Chapter 6 Accounting for Merchandising Activities Questions 1. WestJet is not a merchandiser since its main source of revenue is through the sale of services and not generated by the sale of merchandise inventory. 2. The calculation of the cost of goods sold is not provided. 3. Additional accounts of a merchandising company include Merchandise Inventory, Sales, Cost of Goods Sold, Sales Discounts, and Sales Returns and Allowances. 4. Only merchandising companies present merchandise inventory on the balance sheet. Only merchandising companies present sales and cost of goods sold on the income statement. 5. A company can have a net loss if its operating expenses are greater than its gross profit from sales of merchandise. 6. Cash discounts are granted in return for early payment and reduce the amount paid below the negotiated price. Trade discounts are deducted from the list or catalogue price to determine the purchase price. Trade discounts are not recorded in the accounting records. 7. A company’s manager should be concerned about the quantity of its purchase returns because the company incurs costs in receiving, inspecting, identifying, and returning the merchandise. Therefore, more returns create more expenses. By knowing more about the returns, the manager can decide if they are a problem. 8. Leon’s should attempt to negotiate the shipping terms to FOB destination. Title will pass after the goods are safely delivered to his store and transportation charges will be the responsibility of the vendor he is buying from. 9. The sender of a debit memorandum records a debit and the recipient records a credit. 10. Sales discount is a term used by a seller to describe a cash discount granted to a customer. Purchase discount is a term used by a purchaser to describe a cash discount received from a supplier. 11. A cash discount would be offered to encourage customers to pay promptly, which provides the cash more quickly to the seller and avoids the costs of additional billing. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 435 12. In today’s business world, organizations must concentrate on meeting their customers’ needs and avoiding the possibility of their dissatisfaction. If the needs aren’t met and dissatisfaction grows, the customers will deal with other companies or entities. One measure of the dissatisfaction of a merchandiser’s customers is the amount of sold goods that are later returned by those customers. Their dissatisfaction needs to be understood and then dealt with promptly to encourage them to remain loyal to the company. The reasons for the return also need to be determined to allow the problem to be avoided in the future. For example, the returns might arise from product defects, shipping damage, misleading information provided at the time of sale, or fickle customers. An important early step in controlling returns is to have information about their dollar amount. In addition, managers can set goals for reducing the dollar amount of sales returns. Both purposes can be helped by having the company’s accounting system record the sales value of returned goods in a separate contra account instead of the Sales account. Although this information can be gathered in other ways, this approach captures the information at the time of the return and allows it to be easily reported. Although a company’s sales return record can be highly important for managers, there is relatively little value in the information for external decision makers because they are not concerned with day-to-day operating details. Although management might choose to report the amount of sales returns as evidence of the effectiveness of a program to reduce them, their amount is virtually never reported in financial statements provided to investors, creditors, and other external users. 13. Inventory shrinkage is determined by taking a physical count of the inventory on hand and comparing the cost of that inventory with the amount recorded in the Merchandise Inventory account. 14. The single-step format presents the cost of goods sold and operating expenses in one list, totals the list, and subtracts the total from net sales in one step. The multiple-step format presents intermediate totals, including gross profit (the difference between net sales and cost of goods sold). Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 436 Fundamental Accounting Principles, Twelfth Canadian Edition QUICK STUDY Quick Study 6-1 Net sales ............................... Cost of goods sold .............. Gross profit from sales ....... Operating expenses............. Net income (loss) ................. A $14,000 8,000 $ 6,000 9,000 $ (3,000) B C $102,000 $68,000 64,000 31,000 $ 38,000 $37,000 31,000 22,000 $ 7,000 $15,000 D $540,000 320,000 $220,000 261,000 $(41,000) E $398,000 215,000 $183,000 106,000 $ 77,000 Quick Study 6-2 a. b. c. d. e. Periodic AND perpetual inventory systems Perpetual inventory systems Perpetual inventory systems Periodic inventory systems Perpetual inventory systems Quick Study 6-3 a. This information reflects a perpetual inventory system. 150 + 340 – 60 = 430 Cost of Goods Sold (credit to Merchandise Inventory and debit to Cost of Goods Sold) b. This information reflects a periodic inventory system. 150 + 340 – 60 = 430 Cost of Goods Sold Quick Study 6-4 a. This information reflects a periodic inventory system. 170 + 700 – 120 = 750 Cost of goods sold b. This information reflects a perpetual inventory system. 200 + 1,000 – 75 = 1,125 Cost of Goods Sold Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 437 Quick Study 6-5 May 1 Merchandise Inventory ............................................ Accounts Payable ............................................. To record purchase of merchandise; terms 1/10, n30. 1,200 14 Accounts Payable .................................................... Cash ................................................................... To record payment of credit purchase. 1,200 15 Merchandise Inventory ............................................ Accounts Payable ............................................. To record purchase of merchandise; terms 2/15, n30. 3,000 30 Accounts Payable .................................................... Merchandise Inventory ..................................... Cash ................................................................... To record payment of credit purchase within discount period; $3,000 x 2% = $60 discount. 3,000 1,200 1,200 3,000 60 2,940 Quick Study 6-6 Aug. 2 Merchandise Inventory ............................................ Accounts Payable ............................................. To record purchase of merchandise; terms 1/5, n15. 14,000 4 Accounts Payable .................................................... Merchandise Inventory ..................................... To record allowance regarding August 2 credit purchase. 1,500 17 Accounts Payable .................................................... Cash ................................................................... To record payment of credit purchase less allowance; 14,000 – 1,500 = 12,500. 12,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 438 14,000 1,500 12,500 Fundamental Accounting Principles, Twelfth Canadian Edition Quick Study 6-7 Mar. 5 Merchandise Inventory ..................................... Accounts Payable ..................................... (500 $5) × 80% = $2,000 2,000 7 Accounts Payable ............................................. Merchandise Inventory ............................. (50/500) × $2,000 = $200 200 15 Accounts Payable ............................................. Cash ........................................................... Merchandise Inventory ............................. $2,000 - $200 = $1,800; $1,800 – ($1,800 × 2%) = $1,764 1,800 2,000 200 1,764 36 Quick Study 6-8 Sept. 1 Accounts Receivable – JenAir ................................ Sales .................................................................. To record sale; terms 2/10, n30. 6,000 1 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 4,200 14 Cash .......................................................................... Accounts Receivable – JenAir ......................... To record collection from credit customer. 6,000 15 Accounts Receivable – Dennis Leval ..................... Sales .................................................................. To record sale; terms 2/10, n30. 1,800 15 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 1,500 25 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable – Dennis Leval .............. To record collection within discount period; $1,800 x 2% = $36 discount. 1,764 36 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 6,000 4,200 6,000 1,800 1,500 1,800 439 Quick Study 6-9 Oct. 15 Accounts Receivable – Leslie Garth ...................... Sales .................................................................. To record sale; terms 1/5, n20. 900 15 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 600 16 Sales Returns and Allowances ............................... Accounts Receivable – Leslie Garth ............... To record allowance. 100 25 Cash .......................................................................... Accounts Receivable – Leslie Garth ............... To record collection; 900 – 100 = 800. 800 900 600 100 800 Quick Study 6-10 Apr. 1 Accounts Receivable ........................................ Sales ............................................................ To record credit sale. 2,000 1 Cost of Goods Sold ........................................... Merchandise Inventory .............................. To record cost of sale. 1,400 4 Sales Returns and Allowances .......................... Accounts Receivable ................................. To record sales return. 500 4 Merchandise Inventory ..................................... Cost of Goods Sold ................................... To restore goods to inventory. 350 11 Cash .................................................................... Sales Discounts ................................................. Accounts Receivable .................................. To record payment on account; $2,000 – $500 = $1,500; $1,500 × 98% = $1,470. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 440 1,470 30 2,000 1,400 500 350 1,500 Fundamental Accounting Principles, Twelfth Canadian Edition Quick Study 6-11 Sales ..................................................... Sales discounts .................................... Sales returns and allowances .............. Net sales ............................................... Cost of goods sold .............................. Gross profit from sales ........................ Gross profit ratio................................... (a) $130,000 (4,200) (17,000) $108,800 (76,600) $ 32,200 29.60%1 (b) $512,000 (16,500) (5,000) $490,500 (326,700) $163,800 33.39%2 (c) $35,700 (400) (5,000) $30,300 (21,300) $ 9,000 29.70%3 (d) $245,700 (3,500) (700) $241,500 (125,900) $115,600 47.87%4 Gross profit ratio calculations*: 1. ($32,200/$108,800) x 100 = 29.60% 2. ($163,800/$490,500)) x 100 = 33.39% 3. ($9,000/$30,300) x 100 = 29.70% 4. ($115,600/$241,500) x 100 = 47.87% *rounded to two decimal places Quick Study 6-12 July 31 Cost of Goods Sold .......................................... Merchandise Inventory ............................. $34,800 – $32,900 = $1,900 1,900 1,900 Gross profit from sales = Net sales – Cost of goods sold = (157,200 – 1,700 – 3,500) – (102,000 + 1,900) = 152,000 – 103,900 = 48,100 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 441 Quick Study 6-13 a. Classified Multi-Step Income Statement JETCO Income Statement For Year Ended December 31, 2011 Sales ............................................................................... Less: Sales discounts .................................................. Net sales ......................................................................... Cost of goods sold ........................................................ Gross profit from sales ................................................. Operating expenses: Selling expenses: Sales salaries expense ........................................... Advertising expense............................................... Total selling expenses ........................................... General and administrative expenses: Office salaries expense .......................................... Office supplies expense ......................................... Total general and administrative expenses .......... Total operating expenses .......................................... Income from operations ................................................ Other revenues/expenses: Interest revenue ........................................................ Net income ..................................................................... b. Single-Step Income Statement JETCO Income Statement For Year Ended December 31, 2011 Revenues: Net sales .................................................................... Interest revenue ........................................................ Total revenues .......................................................... Expenses: Cost of goods sold ................................................... Selling expenses....................................................... General and administrative expenses ..................... Total expenses .......................................................... Net income ..................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 442 $100 4 $ 96 60 $ 36 $ 15 6 $ 10 3 $ 21 13 34 $ 2 5 $ 7 $ 96 5 $ 60 21 13 $101 94 $ 7 Fundamental Accounting Principles, Twelfth Canadian Edition Quick Study 6-14 ($248,000 – $114,080)/$248,000 = 0.54 or 54% This means that Willaby realizes a gross margin of 54¢ for each $1 of sales. Willaby’s gross profit ratio of 54% is favourable in comparison to the industry average of 53%, or 53¢ for each $1 of sales. Quick Study 6-15 Dec. 31 Sales .................................................................. Income Summary ....................................... To close Sales. 70 31 Income Summary .............................................. Sales Discounts ......................................... Sales Returns and Allowances ................ Cost of Goods Sold .................................... Amortization Expense ............................... Advertising Expense ................................. To close income statement accounts with debit balances. 41 31 Income Summary .............................................. Tony Ingram, Capital .................................. To close income summary account to capital. 29 31 Tony Ingram, Capital ........................................ Tony Ingram, Withdrawals ......................... To close withdrawals account to capital. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 1 70 3 4 25 2 7 29 1 443 *Quick Study 6-16 a. QS6-5 – Periodic May 1 Purchases................................................................. Accounts Payable ............................................. To record purchase; terms 1/10, n30. 1,200 14 Accounts Payable .................................................... Cash ................................................................... To record payment of credit purchase. 1,200 15 Purchases................................................................. Accounts Payable ............................................. To record purchase; terms 2/15, n30. 3,000 30 Accounts Payable .................................................... Purchase Discounts ......................................... Cash ................................................................... To record payment within discount period; $3,000 x 2% = $60 discount. 3,000 b. QS6-6 – Periodic Aug. 2 Purchases................................................................. Accounts Payable ............................................. To record purchase; terms 1/5, n15. 14,000 4 Accounts Payable .................................................... Purchase Returns and Allowances ................. To record allowance. 1,500 17 Accounts Payable .................................................... Cash ................................................................... To record payment less allowance. 12,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 444 1,200 1,200 3,000 60 2,940 14,000 1,500 12,500 Fundamental Accounting Principles, Twelfth Canadian Edition *Quick Study 6-16 (concluded) c. QS6-7 - Periodic Mar. 5 Purchases ................................................................. Accounts Payable............................................ (500 × $5) × 80% = $2,000 2,000 7 Accounts Payable .................................................... Purchase Returns and Allowances ................. (50/500) × $2,000 = $200 200 15 Accounts Payable .................................................... Cash ................................................................. Purchase Discounts ........................................ $1,800 – ($1,800 × 2%) = $1,764 1,800 2,000 200 1,764 36 *Quick Study 6-17 a. QS6-8 - Periodic Sept. 1 Accounts Receivable – JenAir ................................ Sales .................................................................. To record sale; terms 2/10, n30. 6,000 14 Cash .......................................................................... Accounts Receivable – JenAir ......................... To record collection from credit customer. 6,000 15 Accounts Receivable – Dennis Leval ..................... Sales .................................................................. To record sale; terms 2/10, n30. 1,800 25 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable – Dennis Leval .............. To record collection within discount period; $1,800 x 2% = $36 discount. 1,764 36 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 6,000 6,000 1,800 1,800 445 *Quick Study 6-17 (concluded) b. QS6-9 - Periodic Oct. 15 Accounts Receivable – Leslie Garth ........................ Sales .................................................................. To record sale; terms 1/5, n20. 900 16 Sales Returns and Allowances ................................. Accounts Receivable – Leslie Garth................ To record sales allowance. 100 25 Cash............................................................................ Accounts Receivable – Leslie Garth................ To record payment less allowance. 800 900 100 800 c. QS6-10 - Periodic Apr. 1 Accounts Receivable................................................. Sales .................................................................. To record sale; terms 2,10, EOM. 2,000 4 Sales Returns and Allowances ................................. Accounts Receivable ........................................ To record sales return; returned to inventory. 500 11 Cash............................................................................ Sales Discounts ......................................................... Accounts Receivable ........................................ To record payment less return and discount. 1,470 30 2,000 500 1,500 *Quick Study 6-18 Merchandise inventory, January 1, 2011 ................................ Purchases .................................................................................. Less: Purchase discounts....................................................... Add: Transportation-in ............................................................ Net Purchases ........................................................................... Cost of Goods Available for Sale ............................................ Less: Merchandise inventory, December 31, 2011 ................ Cost of Goods Sold .................................................................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 446 $180,000 1,400 14,000 $ 40,000 192,600 $232,600 22,000 $210,600 Fundamental Accounting Principles, Twelfth Canadian Edition *Quick Study 6-19 Dec 31 Sales ........................................................................... Purchase Discounts .................................................. Merchandise Inventory .............................................. Income Summary .............................................. To close all credit balance temporary accounts. 450,000 1,400 22,000 31 Income Summary ....................................................... Merchandise Inventory ..................................... Sales Returns and Allowances ........................ Purchases .......................................................... Transportation-In .............................................. Salaries Expense ............................................... Amortization Expense....................................... To close all debit balance temporary accounts. 412,000 31 Income Summary ....................................................... Kay Bondar, Capital .......................................... To close the income summary to capital. 61,400 31 Kay Bondar, Capital ................................................... Kay Bondar, Withdrawals ................................. To close the withdrawals account to capital. 65,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 473,400 40,000 27,000 180,000 14,000 120,000 31,000 61,400 65,000 447 *Quick Study 6-20 Sales ...................................................... Sales discounts..................................... Net Sales................................................ a b c d $ 130,000 $ 512,000 $ 35,700 $ 245,700 (4,200) (16,500) (400) (3,500) $125,800 $495,500 $35,300 $242,200 Merchandise inventory, Jan. 1, 2011 ... Purchases .............................................. Purchase returns and allowances ....... Cost of goods available for sale .......... Merchandise inventory, Dec. 31, 2011. Cost of goods sold ............................... 8,000 21,000 1,500 4,300 120,000 350,000 29,000 131,000 (4,000) (14,000) (750) (3,100) $ 124,000 $ 357,000 $ 29,750 $ 132,200 (7,500) (22,000) (900) (4,100) 116,500 335,000 28,850 128,100 Gross profit from sales ........................ Gross profit ratio................................... $ 9,300 $160,500 $ 6,450 $114,100 7.39%1 32.39%2 18.27%3 47.11%4 Calculations*: 1. 9,300/125,800 x 100 = 7.39% 2. 160,500/495,500 x 100 = 32.39% 3. 6,450/35,300 x 100 = 18.27% 4. 114,100/242,200 x 100 = 47.11% *Rounded to two decimal places *Quick Study 6-21 Mar. 1 Merchandise Inventory ...................................... 5,000 GST Receivable .................................................. 300 Accounts Payable ....................................... To record credit purchase; $5,000 x 6% = 300 GST. 5,300 *Quick Study 6-22 Mar. 17 Accounts Receivable ......................................... PST Payable ................................................ GST Payable ................................................ Sales ............................................................. To record credit sale; $5,800 x 6% = 348 PST; $5,800 x 6% = $348 GST. 6,696 17 Cost of Goods Sold ............................................. Merchandise Inventory ............................... To record cost of sale. 5,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 448 348 348 5,800 5,000 Fundamental Accounting Principles, Twelfth Canadian Edition *Quick Study 6-23 Mar. 1 Purchases ......................................................... 5,000 GST Receivable ................................................. 300 Accounts Payable ..................................... To record credit purchase; $5,000 x 6% = 300 GST. 5,300 *Quick Study 6-24 Mar. 17 Accounts Receivable ........................................ PST Payable ............................................... GST Payable .............................................. Sales ........................................................... To record credit sale; $5,800 x 6% = 348 PST; $5,800 x 6% = $348 GST. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 6,696 348 348 5,800 449 EXERCISES Exercise 6-1 (15 minutes) a b Sales ................................................. $ 240,000 $ 140,000 Cost of goods sold .......................... 126,000 86,000 Gross profit from sales.................... $ 114,000 $ 54,000 Operating expenses ......................... 95,000 82,000 Net Income (Loss) ............................ $ 19,000 $ (28,000) c d $ 75,000 $462,000 42,000 268,000 $33,000 $194,000 41,000 146,000 ($ 8,000) $ 48,000 e $85,000 46,000 $ 39,000 53,000 ($ 14,000) Exercise 6-2 (25 minutes) Feb. 1 Merchandise Inventory ............................................ Accounts Payable ............................................. To record purchase; terms 1/10, n30. 7,000 5 Merchandise Inventory ............................................ Cash ................................................................... To record purchase for cash. 2,400 6 Merchandise Inventory ............................................ Accounts Payable ............................................. To record purchase; terms 2/15, n45. 10,000 9 Office Supplies......................................................... Accounts Payable ............................................. To record purchase; n15. 900 7,000 2,400 10,000 900 10 No entry. 11 Accounts Payable .................................................... Cash ................................................................... Merchandise Inventory ..................................... To record payment within discount period; $7,000 x 1% = $70 discount. 7,000 24 Accounts Payable .................................................... Cash ................................................................... To record payment. 900 Mar. 23 Accounts Payable .................................................... Cash ................................................................... To record payment. 10,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 450 6,930 70 900 10,000 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-3 (30 minutes) 2011 Mar. 2 Merchandise Inventory ..................................... Accounts Payable — Blanton Company .. Purchased merchandise on credit. 3,600 3 Merchandise Inventory ..................................... Cash ............................................................ Paid shipping charges on purchased merchandise. 200 4 Accounts Payable — Blanton Company ......... Merchandise Inventory ............................. Returned unacceptable merchandise. 600 17 Accounts Payable — Blanton Company .......... Merchandise Inventory .............................. Cash ............................................................ Paid balance within the discount period; 3,600 – 600 = 3,000; 3,000 x 2% = 60. 3,000 18 Merchandise Inventory ..................................... Accounts Payable — Fleming Corp. ......... Purchased merchandise on credit. 7,500 21 Accounts Payable — Fleming Corp. ................ Merchandise Inventory ............................. Received an allowance on purchase. 2,100 28 Accounts Payable — Fleming Corp. ................ Merchandise Inventory .............................. Cash ............................................................ Paid balance within the discount period; 7,500 – 2,100 = 5,400; 5,400 x 2% = 108. 5,400 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 3,600 200 600 60 2,940 7,500 2,100 108 5,292 451 Exercise 6-4 (25 minutes) Jan. Feb. 5 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 1/10, n30. 4,000 5 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 3,200 7 Cash .......................................................................... Sales .................................................................. To record cash sale. 3,600 7 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 3,000 8 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 1/10, n30. 9,600 8 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 8,200 15 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable ........................................ To record collection within discount period; $4,000 x 1% = $40 discount. 3,960 40 4 Cash .......................................................................... Accounts Receivable ........................................ To record collection. 9,600 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 452 4,000 3,200 3,600 3,000 9,600 8,200 4,000 9,600 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-5 (30 minutes) Feb. 1 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 2/10, n30, FOB destination. 2,400 1 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 2,000 2 Delivery Expense or Freight-Out ............................ Cash ................................................................... To record delivery expenses for goods sold. 150 3 Sales Returns and Allowances ............................... Accounts Receivable ........................................ To record return of merchandise. 1,200 3 Merchandise Inventory ............................................ Cost of Goods Sold .......................................... To return merchandise to inventory. 1,000 4 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 2/10, n30, FOB destination. 3,800 4 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 3,100 11 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable ........................................ To record collection, less return and discount; $2,400 - $1,200 = $1,200 x 2% = $24 discount. 1,176 24 23 Cash .......................................................................... Sales .................................................................. To record cash sale. 1,200 23 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 950 28 Cash .......................................................................... Accounts Receivable ........................................ To record collection. 3,800 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 2,400 2,000 150 1,200 1,000 3,800 3,100 1,200 1,200 950 3,800 453 Exercise 6-6 (30 minutes) a. Mar. 1 Merchandise Inventory .............................................. Accounts Payable - Raintree ................................ Purchased merchandise on credit. 11,000 Accounts Payable - Raintree ...................................... Merchandise Inventory ......................................... Cash........................................................................ Paid account payable within the discount period; 11,000 x 3% = 330. 11,000 Accounts Receivable – Sundown Company ............. Sales ....................................................................... Sold merchandise on account. 11,000 1 Cost of Goods Sold ................................................... Merchandise Inventory ........................................ To record cost of sale. 7,500 11 Cash ............................................................................. Sales Discounts .......................................................... Accounts Receivable – Sundown Company ....... Collected account receivable. 10,670 330 11 b. Mar. 1 11,000 330 10,670 11,000 7,500 11,000 Analysis component: Amount borrowed to pay the balance owing ..................... Annual rate of interest ........................................................ Interest per year ................................................................... $10,670.00 × 8% $ 853.60 Interest per day ($853.60/365).............................................. $ 2.34 Discount taken...................................................................... Interest paid on the 50-day* loan (50 $2.34) .................... Net savings from borrowing to pay within the discount period .......................................................... $ 330.00 (117.00) $ 213.00 *60 days in credit period – 10 days in discount period = 50 days. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 454 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-7 (25 minutes) a. 2011 May 11 Merchandise Inventory ..................................... Accounts Payable – Hostel Sales ............. Purchased merchandise on credit. 30,000 11 Merchandise Inventory ..................................... Cash ............................................................ Paid shipping charges on purchased merchandise. 335 12 Accounts Payable – Hostel Sales ......................... Merchandise Inventory ................................. Returned unacceptable merchandise. 1,200 20 Accounts Payable – Hostel Sales ......................... Merchandise Inventory .................................. Cash ................................................................ Paid balance within the discount period; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864. 28,800 Accounts Receivable – Wilson Purchasing ......... Sales ................................................................ Sold merchandise on account. 30,000 11 Cost of Goods Sold ............................................... Merchandise Inventory .................................. To record cost of sale. 20,000 12 Sales Returns and Allowances ............................. Accounts Receivable – Wilson Purchasing . Accepted a return from a customer. 1,200 12 Merchandise Inventory ......................................... Cost of Goods Sold ........................................ Returned goods to inventory. 800 21 Cash ........................................................................ Sales Discounts ..................................................... Accounts Receivable – Wilson Purchasing . Collected account receivable; 30,000 – 12,000 = 28,800; 28,800 x 3% = 864. 27,936 864 b. 2011 May 11 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 30,000 335 1,200 864 27,936 30,000 20,000 1,200 800 28,800 455 Exercise 6-7 (concluded) Analysis Component Amount borrowed to pay the amount owing .................... Annual rate of interest ....................................................... Interest per year .................................................................. $27,936.00 × 5% $ 1,396.80 Interest per day ($1,396.80/365) ......................................... $ 3.83 Discount taken .................................................................... Interest paid on the 80-day* loan (80 $3.83) .................. Net savings from borrowing to pay within the discount period....................................................... $ 864.00 (306.40) $ 557.60 *90 days in credit period – 10 days in discount period = 80 days. Exercise 6-8 (10 minutes) 1. 2. 3. 4. 5. d. c. f. a. h. 6. 7. 8. 9. 10. e. j. i. b. g. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 456 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-9 (30 minutes) Balance, Dec. 31, 2010 ........... Invoice cost of purchases ...... Returns by customers ........... Transportation-in ................... Balance, Dec. 31, 2011 ............ Represents all entries to record the cost component of sales transactions ............. Inventory shrinkage recorded in December 31, 2011, adjusting entry ....................... Balance .................................. Merchandise Inventory 37,000 Purchase discounts received.... 190,500 Purchase returns and 2,200 allowances received .............. 1,900 Cost of sales transactions ....... Shrinkage .................................. 7,900 Cost of Goods Sold Represents all entries to record merchandise returned by customers 186,000 and restored to inventory during 2011 1,600 4,100 186,000 32,000 2,200 32,000 215,800 Analysis component: The shrinkage was $32,000. The cost of merchandise actually sold to customers was $186,000. The cost of goods sold was $215,800. Shrinkage therefore was 17% of the actual cost of merchandise sold ($32,000/$186,000 × 100) or 15% of the total cost of goods sold ($32,000/$215,800 × 100). As the inventory manager, I would want to know the cause of this significant shrinkage. Is it breakage or spoilage that can be controlled? Is it theft caused by weak internal controls? Reviewing the numbers allows the inventory manager to ask appropriate questions for the purpose of making good decisions. Exercise 6-10 (10 minutes) a) b) c) d) 500,000 – 17,000 – 3,000 = 480,000 net sales 28,000 + 124,000 = 152,000 total operating expenses 480,000 – 124,000 = 356,000 cost of goods sold (124,000/480,000) × 100 = 25.83% Analysis component: The change in the gross profit ratio for the year ended May 31, 2010 was 2.83% (from 23% to 25.83%). This is a favourable change because Westlawn is generating more gross profit per sales dollar that will contribute towards the covering of operating expenses. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 457 Exercise 6-11 (30 minutes) Company A Company B 2011 2010 2011 2010 Sales .................................................. 