CHAPTER 5
Accounting for Merchandising Operations
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
*1.
Identify the differences
between service and
merchandising companies.
2, 3, 4
1
2
1
*2.
Explain the recording
of purchases under a
perpetual inventory
system.
5, 6, 7, 8
2, 4
3
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
4
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
5
6, 7, 8
3A, 4A, 8A
3B, 4B
*5.
Distinguish between a
multiple-step and a singlestep income statement.
18, 20
7, 8, 9
6, 9, 10,
12, 13, 14
2A, 3A, 8A
2B, 3B
*6.
Explain the computation
and importance of gross
profit.
15, 16,
17, 20
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.
21, 22
10, 11, 12
15, 16, 17,
18, 19
5A, 6A, 7A
5B, 6B, 7B
*8.
Prepare a worksheet for
a merchandising company.
23
13
20, 21
8A
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
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
5-2
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(For Instructor Use Only)
WEYGANDT ACCOUNTING PRINCIPLES 9E
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
Time (min.)
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
BYP7
—
E
Simple
5–10
5-4
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
Explain the recording of
purchases under a perpetual
inventory system.
Explain the recording of
sales revenues under a
perpetual inventory system.
Explain the steps in the
accounting cycle for a
merchandising company.
Distinguish between a
multiple-step and a singlestep income statement.
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.
2.
3.
4.
5.
6.
7.
8.
Broadening Your Perspective
Identify the differences
between service and
merchandising companies.
1.
Study Objective
Q5-23
BE5-13
Q5-21
Q5-18
Q5-10
Q5-5
Q5-2
Knowledge
P5-1B Q5-9
P5-2B E5-11
P5-4B
P5-2B E5-14
P5-8A P5-3A
P5-3B
P5-5A P5-6A
P5-5B P5-6B
P5-8A
P5-5A E5-16
P5-5B P5-6A
P5-7A P5-6B
P5-7B
E5-4
E5-5
P5-1A
P5-2A
P5-4A
E5-6
E5-7
E5-8
P5-4A
E5-10
E5-12
E5-13
P5-2A
E5-9
E5-12
E5-13
P5-2A
P5-2B
E5-15
E5-17
E5-18
E5-19
Q5-11
BE5-2
BE5-3
DI5-2
E5-3
Q5-13
BE5-5
BE5-6
DI5-3
BE5-7
BE5-9
E5-6
E5-9
E5-20
E5-21
Q5-22
BE5-10
BE5-11
BE5-12
Q5-15
Q5-16
Q5-20
BE5-9
BE5-11
P5-8A
Analysis
Synthesis
Decision Making
Financial Reporting
Across the
Comparative Analysis
Decision Making Across
Organization
the Organization
P5-8A P5-3A
P5-4B P5-3B
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
Q5-19
BE5-8
DI5-4
Q5-1
Q5-12
Q5-14
Q5-6
Q5-7
Q5-3
Q5-4
Comprehension
All About You
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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Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
$370,000
240,000
$130,000
(For Instructor Use Only)
5-7
Questions Chapter 5 (Continued)
*18.
(a)
The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
(b)
The nonoperating activities part consists of two sections: other revenues and gains, and
other expenses and losses.
*19.
The single-step income statement differs from the multiple-step income statement in that: (1) all data
are classified into two categories: revenues and expenses, and (2) only one step, subtracting
total expenses from total revenues, is required in determining net income (or net loss).
20.
PepsiCo’s gross profit rate for 2007 was 54.3% [($39,474 – $18,038) ÷ $39,474]. Its gross profit
rate in 2006 was 55.1% [($35,137 – $15,762) ÷ $35,137] so the rate decreased from 2006
to 2007.
*21.
*22.
*23.
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 Balance
Sheet (Dr.).
(b) Cost of Goods Sold—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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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Weygandt, Accounting Principles, 9/e, Solutions Manual
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
Copyright © 2009 John Wiley & Sons, Inc.
195,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
105,000
2,000
(For Instructor Use Only)
BRIEF EXERCISE 5-7
MAULDER COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2010
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
As the name suggests, numerous steps are required in determining net
income in a multiple-step income statement. In contrast, only one step is
required to compute net income in a single-step income statement. A multiplestep statement has five sections whereas a single-step statement has only
two sections. The multiple-step statement provides more detail than a singlestep statement, but net income is the same under both statements.
Some of the differences in presentation can be seen from the comparative
information presented below.
(1) Multiple-Step Income Statement
a.
b.
c.
d.
Item
Gain on sale of equipment
Interest expense
Casualty loss from vandalism
Cost of goods sold
Section
Other revenues and gains
Other expenses and losses
Other expenses and losses
Cost of goods sold
(2) Single-Step Income Statement
Item
a.
b.
c.
d.
Gain on sale of equipment
Interest expense
Casualty loss from vandalism
Cost of goods sold
Copyright © 2009 John Wiley & Sons, Inc.
