CHAPTER 5
Accounting for Merchandising Operations
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
A
Problems
B
Problems
*1.
Identify the differences
between service and
merchandising companies.
2, 3, 4
1
*2.
Explain the recording
of purchases under a
perpetual inventory
system.
5, 6, 7, 8
2, 4
1
2, 3, 4, 11
1A, 2A, 4A
1B, 2B, 4B
*3.
Explain the recording
of sales revenues under
a perpetual inventory
system.
9, 10, 11
2, 3
2
3, 4, 5, 11
1A, 2A, 4A
1B, 2B, 4B
*4.
Explain the steps in the
accounting cycle for a
merchandising company.
1, 12,
13, 14
5, 6
3
6, 7, 8
3A, 4A, 8A
3B, 4B
*5.
Prepare an income
statement for a
merchandiser.
18
7, 8, 9
4
6, 9, 10,
12, 13, 14
2A, 3A, 8A
2B, 3B
*6.
Explain the computation
and importance of gross
profit.
15, 16, 17
9, 11
9, 12, 13
2A, 5A,
6A, 8A
2B, 5B, 6B
*7.
Explain the recording of
purchases and sales of
inventory under a periodic
inventory system.
19, 20
10, 11, 12
15, 16, 17,
18, 19
5A, 6A, 7A
5B, 6B, 7B
*8.
Prepare a worksheet for
a merchandising company.
21
13
20, 21
8A
Do It!
Exercises
1
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
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5-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
5-2
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize purchase and sales transactions under
a perpetual inventory system.
Simple
20–30
2A
Journalize, post, and prepare a partial income statement.
Simple
30–40
3A
Prepare financial statements and adjusting and
closing entries.
Moderate
40–50
4A
Journalize, post, and prepare a trial balance.
Simple
30–40
*5A
Determine cost of goods sold and gross profit under
periodic approach.
Moderate
40–50
*6A
Calculate missing amounts and assess profitability.
Moderate
20–30
*7A
Journalize, post, and prepare trial balance and partial
income statement using periodic approach.
Simple
30–40
*8A
Complete accounting cycle beginning with a worksheet.
Moderate
50–60
1B
Journalize purchase and sales transactions under
a perpetual inventory system.
Simple
20–30
2B
Journalize, post, and prepare a partial income statement.
Simple
30–40
3B
Prepare financial statements and adjusting and
closing entries.
Moderate
40–50
4B
Journalize, post, and prepare a trial balance.
Simple
30–40
*5B
Determine cost of goods sold and gross profit under
periodic approach.
Moderate
40–50
*6B
Calculate missing amounts and assess profitability.
Moderate
20–30
*7B
Journalize, post, and prepare trial balance and partial
income statement using periodic approach.
Simple
30–40
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WEYGANDT IFRS 1E
CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
Number
SO
BT
Difficulty
Time (min.)
BE1
1
AP
Simple
4–6
BE2
2, 3
AP
Simple
2–4
BE3
3
AP
Simple
6–8
BE4
2
AP
Simple
6–8
BE5
4
AP
Simple
1–2
BE6
4
AP
Simple
2–4
BE7
5
AP
Simple
2–4
BE8
5
C
Simple
4–6
BE9
5, 6
AP
Simple
4–6
BE10
7
AP
Simple
4–6
BE11
6, 7
AP
Simple
4–6
BE12
7
AP
Simple
3–5
BE13
8
K
Simple
2–4
DI1
2
AP
Simple
2–4
DI2
3
AP
Simple
4–6
DI3
4
AP
Simple
4–6
DI4
5
AP
Simple
10–12
EX1
1
C
Simple
3–5
EX2
2
AP
Simple
8–10
EX3
2, 3
AP
Simple
8–10
EX4
2, 3
AP
Simple
8–10
EX5
3
AP
Simple
8–10
EX6
4, 5
AP
Simple
6–8
EX7
4
AP
Simple
6–8
EX8
4
AP
Simple
8–10
EX9
5, 6
AP
Simple
8–10
EX10
5
AP
Simple
8–10
EX11
2, 3
AN
Moderate
6–8
EX12
5, 6
AP
Simple
8–10
EX13
5, 6
AN
Simple
6–8
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5-3
ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)
Number
SO
BT
Difficulty
EX14
5
AN
Moderate
8–10
EX15
7
AP
Simple
6–8
EX16
7
AP
Simple
8–10
EX17
7
AN
Moderate
10–12
EX18
7
AP
Simple
8–10
EX19
7
AP
Simple
8–10
EX20
8
AP
Simple
2–4
EX21
8
AP
Simple
8–10
P1A
2, 3
AP
Simple
20–30
P2A
2, 3, 5, 6
AP
Simple
30–40
P3A
4, 5
AN
Moderate
40–50
P4A
2–4
AP
Simple
30–40
P5A
6, 7
AP
Moderate
40–50
P6A
6, 7
AN
Moderate
20–30
P7A
7
AP
Simple
30–40
P8A
4–6, 8
AP
Moderate
50–60
P1B
2, 3
AP
Simple
20–30
P2B
2, 3, 5, 6
AP
Simple
30–40
P3B
4, 5
AN
Moderate
40–50
P4B
2–4
AP
Simple
30–40
P5B
6, 7
AP
Moderate
40–50
P6B
6, 7
AN
Moderate
20–30
P7B
7
AP
Simple
30–40
BYP1
6
AN, E
Simple
10–15
BYP2
5, 6
AN, E
Simple
15–20
BYP3
—
AP
Simple
10–15
BYP4
5, 6
AN, S, E
Moderate
20–30
BYP5
3
C
Simple
10–15
BYP6
2
E
Simple
10–15
5-4
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Time (min.)
Weygandt, IFRS, 1/e, Solutions Manual
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Weygandt, IFRS, 1/e, Solutions Manual
Explain the steps in the
accounting cycle for a
merchandising company.
Prepare an income statement Q5-18
for a merchandiser.
Explain the computation and
importance of gross profit.
Explain the recording of
purchases and sales under
a periodic inventory system.
Prepare a worksheet for
a merchandising company.
4.
5.
6.
*7.
*8.
Broadening Your Perspective
Explain the recording of
sales revenues under a
perpetual inventory system.
3.
Q5-21
BE5-13
Q5-19
Q5-10
Q5-5
Explain the recording of
purchases under a perpetual
inventory system.
2.
Q5-2
Identify the differences
between service and
merchandising companies.
Knowledge
1.
Study Objective
P5-8A P5-3A
P5-4B P5-3B
P5-2B E5-14
P5-8A P5-3A
P5-3B
P5-2B P5-6A
P5-5A P5-6B
P5-5B
P5-8A
P5-5A E5-16
P5-5B P5-6A
P5-7A P5-6B
P5-7B
E5-6
E5-7
E5-8
P5-4A
E5-10
E5-12
E5-13
P5-2A
E5-9
E5-12
E5-13
P5-2A
E5-15
E5-17
E5-18
E5-19
Q5-13
BE5-5
BE5-6
DI5-3
E5-20
E5-21
Q5-20
BE5-10
BE5-11
BE5-12
Q5-15
Q5-16
BE5-9
BE5-11
BE5-7
BE5-9
E5-6
E5-9
Analysis
Synthesis
Decision Making
Financial Reporting
Across the
Comparative Analysis
Decision Making Across
Organization
the Organization
P5-1B Q5-9
P5-2B E5-11
P5-4B
E5-4
E5-5
P5-1A
P5-2A
P5-4A
Q5-11
BE5-2
BE5-3
DI5-2
E5-3
P5-8A
P5-2B E5-11
P5-4A
P5-4B
Q5-8
BE5-2
BE5-4
DI5-1
E5-2
E5-3
E5-4
P5-1A
P5-2A
P5-1B
E5-1 BE5-1
Application
Communication Exploring the Web
Q5-17
BE5-8
DI5-4
Q5-1
Q5-12
Q5-14
Q5-6
Q5-7
Q5-3
Q5-4
Comprehension
Comparative Analysis
Financial Reporting
Decision Making Across
the Organization
Ethics Case
Evaluation
Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems
BLOOM’S TAXONOMY TABLE
(For Instructor Use Only)
5-5
ANSWERS TO QUESTIONS
1.
(a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.
2.
The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.
3.
(a) The components of revenues and expenses differ as follows:
Merchandising
Revenues
Expenses
(b)
Service
Fees, Rents, etc.
Operating (only)
Sales
Cost of Goods Sold and Operating
The income measurement process is as follows:
Sales
Revenue
Less
Cost of
Goods
Sold
Equals
Gross
Profit
Less
Operating
Expenses
Equals
Net
Income
4.
Income measurement for a merchandising company differs from a service company as follows:
(a) sales are the primary source of revenue and (b) expenses are divided into two main
categories: cost of goods sold and operating expenses.
5.
In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.
6.
The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on
board the carrier by the seller. The buyer then pays the freight and debits Merchandise Inventory.
FOB destination means that the goods are placed free on board to the buyer’s place of business.
Thus, the seller pays the freight and debits Freight-out.
7.
Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.
8.
July 24
Accounts Payable ($2,000 – $200)..........................................................
Merchandise Inventory ($1,800 X 2%)...........................................
Cash ($1,800 – $36) ..........................................................................
1,800
36
1,764
9.
Agree. In accordance with the revenue recognition principle, sales revenues are generally considered to be earned when the goods are transferred from the seller to the buyer; that is, when
the exchange transaction occurs. The earning of revenue is not dependent on the collection of
credit sales.
10.
(a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales—
sales invoice.
5-6
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Questions Chapter 5 (Continued)
(b)
The entries are:
Debit
Cash sales—
Credit sales—
11.
July 19
Cash..........................................................................
Sales................................................................
Cost of Goods Sold................................................
Merchandise Inventory.................................
XX
Accounts Receivable .............................................
Sales................................................................
Cost of Goods Sold................................................
Merchandise Inventory.................................
XX
Cash ($800 – $16) ...........................................................................
Sales Discounts ($800 X 2%) .........................................................
Accounts Receivable ($900 – $100) ....................................
Credit
XX
XX
XX
XX
XX
XX
784
16
800
12.
The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.
13.
Two closing entries are required:
(1)
(2)
Sales...............................................................................................................
Income Summary................................................................................
200,000
Income Summary.........................................................................................
Cost of Goods Sold ............................................................................
145,000
200,000
145,000
14.
Of the merchandising accounts, only Merchandise Inventory will appear in the post-closing trial
balance.
15.
Sales revenues.........................................................................................................................
Cost of goods sold ...................................................................................................................
Gross profit................................................................................................................................
$105,000
70,000
$ 35,000
Gross profit rate: $35,000 ÷ $105,000 = 33.3%
16.
Gross profit................................................................................................................................
Less: Net income ....................................................................................................................
Operating expenses ................................................................................................................
17.
There are three distinguishing features in the income statement of a merchandising company:
(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.
Copyright © 2011 John Wiley & Sons, Inc.
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¥370,000
240,000
¥130,000
5-7
Questions Chapter 5 (Continued)
*18.
(a)
(b)
The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
The nonoperating activities part consists of other income (interest revenue, gain from sale
of equipment) and expense (casualty losses, loss from strikes).
*19.
*20.
*21.
5-8
Accounts
Added/Deducted
Purchase Returns and Allowances
Purchase Discounts
Freight-in
Deducted
Deducted
Added
July 24
Accounts Payable ($3,000 – $200)..............................................................
Purchase Discounts ($2,800 X 2%)....................................................
Cash ($2,800 – $56) ..............................................................................
2,800
56
2,744
The columns are:
(a) Merchandise Inventory—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Statement of
Financial Position (Dr.).