256,000 160,000 110,000 50,000 Sales discounts ................................2,560 1,600 1,100 500 Sales returns and allowances ......... 51,200 16,000 5,500 2,500 Net sales ........................................... 202,240 142,400 103,400 47,000 Cost of goods sold ........................... 153,600 88,000 55,000 25,000 Gross profit from sales .................... 48,640 54,400 48,400 22,000 Selling expenses .............................. 17,920 16,000 24,200 9,000 Administrative expenses ................. 25,600 24,000 29,700 11,000 Total operating expenses ................ 43,520 40,000 53,900 20,000 Net income (loss) .............................5,120 14,400 (5,500) 2,000 Gross profit ratio .............................. 24.05%1 38.20%2 46.81%3 46.81%4 Calculations: 1. (48,640/202,240) × 100 = 24.05% 2. (54,400/142,400) × 100 = 38.20% 3. (48,400/103,400) × 100 = 46.81% 4. (22,000/47,000) × 100 = 46.81% Analysis component: Company B has more favourable gross profit ratios for both 2010 and 2011. Company A is showing a lower gross profit ratio than Company B and decreasing gross profit as a percentage of net sales. Note to instructor: You may wish to engage students in a discussion of other interesting comparisons in this information. For example: — COGS as a percentage of sales is lower for Company B than Company A. — Sales discounts as a percentage of sales is constant for both companies. — Sales returns and allowances are higher as a percentage of sales for Company A than Company B (which is particularly interesting considering that Company A has a higher COGS than Company B … you might assume higher quality but then why the higher returns/allowances?). — Company B has higher operating expenses as a percentage of sales than Company A. Company B has more than doubled its sales from 2010 to 2011 in comparison to the growth for Company A. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 458 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-12 (20 minutes) Purchases................................................ Purchases discounts .............................. Purchases returns and allowances ....... Transportation-in .................................... Cost of goods purchased....................... Beginning inventory ............................... Cost of goods purchased....................... Ending inventory .................................... Cost of goods sold ................................. (a) $ 90,000 (4,000) (3,000) 6,400 $ 89,400 $ 7,000 89,400 (4,400) $92,000 (b) (c) $ 160,000 $ 122,000 (10,000) (2,600) (6,000) (4,400) 14,000 16,000 $ 158,000 $ 131,000 $38,400 158,000 (30,000) $ 166,400 $ 36,000 131,000 (30,480) $ 136,520 a. Transportation-in is calculated as the amount needed to make cost of goods purchased equal the given amount. Cost of goods sold is calculated the usual way. b. Purchases discounts is calculated as the amount needed to make cost of goods purchased equal the given amount. The beginning inventory is calculated as the amount needed to make cost of goods sold equal the given amount. c. Cost of goods purchased is calculated the usual way. Then, that amount is transferred to the lower section and the ending inventory is calculated as the amount needed to make cost of goods sold equal the given amount. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 459 Exercise 6-13 (30 minutes) Company A Company B 2011 2010 2011 2010 Sales .................................................. 120,000 180,000 90,000 45,000 Cost of goods sold: Merchandise inventory (beginning) ................................... 18,700 22,300 9,875 9,000 Net cost of merchandise purchases ..................................... 72,000 104,400 49,500 26,100 Merchandise inventory (ending) ... (16,400) (18,700) (8,920) (9,875) Cost of goods sold ........................ 74,300 108,000 50,455 25,225 Gross profit from sales .................... 45,700 72,000 39,545 19,775 Operating expenses.......................... 36,000 54,000 27,000 13,500 Net income (loss) .............................. 9,700 18,000 12,545 6,275 1 2 3 Gross profit ratio .............................. 38.08% 40.00% 43.94% 43.94%4 Calculations: 1. (45,700/120,000) × 100 = 38.08% 2. (72,000/180,000) × 100 = 40.00% 3. (39,545/90,000) × 100 = 43.94% 4. (25,225/45,000) × 100 = 43.94% Analysis component: Company B has a stable and more favourable gross profit ratio than Company A. Company A’s gross profit ratio decreased from 2010 to 2011 which is unfavourable. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 460 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-14 (20 minutes) Invoice cost of merchandise purchases ..... Purchase discounts received ...................... Purch. returns and allow. received.............. Cost of transportation-in .............................. Total cost of merchandise purchases ......... Merchandise inventory (beginning) ............ Total cost of merchandise purchases ......... Merchandise inventory (ending) .................. Cost of goods sold ....................................... a. (a) $ 45,000 (2,000) (1,500) 3,200 $ 44,700 $ 3,500 44,700 (2,200) $46,000 (b) $ 20,000 (1,250) (750) 1,750 $ 19,750 $ 4,800 19,750 (3,750) $ 20,800 (c) $ 15,250 (325) (550) 2,000 $ 16,375 $ 4,500 16,375 (3,810) $ 17,065 Transportation-in is calculated as the amount needed to make cost of merchandise purchased equal the given amount. Cost of goods sold is calculated the usual way. b. Purchase discounts is calculated as the amount needed to make cost of merchandise purchases equal the given amount. The merchandise inventory (beginning) is calculated as the amount needed to make cost of goods sold equal the given amount. c. Total cost of merchandise purchases is calculated the usual way. Then, that amount is transferred to the lower section and the merchandise inventory (ending) is calculated as the amount needed to make cost of goods sold equal the given amount. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 461 Exercise 6-15 (30 minutes) a) Multiple-step income statement: COMPU-SOFT Income Statement For Month Ended November 30, 2011 Net sales ................................................................... Cost of goods sold .................................................. Gross profit from sales ........................................... Operating expenses: Wages expense ................................................. Utilities expense ............................................... Amortization expense, store equipment ......... Total operating expenses ............................. Income from operations .......................................... Other revenues and expenses: Rent revenue ..................................................... Net income ............................................................... *Calculated as: 27,700 – 45 – 720 = 26,935 $26,935* 14,800 $12,135 $4,200 2,100 120 6,420 $ 5,715 850 $ 6,565 b) 2011 Closing entries: Nov. 30 Rent Revenue........................................................ Sales ...................................................................... Income Summary........................................... To close temporary credit balance accounts. 850 27,700 30 Income Summary.................................................. Sales returns and allowances ...................... Sales discounts ............................................. Cost of goods sold ........................................ Amortization expense, store equipment...... Wages expense ............................................. Utilities expense ............................................ To close temporary debit balance accounts. 21,985 30 Income Summary.................................................. Peter Delta, capital ........................................ To close income summary to capital. 6,565 30 Peter Delta, capital ............................................... Peter Delta, withdrawals ............................... To close withdrawals to capital. 3,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 462 28,550 720 45 14,800 120 4,200 2,100 6,565 3,500 Fundamental Accounting Principles, Twelfth Canadian Edition Exercise 6-15 (concluded) c) $1,635 – $3,500 + $6,565 = $4,700 OR Peter Delta, Capital 1,635 (Beg. bal.) (With.) 3,500 6,565 (Net income) 4,700 (End. bal.) Analysis component: The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800 gross profit; $12,800/$32,000 × 100 = 40%). The gross profit ratio for November is 45% ($12,135/$26,935 × 100 = 45.05%). Compu-Soft generated a higher gross profit per sales dollar in November than in October which is favourable because this represents a greater contribution towards the coverage of operating expenses. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 463 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 464 Exercise 6-16 (60 minutes) a) Fundamental Accounting Principles, Twelfth Canadian Edition Account Cash Merchandise inventory Prepaid selling expenses Store equipment Accumulated amortization, store eq. Accounts payable Salaries payable Eldon Perdu, capital Eldon Perdu, withdrawals Sales Sales returns and allowances Sales discounts Cost of goods sold Sales salaries expense Utilities expense, store Amortization expense, store equip. Other selling expenses Other administrative expenses Totals Net Income Totals Perdu Sales Work Sheet For Year Ended December 31, 2011 Unadjusted Trial Balance Debit Credit 26,000 2,000 8,000 40,000 9,000 14,840 0 45,600 3,600 858,000 33,000 8,000 424,840 94,000 28,000 70,000 190,000 927,440 927,440 Adjustments Debit Credit Income Statement Debit Credit 1,500 2,500 3,200 3,200 2,500 1,500 7,200 33,000 8,000 424,840 97,200 28,000 2,500 71,500 858,000 Balance Sheet and Statement of Owner’s Equity Debit Credit 26,000 2,000 6,500 40,000 11,500 14,840 3,200 45,600 3,600 190,000 7,200 855,040 858,000 78,100 2,960 858,000 858,000 75,600 75,140 2,960 75,600 Exercise 6-16 (continued) b) Classified multiple-step income statement: PERDU SALES Income Statement For Year Ended December 31, 2011 Sales .............................................................................. Less: Sales returns and allowances......... Sales discounts ............................... Net sales ........................................................................ Cost of goods sold ....................................................... Gross profit from sales ................................................ Operating expenses: Selling expenses: Sales salaries expense .......................................... $97,200 Other selling expenses.......................................... 71,500 Utilities expense, store ......................................... 28,000 Amortization expense, store ................................. 2,500 Total selling expenses........................................... General and administrative expenses: .................... Total operating expenses ......................................... Net income .................................................................... c) 2011 Closing entries: Dec. 31 Sales ............................................................................. Income Summary.................................................. To close sales. $33,000 8,000 $199,200 190,000 858,000 31 Income Summary ......................................................... Sales Returns and Allowances............................ Sales Discounts .................................................... Cost of Goods Sold .............................................. Sales Salaries Expense ........................................ Utilities Expense ................................................... Selling Expenses .................................................. Amortization Expense, Store Equipment ........... Administrative Expenses ..................................... To close temporary debit balance accounts. 855,040 31 Income Summary ......................................................... Eldon Perdu, Capital ............................................ To close the Income Summary account to capital. 2,960 31 Eldon Perdu, Capital ................................................... Eldon Perdu, Withdrawals ................................... To close withdrawals to capital. 