Section
Revenues
Expenses
Expenses
Expenses
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-11
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%.
*BRIEF EXERCISE 5-10
Purchases ..................................................................................
Less: Purchase returns and allowances........................
Purchase discounts ..................................................
Net purchases...........................................................................
$450,000
$11,000
8,000
Net purchases...........................................................................
Add: Freight-in ........................................................................
Cost of goods purchased .....................................................
19,000
$431,000
$431,000
16,000
$447,000
*BRIEF EXERCISE 5-11
Net sales .....................................................................................
Beginning inventory ...............................................................
Add: Cost of goods purchased*........................................
Cost of goods available for sale.........................................
Ending inventory .....................................................................
Cost of goods sold..................................................................
Gross profit ...............................................................................
$630,000
$ 60,000
447,000
507,000
90,000
417,000
$213,000
*Information taken from Brief Exercise 5-10.
5-12
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Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
*BRIEF EXERCISE 5-12
(a)
(b)
(c)
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
1,000,000
130,000
17,400
852,600
*BRIEF EXERCISE 5-13
(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Balance sheet debit column.
(b) Merchandise inventory: Trial balance debit column; Adjusted trial balance
debit column; Balance sheet 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
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Weygandt, Accounting Principles, 9/e, Solutions Manual
5,000
(For Instructor Use Only)
700
5-13
DO IT! 5-2
Oct. 5
Oct. 8
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
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
5,000
3,000
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 credit balances)
5-14
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4,000
3,000
1,500
7,400
18,500
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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
Balance sheet
Balance sheet
Balance sheet
Depreciation Expense
E. Smith, Capital
Income statement
Statement of owner’s
equity
Statement of owner’s
equity
Income statement
Income statement
Balance sheet
Balance sheet
Current liabilities
Current assets
Property, plant, and
equipment
Current assets
Other expenses and
losses
Cost of goods sold
Property, plant, and
equipment
Operating expenses
Beginning balance
E. Smith, Drawing
Freight-out
Insurance Expense
Interest Payable
Land
Merchandise Inventory
Notes Payable
(due in 5 years)
Property Tax Payable
Salaries Expense
Salaries Payable
Sales Returns and
Allowances
Sales Revenues
Unearned Rent
Utilities Expense
Warehouse
Copyright © 2009 John Wiley & Sons, Inc.
Balance sheet
Income statement
Income statement
Balance sheet
Deduction section
Balance sheet
Balance sheet
Operating expenses
Operating expenses
Current liabilities
Property, plant, and
equipment
Current assets
Long-term liabilities
Balance sheet
Income statement
Balance sheet
Income statement
Current liabilities
Operating expenses
Current liabilities
Sales revenues
Income statement
Balance sheet
Income statement
Balance sheet
Sales revenues
Current liability
Operating expenses
Property, plant, and
equipment
Weygandt, Accounting Principles, 9/e, Solutions Manual
(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
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
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) .................
21,000
Accounts Payable............................................
Cash.............................................................
21,000
(2) April 6
(3) April 7
(4) April 8
(5) April 15
(b) May 4
5-16
Copyright © 2009 John Wiley & Sons, Inc.
25,000
900
26,000
4,000
420
20,580
Weygandt, Accounting Principles, 9/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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
8,000
400
300
154
7,546
(For Instructor Use Only)
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.
Dec. 3
500,000
500,000
350,000
350,000
Sales Returns and Allowances ........
Accounts Receivable..................
27,000
Cash ($473,000 – $9,460)....................
Sales Discounts
[($500,000 – $27,000) X 2%] ..........
Accounts Receivable
($500,000 – $27,000) ...............
463,540
(b) Cash .......................................................................................
Accounts Receivable
($500,000 – $27,000) ............................................
473,000
3.
5-18
Dec. 8
Accounts Receivable ..........................
Sales ................................................
Cost of Goods Sold .............................
Merchandise Inventory ..............
Dec. 13
Copyright © 2009 John Wiley & Sons, Inc.
27,000
9,460
473,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
473,000
(For Instructor Use Only)
EXERCISE 5-6
(a)
ZAMBRANA COMPANY
Income Statement (Partial)
For the Year Ended October 31, 2010
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 ($60,000 + $900) .............
Operating Expenses.............................................
Sales Returns and Allowances.........................
Sales Discounts.....................................................
92,800
Income Summary ($108,000 – $92,800)...................
Peter Kalle, Capital ...............................................
15,200
(2)
31
800,000
25,000
15,000
EXERCISE 5-7
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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)................
Rogers, Capital......................................................
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, 2010
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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 5-10
(a)
PELE COMPANY
Income Statement
For the Year Ended December 31, 2010
Net sales......................................................
Cost of goods sold ..................................
Gross profit ................................................
Operating expenses ................................
Income from operations.........................