(b) Cost of Goods Sold—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 5-1
(a) Cost of goods sold = £45,000 (£75,000 – £30,000).
Operating expenses = £19,200 (£30,000 – £10,800).
(b) Gross profit = £38,000 (£108,000 – £70,000).
Operating expenses = £8,500 (£38,000 – £29,500).
(c) Sales = £151,500 (£71,900 + £79,600).
Net income = £40,100 (£79,600 – £39,500).
BRIEF EXERCISE 5-2
Hollins Company
Merchandise Inventory..............................................
Accounts Payable ..............................................
Gordon Company
Accounts Receivable .................................................
Sales .......................................................................
Cost of Goods Sold ....................................................
Merchandise Inventory.....................................
780
780
780
780
520
520
BRIEF EXERCISE 5-3
(a) Accounts Receivable .................................................
Sales .......................................................................
Cost of Goods Sold ....................................................
Merchandise Inventory.....................................
900,000
(b) Sales Returns and Allowances...............................
Accounts Receivable ........................................
Merchandise Inventory..............................................
Cost of Goods Sold ...........................................
120,000
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900,000
620,000
620,000
120,000
90,000
90,000
(For Instructor Use Only)
5-9
BRIEF EXERCISE 5-3 (Continued)
(c) Cash ($780,000 – $15,600) ........................................
Sales Discounts ($780,000 X 2%) ...........................
Accounts Receivable
($900,000 – $120,000)....................................
764,400
15,600
780,000
BRIEF EXERCISE 5-4
(a) Merchandise Inventory ..............................................
Accounts Payable...............................................
900,000
(b) Accounts Payable........................................................
Merchandise Inventory .....................................
120,000
(c) Accounts Payable ($900,000 – $120,000).............
Merchandise Inventory
($780,000 X 2%)...............................................
Cash ($780,000 – $15,600) ...............................
780,000
900,000
120,000
15,600
764,400
BRIEF EXERCISE 5-5
Cost of Goods Sold..............................................................
Merchandise Inventory ..............................................
1,500
1,500
BRIEF EXERCISE 5-6
Sales .........................................................................................
Income Summary.........................................................
195,000
Income Summary..................................................................
Cost of Goods Sold.....................................................
Sales Discounts ...........................................................
107,000
5-10
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195,000
Weygandt, IFRS, 1/e, Solutions Manual
105,000
2,000
(For Instructor Use Only)
BRIEF EXERCISE 5-7
ZHOU COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2011
Sales revenues
Sales (¥280,000 + ¥100,000).....................................
Less: Sales returns and allowances....................
Sales discounts ..............................................
Net sales.........................................................................
¥380,000
¥11,000
13,000
24,000
¥356,000
BRIEF EXERCISE 5-8
The format of an income statement for a merchandising company is
designed to differentiate between various sources of income and expense.
Item
(a)
(b)
(c)
(d)
(e)
Section
Gain on sale of equipment
Interest expense
Casualty loss from vandalism
Cost of goods sold
Depreciation expense
Other income and expense
After other income and expenses
Other income and expense
Cost of goods sold
Operating expenses
BRIEF EXERCISE 5-9
(a) Net sales = $510,000 – $15,000 = $495,000.
(b) Gross profit = $495,000 – $350,000 = $145,000.
(c) Income from operations = $145,000 – $110,000 = $35,000.
(d) Gross profit rate = $145,000 ÷ $495,000 = 29.3%.
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5-11
*BRIEF EXERCISE 5-10
Purchases ................................................................................
Less: Purchase returns and allowances......................
Purchase discounts ................................................
Net purchases.........................................................................
W450,000
W11,000
8,000
Net purchases.........................................................................
Add: Freight-in ......................................................................
Cost of goods purchased ...................................................
19,000
W431,000
W431,000
16,000
W447,000
*BRIEF EXERCISE 5-11
Net sales ...................................................................................
Beginning inventory ............................................................. W 60,000
Add: Cost of goods purchased*......................................
447,000
Cost of goods available for sale.......................................
507,000
Ending inventory ...................................................................
90,000
Cost of goods sold................................................................
Gross profit .............................................................................
W630,000
417,000
W213,000
*Information taken from Brief Exercise 5-10.
*BRIEF EXERCISE 5-12
(a)
(b)
(c)
5-12
Purchases........................................................................ 1,000,000
Accounts Payable.................................................
Accounts Payable.........................................................
Purchase Returns and Allowances.................
130,000
Accounts Payable ($1,000,000 – $130,000) ..........
Purchase Discounts ($870,000 X 2%) ............
Cash ($870,000 – $17,400)..................................
870,000
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1,000,000
130,000
Weygandt, IFRS, 1/e, Solutions Manual
17,400
852,600
(For Instructor Use Only)
*BRIEF EXERCISE 5-13
(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Statement of financial position debit column.
(b) Merchandise inventory: Trial balance debit column; Adjusted trial balance
debit column; Statement of financial position debit column.
(c) Sales: Trial balance credit column; Adjusted trial balance credit column,
Income statement credit column.
(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 5-1
Oct. 5
Oct. 8
Merchandise Inventory .................................................
Accounts Payable ...................................................
(To record goods purchased on account)
5,000
Accounts Payable...........................................................
Merchandise Inventory ..........................................
(To record return of defective goods)
700
5,000
700
DO IT! 5-2
Oct. 5
Accounts Receivable.....................................................
Sales.............................................................................
(To record credit sales)
5,000
Cost of Goods Sold........................................................
Merchandise Inventory .........................................
(To record cost of goods sold on account)
3,000
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5,000
(For Instructor Use Only)
3,000
5-13
DO IT! 5-2 (Continued)
Oct. 8
Sales Returns and Allowances ..................................
Accounts Receivable .............................................
(To record credit granted for receipt
of returned goods)
700
Merchandise Inventory..................................................
Cost of Goods Sold ................................................
(To record scrap value of goods returned)
250
700
250
DO IT! 5-3
Dec. 31 Sales.................................................................................... 136,000
Interest Revenue ............................................................ 5,000
Income Summary .....................................................
141,000
(To close accounts with credit balances)
Income Summary ............................................................ 126,800
Cost of Goods Sold .................................................
Sales Returns and Allowances............................
Sales Discounts........................................................
Freight-out ..................................................................
Utilities Expense.......................................................
Salaries Expense......................................................
(To close accounts with debit balances)
5-14
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Weygandt, IFRS, 1/e, Solutions Manual
92,400
4,000
3,000
1,500
7,400
18,500
(For Instructor Use Only)
DO IT! 5-4
Account
Financial Statement
Classification
Accounts Payable
Accounts Receivable
Accumulated
Depreciation—
Office Building
Cash
Casualty Loss from
Vandalism
Cost of Goods Sold
Delivery Equipment
Statement of Financial Position
Statement of Financial Position
Statement of Financial Position
Current liabilities
Current assets
Property, plant, and
equipment
Statement of Financial Position
Income Statement
Depreciation Expense
Dividends
Freight-out
Insurance Expense
Interest Payable
Land
Income Statement
Retained Earnings Statement
Income Statement
Income Statement
Statement of Financial Position
Statement of Financial Position
Merchandise Inventory
Notes Payable
(due in 5 years)
Property Tax Payable
Salaries Expense
Salaries Payable
Sales Returns and
Allowances
Sales
Share Capital—Ordinary
Unearned Rent
Utilities Expense
Warehouse
Statement of Financial Position
Statement of Financial Position
Current assets
Other income and
expense
Cost of goods sold
Property, plant, and
equipment
Operating expenses
Deduction section
Operating expenses
Operating expenses
Current liabilities
Property, plant, and
equipment
Current assets
Non-current liabilities
Statement of Financial Position
Income Statement
Statement of Financial Position
Income Statement
Current liabilities
Operating expenses
Current liabilities
Sales revenues
Income Statement
Statement of Financial Position
Statement of Financial Position
Income Statement
Statement of Financial Position
Sales revenues
Equity
Current liability
Operating expenses
Property, plant, and
equipment
Income Statement
Statement of Financial Position
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(For Instructor Use Only)
5-15
SOLUTIONS TO EXERCISES
EXERCISE 5-1
1.
2.
3.
4.
5.
6.
7.
8.
True.
False. For a merchandising company, sales less cost of goods sold is
called gross profit.
True.
True.
False. The operating cycle of a merchandising company differs from that
of a service company. The operating cycle of a merchandising company
is ordinarily longer.
False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
True.
False. A perpetual inventory system provides better control over inventories than a periodic system.
EXERCISE 5-2
(a) (1) April 5
(2) April 6
(3) April 7
(4) April 8
(5) April 15
(b) May 4
5-16
Merchandise Inventory ........................
Accounts Payable.........................
25,000
Merchandise Inventory ........................
Cash ..................................................
900
Equipment................................................
Accounts Payable.........................
26,000
Accounts Payable..................................
Merchandise Inventory ...............
4,000
Accounts Payable
($25,000 – $4,000)..............................
Merchandise Inventory
[($25,000 – $4,000) X 2%].......
Cash ($21,000 – $420) .................
Accounts Payable............................................
Cash.............................................................
Copyright © 2011 John Wiley & Sons, Inc.
25,000
900
26,000
4,000
21,000
420
20,580
21,000
Weygandt, IFRS, 1/e, Solutions Manual
21,000
(For Instructor Use Only)
EXERCISE 5-3
Sept. 6
9
10
12
14
20
Merchandise Inventory (80 X €20).....................
Cash ...................................................................
1,600
Merchandise Inventory .........................................
Cash ...................................................................
80
Accounts Payable (2 X €21) ................................
Merchandise Inventory ................................
42
Accounts Receivable (26 X €31) ........................
Sales ..................................................................
Cost of Goods Sold (26 X €21) ...........................
Merchandise Inventory ................................
806
Sales Returns and Allowances ..........................
Accounts Receivable ...................................
Merchandise Inventory.........................................
Cost of Goods Sold ......................................
31
Accounts Receivable (30 X €31) ........................
Sales ..................................................................
Cost of Goods Sold (30 X €21) ...........................
Merchandise Inventory ................................
1,600
80
42
806
546
546
31
21
21
930
930
630
630
EXERCISE 5-4
(a) June 10
11
12
19
Merchandise Inventory ................................
Accounts Payable.................................
8,000
Merchandise Inventory ................................
Cash ..........................................................
400
Accounts Payable..........................................
Merchandise Inventory .......................
300
Accounts Payable ($8,000 – $300) ...........
Merchandise Inventory
($7,700 X 2%) .....................................
Cash ($7,700 – $154)............................
7,700
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
8,000
400
300
(For Instructor Use Only)
154
7,546
5-17
EXERCISE 5-4 (Continued)
(b) June 10
12
19
Accounts Receivable .....................................
Sales ...........................................................
Cost of Goods Sold ........................................
Merchandise Inventory.........................
8,000
Sales Returns and Allowances...................
Accounts Receivable ............................
Merchandise Inventory..................................
Cost of Goods Sold ...............................
300
Cash ($7,700 – $154) ......................................
Sales Discounts ($7,700 X 2%) ...................
Accounts Receivable
($8,000 – $300) ....................................
7,546
154
8,000
5,000
5,000
300
150
150
7,700
EXERCISE 5-5
(a) 1.
2.
3.
Dec. 3
Dec. 8
Sales Returns and Allowances ...........
Accounts Receivable.....................
500,000
350,000
27,000
27,000
Cash (HK$473,000 – HK$9,460)........... 463,540
Sales Discounts
[(HK$500,000 – HK$27,000) X 2%] ....
