29
110
Apr. 30 Bal. 110
Sales Discounts
Apr. 13
100
Apr. 30 Bal. 100
Merchandise Inventory
Apr. 2
6,300 Apr. 4
4,000
Apr. 14
4,400 Apr. 6
300
Apr. 18
4,200 Apr. 11
120
Apr. 20
100 Apr. 16
500
Apr. 26
2,300 Apr. 23
6,700
Apr. 29
75 Apr. 27
84
Apr. 30
3,000
Apr. 30 Bal. 2,671
Cost of Goods Sold
Apr. 4
4,000 Apr.
Apr. 23
6,700 75
Apr. 30
3,000
Apr. 30 Bal.13,625
Accounts Payable
Apr. 6
300 Apr. 2
6,300
Apr. 11
6,000 Apr. 18
4,200
Apr. 27
4,200
Apr. 30 Bal.
0
Freight -out
Apr. 5
200
Apr. 30 Bal. 200
Common Shares
29
Operating Expenses
Apr. 30
1,400
Apr. 30 Bal. 1,400
Income Tax Expense
Apr. 30
1,000
Apr. 30 Bal. 1,000
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Chapter 5
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-4A (Continued)
(c)
NISSON DISTRIBUTING LTD.
Statement of Earnings
Month Ended April 30, 2004
Sales revenues
Sales ....................................................................
Less: Sales returns and allowances ....................
Sales discounts .........................................
Net sales ..............................................................
Cost of goods sold .......................................................
Gross profit ..................................................................
Expenses
Operating expenses .............................................
Freight-out............................................................
Total expenses ............................................................
Earnings before taxes ..................................................
Income tax expense .....................................................
Net earnings ................................................................
(d) Gross profit margin =
Profit margin =
$16,800
$110
100
210
16,590
13,625
2,965
$1,400
200
1,600
1,365
1,000
$ 365
$2,965
= 17.9%
$16,590
$365
= 2.2%
$16,590
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Chapter 5
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-5A
(a) Nov. 30
30
30
30
30
Store Supplies Expense .............................
Store Supplies ....................................
3,000
Amort. Expense—Store Equipment............
Accumulated Amortization—
Store Equipment .............................
9,000
Amort. Expense—Delivery Equipment .......
Accumulated Amortization—
Delivery Equipment ........................
6,000
Interest Receivable ....................................
Interest Revenue ................................
3,000
Income Tax Expense..................................
Income Tax Payable ...........................
30,000
3,000
9,000
6,000
3,000
30,000
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Chapter 5
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
PROBLEM 5-5A (Continued)
(b)
Store Supplies
Nov. 30 Bal.5,500 Nov. 30
Nov. 30 Bal.2,500
3,000
Accumulated Amortization—
Store Equipment
Nov. 30 Bal. 18,000
Nov. 30
9,000
Nov. 30 Bal. 27,000
Accumulated Amortization—
Delivery Equipment
Nov. 30 Bal. 6,000
Nov. 30
6,000
Nov. 30 Bal. 12,000
Nov. 30
9,000
Nov. 30 Bal.
9,000
Amortization Expense—
Delivery Equipment
Nov. 30
6,000
Nov. 30 Bal. 6,000
Interest Receivable
Nov. 30
3,000
Nov. 30 Bal. 3,000
Interest Revenue
Nov. 30
3,000
Nov. 30 Bal. 3,000
Income Tax Payable
Nov. 30
30,000
Nov. 30 Bal. 30,000
Store Supplies Expense
Nov. 30
3,000
Nov.
30
Bal.
3,000
Income Tax Expense
Nov. 30
30,000
Nov. 30 Bal.
30,000
Amortization Expense—
Store Equipment
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Chapter 5
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 5-5A (Continued)
(c)
FASHION CENTRE LTD.
Adjusted Trial Balance
November 30, 2004
Debit
$ 16,700
33,700
51,000
45,000
2,500
72,000
Cash ...............................................................
Accounts Receivable ......................................
Notes Receivable – Current ............................
Merchandise Inventory ....................................
Store Supplies ................................................
Store Equipment .............................................
Accumulated Amortization—Store ..................
Equipment...................................................