Other revenues and gains
Interest revenue...............................
Other expenses and losses
Interest expense ..............................
Loss on sale of equipment...........
Net income..................................................
(b)
$2,312,000
1,289,000
1,023,000
925,000
98,000
28,000
$70,000
10,000
80,000
$
52,000
46,000
PELE COMPANY
Income Statement
For the Year Ended December 31, 2010
Revenues
Net sales......................................................
Interest revenue........................................
Total revenues..................................
Expenses
Cost of goods sold ..................................
Operating expenses ................................
Interest expense .......................................
Loss on sale of equipment....................
Total expenses .................................
Net income...........................................................
Copyright © 2009 John Wiley & Sons, Inc.
$2,312,000
28,000
2,340,000
$1,289,000
925,000
70,000
10,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
2,294,000
$ 46,000
(For Instructor Use Only)
5-21
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
175
180
180
110
200
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 cents 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) The amount shown for net income is the same in a multiple-step income
statement and a single-step income statement. Both income statements
report the same revenues and expenses, but in different order. Therefore,
net income in Payton’s single-step income statement is also $119,000.
(e) Merchandise inventory is reported as a current asset immediately below
accounts receivable.
5-22
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 5-13
(a) (*missing amount)
a.
Sales ...........................................................................................
*Sales returns ...........................................................................
Net sales....................................................................................
$ 90,000)
(6,000)
$ 84,000)
b.
Net sales....................................................................................
Cost of goods sold ................................................................
*Gross profit ..............................................................................
$ 84,000)
(56,000)
$ 28,000)
c.
Gross profit ..............................................................................
Operating expenses ..............................................................
*Net income ...............................................................................
$ 28,000)
(15,000)
$ 13,000)
d.
*Sales...........................................................................................
Sales returns............................................................................
Net sales....................................................................................
$105,000)
(5,000)
$100,000)
e.
Net sales....................................................................................
*Cost of goods sold ................................................................
Gross profit ..............................................................................
$100,000)
58,500)
$ 41,500)
f.
Gross profit ..............................................................................
*Operating expenses ..............................................................
Net income................................................................................
$ 41,500)
26,500)
$ 15,000)
)
(b) Nam Company
Gross profit ÷ Net sales = $28,000 ÷ $84,000 = 33.33%
Mayo Company
Gross profit ÷ Net sales = $41,500 ÷ $100,000 = 41.5%
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-23
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 ............................................................................
$100,000*
5,000
$ 95,000
(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
5-24
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 5-14 (Continued)
(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, 2009 ..............................................
Purchases...................................................................................
Less: Purchase returns and allowances.........................
Net Purchases ...........................................................................
Add: Freight-in.........................................................................
Cost of goods purchased......................................................
Cost of goods available for sale .........................................
Inventory, August 31, 2010 ...................................................
Cost of goods sold.........................................................
$ 17,200
$149,000
2,000
147,000
4,000
151,000
168,200
25,000
$143,200
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.
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-25
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)
(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)
*EXERCISE 5-18
(a) 1.
2.
3.
4.
5.
(b)
5-26
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 ..................................................
Copyright © 2009 John Wiley & Sons, Inc.
20,000
900
26,000
2,800
17,200
344
16,856
17,200
Weygandt, Accounting Principles, 9/e, Solutions Manual
17,200
(For Instructor Use Only)
*EXERCISE 5-19
(a) 1.
2.
3.
4.
5.
(b)
April 5
April 5
April 7
April 8
April 15
May
4
Purchases..............................................
Accounts Payable.........................
22,000
Freight-in................................................
Cash ..................................................
800
Equipment .............................................
Accounts Payable.........................
26,000
Accounts Payable ...............................
Purchase Returns and
Allowances .................................
4,000
Accounts Payable ...............................
($22,000 – $4,000)
Purchase Discounts
[($22,000 – $4,000) X 2%)]......
Cash ($18,000 – $360) .................
18,000
22,000
800
26,000
4,000
360
17,640
Accounts Payable
($22,000 – $4,000)............................
Cash ..................................................
18,000
18,000
*EXERCISE 5-20
Adjusted
Trial Balance
Accounts
Debit
Cash
Merchandise Inventory
Sales
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold
Copyright © 2009 John Wiley & Sons, Inc.
Credit
Income
Statement
Debit
Credit
Debit
Credit
9,000
76,000
9,000
76,000
450,000
450,000
10,000
9,000
300,000
Balance
Sheet
10,000
9,000
300,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-27
*EXERCISE 5-21
GREEN COMPANY
Worksheet
For the Month Ended June 30, 2010
Account Titles
Cash
Accounts Receivable
Merchandise
Inventory
Accounts Payable
Ed Green, Capital
Sales
Cost of Goods Sold
Operating Expenses
Totals
Net Income
Totals
5-28
Trial Balance
Dr.
Cr.
2,320
2,440
Adjustments
Dr.