9,460
Accounts Receivable
(HK$500,000 – HK$27,000) ......
473,000
(b) Cash .......................................................................................... 473,000
Accounts Receivable
(HK$500,000 – HK$27,000) ...................................
473,000
5-18
Dec. 13
Accounts Receivable ............................. 500,000
Sales ...................................................
Cost of Goods Sold ................................ 350,000
Merchandise Inventory .................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 5-6
(a)
ZAMBRANA COMPANY
Income Statement (Partial)
For the Year Ended October 31, 2011
Sales revenues
Sales ...........................................................................
Less: Sales returns and allowances..............
Sales discounts ........................................
Net sales....................................................................
$800,000
$25,000
15,000
40,000
$760,000
Note: Freight-out is a selling expense.
(b) (1) Oct. 31
Sales......................................................
Income Summary .....................
800,000
Income Summary ..............................
Sales Returns and
Allowances ............................
Sales Discounts........................
40,000
(a) Cost of Goods Sold .......................................................
Merchandise Inventory........................................
900
(b) Sales ...................................................................................
Income Summary ..................................................
108,000
Income Summary ...........................................................
Cost of Goods Sold (TL60,000 + TL900)........
Operating Expenses.............................................
Sales Returns and Allowances.........................
Sales Discounts.....................................................
92,800
Income Summary (TL108,000 – TL92,800) .............
Retained Earnings.................................................
15,200
(2)
31
800,000
25,000
15,000
EXERCISE 5-7
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
900
108,000
60,900
29,000
1,700
1,200
15,200
(For Instructor Use Only)
5-19
EXERCISE 5-8
(a) Cost of Goods Sold.......................................................
Merchandise Inventory .......................................
600
(b) Sales ..................................................................................
Income Summary..................................................
350,000
Income Summary...........................................................
Cost of Goods Sold ($218,000 + $600)...........
Freight-out ..............................................................
Insurance Expense...............................................
Rent Expense.........................................................
Salary Expense......................................................
Sales Discounts ....................................................
Sales Returns and Allowances ........................
341,600
Income Summary ($350,000 – $341,600)................
Retained Earnings ................................................
8,400
600
350,000
218,600
7,000
12,000
20,000
61,000
10,000
13,000
8,400
EXERCISE 5-9
(a)
OBLEY COMPANY
Income Statement
For the Month Ended March 31, 2011
Sales revenues
Sales.............................................................................
Less: Sales returns and allowances.................
Sales discounts...........................................
Net sales .....................................................................
Cost of goods sold........................................................
Gross profit......................................................................
Operating expenses
Salary expense..........................................................
Rent expense.............................................................
Insurance expense ..................................................
Freight-out..................................................................
Total operating expenses ........................
Net income .................................................................
£370,000
£13,000
8,000
21,000
349,000
212,000
137,000
58,000
32,000
12,000
7,000
109,000
£ 28,000
(b) Gross profit rate = £137,000 ÷ £349,000 = 39.26%.
5-20
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 5-10
PELE COMPANY
Income Statement
For the Year Ended December 31, 2011
Net sales......................................................
Cost of goods sold ..................................
Gross profit ................................................
Operating expenses ................................
Income from operations.........................
Other income and expense
Interest revenue...............................
Loss on sale of equipment...........
Interest expense .......................................
Net income..................................................
€2,312,000
1,289,000
1,023,000
925,000
98,000
€ 28,000
(10,000)
€
18,000
70,000
46,000
EXERCISE 5-11
1.
2.
3.
4.
Sales Returns and Allowances................................................
Sales ........................................................................................
175
Supplies...........................................................................................
Cash..................................................................................................
Accounts Payable ...............................................................
Merchandise Inventory......................................................
180
180
Sales Discounts............................................................................
Sales ........................................................................................
110
Merchandise Inventory...............................................................
Cash..................................................................................................
Freight-out .............................................................................
20
180
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
175
180
180
110
(For Instructor Use Only)
200
5-21
EXERCISE 5-12
(a) $900,000 – $540,000 = $360,000.
(b) $360,000/$900,000 = 40%. The gross profit rate is generally considered to
be more useful than the gross profit amount. The rate expresses a more
meaningful (qualitative) relationship between net sales and gross profit.
The gross profit rate tells how many of each sales dollar go to gross
profit. The trend of the gross profit rate is closely watched by financial
statement users, and is compared with rates of competitors and with
industry averages. Such comparisons provide information about the
effectiveness of a company’s purchasing function and the soundness of
its pricing policies.
(c) Income from operations is $130,000 ($360,000 – $230,000), and net income
is $119,000 ($130,000 – $11,000).
(d) Merchandise inventory is reported as a current asset immediately below
prepaid expenses.
EXERCISE 5-13
(a) (*missing amount)
a.
5-22
Sales.......................................................................................
*Sales returns.......................................................................
Net sales ...............................................................................
PY
PY
90,000)
(6,000)
84,000)
b.
Net sales ...............................................................................
Cost of goods sold............................................................
*Gross profit .........................................................................
84,000)
(56,000)
PY 28,000)
c.
Gross profit..........................................................................
Operating expenses..........................................................
*Net income...........................................................................
PY
d.
*Sales ......................................................................................
Sales returns .......................................................................
Net sales ...............................................................................
PY 105,000)
(5,000)
PY 100,000)
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
PY
28,000)
(15,000)
PY 13,000)
(For Instructor Use Only)
EXERCISE 5-13 (Continued)
e.
Net sales................................................................................
*Cost of goods sold ............................................................
Gross profit ..........................................................................
PY 100,000)
58,500)
PY 41,500
f.
Gross profit ..........................................................................
*Operating expenses ..........................................................
Net income............................................................................
PY
41,500)
26,500)
15,000)
PY
)
(b) Parlor Company
Gross profit ÷ Net sales = PY 28,000 ÷ PY 84,000 = 33.3%
Norikor Company
Gross profit ÷ Net sales = PY 41,500 ÷ PY 100,000 = 41.5%
EXERCISE 5-14
(*Missing amount)
(a)
Sales ...................................................................................
Sales returns and allowances....................................
Net sales............................................................................
$ 90,000
9,000*
$ 81,000
(b)
Net sales............................................................................
Cost of goods sold ........................................................
Gross profit ......................................................................
$ 81,000
56,000
$ 25,000*
(c) and (d)
Gross profit ......................................................................
Operating expenses ......................................................
Income from operations (c).........................................
Other expenses and losses ........................................
Net income (d) .................................................................
$ 25,000
15,000
$ 10,000*
4,000
$ 6,000*
(e)
Sales ...................................................................................
Sales returns and allowances ....................................
Net sales............................................................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
$100,000*
5,000
$ 95,000
(For Instructor Use Only)
5-23
EXERCISE 5-14 (Continued)
(f)
Net sales ............................................................................
Cost of goods sold.........................................................
Gross profit.......................................................................
$ 95,000
57,000*
$ 38,000
(g) and (h)
Gross profit.......................................................................
Operating expenses (g) ................................................
Income from operations (h).........................................
Other expenses and losses.........................................
Net income ........................................................................
$ 38,000
20,000*
$ 18,000*
7,000
$ 11,000
(i)
Sales....................................................................................
Sales returns and allowances ....................................
Net sales ............................................................................
$144,000
12,000
$132,000*
(j)
Net sales ............................................................................
Cost of goods sold.........................................................
Gross profit.......................................................................
$132,000
108,000*
$ 24,000
(k) and (l)
Gross profit......................................................................
Operating expenses......................................................
Income from operations (k) ........................................
Other expenses and losses (l)...................................
Net income .......................................................................
$ 24,000
18,000
$ 6,000*
1,000*
$ 5,000
EXERCISE 5-15
Inventory, September 1, 2010.........................................
Purchases .............................................................................
Less: Purchase returns and allowances ...................
Net Purchases .....................................................................
Add: Freight-in ...................................................................
Cost of goods purchased ................................................
Cost of goods available for sale....................................
Inventory, August 31, 2011..............................................
Cost of goods sold ...................................................
5-24
Copyright © 2011 John Wiley & Sons, Inc.
Rp 17,200
Rp 149,000
2,000
147,000
4,000
Weygandt, IFRS, 1/e, Solutions Manual
151,000
168,200
25,000
Rp143,200
(For Instructor Use Only)
EXERCISE 5-16
(a)
(b)
Sales ...............................................................
Less: Sales returns and allowances......
Sales discounts .............................
Net sales........................................................
Cost of goods sold
Inventory, January 1 ...........................
Purchases ..............................................
Less: Purch. rets. and alls. .............
Purch. discounts ....................
Net purchases.......................................
Add: Freight-in......................................
Cost of goods available for sale .....
Inventory, December 31.....................
Cost of goods sold......................
Gross profit............................................
$800,000
$ 10,000
5,000
15,000
785,000
50,000
$500,000
2,000
6,000
492,000
4,000
546,000
60,000
486,000
$299,000
Gross profit $299,000 – Operating expenses = Net income $130,000.
Operating expenses = $169,000.
EXERCISE 5-17
(a)
(b)
(c)
(d)
(e)
(f)
$1,560
$1,670
$1,510
$50
$250
$120
($1,600 – $40)
($1,560 + $110)
($1,820 – $310)
($1,080 – $1,030)
($1,280 – $1,030)
($1,350 – $1,230)
Copyright © 2011 John Wiley & Sons, Inc.
(g)
(h)
(i)
(j)
(k)
(l)
$6,500
$1,730
$8,940
$6,200
$2,500
$43,330
($290 + $6,210)
($7,940 – $6,210)
($1,000 + $7,940)
($49,530 – $43,330 from (I))
($43,590 – $41,090)
($41,090 + $2,240)
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
5-25
*EXERCISE 5-18
(a) 1.
2.
3.
4.
5.
(b)
April 5
April 6
April 7
April 8
April 15
May
4
Purchases ..............................................
Accounts Payable.........................
20,000
Freight-in ................................................
Cash ..................................................
900
Equipment..............................................
Accounts Payable.........................
26,000
Accounts Payable................................
Purchase Returns and
Allowances..................................
2,800
Accounts Payable
(€20,000 – €2,800).............................
Purchase Discounts
[(€20,000 – €2,800) X 2%)].......
Cash (€17,200 – €344) ..................
Accounts Payable
(€20,000 – €2,800).............................
Cash ..................................................
20,000
900
26,000
2,800
17,200
344
16,856
17,200
17,200
*EXERCISE 5-19
(a) 1.
2.
3.
5-26
April 5
April 5
April 7
Purchases ..............................................
Accounts Payable.........................
22,000
Freight-in ................................................
Cash ..................................................
800
Equipment..............................................
Accounts Payable.........................
26,000
Copyright © 2011 John Wiley & Sons, Inc.
22,000
800
Weygandt, IFRS, 1/e, Solutions Manual
26,000
(For Instructor Use Only)
*EXERCISE 5-19 (Continued)
4.
5.
(b)
April 8
April 15
May
4
Accounts Payable ...............................
Purchase Returns and
Allowances .................................
Accounts Payable
($22,000 – $4,000)............................
Purchase Discounts
[($22,000 – $4,000) X 2%)]......
Cash ($18,000 – $360) .................
Accounts Payable
($22,000 – $4,000)............................
Cash ..................................................
4,000
4,000
18,000
360
17,640
18,000
18,000
*EXERCISE 5-20
Accounts
Adjusted
Trial Balance
Debit
Cash
Merchandise Inventory
Sales
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold
Copyright © 2011 John Wiley & Sons, Inc.