Delivery Equipment ......................................... 30,000
Accumulated Amortization—Delivery
Equipment...................................................
Accounts Payable ...........................................
Common Shares .............................................
Retained Earnings ..........................................
Dividends ........................................................ 10,000
Sales...............................................................
Sales Returns and Allowances .......................
4,200
Cost Of Goods Sold ........................................ 469,400
Salaries Expense ............................................ 100,000
Advertising Expense ....................................... 26,400
Utilities Expense ............................................. 14,000
Repair Expense .............................................. 12,100
Delivery Expense ............................................ 16,700
Rent Expense ................................................. 24,000
Store Supplies Expense ..................................
3,000
Amortization Expense—Store
Equipment...................................................
9,000
Amortization Expense—Delivery
Equipment...................................................
6,000
Income Tax Expense ...................................... 30,000
Income Tax Payable .......................................
Interest Revenue ............................................
Interest Receivable .........................................
3,000
Solutions Manual
5-14
Credit
$ 27,000
12,000
39,500
80,000
30,000
757,200
30,000
3,000
0000 000
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Totals ...................................................... $978,700
Solutions Manual
5-15
$978,700
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 5-5A (Continued)
(d)
FASHION CENTRE LTD.
Statement of Earnings
Year Ended November 30, 2004
Sales revenues
Sales .........................................................
Less: Sales returns and allowances ..........
Net sales ...................................................
Cost of goods sold ............................................
Gross profit .......................................................
Operating expenses
Salaries expense.......................................
Advertising expense ..................................
Rent expense ............................................
Delivery expense.......................................
Utilities expense ........................................
Repair expense .........................................
Amortization expense—store equipment ...
Amortization expense—delivery equipment
Store supplies expense .............................
Total operating expenses ..................
Earnings from operations ..................................
Other revenues
Interest revenue ........................................
Earnings before tax...........................................
Income tax expense..........................................
Net earnings .....................................................
$757,200)
4,200)
753,000)
469,400)
283,600)
$100,000
26,400
24,000
16,700
14,000
12,100
9,000
6,000
3,000
211,200)
72,400
3,000)
75,400
30,000
$ 45,400
FASHION CENTRE LTD.
Statement of Retained Earnings
Year Ended November 30, 2004
Retained earnings, December 1, 2003 .............
Add: Net earnings ............................................
Solutions Manual
5-16
0$30,000)
45,400
75,400
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Less: Dividends ...............................................
Retained earnings, November 30, 2004 ...........
Solutions Manual
5-17
10,000
$65,400)
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 5-5A
(d)
(Continued)
FASHION CENTRE LTD.
Balance Sheet
November 30, 2004
Assets
Current assets
Cash .....................................................
Accounts receivable..............................
Interest receivable ................................
Notes receivable – current portion ........
Merchandise inventory ..........................
Store supplies .......................................
Total current assets.......................
Notes receivable, due 2006 ..........................
Property, plant and equipment
Store equipment ...................................
Accumulated amortization—
store equipment ................................
Delivery equipment ...............................
Accumulated amortization—
delivery equipment............................
Total assets ..................................................
$ 16,700
33,700
3,000
30,000
45,000
2,500
130,900
21,000
$72,000
27,000
$30,000
45,000
12,000
18,000
$214,900
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable .................................
Income taxes payable ...........................
Total current liabilities ...................
Shareholders’ equity
Common shares ...................................
Retained earnings.................................
Total shareholders’ equity .............
Total liabilities and shareholders’ equity .......
Solutions Manual
5-18
$ 39,500
30,000
69,500
80,000
65,400
145,400
$214,900
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
EXERCISE 6-1
(a)
Do not include – Shippers does not own items held on consignment
(b) Include in inventory – Shippers’ still owns the items as they were only
shipped on consignment.
(c) Include in inventory – Shipping terms FOB destination means that Shippers
owns the items until they reach the customer.
(d) Do not include in inventory - Because the shipping terms are FOB shipping
point, ownership has transferred to the customer. Shippers Ltd should
record this amount as a sale on the statement of earnings.
(e) Do not include in inventory – Because the shipping terms are FOB
destination, Shippers does not own the supplies until they arrive at Shippers’
premises.