Cr.
11,640
Income
Statement
Dr.
Cr.
Balance Sheet
Dr.
Cr.
2,320
2,440
11,640
1,120
3,600
42,400
20,560
10,160
47,120
Adj. Trial
Balance
Dr.
Cr.
2,320
2,440
47,120
1,500
1,500
1,500
Copyright © 2009 John Wiley & Sons, Inc.
1,500
11,640
2,620
3,600
42,400
20,560
11,660
48,620
48,620
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, Accounting Principles, 9/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.....................................................
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.....................................................
Accounts Receivable ..................................
1,485
15
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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
120
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 © 2009 John Wiley & Sons, Inc.
J1
Credit
6,900
5,500
4,100
4,100
240
500
64
6,336
101
Weygandt, Accounting Principles, 9/e, Solutions Manual
5,500
3,800
500
4,500
100
(For Instructor Use Only)
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
120
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 © 2009 John Wiley & Sons, Inc.
J1
Credit
6,400
5,120
5,120
2,300
90
101
4,410
90
30
30
3,700
2,800
Weygandt, Accounting Principles, 9/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 © 2009 John Wiley & Sons, Inc.
Ref.
P
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, Accounting Principles, 9/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
M. Olaf, Capital
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.
P
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
5-34
Explanation
4
23
29
30
Copyright © 2009 John Wiley & Sons, Inc.
No. 301
Balance
9,000
No. 401
Balance
5,500
11,900
15,600
No. 412
Balance
90
No. 414
Ref.
J1
Debit
55
Credit
Cost of Goods Sold
Date
Apr.
No. 201
Balance
6,900
6,400
0
4,500
0
Balance
55
No. 505
Ref.
J1
J1
J1
J1
Debit
4,100
5,120
Credit
30
2,800
Weygandt, Accounting Principles, 9/e, Solutions Manual
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, 2010
Sales revenues
Sales ...............................................................................
Less: Sales returns and allowances...................
Sales discounts .............................................
Net sales........................................................................
Cost of goods sold .............................................................
Gross profit ...........................................................................
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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, 2010
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 revenues and gains
Interest revenue .......................................
Other expenses and losses
Interest expense ......................................
Net income.........................................................
5-36
Copyright © 2009 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
170,200
37,100
4,000
11,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
7,000
$ 30,100
(For Instructor Use Only)
PROBLEM 5-3A (Continued)
MAINE DEPARTMENT STORE
Owner’s Equity Statement
For the Year Ended December 31, 2010
B. Maine, Capital, January 1 ....................................................................
Add: Net income........................................................................................
Less: Drawings ...........................................................................................
B. Maine, Capital, December 31..............................................................
$176,600
30,100
206,700
28,000
$178,700
MAINE DEPARTMENT STORE
Balance Sheet
December 31, 2010
Assets
Current assets
Cash..............................................................
Accounts receivable.................................
Merchandise inventory............................
Prepaid insurance.....................................
Total current assets.........................
Property, plant, and equipment
Building ........................................................ $190,000
Less: Accumulated depreciation—
building ...........................................
52,500
Equipment ................................................... 110,000
Less: Accumulated depreciation—
equipment.......................................
42,900
Total assets ........................................
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
$ 23,800
50,300
75,000
2,400
$151,500
137,500
67,100
204,600
$356,100
(For Instructor Use Only)
5-37
PROBLEM 5-3A (Continued)
MAINE DEPARTMENT STORE
Balance Sheet (Continued)
December 31, 2010
Liabilities and Owner’s Equity
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 current liabilities .............................................
$117,400
Long-term liabilities
Mortgage payable ...............................................................
60,000
Total liabilities.............................................................
177,400
Owner’s equity
B. Maine, Capital .................................................................
178,700
Total liabilities and owner’s equity......................
$356,100
(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 © 2009 John Wiley & Sons, Inc.
10,400
13,300
7,200
8,000
Weygandt, Accounting Principles, 9/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 .........................................
B. Maine, Capital..................................
30,100
B. Maine, Capital ..........................................
B. Maine, Drawing ...............................
28,000
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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
28,000
(For Instructor Use Only)
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
120
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 © 2009 John Wiley & Sons, Inc.
J1
Credit
840
40
1,150
790
40
420
16
101
784
900
50
30
810
Weygandt, Accounting Principles, 9/e, Solutions Manual
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
120
900
Sales Returns and Allowances..............
Accounts Receivable .......................
412
112
30
Cash................................................................
Accounts Receivable .......................
101
112
660
J1
Credit
500
27
101
873
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 © 2009 John Wiley & Sons, Inc.
Ref.
P
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, Accounting Principles, 9/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
J. Hafner, Capital
Date
Explanation
Apr. 1 Balance
Sales
Date
Apr. 8
18
5-42
Explanation
Copyright © 2009 John Wiley & Sons, Inc.