Credit
Income
Statement
Debit
Credit
9,000
76,000
Debit
Credit
9,000
76,000
450,000
10,000
9,000
300,000
Statement of
Financial
Position
450,000
10,000
9,000
300,000
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
5-27
*EXERCISE 5-21
RECIFE COMPANY
Worksheet
For the Month Ended June 30, 2011
Account Titles
Cash
Accounts Receivable
Merchandise Inventory
Accounts Payable
Share
Capital—Ordinary
Sales
Cost of Goods Sold
Operating Expenses
Totals
Net Income
Totals
5-28
Trial Balance
Dr.
Cr.
2,320
2,440
11,640
1,120
3,600
42,400
20,560
10,160
47,120 47,120
Adjustments
Dr.
Cr.
1,500
Adj. Trial
Balance
Dr.
Cr.
2,320
2,440
11,640
2,620
3,600
Income
Statement
Dr.
Cr.
42,400
1,500
1,500
Copyright © 2011 John Wiley & Sons, Inc.
1,500
20,560
11,660
48,620
48,620
Statement of
Financial
Position
Dr.
Cr.
2,320
2,440
11,640
2,620
3,600
42,400
20,560
11,660
32,220
10,180
42,400
42,400
16,400
42,400
16,400
Weygandt, IFRS, 1/e, Solutions Manual
6,220
10,180
16,400
(For Instructor Use Only)
SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
(a) July 1
3
9
12
17
18
20
21
Merchandise Inventory........................................
Accounts Payable ........................................
1,800
Accounts Receivable...........................................
Sales.................................................................
2,000
Cost of Goods Sold ..............................................
Merchandise Inventory...............................
1,200
Accounts Payable.................................................
Merchandise Inventory
($1,800 X .02).............................................
Cash..................................................................
1,800
Cash ..........................................................................
Sales Discounts ($2,000 X .01) .........................
Accounts Receivable ..................................
1,980
20
Accounts Receivable...........................................
Sales.................................................................
1,500
Cost of Goods Sold ..............................................
Merchandise Inventory...............................
900
Merchandise Inventory........................................
Accounts Payable ........................................
1,700
Merchandise Inventory........................................
Cash..................................................................
100
Accounts Payable.................................................
Merchandise Inventory...............................
300
Cash ..........................................................................
Sales Discounts ($1,500 X .01) .........................
Accounts Receivable ..................................
1,485
15
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
1,800
2,000
1,200
36
1,764
2,000
1,500
900
1,700
100
300
(For Instructor Use Only)
1,500
5-29
PROBLEM 5-1A (Continued)
July 22
30
31
5-30
Accounts Receivable ..........................................
Sales ................................................................
2,250
Cost of Goods Sold .............................................
Merchandise Inventory ..............................
1,350
Accounts Payable ................................................
Cash .................................................................
1,400
Sales Returns and Allowances..........................
Accounts Receivable .................................
200
Merchandise Inventory.......................................
Cost of Goods Sold ....................................
120
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
2,250
1,350
1,400
200
120
(For Instructor Use Only)
PROBLEM 5-2A
(a)
Date
Apr. 2
4
5
6
11
13
14
16
18
20
General Journal
Account Titles and Explanation
Merchandise Inventory............................
Accounts Payable ............................
Ref.
120
201
Debit
6,900
Accounts Receivable..............................
Sales....................................................
Cost of Goods Sold .................................
Merchandise Inventory..................
112
401
505
120
5,500
Freight-out..................................................
Cash.....................................................
644
101
240
Accounts Payable....................................
Merchandise Inventory..................
201
120
500
Accounts Payable (€6,900 – €500) ........
Merchandise Inventory
(€6,400 X 1%)................................
Cash.....................................................
201
6,400
Cash .............................................................
Sales Discounts (€5,500 X 1%) ............
Accounts Receivable .....................
101
414
112
5,445
55
Merchandise Inventory...........................
Cash.....................................................
120
101
3,800
Cash .............................................................
Merchandise Inventory..................
101
120
500
Merchandise Inventory...........................
Accounts Payable ...........................
120
201
4,500
Merchandise Inventory...........................
Cash.....................................................
120
101
100
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
J1
Credit
6,900
5,500
4,100
4,100
240
500
120
101
64
6,336
5,500
3,800
500
4,500
(For Instructor Use Only)
100
5-31
PROBLEM 5-2A (Continued)
Date
Apr. 23
26
27
29
30
5-32
General Journal
Account Titles and Explanation
Cash.............................................................
Sales ...................................................
Cost of Goods Sold ................................
Merchandise Inventory .................
Ref.
101
401
505
120
Debit
6,400
Merchandise Inventory..........................
Cash ....................................................
120
101
2,300
Accounts Payable ...................................
Merchandise Inventory
(€4,500 X 2%) ...............................
Cash ....................................................
201
4,500
Sales Returns and Allowances ...........
Cash ....................................................
Merchandise Inventory..........................
Cost of Goods Sold .......................
412
101
120
505
90
Accounts Receivable .............................
Sales ...................................................
Cost of Goods Sold ................................
Merchandise Inventory .................
112
401
505
120
3,700
Copyright © 2011 John Wiley & Sons, Inc.
J1
Credit
6,400
5,120
5,120
2,300
120
101
90
4,410
90
30
30
3,700
2,800
Weygandt, IFRS, 1/e, Solutions Manual
2,800
(For Instructor Use Only)
PROBLEM 5-2A (Continued)
(b)
Cash
Date
Apr.
1
5
11
13
14
16
20
23
26
27
29
Explanation
Balance
Accounts Receivable
Date
Explanation
Apr. 4
13
30
Merchandise Inventory
Date
Explanation
Apr. 2
4
6
11
14
16
18
20
23
26
27
29
30
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
Credit
240
6,336
5,445
3,800
500
100
6,400
2,300
4,410
90
Debit
5,500
Credit
5,500
3,700
Debit
6,900
Credit
4,100
500
64
3,800
500
4,500
100
5,120
2,300
90
30
Weygandt, IFRS, 1/e, Solutions Manual
2,800
No. 101
Balance
9,000
8,760
2,424
7,869
4,069
4,569
4,469
10,869
8,569
4,159
4,069
No. 112
Balance
5,500
0
3,700
No. 120
Balance
6,900
2,800
2,300
2,236
6,036
5,536
10,036
10,136
5,016
7,316
7,226
7,256
4,456
(For Instructor Use Only)
5-33
PROBLEM 5-2A (Continued)
Accounts Payable
Date
Explanation
Apr. 2
6
11
18
27
Share Capital—Ordinary
Date
Explanation
Apr. 1 Balance
Sales
Date
Apr. 4
23
30
Explanation
Sales Returns and Allowances
Date
Explanation
Apr. 29
Ref.
J1
J1
J1
J1
J1
Ref.
Ref.
J1
J1
J1
Ref.
J1
Debit
Credit
6,900
500
6,400
4,500
4,500
Debit
Debit
Debit
90
Credit
Credit
5,500
6,400
3,700
Credit
Sales Discounts
Date
Apr. 13
Explanation
Cost of Goods Sold
Date
Explanation
Apr. 4
23
29
30
5-34
Copyright © 2011 John Wiley & Sons, Inc.
No. 201
Balance
6,900
6,400
0
4,500
0
No. 311
Balance
9,000
No. 401
Balance
5,500
11,900
15,600
No. 412
Balance
90
No. 414
Ref.
J1
Ref.
J1
J1
J1
J1
Debit
55
Debit
4,100
5,120
Credit
Credit
30
2,800
Weygandt, IFRS, 1/e, Solutions Manual
Balance
55
No. 505
Balance
4,100
9,220
9,190
11,990
(For Instructor Use Only)
PROBLEM 5-2A (Continued)
Freight-out
Date
Explanation
Apr. 5
(c)
Ref.
J1
Debit
240
Credit
No. 644
Balance
240
OLAF DISTRIBUTING COMPANY
Income Statement (Partial)
For the Month Ended April 30, 2011
Sales revenues
Sales ...............................................................................
Less: Sales returns and allowances...................
Sales discounts .............................................
Net sales........................................................................
Cost of goods sold .............................................................
Gross profit ...........................................................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
€15,600
€90
55
145
15,455
11,990
€ 3,465
(For Instructor Use Only)
5-35
PROBLEM 5-3A
(a)
MAINE DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2011
Sales revenues
Sales ............................................................
Less: Sales returns and
allowances....................................
Net sales.....................................................
Cost of goods sold..........................................
Gross profit .......................................................
Operating expenses
Sales salaries expense ..................
Office salaries expense .................
Sales commissions expense.......
Depr. expense—equipment..........
Utilities expense ..............................
Depr. expense—building...............
Insurance expense..........................
Property tax expense .....................
Total operating expenses .....
Income from operations ................................
Other income and expense
Interest revenue .......................................
Interest expense...............................................
Net income.........................................................
5-36
Copyright © 2011 John Wiley & Sons, Inc.
$628,000
8,000
620,000
412,700
207,300
$76,000
32,000
14,500
13,300
12,000
10,400
7,200
4,800
Weygandt, IFRS, 1/e, Solutions Manual
170,200
37,100
4,000
11,000
$ 30,100
(For Instructor Use Only)
PROBLEM 5-3A (Continued)
MAINE DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended December 31, 2011
Retained earnings, January 1 .................................................................
Add: Net income........................................................................................
Less: Dividends..........................................................................................
Retained earnings, December 31...........................................................
$60,000
30,100
90,100
28,000
$62,100
MAINE DEPARTMENT STORE
Statement of Financial Position
December 31, 2011
Assets
Property, plant, and equipment
Building ........................................................ $190,000
Less: Accumulated depreciation—
building ...........................................
52,500
Equipment ................................................... 110,000
Less: Accumulated depreciation—
equipment.......................................
42,900
Current assets
Prepaid insurance.....................................
Merchandise inventory............................
Accounts receivable.................................
Cash..............................................................
Total assets ........................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
$137,500
67,100
2,400
75,000
50,300
23,800
$204,600
151,500
$356,100
(For Instructor Use Only)
5-37
PROBLEM 5-3A (Continued)
MAINE DEPARTMENT STORE
Statement of Financial Position (Continued)
December 31, 2010
Equity and Liabilities
Equity
Share capital—ordinary................................................. $116,600
Retained earnings ...........................................................
62,100
Non-current liabilities
Mortgage payable ............................................................
Current liabilities
Accounts payable............................................................
79,300
Mortgage payable due next year ................................
20,000
Interest payable................................................................
8,000
Property taxes payable..................................................
4,800
Sales commissions payable ........................................
4,300
Utilities expense payable ..............................................
1,000
Total equity and liabilities......................................................
(b) Dec. 31
31
31
31
31
5-38
Depreciation Expense—Building ............
Accumulated Depreciation—
Building ..............................................
10,400
Depreciation Expense—Equipment .......
Accumulated Depreciation—
Equipment .........................................
13,300
Insurance Expense ......................................
Prepaid Insurance ...............................
7,200
Interest Expense...........................................
Interest Payable ...................................
8,000
Property Tax Expense.................................
Property Taxes Payable ....................
4,800
Copyright © 2011 John Wiley & Sons, Inc.
$178,700
60,000
117,400
$356,100
10,400
13,300
7,200
8,000
Weygandt, IFRS, 1/e, Solutions Manual
4,800
(For Instructor Use Only)
PROBLEM 5-3A (Continued)
31
31
(c) Dec. 31
31
31
31
Sales Commissions Expense ..................
Sales Commissions Payable...........
4,300
Utilities Expense ..........................................
Utilities Expense Payable.................
1,000
Sales.................................................................
Interest Revenue ..........................................
Income Summary ................................
628,000
4,000
Income Summary .........................................