3,600 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $858,000 41,000 $817,000 424,840 $392,160 389,200 $ 2,960 858,000 33,000 8,000 424,840 97,200 28,000 71,500 2,500 190,000 2,960 3,600 465 Exercise 6-16 (concluded) Analysis component: The gross profit ratio for 2011 is $392,160/$817,000 × 100 = 48%. The gross profit ratio for 2010 was $330,000*/$600,000 × 100 = 55%. The gross profit ratio decreased from 2010 to 2011 which is unfavourable since the gross profit generated per net sales dollar has decreased thereby contributing less towards the coverage of operating expenses in 2011 than in 2010. *Sales – COGS = GP – Operating Expenses = Net Loss, therefore, $600,000 - ? = ? - $344,000 = -$14,000; GP - $344,000 = -$14,000 so GP = $330,000. Exercise 6-17 (25 minutes) a) 531,000 – 14,000 – 7,000 = 510,000 b) Single-step income statement: SABBA CO. Income Statement For Year Ended January 31, 2011 Revenues: Net sales ........................................................... Expenses: Cost of goods sold .......................................... Selling expenses .............................................. General and administrative expenses ............ Interest expense ............................................... Total expenses ................................................. Net loss ................................................................ Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 466 $510,000 $301,000 117,000 109,000 750 527,750 $ 17,750 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-18 (20 minutes) 1) Nov. 1 2) Nov. 5 3) Nov. 7 Periodic Purchases ................................. Accounts Payable ............. To record purchases on account. 2,800 2,800 Accounts Payable .................. 2,800 Purchases Discount ........ Cash ................................. To record cash payment within discount period; 2,800 x 2% = 56. Cash......................................... Purchases Returns and Allowances .................. To record cheque received for return of purchases previously paid for with discount already taken; 200 – 2% = 196. 4) Nov. 10 Transportation-In .................... Cash ................................. To record payment of freight charges. 5) Nov. 13 Accounts Receivable ............. Sales ................................. To record sale of merchandise on credit. 56 2,744 196 196 160 160 3,000 3,000 13 No entry. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 Perpetual Merchandise Inventory .............. Accounts Payable ............... To record purchases on account. Accounts Payable .................. Merchandise Inventory... Cash ................................. To record cash payment within discount period; 2,800 x 2% = 56. 2,800 2,800 2,800 56 2,744 Cash ............................................ Merchandise Inventory....... To record cheque received for return of merchandise previously paid for with discount already taken; 200 – 2% = 196. 196 Merchandise Inventory .............. Cash ..................................... To record payment of freight charges. 160 196 160 Accounts Receivable ................. Sales .................................... To record sale of merchandise on credit. 3,000 Cost of Goods Sold ................... Merchandise Inventory...... To record cost of merchandise sold. 1,500 3,000 1,500 467 *Exercise 6-18 (concluded) 6) Nov. 16 Sales Returns and Allowances Accounts Receivable ...... To record return of merchandise bought on account. 400 400 16 No entry. *Exercise 6-19 Feb. Sales Returns and Allowances Accounts Receivable ...... To record return of merchandise bought on account. 400 Merchandise Inventory .............. Cost of Goods Sold ............ To record return of merchandise by customer. 200 1 Purchases................................................................. Accounts Payable ............................................. To record purchase; terms 1/10, n30. 7,000 5 Purchases................................................................. Cash ................................................................... To record purchase for cash. 2,400 6 Purchases................................................................. Accounts Payable ............................................. To record purchase; terms 2/15, n45. 10,000 9 Office Supplies......................................................... Accounts Payable ............................................. To record purchase; n15. 900 400 200 7,000 2,400 10,000 900 10 No entry. 11 Accounts Payable .................................................... Cash ................................................................... Purchase Discounts ......................................... To record payment within discount period; $3,500 x 1% = $35 discount. 7,000 24 Accounts Payable .................................................... Cash ................................................................... To record payment. 900 Mar. 23 Accounts Payable .................................................... Cash ................................................................... To record payment. 10,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 468 6,930 70 900 10,000 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-20 (25 minutes) 2011 Mar 2 Purchases ........................................................................ Accounts Payable — Blanton Company........... Purchased merchandise on credit. 3,600 3 Transportation-in ............................................................ Cash ................................................................... Paid shipping charges on purchased merchandise. 200 4 Accounts Payable — Blanton Company ....................... Purchase Returns and Allowances ............................... Returned unacceptable merchandise. 600 17 Accounts Payable — Blanton Company ....................... 3,000 Purchase Discounts ....................................................... Cash ................................................................................ Paid balance within the discount period; 3,600 – 600 = 3,000; 3,000 x 2% = 60. 3,600 200 600 60 2,940 18 Purchases ........................................................................ 7,500 Accounts Payable — Fleming Corp. ............................. Purchased merchandise on credit. 7,500 21 Accounts Payable — Fleming Corp............................... 2,100 Purchase Returns and Allowances ............................... Received an allowance on purchase. 2,100 28 Accounts Payable — Fleming Corp............................... 5,400 Purchase Discounts ....................................................... Cash ................................................................................ Paid balance within the discount period; 7,500 – 2,100 = 5,400; 5,400 x 2% = 108. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 108 5,292 469 *Exercise 6-21 (20 minutes) Jan. Feb. 5 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 1/10, n30. 4,000 7 Cash .......................................................................... Sales .................................................................. To record cash sale. 3,600 8 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 1/10, n30. 9,600 15 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable ........................................ To record collection within discount period; $2,000 x 1% = $20 discount. 3,960 40 4 Cash .......................................................................... Accounts Receivable ........................................ To record collection. 9,600 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 470 4,000 3,600 9,600 4,000 9,600 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-22 (20 minutes) Feb. 1 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 2/10, n30, FOB destination. 2,400 2 Delivery Expense or Freight-Out ............................ Cash ................................................................... To record delivery expenses for goods sold. 150 3 Sales Returns and Allowances ............................... Accounts Receivable ........................................ To record return of merchandise. 1,200 4 Accounts Receivable ............................................... Sales .................................................................. To record sale; terms 2/10, n30, FOB destination. 3,800 11 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable ........................................ To record collection, less return and discount; $2,400 - $1,200 = $1,200 x 2% = $24 discount. 1,176 24 23 Cash .......................................................................... Sales .................................................................. To record cash sale. 1,200 28 Cash .......................................................................... Accounts Receivable ........................................ To record collection. 3,800 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 2,400 150 1,200 3,800 1,200 1,200 3,800 471 *Exercise 6-23 (15 minutes) a) 2011 Mar. 1 Purchases........................................................................ Accounts Payable – Raintree ............................ Purchased merchandise on credit. 11 Accounts Payable – Raintree ......................................... Purchase Discounts .......................................... Cash .................................................................... Paid account payable within the discount period; 11,000 x 3% = 330. b) 2011 Mar. 1 Accounts Receivable – Sundown Company................. Sales .................................................................... Sold merchandise on account. 11 Cash ................................................................................. Sales Discounts .............................................................. Accounts Receivable – Sundown Company .... Collected account receivable. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 472 11,000 11,000 11,000 10,670 330 11,000 330 10,670 11,000 11,000 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-24 (20 minutes) a) 2011 May 11 Purchases ........................................................................ Accounts Payable – Hostel Sales ..................... Purchased merchandise on credit. 30,000 11 Transportation-In ............................................................ Cash .................................................................... Paid shipping charges on purchased merchandise. 335 13 Accounts Payable – Hostel Sales .................................. Purchase Returns and Allowances ................... Returned unacceptable merchandise. 1,200 20 Accounts Payable – Hostel Sales .................................. Purchase Discounts ........................................... Cash .................................................................... Paid balance within the discount period; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864. 28,800 30,000 335 1,200 864 27,936 b) 2011 May 11 Accounts Receivable – Wilson Purchasing .................. Sales .................................................................... Sold merchandise on account. 30,000 12 Sales Returns and Allowances ...................................... Accounts Receivable – Wilson Purchasing ..... Accepted a return from a customer. 1,200 21 Cash ................................................................................. Sales Discounts .............................................................. Accounts Receivable – Wilson Purchasing ..... Collected account receivable; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864. 27,936 864 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 30,000 1,200 28,800 473 *Exercise 6-25 (35 minutes) a. b. c. Gross profit from sales ......................................... Less: Operating expenses .................................... Net income ............................................................. Therefore: Total operating expenses ..................................... Sales ....................................................................... Less: Sales discounts ........................................... Sales returns ............................................... Net sales................................................................. Less: Cost of goods sold...................................... Gross profit from sales ......................................... Therefore: Cost of goods sold ................................................ Merchandise inventory (beginning) ..................... Invoice cost of merchandise purchases ............. Less: Purchase discounts .................................... Purchase returns ......................................... Net purchases ....................................................... Add: Transportation-in ........................................ Total cost of merchandise purchased ................. Goods available for sale ...................................... Less: Merchandise inventory (ending) ................ Cost of goods sold (from b) ................................. Therefore: Merchandise inventory (ending) .......................... $145,000 ? $ 65,000 $ 80,000 $ 5,500 14,000 $340,000 19,500 $320,500 ? $145,000 $175,500 $175,000 3,600 6,000 $165,400 11,000 $ 30,000 176,400 $206,400 ? $175,500 $ 30,900 d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal places) Analysis component: The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross profit ratio of 47%, this represents an unfavourable change. This is unfavourable because the gross profit generated per net sales dollar decreased in 2011 from 2010 thereby contributing less towards the coverage of operating expenses in 2011 than in 2010. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 474 Fundamental Accounting Principles, Twelfth Canadian Edition Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 *Exercise 6-26 (40 minutes) DEWER’S STOP‘N SHOP Work Sheet For Year Ended December 31, 2011 No. 101 106 119 125 201 209 301 302 413 414 505 506 507 622 640 651 Account Cash .................................... Accounts receivable .......... Merchandise inventory ...... Store supplies .................... Accounts payable .............. Salaries payable ................. Mi Dewer, capital ................ Mi Dewer, withdrawals....... Sales .................................... Sales returns and allowances .......................... Purchases ........................... Purchase discounts ........... Transportation-in ............... Salaries expense ................ Rent expense...................... Store supplies expense ..... Totals ............................... Net income.......................... Totals Unadjusted Trial Balance Debit Credit 7,400 3,600 2,400 1,200 280 750 290 6,400 160 1,400 500 24,100 Adjustments Debit Credit (a) 300 2,400 2,720 (b) 120 11,570 12,000 290 6,400 250 (b) 120 24,100 Income Statement Debit Credit (a) 300 420 160 1,520 500 300 420 11,570 3,400 14,970 12,000 Balance Sheet and Statement of Owner’s Equity Debit Credit 7,400 3,600 2,720 900 280 120 11,570 750 250 14,970 15,370 14,970 15,370 11,970 3,400 15,370 475 *Exercise 6-27 (30 minutes) a) Net Sales: Sales............................................................................................ Sales returns and allowances ................................................... Sales discounts.......................................................................... Net sales ..................................................................................... $445,000 (25,000) (16,000) $404,000 b) Cost of goods purchased: Purchases ........................................................................................ Purchases returns and allowances............................................... Purchase discounts........................................................................ Transportation-in ............................................................................ Cost of goods purchased .............................................................. $286,000 (22,000) (11,400) 8,800 $261,400 c) Cost of goods sold: Beginning inventory ....................................................................... Cost of goods purchased .............................................................. Goods available for sale ................................................................ Ending inventory ............................................................................ Cost of goods sold ......................................................................... $ 15,000 261,400 $276,400 (11,000) $265,400 d) Multiple-step income statement: FOX FIXTURES CO. Income Statement For Year Ended March 31, 2011 Net sales ..................................................................... Cost of goods sold .................................................... Gross profit from sales ............................................. Operating expenses: Selling expenses..................................................... General and administrative expenses ................... Total operating expenses ................................... Income from operations ............................................ Other revenues and expenses: Interest revenue ..................................................... Net income ................................................................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 476 $404,000 265,400 $138,600 $69,000 33,500 102,500 $ 36,100 1,200 $ 37,300 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-28 (40 minutes) a) $33,700 – $1,740 = $31,960 Net sales b) $6,200 + $16,676 – $110 – $28 + $380 – $2,460 = $20,658 Cost of goods sold c) Classified multiple-step income statement: JOHN’S ELECTRONICS Income Statement For Month Ended April 30, 2011 Sales ............................................................................. Less: Sales returns and allowances .......................... Net sales ....................................................................... Cost of goods sold: Merchandise inventory, March 31, 2011 ................... Purchases ................................................................. $16,676 Less: Purchase discounts ...................................... 28 Purchase returns and allowances ............... 110 Net purchases .......................................................... $16,538 Add: Transportation-in ........................................ 380 Cost of goods purchased ........................................ Cost of goods available for sale ............................. Less: Merchandise inventory, April 30, 2011 ........ Cost of goods sold ...................................................... Gross profit from sales................................................ Operating expenses:.................................................... Selling expenses: Wages expense, selling ........................................... $8,000 Amortization expense, delivery trucks ................... 640 Telephone expense, store ....................................... 340 Total selling expenses ............................................. General and administrative expenses: Wages expense, office ............................................. 2,800 Telephone expense, office ...................................... 150 Total general and administrative expenses Total operating expenses ........................................ Operating loss .............................................................. Other revenues and expenses: Interest expense ...................................................... Net loss ......................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $33,700 1,740 $31,960 $ 6,200 16,918 $23,118 2,460 20,658 $ 11,302 $8,980 2,950 11,930 $ 628 130 $ 758 477 *Exercise 6-28 (concluded) d) 2011 Closing entries: Apr. 30 Merchandise Inventory .......................................... Purchases Returns and Allowances..................... Purchases Discounts ............................................. Sales ....................................................................... Income Summary .............................................. To close temporary credit balance accounts. 2,460 110 28 33,700 30 Income Summary ................................................... Merchandise Inventory ..................................... Sales Returns and Allowances ........................ Purchases .......................................................... Transportation-In............................................... Amortization Expense, Delivery Trucks .......... Wages Expense, Office ..................................... Wages Expense, Selling ................................... Telephone Expense, Office............................... Telephone Expense, Store................................ Interest Expense................................................ To close temporary debit balance accounts. 37,056 30 John Yu, Capital ..................................................... Income Summary .............................................. To close income summary to capital. 758 30 John Yu, Capital ..................................................... John Yu, Withdrawals ....................................... To close withdrawals to capital. 9,200 36,298 6,200 1,740 16,676 380 640 2,800 8,000 150 340 130 758 9,200 Part e: $30,300 – $9,200 - $758 = $20,342 OR John Yu, Capital (Net loss) 758 30,300 (Beg. bal.) (With.) 9,200 20,342 (End. bal.) Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 478 Fundamental Accounting Principles, Twelfth Canadian Edition *Exercise 6-29 (15 minutes) June 1 Merchandise Inventory ..................................... GST Receivable ................................................. Accounts Payable ..................................... To record credit purchase; $2,000 x 6% = 120 GST. 2,000 120 5 Accounts Receivable ........................................ PST Payable ............................................... GST Payable .............................................. Sales ........................................................... To record credit sale; $1,400 x 8% = 112 PST; $1,400 x 6% = $84 GST. 1,596 5 Cost of Goods Sold ........................................... Merchandise Inventory ............................. To record cost of sale. 1,000 2,120 112 84 1,400 1,000 *Exercise 6-30 (15 minutes) June 1 5 Purchases ......................................................... GST Receivable ................................................. Accounts Payable ..................................... To record credit purchase; $2,000 x 6% = $120 GST. 2,000 120 Accounts Receivable ........................................ PST Payable ............................................... GST Payable .............................................. Sales ........................................................... To record credit sale; $1,400 x 8% = 112 PST; $1,400 x 6% = $84 GST. 1,596 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 2,120 112 84 1,400 479 PROBLEMS Problem 6-1A (40 minutes) Part 1 June 1 Accounts Receivable – Avery & Wiest ................... Sales .................................................................. To record sales; terms 2/5, n15, FOB destination. 7,000 1 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 6,250 2 Merchandise Inventory ............................................ Accounts Payable – Angolac Suppliers .......... To record purchase of merchandise; terms 1/10, n20, FOB shipping point. 3,500 4 Merchandise Inventory ............................................ Accounts Payable – Bastille Sales .................. To record purchase of merchandise; terms 1/15, n45, FOB Bastille Sales. 14,500 5 Accounts Receivable – Gelgar................................ Sales .................................................................. To record sales; terms 2/5, n15, FOB destination. 11,000 5 Cost of Goods Sold ................................................. Merchandise Inventory ..................................... To record cost of sales. 9,000 6 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable – Avery & Wiest ............ To record collection within discount period; $7,000 x 2% = $140 discount. 6,860 140 12 Accounts Payable – Angolac Suppliers ................. Cash ................................................................... Merchandise Inventory ..................................... To record payment within discount period; $3,500 x 1% = $35 discount. 