Ref.
P
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
J1
J1
J1
Ref.
P
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, Accounting Principles, 9/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. 301
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
HAFNER’S TENNIS SHOP
Trial Balance
April 30, 2010
Cash .....................................................................................
Accounts Receivable......................................................
Merchandise Inventory ..................................................
J. Hafner, Capital..............................................................
Sales.....................................................................................
Sales Returns and Allowances ...................................
Cost of Goods Sold.........................................................
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
Debit
$1,563
770
2,477
Credit
$4,200
1,960
30
1,320
$6,160
$6,160
(For Instructor Use Only)
5-43
*PROBLEM 5-5A
GORDMAN DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended December 31, 2010
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 © 2009 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
Weygandt, Accounting Principles, 9/e, Solutions Manual
399,700
$310,300
(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
2008
2009
2010
$ 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
2008
$225,700
147,700
$ 78,000
2009
$227,600
141,600
$ 86,000
2010
$219,500
131,500
$ 88,000
2008
$ 20,000
146,000
135,000
$ 31,000
2009
$ 31,000
145,000
161,000
$ 15,000
2010
$ 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 2010 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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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 ($740 – $40) ...........................
Purchase Discount ($700 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 ($600 X 2%)...............
Cash.....................................................................
600
Copyright © 2009 John Wiley & Sons, Inc.
Credit
60
900
40
300
21
679
600
50
30
1,000
500
Weygandt, Accounting Principles, 9/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
Angie Wilbert, Capital
4/1 Bal.
4,200
4/30 Bal.
4,200
Sales
4/8
4/18
4/30 Bal.
900
1,000
1,900
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
21
12
33
Freight-in
60
30
90
Purchase
Returns and Allowances
4/10
40
4/15
50
4/30 Bal.
90
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
5-47
*PROBLEM 5-7A (Continued)
(c)
VILLAGE TENNIS SHOP
Trial Balance
April 30, 2010
Cash ....................................................................................
Accounts Receivable.....................................................
Merchandise Inventory .................................................
Angie Wilbert, Capital ...................................................
Sales ...................................................................................
Sales Returns and Allowances ..................................
Purchases .........................................................................
Purchase Returns and Allowances ..........................
Purchase Discounts ......................................................
Freight-in ...........................................................................
Debit
$1,893
870
1,700
Credit
$4,200
1,900
30
1,640
90
33
90
$6,223
$6,223
VILLAGE TENNIS SHOP
Income Statement (Partial)
For the Month Ended April 30, 2010
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 ...............................................
5-48
Copyright © 2009 John Wiley & Sons, Inc.
$1,900
30
1,870
$1,700
$1,640
$90
33
123
1,517
90
1,607
3,307
2,296
Weygandt, Accounting Principles, 9/e, Solutions Manual
1,011
$ 859
(For Instructor Use Only)
Account Titles
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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
110,000
22,000
Cr.
Trial Balance
5,000
4,080
(c)
(d)
22,080
9,000
3,700
300
(b)
(a)
(e)
Dr.
(d)
(c)
(b)
(e)
(a)
4,080
22,080
5,000
9,000
300
3,700
Cr.
Adjustments
1,010,780
759,480
759,480
5,000
4,080
5,000
4,080
3,700
8,800
497,700
140,000
24,400
14,000
12,100
16,700
24,000
Dr.
9,000
4,080
1,010,780
755,200
11,000
51,000
48,500
110,000
31,000
Cr.
755,200
4,280
759,480
755,200
Cr.
Income
Statement
9,000
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, 2010
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
110,000
31,000
Cr.
Balance Sheet
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
T. Manning, Capital
T. Manning, Drawing
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, 2010
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...............................................
Other expenses and losses
Interest expense ................................................
Net loss .........................................................................
5-50
Copyright © 2009 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, Accounting Principles, 9/e, Solutions Manual
248,900
(200)
$
4,080
(4,280)
(For Instructor Use Only)
*PROBLEM 5-8A (Continued)
TERRY MANNING FASHION CENTER
Owner’s Equity Statement
For the Year Ended November 30, 2010
T. Manning, Capital, December 1, 2009.........................
Less: Net loss.......................................................................
Drawings ....................................................................
T. Manning, Capital, November 30, 2010 ......................
$110,000
$ 4,280
12,000
16,280
$ 93,720
TERRY MANNING FASHION CENTER
Balance Sheet
November 30, 2010
Assets
Current assets
Cash...........................................................
Accounts receivable.............................
Merchandise inventory........................
Store supplies ........................................
Total current assets.....................
Property, plant, and equipment
Store equipment ....................................
Accumulated depreciation—
store equipment ................................
Delivery equipment...............................
Accumulated depreciation—
delivery equipment...........................
Total assets ....................................
Copyright © 2009 John Wiley & Sons, Inc.
