CHAPTER 5
ACCOUNTING FOR MERCHANDISING BUSINESSES
PROBLEMS
Prob. 5–1A
1.
SOMBRERO CO.
Income Statement
For the Year Ended November 30, 2006
Revenue from sales:
Sales ...........................................................
Less: Sales returns and allowances ........
Sales discounts ...............................
Net sales ................................................
Cost of merchandise sold ..............................
Gross profit......................................................
Operating expenses:
Selling expenses:
Sales salaries expense ........................
Advertising expense.............................
Depreciation expense—store
equipment ........................................
Miscellaneous selling expense ...........
Total selling expenses ....................
Administrative expenses:
Office salaries expense .............................
Rent expense .............................................
Insurance expense ....................................
Depreciation expense—office
equipment ................................................
Office supplies expense ............................
Miscellaneous administrative expense ....
Total administrative expenses ............
Total operating expenses..........................
Income from operations .................................
Other expense:
Interest expense ........................................
Net income .......................................................
$2,000,000
$ 25,200
13,200
38,400
$1,961,600
1,284,000
$ 677,600
$252,000
33,960
5,520
1,320
$ 292,800
$ 49,200
26,580
15,300
10,800
1,080
1,440
104,400
397,200
$ 280,400
1,200
$ 279,200
Prob. 5–1A
Continued
2.
SOMBRERO CO.
Retained Earnings Statement
For the Year Ended November 30, 2006
Retained earnings, December 1, 2005 ..............................
Net income for the year .....................................................
Less dividends ...................................................................
Increase in retained earnings ...........................................
Retained earnings, November 30, 2006 ............................
$261,600
$279,200
30,000
249,200
$510,800
Prob. 5–1A
Continued
3.
SOMBRERO CO.
Balance Sheet
November 30, 2006
Assets
Current assets:
Cash ............................................................
Accounts receivable ..................................
Merchandise inventory ..............................
Office supplies ...........................................
Prepaid insurance ......................................
Total current assets ................................
Property, plant, and equipment:
Office equipment........................................
Less accumulated depreciation .............
Store equipment.........................................
Less accumulated depreciation .............
Total property, plant, and
equipment .........................................
Total assets .....................................................
$ 91,800
272,000
120,000
3,120
8,160
$495,080
$ 76,800
12,960
$ 63,840
$141,000
58,320
82,680
146,520
$641,600
Liabilities
Current liabilities:
Accounts payable ......................................
Note payable (current portion)..................
Salaries payable .........................................
Total current liabilities ............................
Long-term liabilities:
Note payable (final payment due 2016) ....
Total liabilities .................................................
Stockholders’ Equity
Capital stock ....................................................
Retained earnings ...........................................
Total liabilities and stockholders’ equity ......
$ 32,400
3,000
2,400
$ 37,800
33,000
$ 70,800
$ 60,000
510,800
570,800
$641,600
Prob. 5–1A
4.
Concluded
a.
The multiple-step form of income statement contains various sections
for revenues and expenses, with intermediate balances, and concludes
with net income. In the single-step form, the total of all expenses is deducted from the total of all revenues. There are no intermediate balances.
b.
In the report form of balance sheet, the assets, liabilities, and stockholders’ equity are presented in that order in a downward sequence. In the
account form, the assets are listed on the left-hand side, and the liabilities and stockholders’ equity are listed on the right-hand side.
Prob. 5–2A
1.
SOMBRERO CO.
Income Statement
For the Year Ended November 30, 2006
Revenues:
Net sales ......................................................................
Expenses:
Cost of merchandise sold ..........................................
Selling expenses .........................................................
Administrative expenses ............................................
Interest expense ..........................................................
Total expenses ........................................................
Net income ..........................................................................
$1,961,600
$1,284,000
292,800
104,400
1,200
1,682,400
$ 279,200
2.
SOMBRERO CO.
Retained Earnings Statement
For the Year Ended November 30, 2006
Retained earnings, December 1, 2005 ..............................
Net income for the year .....................................................
Less dividends ...................................................................
Increase in retained earnings ...........................................
Retained earnings, November 30, 2006 ............................