Sales Returns and Allowances.........
Cost of Goods Sold ............................
Office Salaries Expense....................
Sales Salaries Expense.....................
Sales Commissions Expense .........
Property Tax Expense .......................
Utilities Expense..................................
Depreciation Expense—
Building..............................................
Depreciation Expense—
Equipment.........................................
Insurance Expense.............................
Interest Expense..................................
601,900
Income Summary .........................................
Retained Earnings ..............................
30,100
Retained Earnings .......................................
Dividends...............................................
28,000
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
4,300
1,000
632,000
8,000
412,700
32,000
76,000
14,500
4,800
12,000
10,400
13,300
7,200
11,000
30,100
(For Instructor Use Only)
28,000
5-39
PROBLEM 5-4A
(a)
Date
Apr. 4
6
8
10
11
13
14
15
17
18
5-40
General Journal
Account Titles and Explanation
Merchandise Inventory ............................
Accounts Payable ............................
Ref.
120
201
Debit
840
Merchandise Inventory ............................
Cash ......................................................
120
101
40
Accounts Receivable ...............................
Sales .....................................................
112
401
1,150
Cost of Goods Sold ..................................
Merchandise Inventory ...................
505
120
790
Accounts Payable .....................................
Merchandise Inventory ...................
201
120
40
Merchandise Inventory ............................
Cash ......................................................
120
101
420
Accounts Payable (¥840 – ¥40).............
Merchandise Inventory
(¥800 X 2%).....................................
Cash ......................................................
201
800
Merchandise Inventory ............................
Accounts Payable.............................
120
201
900
Cash ...............................................................
Merchandise Inventory ...................
101
120
50
Merchandise Inventory ............................
Cash ......................................................
120
101
30
Accounts Receivable ...............................
Sales .....................................................
112
401
810
Cost of Goods Sold ..................................
Merchandise Inventory ...................
505
120
530
Copyright © 2011 John Wiley & Sons, Inc.
J1
Credit
840
40
1,150
790
40
420
120
101
Weygandt, IFRS, 1/e, Solutions Manual
16
784
900
50
30
810
530
(For Instructor Use Only)
PROBLEM 5-4A (Continued)
Date
Apr. 20
21
27
30
General Journal
Account Titles and Explanation
Cash................................................................
Accounts Receivable .......................
Ref.
101
112
Debit
500
Accounts Payable ......................................
Merchandise Inventory
(¥900 X 3%) .....................................
Cash.......................................................
201
900
Sales Returns and Allowances..............
Accounts Receivable .......................
412
112
30
Cash................................................................
Accounts Receivable .......................
101
112
660
J1
Credit
500
27
873
120
101
30
660
(b)
Cash
Date
Apr. 1
6
11
13
15
17
20
21
30
Explanation
Balance
Accounts Receivable
Date
Explanation
Apr. 8
18
20
27
30
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
Debit
Credit
40
420
784
50
30
500
873
660
Debit
1,150
810
Weygandt, IFRS, 1/e, Solutions Manual
Credit
500
30
660
No. 101
Balance
2,500
2,460
2,040
1,256
1,306
1,276
1,776
903
1,563
No. 112
Balance
1,150
1,960
1,460
1,430
770
(For Instructor Use Only)
5-41
PROBLEM 5-4A (Continued)
Merchandise Inventory
Date
Explanation
Apr. 1 Balance
4
6
8
10
11
13
14
15
17
18
21
Accounts Payable
Date
Explanation
Apr. 4
10
13
14
21
Share Capital—Ordinary
Date
Explanation
Apr. 1 Balance
Sales
Date
Apr. 8
18
5-42
Explanation
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
Ref.
Ref.
J1
J1
Debit
Credit
840
40
790
40
420
16
900
50
30
530
27
Debit
Credit
840
40
800
900
900
Debit
Debit
Credit
Credit
1,150
810
Weygandt, IFRS, 1/e, Solutions Manual
No. 120
Balance
1,700
2,540
2,580
1,790
1,750
2,170
2,154
3,054
3,004
3,034
2,504
2,477
No. 201
Balance
840
800
0
900
0
No. 311
Balance
4,200
No. 401
Balance
1,150
1,960
(For Instructor Use Only)
PROBLEM 5-4A (Continued)
Sales Returns and Allowances
Date
Explanation
Apr. 27
Cost of Goods Sold
Date
Explanation
Apr. 8
18
(c)
Ref.
J1
Ref.
J1
J1
Debit
30
Debit
790
530
Credit
No. 412
Balance
30
Credit
No. 505
Balance
790
1,320
LI’S TENNIS SHOP
Trial Balance
April 30, 2011
Cash .....................................................................................
Accounts Receivable......................................................
Merchandise Inventory ..................................................
Share Capital—Ordinary................................................
Sales.....................................................................................
Sales Returns and Allowances ...................................
Cost of Goods Sold.........................................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
Debit
¥1,563
770
2,477
Credit
¥4,200
1,960
30
1,320
¥6,160
(For Instructor Use Only)
¥6,160
5-43
*PROBLEM 5-5A
GORDMAN DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended December 31, 2011
Sales revenues
Sales ................................................
Less: Sales returns and
allowances........................
Net sales.........................................
Cost of goods sold
Inventory, January 1...................
Purchases ......................................
Less: Purchase returns
and allowances ...............
Purchase discounts ......
Net purchases...............................
Add: Freight-in ............................
Cost of goods purchased...........
Cost of goods available
for sale ....................................
Inventory, December 31 ............
Cost of goods sold..............
Gross profit ...........................................
5-44
Copyright © 2011 John Wiley & Sons, Inc.
$718,000
8,000
710,000
$ 40,500
$447,000
$ 6,400
12,000
18,400
428,600
5,600
434,200
474,700
75,000
399,700
$310,300
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 5-6A
(a)
Cost of goods sold:
Beginning inventory
Plus: Purchases
Cost of goods available
Less: Ending inventory
Cost of goods sold
2009
2010
2011
$ 13,000
146,000
159,000
11,300
$147,700
$ 11,300
145,000
156,300
14,700
$141,600
$ 14,700
129,000
143,700
12,200
$131,500
2009
$225,700
147,700
$ 78,000
2010
$227,600
141,600
$ 86,000
2011
$219,500
131,500
$ 88,000
2009
$ 20,000
146,000
135,000
$ 31,000
2010
$ 31,000
145,000
161,000
$ 15,000
2011
$ 15,000
129,000
127,000
$ 17,000
(b)
Sales
Less: CGS
Gross profit
(c)
Beginning accounts payable
Plus: Purchases
Less: Payments to suppliers
Ending accounts payable
1
(d) Gross profit rate
2
37.8%
3
$86,000 ÷
$227,600
3
34.6%
1
$78,000 ÷
$225,700
2
40.1%
$88,000 ÷
$219,500
No. Even though sales declined in 2011 from each of the two prior years,
the gross profit rate increased. This means that cost of goods sold
declined more than sales did, reflecting better purchasing power or control
of costs. Therefore, in spite of declining sales, profitability, as measured by
the gross profit rate, actually improved.
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
5-45
*PROBLEM 5-7A
(a)
General Journal
Date
Account Titles and Explanation
Apr. 4 Purchases...................................................................
Accounts Payable ...........................................
5-46
Debit
740
740
6 Freight-in.....................................................................
Cash.....................................................................
60
8 Accounts Receivable ..............................................
Sales....................................................................
900
10 Accounts Payable ....................................................
Purchase Returns and Allowances...........
40
11 Purchases...................................................................
Cash.....................................................................
300
13 Accounts Payable (CHF740 – CHF40) ...............
Purchase Discounts (CHF700 X 3%).........
Cash.....................................................................
700
14 Purchases...................................................................
Accounts Payable ...........................................
600
15 Cash..............................................................................
Purchase Returns and Allowances...........
50
17 Freight-in.....................................................................
Cash.....................................................................
30
18 Accounts Receivable ..............................................
Sales....................................................................
1,000
20 Cash..............................................................................
Accounts Receivable .....................................
500
21 Accounts Payable ....................................................
Purchase Discounts (CHF600 X 2%).........
Cash.....................................................................
600
Copyright © 2011 John Wiley & Sons, Inc.
Credit
60
900
40
300
21
679
600
50
30
1,000
500
Weygandt, IFRS, 1/e, Solutions Manual
12
588
(For Instructor Use Only)
*PROBLEM 5-7A (Continued)
Date
Account Titles and Explanation
Apr. 27 Sales Returns and Allowances.......................
Accounts Receivable ................................
Debit
30
30 Cash ........................................................................
Accounts Receivable ................................
500
Credit
30
500
(b)
Cash
4/1 Bal. 2,500 4/6
4/15
50 4/11
4/20
500 4/13
4/30
500 4/17
4/21
4/30 Bal. 1,893
60
300
679
30
588
Accounts Receivable
4/8
900 4/20
500
4/18
1,000 4/27
30
4/30
500
4/30 Bal.
870
Merchandise Inventory
4/1 Bal. 1,700
4/30 Bal. 1,700
Sales Returns and Allowances
4/27
30
4/30 Bal.
30
4/10
4/13
4/21
Accounts Payable
40 4/4
700 4/14
600
4/30 Bal.
0
Share Capital—Ordinary
4/1 Bal.
4,200
4/30 Bal.
4,200
Sales
4/8
4/18
4/30 Bal.
Purchase Discounts
4/13
4/21
4/30 Bal.
4/6
4/17
4/30 Bal.
Purchases
4/4
740
4/11
300
4/14
600
4/30 Bal. 1,640
740
600
900
1,000
1,900
21
12
33
Freight-in
60
30
90
Purchase
Returns and Allowances
4/10
40
4/15
50
4/30 Bal.
90
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
5-47
*PROBLEM 5-7A (Continued)
(c)
VILLAGE TENNIS SHOP
Trial Balance
April 30, 2011
Cash ............................................................................
Accounts Receivable.............................................
Merchandise Inventory .........................................
Share Capital—Ordinary ......................................
Sales ...........................................................................
Sales Returns and Allowances ..........................
Purchases .................................................................
Purchase Returns and Allowances ..................
Purchase Discounts ..............................................
Freight-in ...................................................................
Debit
CHF1,893
870
1,700
Credit
CHF4,200
1,900
30
1,640
90
33
90
CHF6,223
CHF6,223
VILLAGE TENNIS SHOP
Income Statement (Partial)
For the Month Ended April 30, 2011
Sales revenues
Sales ...............................................
CHF1,900
Less: Sales returns and
allowances.......................
30
Net sales........................................
1,870
Cost of goods sold
Inventory, April 1 ........................
CHF1,700
Purchases .....................................
CHF1,640
Less: Purchase returns
and allowances .............. CHF90
Purchase discounts .....
33
123
Net purchases..............................
1,517
Add: Freight-in ...........................
90
Cost of goods purchased ........
1,607
Cost of goods available
for sale ...................................
3,307
Inventory, April 30 ......................
2,296
Cost of goods sold.............
1,011
Gross profit ..........................................
CHF 859
5-48
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
Account Titles
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
8,800
497,400
140,000
24,400
14,000
12,100
16,700
24,000
992,700
12,000
48,000
28,700
30,700
44,700
6,200
85,000
Dr.
992,700
755,200
6,000
51,000
48,500
80,000
30,000
22,000
Cr.
Trial Balance
9,000
5,000
4,080
(b)
(c)
(d)
22,080
3,700
300
(a)
(e)
Dr.
(d)
4,080
22,080
5,000
9,000
(b)
(c)
300
3,700
(e)
(a)
Cr.