$28,700
30,700
44,400
2,500
$106,300
$85,000
31,000
48,000
54,000
11,000
37,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
91,000
$197,300
(For Instructor Use Only)
5-51
*PROBLEM 5-8A (Continued)
TERRY MANNING FASHION CENTER
Balance Sheet (Continued)
November 30, 2010
Liabilities and Owner’s Equity
Current liabilities
Notes payable due next year ..........................................
Accounts payable...............................................................
Interest payable...................................................................
Total current liabilities .............................................
Long-term liabilities
Notes payable ......................................................................
Total liabilities.............................................................
Owner’s equity
T. Manning, Capital ............................................................
Total liabilities and owner’s equity......................
(c) Nov. 30
30
30
30
30
5-52
Store Supplies Expense................................
Store Supplies.........................................
Depreciation Expense—Store
Equipment.....................................................
Accumulated Depreciation—
Store Equipment ................................
Depreciation Expense—Delivery
Equipment.....................................................
Accumulated Depreciation—
Delivery Equipment...........................
$30,000
48,500
4,080
$ 82,580
21,000
103,580
93,720
$197,300
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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
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
T. Manning, Capital .....................................
Income Summary................................
4,280
T. Manning, Capital .....................................
T. Manning, Drawing..........................
12,000
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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
12,000
(For Instructor Use Only)
5-53
*PROBLEM 5-8A (Continued)
(e)
TERRY MANNING FASHION CENTER
Post-Closing Trial Balance
November 30, 2010
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 .......................................................
T. Manning, Capital .................................................
Debit
$ 28,700
30,700
44,400
2,500
85,000
$ 31,000
48,000
$239,300
5-54
Copyright © 2009 John Wiley & Sons, Inc.
Credit
Weygandt, Accounting Principles, 9/e, Solutions Manual
11,000
51,000
48,500
4,080
93,720
$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 ($1200 – $100)..................
Merchandise Inventory
($1,000 X .02) ...........................................
Cash................................................................
1,000
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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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 © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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 © 2009 John Wiley & Sons, Inc.
J1
Credit
4,200
2,100
1,300
300
2,100
78
3,822
120
101
Weygandt, Accounting Principles, 9/e, Solutions Manual
400
1,400
150
1,300
130
(For Instructor Use Only)
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 © 2009 John Wiley & Sons, Inc.
J1
Credit
3,200
2,000
550
120
101
Weygandt, Accounting Principles, 9/e, Solutions Manual
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 © 2009 John Wiley & Sons, Inc.
Ref.
P
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, Accounting Principles, 9/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
Ref.
J1
Ref.
J1
J1
J1
J1
J1
J1
Debit
400
Debit
Credit
Credit
4,200
300
3,900
1,300
550
1,300
Newman, Capital
Date
May
Explanation
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 © 2009 John Wiley & Sons, Inc.
No. 126
Balance
400
No. 201
Balance
4,200
3,900
0
1,300
1,850
550
No. 301
Ref.
P
Ref.
J1
J1
J1
Ref.
J1
Ref.
J1
Debit
Debit
Debit
60
Debit
21
Credit
Credit
2,100
3,200
900
Balance
5,000
No. 401
Balance
2,100
5,300
6,200
Credit
No. 412
Balance
60
Credit
No. 414
Balance
21
Weygandt, Accounting Principles, 9/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, 2010
Sales revenues
Sales ...............................................................................
Less: Sales returns and allowances...................
Sales discounts .............................................
Net sales........................................................................
Cost of goods sold .............................................................
Gross profit ...........................................................................
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
$6,200
$60
21
81
6,119
3,850
$2,269
(For Instructor Use Only)
5-61
PROBLEM 5-3B
(a)
TARP DEPARTMENT STORE
Income Statement
For the Year Ended November 30, 2010
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 revenues and gains
Interest revenue .......................................
Other expenses and losses
Interest expense ......................................
Net income.........................................................
5-62
Copyright © 2009 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
160,000
5,000
8,000
6,400
Weygandt, Accounting Principles, 9/e, Solutions Manual
$
1,600
6,600
(For Instructor Use Only)
PROBLEM 5-3B (Continued)
TARP DEPARTMENT STORE
Owner’s Equity Statement
For the Year Ended November 30, 2010
J. Tarp, Capital, December 1, 2009..........................................................
Add: Net income..........................................................................................
Less: Drawings .............................................................................................
J. Tarp, Capital, November 30, 2010 .......................................................
$101,700
6,600
108,300
10,000
$ 98,300
TARP DEPARTMENT STORE
Balance Sheet
November 30, 2010
Assets
Current assets
Cash.............................................................
Accounts receivable...............................
Merchandise inventory..........................
Prepaid insurance...................................
Total current assets.......................
Property, plant, and equipment
Store equipment ......................................
Less: Accumulated depreciation—
store equipment .........................
Delivery equipment.................................
Less: Accumulated depreciation—
delivery equipment....................