$261,600
$279,200
30,000
249,200
$510,800
Prob. 5–2A
Concluded
3.
SOMBRERO CO.
Balance Sheet
November 30, 2006
Assets
Liabilities
Current assets:
Cash ......................................
$ 91,800
Accounts receivable ............
272,000
Merchandise inventory ........
120,000
Office supplies .....................
3,120
Prepaid insurance ................
8,160
Total current assets ..........
Property, plant, and equipment:
Office equipment .................. $ 76,800
Less accum. depreciation
12,960 $ 63,840
Store equipment ...................
Less accum. depreciation
Total property, plant,
and equipment ................
Total assets ..............................
$141,000
58,320
$495,080
82,680
146,520
$641,600
Current liabilities:
Accounts payable ........... $32,400
Note payable (current
portion) ..........................
3,000
Salaries payable ..............
2,400
Total current liabilities
$ 37,800
Long-term liabilities:
Note payable (final
payment due 2016) .......
33,000
Total liabilities ....................
$ 70,800
Stockholders’ Equity
Capital stock ...................... $ 60,000
Retained earnings.............. 510,800 570,800
Total liabilities and
stockholders’ equity .......
$641,600
Prob. 5–3A
Mar.
1 Accounts Receivable—Babcock Co. .................
Sales ...............................................................
9,000
1 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
4,500
2 Cash .....................................................................
Sales ...............................................................
Sales Tax Payable..........................................
9,010
2 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
4,750
5 Accounts Receivable—North Star Company ....
Sales ...............................................................
16,000
5 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
10,500
8 Cash .....................................................................
Sales ...............................................................
Sales Tax Payable..........................................
6,519
8 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
3,700
13 Accounts Receivable—American Express .......
Sales ...............................................................
6,500
13 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
3,600
14 Accounts Receivable—Blech Co. ......................
Sales ...............................................................
7,500
14 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
4,000
15 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—North Star
Company ...................................................
15,840
160
9,000
4,500
8,500
510
4,750
16,000
10,500
6,150
369
3,700
6,500
3,600
7,500
4,000
16,000
Prob. 5–3A
Continued
Mar. 16 Sales Returns and Allowances ..........................
Accounts Receivable—Blech Co. .................
800
16 Merchandise Inventory .......................................
Cost of Merchandise Sold .............................
360
18 Accounts Receivable—Westech Company.......
Sales ...............................................................
6,850
18 Accounts Receivable—Westech Company.......
Cash ................................................................
210
18 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
4,100
24 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—Blech Co. .................
6,633
67
27 Cash .....................................................................
Credit Card Expense ...........................................
Accounts Receivable—American Express ..
7,680
320
28 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—Westech Company .
6,923
137
31 Transportation Out..............................................
Cash ................................................................
1,275
31 Cash .....................................................................
Accounts Receivable—Babcock Co. ...........
9,000
3 Credit Card Expense ...........................................
Cash ................................................................
725
10 Sales Tax Payable ...............................................
Cash ................................................................
2,800
April
800
360
6,850
210
4,100
6,700
8,000
7,060
1,275
9,000
725
2,800
Prob. 5–4A
Aug.
1 Merchandise Inventory .......................................
Accounts Payable—Fisher Co. .....................
8,750
5 Merchandise Inventory .......................................
Accounts Payable—Byrd Co.........................
10,400
10 Accounts Payable—Fisher Co. ..........................
Cash ................................................................
Merchandise Inventory ..................................
8,750
13 Merchandise Inventory .......................................
Accounts Payable—Mickle Co. .....................
7,500
14 Accounts Payable—Mickle Co. ..........................
Merchandise Inventory ..................................
2,500
18 Merchandise Inventory .......................................
Accounts Payable—Lanning Company .......
10,000
18 Merchandise Inventory .......................................
Cash ................................................................
150
19 Merchandise Inventory .......................................
Accounts Payable—Hatcher Co. ..................
7,500
23 Accounts Payable—Mickle Co. ..........................
Cash ................................................................
Merchandise Inventory ..................................
5,000
29 Accounts Payable—Hatcher Co. ........................
Cash ................................................................