Adjustments
759,480
759,480
5,000
4,080
5,000
4,080
1,010,780
9,000
9,000
8,800
497,700
140,000
24,400
14,000
12,100
16,700
24,000
Dr.
3,700
4,080
1,010,780
755,200
11,000
51,000
48,500
80,000
30,000
31,000
Cr.
755,200
4,280
759,480
755,200
Cr.
Income
Statement
3,700
8,800
497,700
140,000
24,400
14,000
12,100
16,700
24,000
12,000
48,000
28,700
30,700
44,400
2,500
85,000
Dr.
Adjusted
Trial Balance
TERRY MANNING FASHION CENTER
Worksheet
For the Year Ended November 30, 2011
251,300
4,280
255,580
12,000
48,000
28,700
30,700
44,400
2,500
85,000
Dr.
255,580
4,080
255,580
11,000
51,000
48,500
80,000
30,000
31,000
Cr.
Statement of
Financial Position
Key: (a) Store supplies used, (b) Depreciation expense—store equipment, (c) Depreciation expense—delivery equipment, (d) Accrued
interest payable, (e) Adjustment of inventory.
Cash
Accounts Receivable
Merchandise Inventory
Store Supplies
Store Equipment
Accum. Depreciation—
Store Equipment
Delivery Equipment
Accum. Depreciation—
Delivery Equipment
Notes Payable
Accounts Payable
Share Capital—Ordinary
Retained Earnings
Dividends
Sales
Sales Returns and
Allowances
Cost of Goods Sold
Salaries Expense
Advertising Expense
Utilities Expense
Repair Expense
Delivery Expense
Rent Expense
Totals
Store Supplies Expense
Depreciation Expense—
Store Equipment
Depreciation Expense—
Delivery Equipment
Interest Expense
Interest Payable
Totals
Net Loss
Totals
(a)
*PROBLEM 5-8A
5-49
*PROBLEM 5-8A (Continued)
(b)
TERRY MANNING FASHION CENTER
Income Statement
For the Year Ended November 30, 2011
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 ..........................................
Depreciation expense—
store equipment ....................................
Depreciation expense—
delivery equipment...............................
Store supplies expense...........................
Total operating expenses ...............
Loss from operations...............................................
Interest expense.........................................................
Net loss .........................................................................
5-50
Copyright © 2011 John Wiley & Sons, Inc.
$755,200
8,800
746,400
497,700
248,700
$140,000
24,400
24,000
16,700
14,000
12,100
9,000
5,000
3,700
Weygandt, IFRS, 1/e, Solutions Manual
248,900
(200)
4,080
$ (4,280)
(For Instructor Use Only)
*PROBLEM 5-8A (Continued)
TERRY MANNING FASHION CENTER
Retained Earnings Statement
For the Year Ended November 30, 2011
Retained earnings, December 1, 2010...........................
Less: Net loss.......................................................................
Dividends...................................................................
Retained earnings, November 30, 2011 ........................
$30,000
$ 4,280
12,000
16,280
$13,720
TERRY MANNING FASHION CENTER
Statement of Financial Position
November 30, 2011
Assets
Property, plant, and equipment
Store equipment ....................................
Accumulated depreciation—
store equipment ................................
Delivery equipment...............................
Accumulated depreciation—
delivery equipment...........................
Current assets
Store supplies ........................................
Merchandise inventory........................
Accounts receivable.............................
Cash...........................................................
Total assets ....................................
Copyright © 2011 John Wiley & Sons, Inc.
$85,000
31,000
48,000
$54,000
11,000
37,000
Weygandt, IFRS, 1/e, Solutions Manual
2,500
44,400
30,700
28,700
$ 91,000
106,300
$197,300
(For Instructor Use Only)
5-51
*PROBLEM 5-8A (Continued)
TERRY MANNING FASHION CENTER
Statement of Financial Position (Continued)
November 30, 2011
Equity and Liabilities
Equity
Share capital—ordinary....................................................
Retained earnings ..............................................................
Non-current liabilities
Notes payable ......................................................................
Current liabilities
Notes payable due next year ..........................................
Accounts payable...............................................................
Interest payable...................................................................
Total equity and liabilities .......................................................
(c) Nov. 30
30
30
30
30
5-52
$80,000
13,720 $ 93,720
21,000
30,000
48,500
4,080
Store Supplies Expense................................
Store Supplies.........................................
Depreciation Expense—Store
Equipment.....................................................
Accumulated Depreciation—
Store Equipment ................................
Depreciation Expense—Delivery
Equipment.....................................................
Accumulated Depreciation—
Delivery Equipment...........................
3,700
3,700
9,000
9,000
5,000
5,000
Interest Expense..............................................
Interest Payable ......................................
4,080
Cost of Goods Sold ........................................
Merchandise Inventory.........................
300
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
82,580
$197,300
4,080
300
(For Instructor Use Only)
*PROBLEM 5-8A (Continued)
(d) Nov. 30
30
30
30
Sales ................................................................
Income Summary................................
755,200
Income Summary.........................................
Sales Returns and
Allowances .......................................
Cost of Goods Sold............................
Salaries Expense ................................
Advertising Expense .........................
Utilities Expense .................................
Repair Expense ...................................
Delivery Expense ................................
Rent Expense.......................................
Store Supplies Expense ...................
Depreciation Expense—Store
Equipment ........................................
Depreciation Expense—Delivery
Equipment ........................................
Interest Expense .................................
759,480
Retained Earnings.......................................
Income Summary................................
4,280
Retained Earnings.......................................
Dividends...............................................
12,000
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
755,200
8,800
497,700
140,000
24,400
14,000
12,100
16,700
24,000
3,700
9,000
5,000
4,080
4,280
(For Instructor Use Only)
12,000
5-53
*PROBLEM 5-8A (Continued)
(e)
TERRY MANNING FASHION CENTER
Post-Closing Trial Balance
November 30, 2011
Cash .............................................................................
Accounts Receivable..............................................
Merchandise Inventory ..........................................
Store Supplies ..........................................................
Store Equipment ......................................................
Accumulated Depreciation—Store
Equipment .............................................................
Delivery Equipment.................................................
Accumulated Depreciation—Delivery
Equipment .............................................................
Notes Payable...........................................................
Accounts Payable....................................................
Interest Payable .......................................................
Share Capital—Ordinary .......................................
Retained Earnings...................................................
Debit
$ 28,700
30,700
44,400
2,500
85,000
$ 31,000
48,000
$239,300
5-54
Copyright © 2011 John Wiley & Sons, Inc.
Credit
Weygandt, IFRS, 1/e, Solutions Manual
11,000
51,000
48,500
4,080
80,000
13,720
$239,300
(For Instructor Use Only)
PROBLEM 5-1B
(a) June 1
3
6
9
15
17
20
24
26
Merchandise Inventory......................................
Accounts Payable ......................................
1,200
Accounts Receivable .........................................
Sales ...............................................................
2,400
Cost of Goods Sold ............................................
Merchandise Inventory.............................
1,440
Accounts Payable ...............................................
Merchandise Inventory.............................
100
Accounts Payable (€1,200 – €100) .................
Merchandise Inventory
(€1,100 X .02) ...........................................
Cash................................................................
1,100
Cash.........................................................................
Accounts Receivable ................................
2,400
Accounts Receivable .........................................
Sales ...............................................................
1,800
Cost of Goods Sold ............................................
Merchandise Inventory.............................
1,080
Merchandise Inventory......................................
Accounts Payable ......................................
1,500
Cash.........................................................................
Sales Discounts (€1,800 X .02)........................
Accounts Receivable ................................
1,764
36
Accounts Payable ...............................................
Merchandise Inventory
(€1,500 X .02) ...........................................
Cash................................................................
1,500
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
1,200
2,400
1,440
100
22
1,078
2,400
1,800
1,080
1,500
1,800
(For Instructor Use Only)
30
1,470
5-55
PROBLEM 5-1B (Continued)
June 28
30
5-56
Accounts Receivable.........................................
Sales...............................................................
1,300
Cost of Goods Sold............................................
Merchandise Inventory ............................
780
Sales Returns and Allowances ......................
Accounts Receivable................................
120
Merchandise Inventory .....................................
Cost of Goods Sold...................................
72
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
1,300
780
120
72
(For Instructor Use Only)
PROBLEM 5-2B
(a)
Date
May 1
2
5
9
10
11
12
15
17
19
General Journal
Account Titles and Explanation
Merchandise Inventory .........................
Accounts Payable..........................
Ref.
120
201
Debit
4,200
Accounts Receivable.............................
Sales...................................................
112
401
2,100
Cost of Goods Sold................................
Merchandise Inventory ................
505
120
1,300
Accounts Payable...................................
Merchandise Inventory ................
201
120
300
Cash ($2,100 – $21) ................................
Sales Discounts ($2,100 X 1%)...........
Accounts Receivable....................
101
414
112
2,079
21
Accounts Payable ($4,200 – $300)..........
Merchandise Inventory
($3,900 X 2%) ..............................
Cash ...................................................
201
3,900
Supplies .....................................................
Cash ...................................................
126
101
400
Merchandise Inventory .........................
Cash ...................................................
120
101
1,400
Cash ............................................................
Merchandise Inventory ................
101
120
150
Merchandise Inventory .........................
Accounts Payable..........................
120
201
1,300
Merchandise Inventory .........................
Cash ...................................................
120
101
130
Copyright © 2011 John Wiley & Sons, Inc.
4,200
2,100
1,300
300
2,100
78
3,822
120
101
Weygandt, IFRS, 1/e, Solutions Manual
J1
Credit
400
1,400
150
1,300
(For Instructor Use Only)
130
5-57
PROBLEM 5-2B (Continued)
Date
May 24
25
27
29
31
5-58
General Journal
Account Titles and Explanation
Cash..............................................................
Sales ....................................................
Ref.
101
401
Debit
3,200
Cost of Goods Sold .................................
Merchandise Inventory ..................
505
120
2,000
Merchandise Inventory...........................
Accounts Payable ...........................
120
201
550
Accounts Payable ....................................
Merchandise Inventory
($1,300 X 2%) ................................
Cash .....................................................
201
1,300
Sales Returns and Allowances ............
Cash .....................................................
412
101
60
Merchandise Inventory...........................
Cost of Goods Sold ........................
120
505
10
Accounts Receivable ..............................
Sales ....................................................
112
401
900
Cost of Goods Sold .................................
Merchandise Inventory ..................
505
120
560
Copyright © 2011 John Wiley & Sons, Inc.
3,200
2,000
550
120
101
Weygandt, IFRS, 1/e, Solutions Manual
J1
Credit
26
1,274
60
10
900
560
(For Instructor Use Only)
PROBLEM 5-2B (Continued)
(b)
Cash
Date
May
1
9
10
11
12
15
19
24
27
29
Explanation
Balance
Accounts Receivable
Date
Explanation
May
2
9
31
Merchandise Inventory
Date
Explanation
May
1
2
5
10
12
15
17
19
24
25
27
29
31
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
Credit
2,079
3,822
400
1,400
150
130
3,200
1,274
60
Debit
2,100
Credit
2,100
900
Debit
4,200
Credit
1,300
300
78
1,400
150
1,300
130
2,000
550
26
10
Weygandt, IFRS, 1/e, Solutions Manual
560
No. 101
Balance
5,000
7,079
3,257
2,857
1,457
1,607
1,477
4,677
3,403
3,343
No. 112
Balance
2,100
0
900
No. 120
Balance
4,200
2,900
2,600
2,522
3,922
3,772
5,072
5,202
3,202
3,752
3,726
3,736
3,176
(For Instructor Use Only)
5-59
PROBLEM 5-2B (Continued)
Supplies
Date
Explanation
May 11
Accounts Payable
Date
Explanation
May
1
5
10
17
25
27
Share Capital—Ordinary
Date
Explanation
May
1 Balance
Sales
Date
Explanation
May
2
24
31
Sales Returns and Allowances
Date
Explanation
May 29
Sales Discounts
Date
Explanation
May
9
5-60
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
Ref.