Total assets ......................................
Copyright © 2009 John Wiley & Sons, Inc.
$ 6,000
30,500
29,000
3,500
$ 69,000
$100,000
32,000
46,000
68,000
15,000
31,000
Weygandt, Accounting Principles, 9/e, Solutions Manual
99,000
$168,000
(For Instructor Use Only)
5-63
PROBLEM 5-3B (Continued)
TARP DEPARTMENT STORE
Balance Sheet (Continued)
November 30, 2010
Liabilities and Owner’s Equity
Current liabilities
Accounts payable................................................................
Sales commissions payable ............................................
Property taxes payable......................................................
Total current liabilities ..............................................
Long-term liabilities
Notes payable due 2013 ....................................................
Total liabilities..............................................................
Owner’s equity
J. Tarp, Capital......................................................................
Total liabilities and owner’s equity.......................
(b) Nov. 30
5-64
$25,200
4,700
2,800
$ 32,700
37,000
69,700
98,300
$168,000
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 © 2009 John Wiley & Sons, Inc.
5,000
8,000
7,000
2,800
Weygandt, Accounting Principles, 9/e, Solutions Manual
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..........................................
J. Tarp, Capital......................................
6,600
J. Tarp, Capital...............................................
J. Tarp, Drawing ...................................
10,000
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/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
10,000
(For Instructor Use Only)
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 © 2009 John Wiley & Sons, Inc.
J1
Credit
1,200
50
100
900
540
670
120
101
22
1,078
70
560
340
120
101
Weygandt, Accounting Principles, 9/e, Solutions Manual
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.
No. 101
1
7
14
21
30
Explanation
Balance
Ref.
P
J1
J1
J1
J1
Debit
Credit
50
1,078
594
800
Accounts Receivable
Date
Apr. 10
20
27
30
Explanation
Merchandise Inventory
Date
Explanation
Apr. 1 Balance
5
7
9
10
12
14
17
20
21
Copyright © 2009 John Wiley & Sons, Inc.
Balance
1,800
1,750
672
78
878
No. 112
Ref.
J1
J1
J1
J1
Ref.
P
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
900
560
Credit
30
800
Debit
Credit
1,200
50
100
540
670
Weygandt, Accounting Principles, 9/e, Solutions Manual
22
70
340
6
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
Ref.
J1
J1
J1
J1
J1
J1
Debit
Credit
1,200
100
670
1,100
70
600
C. Borke, Capital
Date
Apr.
Explanation
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 © 2009 John Wiley & Sons, Inc.
No. 201
Balance
1,200
1,100
1,770
670
600
0
No. 301
Ref.
P
Ref.
J1
J1
Ref.
J1
Ref.
J1
J1
Debit
Debit
Debit
30
Debit
540
340
Credit
Credit
900
560
Balance
4,300
No. 401
Balance
900
1,460
Credit
No. 412
Balance
30
Credit
No. 505
Balance
540
880
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 5-4B (Continued)
(c)
CALEB’S DISCORAMA
Trial Balance
April 30, 2010
Cash.....................................................................................
Accounts Receivable .....................................................
Merchandise Inventory..................................................
C. Borke, Capital..............................................................
Sales....................................................................................
Sales Returns and Allowances...................................
Cost of Goods Sold ........................................................
Copyright © 2009 John Wiley & Sons, Inc.
Weygandt, Accounting Principles, 9/e, Solutions Manual
Debit
$ 878
630
3,342
Credit
$4,300
1,460
30
880
$5,760
$5,760
(For Instructor Use Only)
5-69
*PROBLEM 5-5B
DUCKWORTH DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended November 30, 2010
Sales revenues
Sales ..................................................
Less: Sales returns and
allowances ..........................
Net sales...........................................
Cost of goods sold
Inventory, Dec. 1, 2009.................
Purchases ........................................
Less: Purchase returns
and allowances.................
Purchase discounts ........
Net purchases.................................
Add: Freight-in ..............................
Cost of goods purchased ...........
Cost of goods available
for sale.................................
Inventory, Nov. 30, 2010..............
Cost of goods sold..........
Gross profit .............................................
5-70
Copyright © 2009 John Wiley & Sons, Inc.
$810,000
18,000
792,000
$ 40,000
$585,000
$2,700
6,300
9,000
576,000
4,500
580,500
620,500
32,600
Weygandt, Accounting Principles, 9/e, Solutions Manual
587,900
$204,100
(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 = 2007 Inventory + Purchases – CGS
= $7,200 + $14,200 – $15,000 = $6,400
(d)
Cash payments to suppliers = 2007 Accounts payable +
Purchases – 2008 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)
2008 Inventory + Purchases – 2009 Inventory = CGS
Purchases = CGS – 2008 Inventory + 2009 Inventory
= $13,800 – $6,400 [from (c)] + $8,100
= $15,500
(h)
Cash payments to suppliers = 2008 Accounts payable +
Purchases – 2009 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)
2009 Inventory + Purchases – 2010 Inventory = CGS
Merchandise inventory = 2009 Inventory + Purchases – CGS
= $8,100 + $13,200 – $14,300 = $7,000
(I)
Accounts payable = 2009 Accounts payable +
Purchases – Cash payments
= $2,500 + $13,200 – $13,600 = $2,100
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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.