Merchandise Inventory ..................................
7,500
31 Accounts Payable—Lanning Company.............
Cash ................................................................
10,000
31 Accounts Payable—Byrd Co. .............................
Cash ................................................................
10,400
8,750
10,400
8,580
170
7,500
2,500
10,000
150
7,500
4,950
50
7,350
150
10,000
10,400
Prob. 5–5A
Jan.
3 Merchandise Inventory .......................................
Accounts Payable—Pynn Co. .......................
[$20,000 – ($20,000 × 35%)] = $13,000
$13,000 + $320 = $13,320
13,320
5 Merchandise Inventory .......................................
Accounts Payable—Wilhelm Co. ..................
8,000
6 Accounts Receivable—Sievert Co. ....................
Sales ...............................................................
7,500
6 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
4,500
7 Accounts Payable—Wilhelm Co. .......................
Merchandise Inventory ..................................
1,800
13 Accounts Payable—Pynn Co. ............................
Cash ................................................................
Merchandise Inventory ..................................
13,320
15 Accounts Payable—Wilhelm Co. .......................
Cash ................................................................
Merchandise Inventory ..................................
6,200
16 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—Sievert Co................
7,350
150
19 Accounts Receivable—American Express .......
Sales ...............................................................
6,450
19 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
3,950
22 Accounts Receivable—Elk River Co. ................
Sales ...............................................................
3,480
22 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
1,400
23 Cash .....................................................................
Sales ...............................................................
9,350
13,320
8,000
7,500
4,500
1,800
13,060
260
6,138
62
7,500
6,450
3,950
3,480
1,400
9,350
Prob. 5–5A
Jan.
Continued
23 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
5,750
25 Sales Returns and Allowances ..........................
Accounts Receivable—Elk River Co. ...........
1,480
25 Merchandise Inventory .......................................
Cost of Merchandise Sold .............................
600
31 Cash .....................................................................
Credit Card Expense ...........................................
Accounts Receivable—American Express ..
6,225
225
5,750
1,480
600
6,450
Prob. 5–6A
1.
June
2 Accounts Receivable—Brandy Company .........
Sales ...............................................................
24,000
2 Accounts Receivable—Brandy Company .........
Cash ................................................................
530
2 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
13,000
8 Accounts Receivable—Brandy Company .........
Sales ...............................................................
12,500
8 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
7,500
8 Transportation Out..............................................
Cash ................................................................
550
12 Sales Returns and Allowances ..........................
Accounts Receivable—Brandy Company ....
3,000
12 Merchandise Inventory .......................................
Cost of Merchandise Sold .............................
1,800
12 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—Brandy Company ....
24,050
480
23 Cash .....................................................................
Sales Discounts ..................................................
Accounts Receivable—Brandy Company ....
9,405
95
24 Accounts Receivable—Brandy Company .........
Sales ...............................................................
10,000
24 Cost of Merchandise Sold ..................................
Merchandise Inventory ..................................
6,000
30 Cash .....................................................................
Accounts Receivable—Brandy Company ....
10,000
24,000
530
13,000
12,500
7,500
550
3,000
1,800
24,530
9,500
10,000
6,000
10,000
Prob. 5–6A
Concluded
2.
June
2 Merchandise Inventory .......................................
Accounts Payable—Schnaps Company ......
$14,000 + $350 = $14,350
24,530
8 Merchandise Inventory .......................................
Accounts Payable—Schnaps Company ......
12,500
12 Accounts Payable—Schnaps Company............
Merchandise Inventory ..................................
3,000
12 Accounts Payable—Schnaps Company............
Cash ................................................................
Merchandise Inventory ..................................
24,530
23 Accounts Payable—Schnaps Company............
Cash ................................................................
Merchandise Inventory ..................................
9,500
24 Merchandise Inventory .......................................
Accounts Payable—Schnaps Company ......
10,000
26 Merchandise Inventory .......................................
Cash ................................................................
310
30 Accounts Payable—Schnaps Company............
Cash ................................................................
10,000
24,530
12,500
3,000
24,050
480
9,405
95
10,000
310
10,000
Appendix—Prob. 5–7A
1.