(f) Include in inventory – Shipping terms FOB shipping point means that
ownership transferred at the time of shipping and therefore, Shippers Ltd.
owns the goods in transit.
(g) Record as supplies inventory on the balance sheet.
EXERCISE 6-6
(a)
2004
2005
Beginning inventory ...................................................................
$ 20,000
$ 26,000
Cost of goods purchased ...........................................................
160,000
175,000
Cost of goods available for sale ................................................
180,000
201,000
Corrected ending inventory .......................................................
Cost of goods sold .....................................................................
a $30,000
- $4,000 = $26,000
b $35,000
+ $3,000 = $38,000
26,000a
$154,000
38,000b
$163,000
(b)
Solutions Manual
5-19
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Inventory error for 2004 will cause 2004 cost of goods sold to be understated by
$4,000, which will cause the 2004 net earnings and retained earnings to be
overstated by the same amount. When the error reverses in 2005, cost of goods
sold will be overstated and 2005 net earnings will be understated. Over the two
years the error will reverse and therefore the 2005 retained earnings balance will
be correct.
The $3,000 understatement of inventory in 2005 will cause the 2005 cost of
goods sold to be overstated and the 2005 net earnings and retained earnings to
be understated by $3,000.
EXERCISE 6-13
(a)
FIFO
Dr.
Sept. 5 Cash
Cr.
02,388
Dr.
02,388
of
Goods
Cr.
02,388
Sales
5 Cost
Sold
Moving Average
01,164
LIFO
Dr.
Cr.
02,388
02,388
01,164
01,164
02,388
01,164
01,164
01,164
Inventory
12 Inventory
04,590
04,590
Accounts Payable
16 Cash
04,590
09,950
04,590
09,950
Sales
16 Cost
Sold
09,950
of
Goods
04,590
05,030
04,590
09,950
09,950
05,041
05,030
09,950
05,075
05,041
05,075
Inventory
19 Inventory
02,912
02,912
Accounts Payable
02,912
02,912
02,912
02,912
(b)
FIFO
Dr.
Solutions Manual
Weighted Average
Cr.
5-20
Dr.
Cr.
LIFO
Dr.
Cr.
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Sept. 5 Cash
02,388
Sales
12 Purchases
02,388
04,590
Accounts Payable
16 Cash
04,590
09,950
04,590
9,950
02,912
02,388
04,590
09,950
Accounts Payable
02,388
02,388
04,590
Sales
19 Purchases
02,388
04,590
09,950
09,950
02,912
02,912
09,950
2,912
2,912
02,912
PROBLEM 6-1A
(a) The goods should not be included in inventory as they were
shipped FOB shipping point and shipped February 26. Title
to the goods transfers to the customer February 26. Banff
should have recorded the transaction in the Sales and
Accounts Receivable accounts.
(b) The amount should not be included in inventory as they were
shipped FOB destination and not received until March 1. The
seller still owns the inventory. No entry is recorded.
(c)
Include $500 in inventory.
(d)
Include $400 in inventory.
(e) $750 should be included in inventory as the goods were
shipped FOB shipping point. (They were received March 1–
assume they were shipped at least one day prior.)
(f) The sale will be recorded on March 2. The goods should be
included in inventory at the end of February at their cost of
$320.
Solutions Manual
5-21
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
(h) The damaged goods should not be included in inventory.
They should be recorded in a cost of goods sold (loss)
account since they are not able to be sold.