J1
J1
J1
J1
J1
J1
Ref.
Ref.
J1
J1
J1
Ref.
J1
Ref.
J1
Debit
400
Debit
Credit
Credit
4,200
300
3,900
1,300
550
1,300
Debit
Debit
Debit
60
Debit
21
Credit
Credit
2,100
3,200
900
No. 126
Balance
400
No. 201
Balance
4,200
3,900
0
1,300
1,850
550
No. 311
Balance
5,000
No. 401
Balance
2,100
5,300
6,200
Credit
No. 412
Balance
60
Credit
No. 414
Balance
21
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 5-2B (Continued)
Cost of Goods Sold
Date
Explanation
May
2
24
29
31
(c)
Ref.
J1
J1
J1
J1
Debit
1,300
2,000
Credit
10
560
No. 505
Balance
1,300
3,300
3,290
3,850
NEWMAN HARDWARE STORE
Income Statement (Partial)
For the Month Ended May 31, 2011
Sales revenues
Sales ...............................................................................
Less: Sales returns and allowances...................
Sales discounts .............................................
Net sales........................................................................
Cost of goods sold .............................................................
Gross profit ...........................................................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
$6,200
$60
21
(For Instructor Use Only)
81
6,119
3,850
$2,269
5-61
PROBLEM 5-3B
(a)
TARP DEPARTMENT STORE
Income Statement
For the Year Ended November 30, 2011
Sales revenues
Sales ............................................................
Less: Sales returns & allowances ....
Net sales.....................................................
Cost of goods sold..........................................
Gross profit .......................................................
Operating expenses
Salaries expense .............................
Rent expense ....................................
Sales commissions expense.......
Utilities expense ..............................
Depreciation expense—store
equipment......................................
Insurance expense..........................
Delivery expense .............................
Depreciation expense—delivery
equipment......................................
Property tax expense .....................
Total oper. expenses..............
Income from operations ................................
Other income and expense
Interest revenue .......................................
Interest expense...............................................
Net income.........................................................
5-62
Copyright © 2011 John Wiley & Sons, Inc.
£680,000
8,000
672,000
507,000
165,000
£96,000
15,000
11,200
8,500
8,000
7,000
6,500
5,000
2,800
Weygandt, IFRS, 1/e, Solutions Manual
160,000
5,000
£
8,000
6,400
6,600
(For Instructor Use Only)
PROBLEM 5-3B (Continued)
TARP DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended November 30, 2011
Retained earnings, December 1, 2010....................................................
Add: Net income..........................................................................................
Less: Dividends............................................................................................
Retained earnings, November 30, 2011 .................................................
£51,700
6,600
58,300
10,000
£48,300
TARP DEPARTMENT STORE
Statement of Financial Position
November 30, 2011
Assets
Property, plant, and equipment
Store equipment ......................................
Less: Accumulated depreciation—
store equipment .........................
Delivery equipment.................................
Less: Accumulated depreciation—
delivery equipment....................
Current assets
Prepaid insurance...................................
Merchandise inventory..........................
Accounts receivable...............................
Cash.............................................................
Total assets ......................................
Copyright © 2011 John Wiley & Sons, Inc.
£100,000
32,000
46,000
£68,000
15,000
31,000
Weygandt, IFRS, 1/e, Solutions Manual
3,500
29,000
30,500
6,000
£ 99,000
69,000
£168,000
(For Instructor Use Only)
5-63
PROBLEM 5-3B (Continued)
TARP DEPARTMENT STORE
Statement of Financial Position (Continued)
November 30, 2011
Equity and Liabilities
Equity
Share capital—ordinary.....................................................
Retained earnings ...............................................................
Non-current liabilities
Notes payable due 2014 ....................................................
Current liabilities
Accounts payable................................................................
Sales commissions payable ............................................
Property taxes payable......................................................
Total equity and liabilities ........................................................
(b) Nov. 30
5-64
£50,000
48,300 £ 98,300
37,000
25,200
4,700
2,800
Depr. Expense—Delivery Equip. ................
Accumulated Depreciation—
Delivery Equipment............................
5,000
Depr. Expense—Store Equip. ......................
Accumulated Depreciation—
Store Equipment .................................
8,000
Insurance Expense..........................................
Prepaid Insurance...................................
7,000
Property Tax Expense ....................................
Property Taxes Payable ........................
2,800
Sales Commissions Expense ......................
Sales Commissions Payable...............
4,700
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
32,700
£168,000
5,000
8,000
7,000
2,800
4,700
(For Instructor Use Only)
PROBLEM 5-3B (Continued)
(c) Nov. 30
30
30
30
Sales .................................................................
Interest Revenue...........................................
Income Summary.................................
680,000
8,000
Income Summary..........................................
Sales Returns and
Allowances ........................................
Cost of Goods Sold.............................
Salaries Expense .................................
Depreciation Expense—
Delivery Equipment ........................
Delivery Expense .................................
Sales Commissions Expense ..........
Depreciation Expense—
Store Equipment..............................
Insurance Expense..............................
Rent Expense........................................
Property Tax Expense........................
Utilities Expense ..................................
Interest Expense ..................................
681,400
Income Summary..........................................
Retained Earnings ...............................
6,600
Retained Earnings........................................
Dividends................................................
10,000
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
688,000
8,000
507,000
96,000
5,000
6,500
11,200
8,000
7,000
15,000
2,800
8,500
6,400
6,600
(For Instructor Use Only)
10,000
5-65
PROBLEM 5-4B
(a)
Date
Apr. 5
7
9
10
12
14
17
20
21
5-66
General Journal
Account Titles and Explanation
Merchandise Inventory...........................
Accounts Payable ...........................
Ref.
120
201
Debit
1,200
Merchandise Inventory...........................
Cash .....................................................
120
101
50
Accounts Payable ....................................
Merchandise Inventory ..................
201
120
100
Accounts Receivable ..............................
Sales ....................................................
112
401
900
Cost of Goods Sold .................................
Merchandise Inventory ..................
505
120
540
Merchandise Inventory...........................
Accounts Payable ...........................
120
201
670
Accounts Payable ($1,200 – $100) ......
Merchandise Inventory
($1,100 X 2%) ................................
Cash .....................................................
201
1,100
Accounts Payable ....................................
Merchandise Inventory ..................
201
120
70
Accounts Receivable ..............................
Sales ....................................................
112
401
560
Cost of Goods Sold .................................
Merchandise Inventory ..................
505
120
340
Accounts Payable ($670 – $70)............
Merchandise Inventory
($600 X 1%)....................................
Cash .....................................................
201
600
Copyright © 2011 John Wiley & Sons, Inc.
J1
Credit
1,200
50
100
900
540
670
120
101
120
101
Weygandt, IFRS, 1/e, Solutions Manual
22
1,078
70
560
340
6
594
(For Instructor Use Only)
PROBLEM 5-4B (Continued)
Date
Apr. 27
30
Account Titles and Explanation
Sales Returns and Allowances ........
Accounts Receivable..................
Ref.
412
112
Debit
30
Cash ..........................................................
Accounts Receivable..................
101
112
800
J1
Credit
30
800
(b)
Cash
Date
Apr.
1
7
14
21
30
Explanation
Balance
Accounts Receivable
Date
Explanation
Apr. 10
20
27
30
Merchandise Inventory
Date
Explanation
Apr. 1 Balance
5
7
9
10
12
14
17
20
21
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
Ref.
J1
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
Credit
50
1,078
594
800
Debit
900
560
Credit
30
800
Debit
Credit
1,200
50
100
540
670
Weygandt, IFRS, 1/e, Solutions Manual
22
70
340
6
No. 101
Balance
1,800
1,750
672
78
878
No. 112
Balance
900
1,460
1,430
630
No. 120
Balance
2,500
3,700
3,750
3,650
3,110
3,780
3,758
3,688
3,348
3,342
(For Instructor Use Only)
5-67
PROBLEM 5-4B (Continued)
Accounts Payable
Date
Explanation
Apr. 5
9
12
14
17
21
Share Capital—Ordinary
Date
Explanation
Apr. 1 Balance
Sales
Date
Explanation
Apr. 10
20
Sales Returns and Allowances
Date
Explanation
Apr. 27
Cost of Goods Sold
Date
Explanation
Apr. 10
20
5-68
Copyright © 2011 John Wiley & Sons, Inc.
Ref.
J1
J1
J1
J1
J1
J1
Ref.
Ref.
J1
J1
Ref.
J1
Ref.
J1
J1
Debit
Credit
1,200
100
670
1,100
70
600
Debit
Debit
Debit
30
Debit
540
340
Credit
Credit
900
560
No. 201
Balance
1,200
1,100
1,770
670
600
0
No. 311
Balance
4,300
No. 401
Balance
900
1,460
Credit
No. 412
Balance
30
Credit
No. 505
Balance
540
880
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 5-4B (Continued)
(c)
CALEB’S DISCORAMA
Trial Balance
April 30, 2011
Cash.....................................................................................
Accounts Receivable .....................................................
Merchandise Inventory..................................................
Share Capital—Ordinary...............................................
Sales....................................................................................
Sales Returns and Allowances...................................
Cost of Goods Sold ........................................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
Debit
$ 878
630
3,342
Credit
$4,300
1,460
30
880
$5,760
(For Instructor Use Only)
$5,760
5-69
*PROBLEM 5-5B
SAHIN DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended November 30, 2011
Sales revenues
Sales .............................................
TL810,000
Less: Sales returns and
allowances .....................
18,000
Net sales......................................
792,000
Cost of goods sold
Inventory, Dec. 1, 2010............
TL 40,000
Purchases ...................................
TL585,000
Less: Purchase returns
and allowances............ TL2,700
Purchase discounts ...
6,300
9,000
Net purchases............................
576,000
Add: Freight-in .........................
4,500
Cost of goods purchased ......
580,500
Cost of goods available
for sale............................
620,500
Inventory, Nov. 30, 2011.........
32,600
Cost of goods sold.....
587,900
Gross profit ........................................
TL204,100
5-70
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 5-6B
(1)
(a)
Cost of goods sold = Sales – Gross profit
= $53,300 – $38,300 = $15,000
(b)
Net income = Gross profit – Operating expenses
= $38,300 – $34,900 = $3,400
(c)
Merchandise inventory = 2008 Inventory + Purchases – CGS
= $7,200 + $14,200 – $15,000 = $6,400
(d)
Cash payments to suppliers = 2008 Accounts payable +
Purchases – 2009 Accounts payable
= $3,200 + $14,200 – $3,600 = $13,800
(e)
Sales = Cost of goods sold + Gross profit
= $13,800 + $33,800 = $47,600
(f)
Operating expenses = Gross profit – Net income
= $33,800 – $2,500 = $31,300
(g)
2009 Inventory + Purchases – 2010 Inventory = CGS
Purchases = CGS – 2009 Inventory + 2010 Inventory
= $13,800 – $6,400 [from (c)] + $8,100
= $15,500
(h)
Cash payments to suppliers = 2009 Accounts payable +
Purchases – 2010 Accounts Payable
= $3,600 + $15,500 [from (g)] – $2,500
= $16,600
(i)
Gross profit = Sales – CGS
= $45,200 – $14,300 = $30,900
(j)
Net income = Gross profit – Operating expenses
= $30,900 [from (i)] – $28,600 = $2,300
(k)
2010 Inventory + Purchases – 2011 Inventory = CGS
Merchandise inventory = 2010 Inventory + Purchases – CGS
= $8,100 + $13,200 – $14,300 = $7,000
(I)
Accounts payable = 2010 Accounts payable +
Purchases – Cash payments
= $2,500 + $13,200 – $13,600 = $2,100
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
5-71
*PROBLEM 5-6B (Continued)
(2) A decline in sales does not necessarily mean that profitability declined.