GLYCOL CO. (Work Sheet)
For the Year Ended December 31, 2006
Adjusted
Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Cash .....................................
Accounts Receivable .........
Merchandise Inventory ......
Prepaid Insurance ..............
Store Supplies ....................
Office Supplies ...................
Store Equipment .................
Acc. Depr.—Store Equip. ...
Office Equipment ................
Acc. Depr.—Office Equip. ..
Accounts Payable ...............
Salaries Payable .................
Unearned Rent ....................
Note Payable (final .............
payment due 2016) ..........
Capital Stock .......................
Retained Earnings ..............
Dividends ............................
Sales ....................................
Sales Returns and Allow....
Sales Discounts ..................
Cost of Merch. Sold ............
Sales Salaries Expense .....
Advertising Expense ..........
Depr. Exp.—Store Equip. ...
Store Supplies Expense.....
Misc. Selling Expense ........
Office Salaries Expense .....
Rent Expense ......................
Insurance Expense .............
Depr. Exp.—Office Equip. ..
Office Supplies Expense....
Misc. Admin. Expense........
Rent Revenue......................
Interest Expense .................
Net income ..........................
Income
Statement
Balance
Sheet
Dr.
Cr.
Trial Balance
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
11,165
86,100
235,000
10,600
3,750
1,700
225,000
................
72,000
................
................
................
................
................
................
................
................
................
................
................
40,300
................
17,200
56,700
................
1,200
................
................
................
................
................
................
................
................
................
................
................
................
(h)
800
................
................
(a) 6,400
(b) 9,500
(c) 2,550
(d)
800
................
(e) 8,500
................
(f) 4,500
................
(g) 2,200
................
11,165
86,100
228,600
1,100
1,200
900
225,000
................
72,000
................
................
................
................
................
................
................
................
................
................
................
48,800
................
21,700
56,700
2,200
400
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
11,165
86,100
228,600
1,100
1,200
900
225,000
................
72,000
................
................
................
................
..............
..............
..............
..............
..............
..............
..............
48,800
..............
21,700
56,700
2,200
400
................
................
................
40,000
................
15,500
6,000
501,200
86,400
29,450
................
................
1,885
60,000
30,000
................
................
................
1,650
................
12,600
1,430,000
185,000
80,000
202,100
................
847,500
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
1,430,000
................
................
................
................
................
................
................
(a) 6,400
(g) 1,450
................
(e) 8,500
(c) 2,550
................
(g)
750
................
(b) 9,500
(f) 4,500
(d)
800
................
................
................
35,250
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
40,000
................
15,500
6,000
507,600
87,850
29,450
8,500
2,550
1,885
60,750
30,000
9,500
4,500
800
1,650
(h)
800 ................
................
12,600
35,250 1,445,200
185,000
80,000
202,100
................
847,500
................
................
................
................
................
................
................
................
................
................
................
................
................
................
800
................
1,445,200
................
................
................
................
................
15,500
6,000
507,600
87,850
29,450
8,500
2,550
1,885
60,750
30,000
9,500
4,500
800
1,650
................
12,600
779,135
69,165
848,300
................
................
................
................
847,500
................
................
................
................
................
................
................
................
................
................
................
................
................
................
800
................
848,300
................
848,300
................
................
................
40,000
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
................
666,065
................
670,565
185,000
80,000
202,100
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
596,900
69,165
670,565
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Appendix—Prob. 5–7A Continued
2.
GLYCOL CO.
Income Statement
For the Year Ended December 31, 2006
Revenue from sales:
Sales ...........................................................
Less: Sales returns and allowances ........
Sales discounts ...............................
Net sales ................................................
Cost of merchandise sold ..............................
Gross profit......................................................
Operating expenses:
Selling expenses:
Sales salaries expense ........................
Advertising expense.............................
Depreciation expense—store equip. ..
Store supplies expense .......................
Miscellaneous selling expense ...........
Total selling expenses ....................
Administrative expenses:
Office salaries expense .......................
Rent expense ........................................
Insurance expense ...............................
Depreciation expense—office equip. ..
Office supplies expense ......................