*PROBLEM 6-9A
(a)
(1)
FIFO:
Date
Description
May 1 Purchase
Purchases
05
$90
$450
04 0$99
‘396
2 90
0’3 99 ‘477
14 Sale
21 Purchase
03 0103
‘309
1 99
1 103 202
27 Sale
29 Purchase
30 Balance
Solutions Manual
5
0’3 $90 $270
6 Sale
11 Purchase
CGS Ending Inventory
2
14
106
212
$1,367 ‘10
5-22
$949
$90 0$$450
02
90
0180
2
04
90
99
0576
01
99
099
1
03
99
103
0$408
2
103
206
2
02
103
106
418
44
,
$418
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Solutions Manual
5-23
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*PROBLEM 6-9A (Continued)
(a) (Continued)
(2) Average
Date
Description
May 1 Purchase
Purchases
05
$90
0’5
03 0103
30 Balance
96
2 101.25
2
106
14
$270
‘480
‘309
27 Sale
29 Purchase
$90
‘396
14 Sale
21 Purchase
5
0’3
04 0$99
Ending Inventory
$450
6 Sale
11 Purchase
CGS
212
$1,367 ‘10
202.50
$90 0$$$450
02
90
0180
06
96*
0576
01
96
096
04 101.25**
0$405
2
101.25
202.50
04 103.63***
414.50
$952.50 40
, $414.50
* $576  6 = $96
** $405  4 = $101.25
*** $414.50  4 = $103.63
Solutions Manual
5-24
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*PROBLEM 6-9A (Continued)
(a) (Continued)
(3) LIFO
Date
Description
May 1 Purchase
Purchases
05
$90
CGS Ending Inventory
$450
0’3 $90 $270
6 Sale
11 Purchase
04
0$99
1
0’4
03
0103
29 Purchase
30 Balance
Solutions Manual
90
0180
2
04
90
99
0576
01
90
090
1
03
90
103
0$399
1
01
90
103
193
1
01
2
90
103
106
405
$962 40
,
$405
90
99 ‘486
‘309
27 Sale
2 103 206
2
14
106
212
$1,367 ‘10
5-25
$90 0$$$450
02
‘396
14 Sale
21 Purchase
5
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*PROBLEM 6-9A (Continued)
(b)
Because prices are rising, FIFO will produce the highest gross
profit and net earnings.
(c)
Because the ending inventory is valued using the most recent
prices, the FIFO cost flow assumption produces the highest
ending inventory.
*PROBLEM 6-10A
(a)
Movin
g
FIFO
Jan. 1
Average Cost
No entry required
(150 @ $17 = $2,550)
2
Inventory ....... ........... 2,100
2,100
00000
Cash ........ ...........
2,100
2,100
00
(100 @ $21 = $2,100)
6
Cash ............. ........... 7,000
7,000
Sales........ ...........
7,000
7,000
(175 @ $40 = $7,000)
Cost of Goods Sold...
Inventory ..............
Solutions Manual
3,075
3,255
3,075
5-26
00
3,255
00
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
FIFO: (150 @ $17) +(25 @ $21)= $3,075; Balance 75 @ $21 = $1,575
Average Cost: ($2,550 + $2,100) / (150 + 100) = $18.60
175 @ $18.60 = $3,255; Balance 75 @ $18.60 = $1,395
9 Inventory ..............
1,200
Cash ....................
(50 @ $24 = $1,200)
Solutions Manual
5-27
1,200
1,200
1,200
00
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*PROBLEM 6-10A (Continued)
(a) (Continued)
Jan. 15......................... Cash
3,375 ............................
Sales....................
(75 @ $45 = $3,375)
Cost of Goods Sold...
Inventory ..............
3,375
3,375
1,575
3,375
1,557
1,575
1,557
FIFO:(75 @ $21) = $1,575; Balance 50 @ $24 = $1200
Average Cost: ($1,395 + $1,200)  (75 +50) = $20.76
75 @ $20.76 =
23
(b)
$1,557; Balance 50 @ $20.76 = $1,038
Inventory ...................
Cash ....................
(100 @ $28 = $2,800)
2,800
2,800
2,800
2,800
0
FIFO produces the higher ending inventory balance because
inventory is valued at the most recent costs.
Net cash flow will be the same under either assumption, as
cash flow is not affected by the inventory cost flow assumption
used.
Gross profit will be higher under the FIFO assumption as it
produces a lower cost of goods sold because CGS is valued at
the oldest (lowest) prices.