2008
Gross profit rate
2009
$38,300 ÷ $53,300 $33,800 ÷ $47,600 $30,900 ÷ $45,200
= 72%
= 71%
= 68%
Profit margin ratio $3,400 ÷ $53,300
= 6.4%
5-72
2010
Copyright © 2009 John Wiley & Sons, Inc.
$2,500 ÷ $47,600
= 5.3%
$2,300 ÷ $45,200
= 5.1%
Weygandt, Accounting Principles, 9/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
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Credit
50
100
600
340
22
1,078
40
600
3
297
35
650
(For Instructor Use Only)
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.
Irene Tiger, Capital
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
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22
3
25
Weygandt, Accounting Principles, 9/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 5-7B (Continued)
(c)
FIVE PINES PRO SHOP
Trial Balance
April 30, 2010
Cash ..................................................................................
Accounts Receivable...................................................
Merchandise Inventory ...............................................
Irene Tiger, Capital .......................................................
Sales..................................................................................
Sales Returns and Allowances ................................
Purchases........................................................................
Purchase Returns and Allowances.........................
Purchase Discounts.....................................................
Freight-in .........................................................................
(d)
Debit
$2,225
515
4,000
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, 2010
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 ..................................................
Copyright © 2009 John Wiley & Sons, Inc.
$1,200
35
1,165
$4,000
$1,540
$140
25
165
1,375
50
Weygandt, Accounting Principles, 9/e, Solutions Manual
1,425
5,425
4,726
699
$ 466
(For Instructor Use Only)
5-75
BYP 5-1
FINANCIAL REPORTING PROBLEM
2006
(a)
(1)
(2)
(b)
(c)
Percentage change in sales:
($35,137 – $32,562) ÷ $32,562
($39,474 – $35,137) ÷ $35,137
Percentage change in net
income:
($5,642 – $4,078) ÷ $4,078
($5,658 – $5,642) ÷ $5,642
2007
7.9% increase
12.3% increase
38.4% increase
0.3% increase
Gross profit rate:
2005 ($32,562 – $14,176) ÷ $32,562
2006 ($35,137 – $15,762) ÷ $35,137
2007 ($39,474 – $18,038) ÷ $39,474
56.5%
55.1%
54.3%
Percentage of net income to sales:
2005 ($4,078 ÷ $32,562)
2006 ($5,642 ÷ $35,137)
2007 ($5,658 ÷ $39,474)
12.5%
16.1%
14.3%
Comment
The percentage of net income to sales increased 29% from 2005 to 2006
(12.5% to 16.1%) but declined 11% from 2006 to 2007 (16.1% to 14.3%). The
gross profit rate has remained relatively steady during this time. The primary
reason for the decrease in the 2007 percentage was the increase in income
tax expense.
5-76
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Weygandt, Accounting Principles, 9/e, Solutions Manual
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BYP 5-2
(a) (1)
COMPARATIVE ANALYSIS PROBLEM
2007 Gross profit
PepsiCo
Coca-Cola
$21,4361
$18,4512
(2)
2007 Gross profit rate
54.3%3
63.9%4
(3)
2007 Operating income
$7,170
$7,252
(4)
Percent change in operating
income, 2006 to 2007
10.3%5
increase
15.0%6
increase
1
2
4
5
$39,474 – $18,038
$18,451 ÷ $28,857
($28,857 – $10,406) 3$21,436 ÷ $39,474
($7,170 – $6,502) ÷ $6,502
6
($7,252 – $6,308) ÷ $6,308
(b) PepsiCo has a higher gross profit but a lower gross profit rate than
Coca-Cola. This can be explained by PepsiCo’s higher sales.
Coca-Cola had a larger operating income because its selling, general,
and administrative expenses were much smaller than PepsiCo’s.
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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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BYP 5-4
(a) (1)
GROUP DECISION CASE
FEDCO DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2010
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, 2010
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)].
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5-79
BYP 5-4 (Continued)
(c)
FEDCO DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2010
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 2009 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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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 generally accepted accounting principles. 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 generally accepted accounting principles 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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BYP 5-7
ALL ABOUT YOU ACTIVITY
In order for revenue to be recognized it must be earned. In this case
Atlantis has an obligation to provide goods with a value equal to the gift
card. That obligation is not fulfilled until one of two things happens: Either the
customer redeems the card for goods, or the card expires. Until either of those
events occurs Atlantis cannot record revenue.
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5-83