Miscellaneous admin. expense ...........
Total administrative expenses .......
Total operating expenses..........................
Income from operations .................................
Other income and expense:
Rent revenue ..............................................
Interest expense ........................................
Net income .......................................................
$847,500
$15,500
6,000
21,500
$826,000
507,600
$318,400
$87,850
29,450
8,500
2,550
1,885
$130,235
$60,750
30,000
9,500
4,500
800
1,650
107,200
237,435
$ 80,965
$
800
(12,600)
(11,800)
$ 69,165
Appendix—Prob. 5–7A Continued
3.
GLYCOL CO.
Retained Earnings Statement
For the Year Ended December 31, 2006
Retained earnings, January 1, 2006 .................................
Net income for the year .....................................................
Less dividends ...................................................................
Increase in retained earnings ...........................................
Retained earnings, December 31, 2006 ............................
$202,100
$69,165
40,000
29,165
$231,265
Appendix—Prob. 5–7A Continued
4.
GLYCOL CO.
Balance Sheet
December 31, 2006
Assets
Current assets:
Cash ............................................................
Accounts receivable ..................................
Merchandise inventory ..............................
Prepaid insurance ......................................
Store supplies ............................................
Office supplies ...........................................
Total current assets ................................
Property, plant, and equipment:
Store equipment.........................................
Less accumulated depreciation .............
Office equipment........................................
Less accumulated depreciation .............
Total property, plant, and
equipment...........................................
Total assets .....................................................
$ 11,165
86,100
228,600
1,100
1,200
900
$329,065
$225,000
48,800
$176,200
$ 72,000
21,700
50,300
Liabilities
Current liabilities:
Accounts payable ......................................
Note payable (current portion)..................
Salaries payable .........................................
Unearned rent ............................................
Total current liabilities ............................
Long-term liabilities:
Note payable (final payment due 2016) ....
Total liabilities .................................................
Stockholders’ Equity
Capital stock ....................................................
Retained earnings ...........................................
Total liabilities and stockholders’ equity ......
226,500
$555,565
$ 56,700
25,000
2,200
400
$ 84,300
160,000
$244,300
$ 80,000
231,265
311,265
$555,565
Appendix—Prob. 5–7A Continued
5.
Cost of Merchandise Sold ...........................................
Merchandise Inventory ...........................................
6,400
Insurance Expense ......................................................
Prepaid Insurance ...................................................
9,500
Store Supplies Expense ..............................................
Store Supplies .........................................................
2,550
Office Supplies Expense .............................................
Office Supplies ........................................................
800
Depreciation Expense—Store Equipment .................
Accum. Depreciation—Store Equipment ..............
8,500
Depreciation Expense—Office Equipment ................
Accum. Depreciation—Office Equipment .............
4,500
Sales Salaries Expense ...............................................
Office Salaries Expense ..............................................
Salaries Payable .....................................................
1,450
750
Unearned Rent ..............................................................
Rent Revenue ..........................................................
800
6,400
9,500
2,550
800
8,500
4,500
2,200
800
Appendix—Prob. 5–7A Concluded
6.
Sales ..............................................................................
Rent Revenue ...............................................................
Income Summary ....................................................
847,500
800
Income Summary .........................................................
Sales Returns and Allowances ..............................
Sales Discounts ......................................................
Cost of Merchandise Sold ......................................
Sales Salaries Expense ..........................................
Advertising Expense ..............................................
Depreciation Expense—Store Equipment ............
Store Supplies Expense .........................................
Miscellaneous Selling Expense .............................
Office Salaries Expense .........................................
Rent Expense ..........................................................
Insurance Expense .................................................
Depreciation Expense—Office Equipment ...........
Office Supplies Expense ........................................
Miscellaneous Administrative Expense ................
Interest Expense .....................................................
779,135
Income Summary .........................................................
Retained Earnings ..................................................
73,665
Retained Earnings ........................................................
Dividends .................................................................
40,000
848,300
15,500
6,000
507,600
87,850
29,450
8,500
2,550
1,885
60,750
30,000
9,500
4,500
800
1,650
12,600
73,665
40,000