Solutions Manual
5-28
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
EXERCISE 6-12
(a)
FIFO
Date
Purchases
Sept. 1
(26 @ $97)
Sept. 5
Sales
Balance
$2,522
(12 @ $97)=$1,164
Sept. 12 (45 @ $102) = $4,590
(14 @ $97) = $1,358
(14 @ $97) +
(45 @ $102) =$5,948
Sept. 16
(14 @ $97) +
(36 @ $102)=$5,030
Sept. 19 (28 @ $104) = $2,912
(9 @ $102) = $918
(9 @ $102) +
(28 @ $104) =$3,830
Cost of Goods Sold: $1,164 + $5,030 = $6,194
Ending Inventory: $3,830
AVERAGE COST
Date
Purchases
Sept. 1
(26 @ $97)
Solutions Manual
Sales
Balance
$2,522
5-29
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Sept. 5
(12 @ $97) = $1,164
(59@$100.81) a = $5,948
Sept. 12 (45 @ $102) = $4,590
Sept. 16
(14 @ $97)=$1,358
(50 @ $100.81) =$5,041*
(9@ $100.81) = $907
(37@$103.22) b=$3,819
Sept. 19 (28 @ $104) $2,912
*Rounded
a
$5,948 ÷ 59 = $100.81
b
$3,819 ÷ 37 = $103.22
Cost of Goods Sold: $1,164 + $5,041 = $6,205
Ending Inventory: $3,819
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5-30
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*EXERCISE 6-12 (Continued)
(a) (Continued)
LIFO
Date
Purchases
Sept. 1
(26 @ $97)
Sept. 5
Sales
Balance
$2,522
(12 @ $97)=$1,164
Sept. 12 (45 @ $102) =$4,590
(14 @ $97) = $1,358
(14 @ $97) +
(45 @ $102) = $5,948
Sept. 16
(5 @ $97) +
(45 @ $102) =$5,075
Sept. 19 (28 @ $104) = $2,912
(9 @ $97) = $873
(9@ $97)+
(28 @ $104) =$3,785
Cost of Goods Sold: $1,164 + $5,075 = $6,239
Ending Inventory: $3,785
(b)
FIFO
Beginning inventory (26 X $97)......................................................
$2,522
Purchases
Sept. 12 (45 X $102) ........................................................................
$4,590
Sept. 19 (28 X $104) ........................................................................
2,912
7,502
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5-31
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Cost of goods available for sale ....................................................
10,024
Less: Ending inventory (9 @$102) + (28 @ $104) .........................
3,830
Cost of goods sold .........................................................................
$6,194
AVERAGE COST
Cost of goods available for sale ....................................................
$10,024
Ending inventory (37 X $101.251) .....................................
3,746
Cost of goods sold .........................................................................
$ 6,278
Less:
1$10,024
÷ 99 = $101.25
LIFO
Cost of goods available for sale ....................................................
Less:
$10,024
Ending inventory (26 @ $97) + (11@ $102) ......................
3,644
Cost of goods sold .........................................................................
$ 6,380
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5-32
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
*EXERCISE 6-12 (Continued)
(b) (Continued)
Periodic
Ending
Perpetual
Inventory
Cost of Goods
Sold
Ending
Inventory
Cost of Goods
Sold
FIFO
$3,830
$6,194
$3,830
$6,194
Average cost
$3,746
$6,278
$3,819
$6,205
LIFO
$3,644
$6,380
$3,785
$6,239
EXERCISE 7-1
(a) Cash and Cash Equivalents
1.
2.
3.
5.
6.
Currency
Guaranteed Investment certificate
April cheques
Royal Bank chequing account
Royal Bank savings account
Total
$
60
10,000
300
2,500
4,000
$16,860
4. Post-dated cheque – Accounts Receivable; Balance Sheet
7. Prepaid postage in postage meter–Prepaid Postage Expense; Balance
Sheet,
or Postage Expense; Statement of Earnings
8. IOU from company receptionist–Accounts Receivable; Balance Sheet
(b)
EXERCISE 7-7
(a)
LOKO LTD.
Bank Reconciliation
January 31
Cash balance per bank statement ...................................
Solutions Manual
5-33
$3,660.20
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Add: Deposits in transit ..................................................
590.00
4,250.20
730.00
$3,520.20
Less: Outstanding cheques.............................................
Adjusted cash balance per bank ......................................
Cash balance per books ..................................................
Less: NSF cheque ..........................................................
Bank service charge .............................................
Adjusted cash balance per books ....................................
(b)
$3,975.20
$430.00
25.00
455.00
$3,520.20
Accounts Receivable .................................................................