Profitability is affected by sales, cost of goods sold, and operating
expenses. If cost of goods sold or operating expenses decline more
than sales, profitability can increase even when sales decline. However,
in this particular case, sales declined with insufficient offsetting cost
savings to improve profitability. Therefore, profitability declined for
Letterman, Inc.
2009
Gross profit rate
2010
$38,300 ÷ $53,300 $33,800 ÷ $47,600 $30,900 ÷ $45,200
= 71.9%
= 71.0%
= 68.4%
Profit margin ratio $3,400 ÷ $53,300
= 6.4%
5-72
2011
Copyright © 2011 John Wiley & Sons, Inc.
$2,500 ÷ $47,600
= 5.3%
$2,300 ÷ $45,200
= 5.1%
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 5-7B
(a)
Date
Apr. 5
7
9
10
12
14
17
20
21
27
30
General Journal
Account Titles and Explanation
Purchases................................................................
Accounts Payable ........................................
Debit
1,200
1,200
Freight-in..................................................................
Cash..................................................................
50
Accounts Payable.................................................
Purchase Returns and Allowances........
100
Accounts Receivable...........................................
Sales.................................................................
600
Purchases................................................................
Accounts Payable ........................................
340
Accounts Payable (€1,200 – €100) ....................
Purchase Discounts (€1,100 X 2%)...........
Cash (€1,100 – €22) ......................................
1,100
Accounts Payable.................................................
Purchase Returns and Allowances ..........
40
Accounts Receivable...........................................
Sales.................................................................
600
Accounts Payable (€340 – €40).........................
Purchase Discounts
(€300 X 1%) ...............................................
Cash (€300 – €3)............................................
300
Sales Returns and Allowances.........................
Accounts Receivable ..................................
35
Cash ..........................................................................
Accounts Receivable ..................................
650
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
Credit
50
100
600
340
22
1,078
40
600
3
297
35
(For Instructor Use Only)
650
5-73
*PROBLEM 5-7B (Continued)
(b)
4/1 Bal.
4/30
4/30 Bal.
Cash
3,000 4/7
650 4/14
4/21
2,225
Accounts Receivable
4/10
600 4/27
4/20
600 4/30
4/30 Bal.
515
50
1,078
297
4/9
4/14
4/17
4/21
Sales
4/10
4/20
4/30 Bal.
35
650
600
600
1,200
Sales Returns and Allowances
4/27
35
4/30 Bal.
35
Merchandise Inventory
4/1 Bal.
4,000
4/30 Bal.
4,000
Accounts Payable
100 4/5
1,100 4/12
40
300
4/30 Bal.
Share Capital—Ordinary
4/1 Bal.
7,000
4/30 Bal. 7,000
1,200
340
0
4/5
4/12
4/30 Bal.
Purchases
1,200
340
1,540
4/7
4/30 Bal.
Freight-in
50
50
Purchase
Returns and Allowances
4/9
100
4/17
40
4/30 Bal.
140
Purchase Discounts
4/14
4/21
4/30 Bal.
5-74
22
3
25
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 5-7B (Continued)
(c)
FIVE PINES PRO SHOP
Trial Balance
April 30, 2011
Debit
€2,225
515
4,000
Cash ..................................................................................
Accounts Receivable...................................................
Merchandise Inventory ...............................................
Share Capital—Ordinary.............................................
Sales..................................................................................
Sales Returns and Allowances ................................
Purchases........................................................................
Purchase Returns and Allowances.........................
Purchase Discounts.....................................................
Freight-in .........................................................................
(d)
Credit
€7,000
1,200
35
1,540
140
25
50
€8,365
€8,365
FIVE PINES PRO SHOP
Income Statement (Partial)
For the Month Ended April 30, 2011
Sales revenues
Sales.......................................................
Less: Sales returns and
allowances ..............................
Net sales ...............................................
Cost of goods sold
Inventory, April 1................................
Purchases.............................................
Less: Purchase returns
and allowances......................
Purchase discounts .............
Net purchases .....................................
Add: Freight-in...................................
Cost of goods purchased ..................
Cost of goods available
for sale...............................................
Inventory, April 30..............................
Cost of goods sold ....................
Gross profit ..................................................
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€1,200
35
1,165
€4,000
€1,540
€140
25
165
1,375
50
Weygandt, IFRS, 1/e, Solutions Manual
1,425
5,425
4,726
699
€ 466
(For Instructor Use Only)
5-75
BYP 5-1
FINANCIAL REPORTING PROBLEM
2008
(a)
(1)
(2)
(b)
(c)
Percentage change in sales:
(£5,384 – £4,699) ÷ £4,699
14.6% increase
Percentage change in net
income:
(£366 – £407) ÷ £407
10.1% decrease
Gross profit rate:
2007 (£4,699 – £2,504) ÷ £4,699
2008 (£5,384 – £2,870) ÷ £5,384
46.7%
46.7%
Percentage of net income to sales:
2007 (£407 ÷ £4,699)
2008 (£366 ÷ £5,384)
8.7%
6.8%
Comment
The percentage of net income to sales declined 21.8% (8.7% to 6.8%) from
2007 to 2008. This occurred even though the gross profit rate remained
unchanged at 46.7% from 2007 to 2008.
5-76
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
BYP 5-2
COMPARATIVE ANALYSIS PROBLEM
Cadbury
(a) (1)
Nestlé
2008 Gross profit (millions)
£2,514
CHF62,569
(2)
2008 Gross profit rate
46.7%1
56.9%2
(3)
2008 Operating income (millions)
£ 398
CHF15,024
(4)
Percent change in operating
income, 2007 to 2008
+39.2%3
+4.35%4
1
2
3
4
£2,514 ÷ £5,384
(£398 – £286) ÷ £286
CHF62,569 ÷ CHF109,908
(CHF15,676 – CHF15,024) ÷ CHF15,024
(b) Because the companys report using different currencies, direct comparisons of total gross profit, or total operating income are difficult.
Comparisons of ratios and percentages can be performed. Nestlé
reported a higher gross profit rate, while Cadbury experienced a much
bigger percentage increase in operating income.
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5-77
BYP 5-3
EXPLORING THE WEB
The answers to this assignment will be dependent upon the articles selected
from the Internet by the student.
5-78
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Weygandt, IFRS, 1/e, Solutions Manual
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BYP 5-4
(a) (1)
GROUP DECISION CASE
FEDCO DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2011
Net sales [$700,000 + ($700,000 X 6%)]........
Cost of goods sold ($742,000 X 76%)* .........
Gross profit ($742,000 X 24%).........................
Operating expenses
Selling expenses ........................................
Administrative expenses .........................
Total operating expenses ...............
Net income.............................................................
$742,000
563,920
178,080
$100,000
20,000
120,000
$ 58,080
**Alternatively: Net sales, $742,000 – gross profit, $178,080.
(2)
FEDCO DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2011
Net sales.................................................................
Cost of goods sold .............................................
Gross profit ...........................................................
Operating expenses
Selling expenses ........................................
Administrative expenses .........................
Net income.............................................................
$700,000
553,000
147,000
$72,000*
20,000*
92,000
$ 55,000
*$100,000 – $30,000 + ($700,000 X 2%) – ($30,000 X 40%) = $72,000.
(b) Carrie’s proposed changes will increase net income by $31,080. Luke’s
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Carrie’s plan and Luke’s plan, Carrie’s plan should be adopted.
While Luke’s plan will increase net income, it may also have an adverse
effect on sales personnel. Under Luke’s plan, sales personnel will be
taking a cut of $16,000 in compensation [$60,000 – ($30,000 + $14,000)].
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
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5-79
BYP 5-4 (Continued)
(c)
FEDCO DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2011
Net sales ........................................................................
Cost of goods sold.....................................................
Gross profit...................................................................
Operating expenses
Selling expenses................................................
Administrative expenses.................................
Total operating expenses ......................
Net income....................................................................
$742,000
563,920
178,080
$72,840*
20,000*
92,840
$ 85,240
*$72,000 + [2% X ($742,000 – $700,000)] = $72,840.
If both plans are implemented, net income will be $58,240 ($85,240 –
$27,000) higher than the 2010 results. This is an increase of over 200%.
Given the size of the increase, Luke’s plan to compensate sales personnel might be modified so that they would not have to take a pay cut.
For example, if sales commissions were 3%, the compensation cut would
be reduced to $8,580 [$16,000 (from (b)) – $742,000 X (3% – 2%)].
5-80
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Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
BYP 5-5
COMMUNICATION ACTIVITY
(a), (b)
President
Surfing USA Co.
Dear Sir:
As you know, the financial statements for Surfing USA Co. are prepared in
accordance with international financial reporting standards (IFRS). One of
these principles is the revenue recognition principle, which provides that
revenues should be recognized when they are earned.
Typically, sales revenues are earned when the goods are transferred to the
buyer from the seller. At this point, the sales transaction is completed and
the sales price is established. Thus, in the typical situation, revenue on the
surfboard ordered by Flutie is earned at event No. 8, when Flutie picks up
the surfboard.
The circumstances pertaining to this sale may seem to you to be atypical
because Flutie has ordered a specific kind of surfboard. From an accounting
standpoint, this would be true only if you could not reasonably expect to
sell this surfboard to another customer. In such case, it would be proper
under IFRS to recognize sales revenue when you have completed the
surfboard for Flutie.
Whether Flutie makes a down payment with the purchase order is irrelevant
in recognizing sales revenue because at this time, you have not done anything to earn the revenue. A down payment may be an indication of Flutie’s
“good faith.” However, its effect on your financial statements is limited entirely
to recognizing the down payment as unearned revenue.
If you have further questions about the accounting for this sale, please let
me know.
Sincerely,
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5-81
BYP 5-6
ETHICS CASE
(a) Laura McAntee, as a new employee, is placed in a position of responsibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
undeserved cash discounts. Her dilemma is either follow her boss’s
unethical instructions or offend her boss and maybe lose the job she
just assumed.
(b) The stakeholders (affected parties) are:
Laura McAntee, the assistant treasurer.
Danny Feeney, the treasurer.
Dorchester Stores, the company.
Creditors of Dorchester Stores (suppliers).
Mail room employees (those assigned the blame).
(c) Laura’s alternatives:
1. Tell the treasurer (her boss) that she will attempt to take every allowable cash discount by preparing and mailing checks within the
discount period—the ethical thing to do. This will offend her boss
and may jeopardize her continued employment.
2. Join the team and continue the unethical practice of taking undeserved
cash discounts.
3. Go over her boss’s head and take the chance of receiving just and
reasonable treatment from an officer superior to Danny. The company
may not condone this practice. Laura definitely has a choice, but
probably not without consequence. To continue the practice is
definitely unethical. If Laura submits to this request, she may be
asked to perform other unethical tasks. If Laura stands her ground
and refuses to participate in this unethical practice, she probably
won’t be asked to do other unethical things—if she isn’t fired.
Maybe nobody has ever challenged Danny’s unethical behavior and
his reaction may be one of respect rather than anger and retribution.
Being ethically compromised is no way to start a new job.
5-82
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Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)