Cash..................................................................................
430
Bank Charges Expense .............................................................
Cash..................................................................................
25
430
25
EXERCISE 7-8
The outstanding cheques are as follows:
No.
255
260
264
Solutions Manual
Amount
$ 800
0925
360
Total $2,085
5-34
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
(a) General Ledger Cash Balance:
February 28 (Adjusted cash balance per bank rec.) ......... $13,073
Cash receipts...................................................................
5,713
Cash disbursements ........................................................ (5,798)
Unadjusted balance March 31 ......................................... $12,988
(b) Deposits in transit March 31 $1,025 (dated March 30).
(c) Outstanding cheques March 31:
#3470
$ 720 (from February bank rec.)
#3475
600 (dated March 29)
$1,320
(d)
YAP LTD.
Bank Reconciliation
March 31, 2004
Balance per bank statement ...................................
Add: Deposits in transit .........................................
Less: Outstanding cheques
No. 3470 ....................................................
No. 3475 ....................................................
Adjusted cash balance per bank .............................
$11,775
1,025
12,800
$720
600
Balance per books ..................................................
Less: Service charge .............................................
NSF cheque–Jordan ....................................
Correction in recording cash
receipts March 4 ........................................
Adjusted cash balance ............................................
Solutions Manual
5-35
1,320
$11,480
$12,988
$ 49
550
909
1,508
$11,480
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 7-5B (Continued)
(e) Sales ................................................................
Cash .....................................................
909
Bank Charges Expense ...................................
Cash .....................................................
49
Accounts Receivable .......................................
Cash .....................................................
550
909
49
550
EXERCISE 8-2
(a)
Dec. 31
Bad Debts Expense .............................................
Allowance for Doubtful Accounts .................
8,200
Bad Debts Expense .............................................
Allowance for Doubtful Accounts .................
7,500
Notes Receivable ...........................................................
Cash.......................................................................
24,000
Notes Receivable ...........................................................
Sales ......................................................................
3,600
Cost of Goods Sold ........................................................
Inventory ................................................................
2,500
Notes Receivable ...........................................................
Accounts Receivable—B. Barnes ..........................
8,000
Interest Receivable ........................................................
Interest Revenue* ..................................................
361
(b) Dec. 31
8,200
7,500
EXERCISE 8-5
Nov.
Dec.
1
1
15
31
*Calculation of interest revenue:
Bouchard’s note:
Wright’s note:
Barnes’ note:
Total accrued interest
Solutions Manual
$24,000 X 8% X 2/12
$3,600 X 6% X 1/12
$8,000 X 7% X 15/365
5-36
=
=
=.
24,000
3,600
2,500
8,000
361
$320
.18
23
$361
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Note: Some students may also calculate interest using part months, rather
than days
PROBLEM 8-1A
(a) Accounts Receivable ........................................
Sales .............................................................
800,000
Cash .................................................................
Accounts Receivable .....................................
743,000
(b) Allowance for Doubtful Accounts .......................
Accounts Receivable .....................................
7,000
(c) Accounts Receivable ........................................
Allowance for Doubtful Accounts ...................
4,000
Cash .................................................................
Accounts Receivable .....................................
4,000
(d) Bad Debt Expense ............................................
Allowance for Doubtful Accounts ...................
19,000
Allowance for Doubtful Accounts
Beg. Bal.
9,000
W/O
7,000
800,000
743,000
7,000
4,000
4,000
19,000
R
e
c
o
v
e
r
y
4
,
0
0
0
Bad Debts
Solutions Manual
19,000
5-37
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
End Bal.
Solutions Manual
25,000
5-38
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-1A (Continued)
(e)
Accounts Receivable
Beg. Bal. 200,000 Collections 743,000
Sales
800,000 W/O
7,000
Recovery
4,000 Collections
4,000
End Bal.
250,000
Allowance for Doubtful Accounts
Beg. Bal.
9,000
W/O
7,000 Recovery
4,000
Bad Debts 19,000
End Bal.
25,000
(f)
Net realizable value of receivables is $225,000 ($250,000 $25,000)
Solutions Manual
5-39
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-4A
(a)
Dec. 31 Bad Debts Expense ..............................
Allowance for Doubtful Accounts ..
($38,610 – $20,000)
(b)
18,610
18,610
2005
1.
2.
Mar. 31 Allowance for Doubtful Accounts ..........
Accounts Receivable ....................
800
May 31 Accounts Receivable ............................
Allowance for Doubtful Accounts ..
800
31 Cash .....................................................
Accounts Receivable ....................
800
(c)
800
800
800
2005
Dec. 31
Solutions Manual
Bad Debts Expense....................................
Allowance for Doubtful Accounts ..........
($38,610 – $45,000)
5-40
6,390
6,390
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-5A
(a)
$36,000
(b)
$32,000 - $3,000 = $29,000
(c)
$32,000 + $3,000 = $35,000
(d)
Using the allowance method of reporting bad debt expense
provides a better balance sheet valuation for accounts
receivable and better matches expenses to the period in which
the sale occurs.
Solutions Manual
5-41
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-6A
Jan. 5
20
Feb.18
Apr. 20
30
May 25
Aug. 18
25
Sept. 1
Accounts Receivable—George Company .........
Sales ..........................................................
16,000
Cost of Goods Sold ...........................................
Inventory ....................................................
9,600
Notes Receivable ..............................................
Accounts Receivable—George Company ..
16,000
Notes Receivable ..............................................
Sales ..........................................................
8,000
Cost of Goods Sold ...........................................
Inventory ....................................................
5,000
Cash ($16,000 + $360) .....................................
Notes Receivable .......................................
Interest Revenue ($16,000 X 9% X 3/12) ...
16,360
Cash ($11,000 + $293) .....................................
Notes Receivable .......................................
Interest Revenue ($11,000 X 8% X 4/12) ...
11,293
Notes Receivable ..............................................
Accounts Receivable—Avery Inc................
6,000
Cash ($8,000 + $200) .......................................
Notes Receivable .......................................
Interest Revenue ($8,000 X 5% X 6/12) .....
8,200
Accounts Receivable—Avery Inc. .....................
($6,000 + $120)
Notes Receivable .................................
Interest Revenue ($6,000 X 8% X 3/12)
6,120
Notes Receivable ..............................................
Sales ..........................................................
10,000
Solutions Manual
5-42
16,000
9,600
16,000
8,000
5,000
16,000
360
11,000
293
6,000
8,000
200
6,000
120
10,000
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
Cost of Goods Sold ...........................................
Inventory ....................................................
Solutions Manual
5-43
6,000
6,000
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-7A
(a)
1.
Accounts Receivable .................................... 3,200,000
Sales .....................................................
3,200,000
2.
Sales Returns and Allowances ......................
Accounts Receivable .............................
50,000
50,000
3.
Cash ............................................................. 3,000,000
Accounts Receivable .............................
3,000,000
4.
Allowance for Doubtful Accounts ...................
Accounts Receivable .............................
90,000
Accounts Receivable.....................................
Allowance for Doubtful Accounts ...........
40,000
Cash .............................................................
Accounts Receivable .............................
40,000
5.
90,000
40,000
40,000
(b)
Accounts Receivable
Bal.
(1)
(5)
960,000 (2)
3,200,000 (3)
40,000 (4)
(5)
Bal. 1,020,000
(c)
Allowance for Doubtful Accounts
50,000
3,000,000
90,000
40,000
(4)
90,000 Bal.
(5)
70,000
40,000
Bal.
20,000
Balance before adjustment [see (b)] ....................
Balance needed ...................................................
Adjustment required .............................................
$ 20,000
110,000
$ 90,000
The journal entry would therefore be as follows:
Bad Debts Expense ......................................
Allowance for Doubtful Accounts ...........
Solutions Manual
5-44
90,000
90,000
Chapter 5
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
PROBLEM 8-7A (Continued)
(d)
Receivables Turnover
$3,200,000 $50,000
 3.2 times
 $960,000 $1,020,000


2


Average Collection Period
Its average collection period is:
365 days
= 114 days
3.2
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second
Canadian Edition
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Financial Accounting, Second
Canadian Edition
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5-48
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Canadian Edition
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5-49
Chapter 5