3,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 480 7,000 6,250 3,500 14,500 11,000 9,000 7,000 3,465 35 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-1A (concluded) June 20 Cash .......................................................................... Accounts Receivable – Gelgar ......................... To record collection. 11,000 30 Accounts Payable – Bastille Sales ......................... Cash ................................................................... To record payment. 14,500 11,000 14,500 Part 2 a. Net sales = $17,860 ($7,000 + $11,000 - $140) b. Cost of goods sold = $15,250 ($6,250 + $9,000) c. Gross profit from sales = $2,610 ($17,860 - $15,250) Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 481 Problem 6-2A (40 minutes) July 1 Merchandise Inventory ...................................... Accounts Payable—Jones Co. .................. Purchased goods on credit. 12,000 2 Accounts Receivable—Terra Co. ..................... Sales............................................................. Sold goods on credit. 1,600 2 Cost of Goods Sold. ........................................... Merchandise Inventory ............................... To record the cost of the July 2 sale. 1,000 3 Merchandise Inventory ...................................... Cash ............................................................. Paid freight on incoming goods. 200 8 Cash..................................................................... Sales............................................................. Sold goods for cash. 3,200 8 Cost of Goods Sold. ........................................... Merchandise Inventory ............................... To record the cost of the July 8 sale. 2,400 9 Merchandise Inventory ...................................... Accounts Payable—Keene Co. .................. Purchased goods on credit. 4,600 12 Accounts Payable—Keene Co. ......................... Merchandise Inventory. .............................. Received credit memo. 400 12 Cash..................................................................... Sales Discounts .................................................. Accounts Receivable—Terra Co. ............... Collected receivable within the discount period; 1,600 x 2% = 32. 1,568 32 13 Office Supplies .................................................. Accounts Payable—East Co. ..................... Purchased goods on credit. 960 16 Accounts Payable—Jones Co. ......................... 12,000 Merchandise Inventory ............................... Cash ............................................................. Paid payable within the discount period; 12,000 x 1% = 120. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 482 12,000 1,600 1,000 200 3,200 2,400 4,600 400 1,600 960 120 11,880 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-2A (continued) 19 Accounts Receivable—Urban Co. ................... Sales ............................................................ Sold goods on credit. 2,500 19 Cost of Goods Sold. .......................................... Merchandise Inventory .............................. To record the cost of the July 19 sale. 1,800 21 Sales Returns and Allowances ......................... Accounts Receivable—Urban Co. ............ Issued credit memo. 300 22 Sales ................................................................... Accounts Receivable—Urban Co. ............ Received debit memo for error. 100 29 Accounts Payable—Keene Co. ........................ Cash ............................................................ Paid payable beyond the discount period. 4,200 30 Cash .................................................................... Sales Discounts ................................................. Accounts Receivable—Urban Co. ............ Collected receivable within the discount period; 2,500 – 300 – 100 = 2,100; 2% × 2,100 = 42. 2,058 42 31 Accounts Receivable—Terra Co. ..................... Sales ............................................................ Sold goods on credit. 10,000 31 Cost of Goods Sold. .......................................... Merchandise Inventory .............................. To record the cost of the July 31 sale. 6,400 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 2,500 1,800 300 100 4,200 2,100 10,000 6,400 483 Problem 6-2A (concluded) Analysis component: The cost of the lost discount regarding the July 9 purchase is $53.55*. By itself, the $53.55 does not appear to be a significant amount. However, if you multiply this by the number of lost discounts it could be a large sum that does impact net income. If a net savings results from borrowing to enable paying within the discount period, the company should borrow. Otherwise, payment should be made on the last day of the payment period. *Calculations: Amount borrowed to pay within the discount period ............... $ 4,116.00 Annual rate of interest ................................................................ × 6% Interest per year ........................................................................... $ 246.96 Interest per day ($246.96/365) ..................................................... $ 0.6766 Discount ....................................................................................... $ 84.00 Interest that would be paid on the 45-day** loan (45 $0.6766) (30.4461) Net savings from borrowing to pay within the discount period .......................................................... $ 53.5539 **60 days in credit period – 15 days in discount period = 45 days. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 484 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-3A (40 minutes) Aug. 1 Merchandise Inventory .................................................. Accounts Payable—Dickson Company ................ Purchased goods on credit. 3,000 4 Accounts Payable—Dickson Company ....................... Cash ........................................................................ Paid freight for Dickson. 50 5 Accounts Receivable—Griften Corp. ........................... Sales ........................................................................ Sold goods on credit. 2,100 5 Cost of Goods Sold. ...................................................... Merchandise Inventory .......................................... To record the cost of the July 5 sale. 1,500 8 Merchandise Inventory .................................................. Accounts Payable—Kendall Corporation ............... Purchased goods on credit. 2,650 9 Delivery Expense or Freight-Out .................................. Cash ........................................................................ Paid shipping charges on August 5 sale. 60 10 Sales Returns and Allowances ..................................... Accounts Receivable—Griften Corp. ................... Customer returned merchandise. 350 10 Merchandise Inventory .................................................. Cost of Goods Sold ................................................ Returned goods to inventory. 250 12 Accounts Payable—Kendall Corporation .................... Merchandise Inventory .......................................... Received a credit memorandum for August 8 purchase. 400 15 Cash ................................................................................ Sales Discounts ............................................................. Accounts Receivable—Griften Corp. ................... Collected receivable within the discount period; 2,100 – 350 = 1,750; 2% × 1,750 = 35. 1,715 35 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 3,000 50 2,100 1,500 2,650 60 350 250 400 1,750 485 Problem 6-3A (concluded) 17 Office Equipment ........................................................... Accounts Payable–West Co. ................................. Purchased office equipment on credit. 600 18 Accounts Payable—Kendall Corporation .................... Merchandise Inventory .......................................... Cash ........................................................................ Paid payable within the discount period; 2,650 – 400 = 2,250; 1% × 2,250 = 22.50. 2,250 19 Accounts Receivable—Farley ...................................... Sales........................................................................ Sold goods on credit. 1,800 19 Cost of Goods Sold. ...................................................... Merchandise Inventory .......................................... To record the cost of the August 19 sale. 1,250 22 Sales Returns and Allowances ..................................... Accounts Receivable—Farley ............................... Issued credit memo. 300 29 Cash................................................................................ Sales Discounts ............................................................. Accounts Receivable—Farley ............................... Collected receivable within the discount period; 1,800 – 300 = 1,500; 1% × 1,500 = 15. 1,485 15 Accounts Payable—Dickson Company ....................... Cash ........................................................................ Paid payable; $3,000 – $50 = 2,950. 2,950 30 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 486 600 22.50 2,227.50 1,800 1,250 300 1,500 2,950 Fundamental Accounting Principles, Twelfth Canadian Edition Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 Problem 6-4A (80 minutes) 1. Cash ................................................................... Accounts receivable ......................................... Merchandise inventory .................................... Store supplies ................................................... Office Supplies .................................................. Prepaid insurance............................................. Equipment ......................................................... Accumulated amortization, equipment Accounts payable ............................................. Salaries payable................................................ Sally Fowler, capital ......................................... Sally Fowler, withdrawals ................................ Interest revenue ................................................ Sales................................................................... Sales returns and allowances ......................... Cost of goods sold ........................................... Salaries expense............................................... Rent expense .................................................... Supplies expense ............................................. Amortization expense, equipment .................. Insurance expense ........................................... Totals .............................................................. Net loss .............................................................. Totals .............................................................. JUMBO’S Work Sheet For Year Ended December 31, 2011 Unadjusted Trial Balance Adjustments Debit Credit Debit Credit 10,275 22,665 54,365 (e) 565 2,415 (a) 2,000 775 (a) 700 3,255 (b) 2,800 74,490 13,655 (c) 6,000 8,000 (d) 655 166,015 15,000 310 502,140 5,070 381,160 (e) 565 91,550 (d) 655 29,100 (a) 2,700 (c) 6,000 (b) 2,800 690,120 690,120 12,720 12,720 Income Statement Debit Credit 5,070 381,725 92,205 29,100 2,700 6,000 2,800 519,600 519,600 310 502,140 502,450 17,150 519,600 Balance Sheet and Statement of Owner’s Equity Debit Credit 10,275 22,665 53,800 415 75 455 74,490 19,655 8,000 655 166,015 15,000 177,175 17,150 194,325 194,325 194,325 487 Problem 6-4A (concluded) 2. Multiple-step income statement: JUMBO’S Income Statement For Year Ended December 31, 2011 Net sales1 ................................................................... Cost of goods sold ................................................... Gross profit from sales ............................................ Operating expenses: Salaries expense .................................................... Rent expense ......................................................... Supplies expense .................................................. Amortization expense, equipment ....................... Insurance expense ................................................ Total operating expenses ..................................... Loss from operations ............................................... Other revenues and expenses: Interest revenue ................................................. Net loss ...................................................................... $497,070 381,725 $115,345 $92,205 29,100 2,700 6,000 2,800 132,805 $ 17,460 310 $ 17,150 Calculations: 1. 502,140 – 5,070 = 497,070 Analysis component: Interest Revenue is shown under Other revenues and expenses because it is not a dayto-day operating activity for Jumbo’s. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 488 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-5A 1. Classified, multiple-step income statement: DAVISON COMPANY Income Statement For Year Ended October 31, 2011 Sales ........................................................................... Less: Sales discounts ........................................... Sales returns and allowances .................... Net sales ................................................................. Cost of goods sold .................................................... Gross profit from sales ............................................. Operating expenses: Selling expenses: Sales salaries expense....................................... Advertising expense .......................................... Rent expense, selling space .............................. Store supplies expense ..................................... Total selling expenses ....................................... General and administrative expenses: Office salaries expense ...................................... Rent expense, office space................................ Office supplies expense .................................... Total general and administrative expenses ..... Total operating expenses ...................................... Income from operations ............................................ Other revenues and expenses: Interest revenue .................................................. Net income ................................................................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $ 6,500 28,000 $58,000 36,000 20,000 5,000 $53,000 5,200 1,600 $424,000 34,500 $389,500 165,200 $224,300 $ 119,000 59,800 178,800 $ 45,500 1,120 $ 46,620 489 Problem 6-5A (concluded) 2. Single-step income statement: DAVISON COMPANY Income Statement For Year Ended October 31, 2011 Revenues: Net sales ................................................................. Interest revenue ..................................................... Total revenues .................................................... Expenses: Cost of goods sold ................................................ $165,200 Selling expenses ................................................... 119,000 General and administrative expenses.................. 59,800 Total expenses ................................................... Net income ................................................................. $389,500 1,120 $390,620 344,000 $ 46,620 Problem 6-6A (30 minutes) Oct. 31 Interest Revenue................................................. Sales ................................................................... Income Summary ........................................ To close temporary accounts with credit balances. 1,120 424,000 31 Income Summary................................................ Sales Discounts ......................................... Sales Returns and Allowances ................. Cost of Goods Sold .................................... Sales Salaries Expense .............................. Rent Expense, Selling Space ..................... Store Supplies Expense ............................. Advertising Expense................................... Office Salaries Expense.............................. Rent Expense, Office Space ....................... Office Supplies Expense ............................ To close temporary accounts with debit balances. 378,500 31 Income Summary................................................ Brenda Davison, Capital ............................. To close the Income Summary account. 46,620 31 Brenda Davison, Capital .................................... Brenda Davison, Withdrawals .................... To close the withdrawals account. 32,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 490 425,120 6,500 28,000 165,200 58,000 20,000 5,000 36,000 53,000 5,200 1,600 46,620 32,000 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-7A (60 minutes) 1. Classified, multiple-step income statement: PLYMOUTH ELECTRONICS Income Statement For Year Ended December 31, 2011 Sales ........................................................................ Less: Sales returns and allowances ............. Sales discounts .................................... Net sales .......................................................... Cost of goods sold ................................................. Gross profit from sales .......................................... Operating expenses: Selling expenses: Sales salaries expense ................................... Rent expense, selling space .......................... Amortization expense, store equipment ...... Store supplies expense .................................. Total selling expenses.................................... General and administrative expenses: Office salaries expense .................................. Insurance expense.......................................... Rent expense, office space ............................ Amortization expense, office equipment ...... Office supplies expense ................................. Total general and administrative expenses . Total operating expenses .................................. Income from operations ........................................ Other revenues and expenses: Dividend revenue ............................................ Net income .............................................................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $ 5,715 14,580 $80,080 33,000 8,910 1,620 $ 65,945 3,390 3,000 2,760 735 $963,000 20,295 $942,705 652,025 $290,680 $123,610 75,830 199,440 $ 91,240 720 $ 91,960 491 Problem 6-7A (concluded) 2. Single-step income statement: PLYMOUTH ELECTRONICS Income Statement For Year Ended December 31, 2011 Revenues: Net sales .......................................................................... Dividend revenue ........................................................... Total revenues ............................................................ Expenses: Cost of Goods sold ........................................................ Selling expenses ............................................................ General and administrative expenses .......................... Total expenses ............................................................ Net income .......................................................................... $942,705 720 943,425 $652,025 123,610 75,830 851,465 $ 91,960 Analysis component: The gross profit ratio for Plymouth Electronics’ year ended December 31, 2011 is 30.83% ($942,705 - $652,025 = $290,680 gross profit; $290,680/$942,705 × 100 = 69.17%). This represents an unfavourable change when compared to the 32% gross profit ratio for the prior year. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 492 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-8A (20 minutes) 2011 Dec. 31 Closing entries: Dividend Revenue .......................................................... Sales................................................................................ Income Summary.................................................... To close temporary accounts with credit balances. 720 963,000 31 Income Summary ........................................................... Sales Returns and Allowances ............................. Sales Discounts ...................................................... Cost of goods sold ................................................. Sales Salaries Expense.......................................... Rent Expense, Selling Space ................................ Store Supplies Expense ........................................ Amortization Expense, Store Equipment ............. Office Salaries Expense ......................................... Rent Expense, Office Space .................................. Office Supplies Expense ....................................... Insurance Expense ................................................. Amortization Expense, Office Equipment To close temporary accounts with debit balances. 871,760 31 Income Summary ........................................................... Celine Plymouth, Capital ....................................... To close Income Summary to capital. 91,960 31 Celine Plymouth, Capital ............................................... Celine Plymouth, Withdrawals .............................. To close withdrawals to capital. 50,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 963,720 5,715 14,580 652,025 80,080 33,000 1,620 8,910 65,945 3,000 735 3,390 2,760 91,960 50,000 493 Problem 6-9A (60 minutes) 1. Classified multiple-step income statement Bell Servicing Income Statement For Year Ended December 31, 2011 Sales......................................................................... Less: Sales discounts..................................... Net sales ........................................................... Cost of goods sold ................................................. Gross profit from sales .......................................... Operating expenses: Selling expenses: Sales salaries expense ................................... Advertising expense........................................ Rent expense, selling space .......................... Store supplies expense .................................. Insurance expense, store................................ Amortization expense, store equipment ....... Total selling expenses .................................... General and administrative expenses: Office salaries expense................................... Rent expense, office space ............................ Amortization expense, office equipment ...... Insurance expense, office .............................. Office supplies expense ................................. Total general and administrative expenses .. Total operating expenses................................... Net income .............................................................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 494 $180,000 _2,000 $178,000 74,800 $103,200 $20,000 17,600 7,000 2,400 2,000 1,400 $ 12,000 3,000 1,800 1,600 1,200 $50,400 19,600 70,000 $33,200 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-9A (concluded) 2. Multiple-step income statement Bell Servicing Income Statement For Year Ended December 31, 2011 Net sales................................................................ Cost of goods sold............................................... Gross profit from sales ........................................ Operating expenses: Salaries expense............................................... Advertising expense ........................................ Rent expense .................................................... Insurance expense ........................................... Supplies expense ............................................. Amortization expense, equipment .................. Total operating expenses ............................ Net income ............................................................ $178,000 74,800 $103,200 $32,000 17,600 10,000 3,600 3,600 3,200 70,000 $33,200 3. Single-step income statement Bell Servicing Income Statement For Year Ended December 31, 2011 Revenues: Net sales ............................................................ Expenses: Cost of goods sold ........................................... Selling expenses .............................................. General and administrative expenses ............ Total expenses .............................................. Net income ............................................................ $178,000 $74,800 50,400 19,600 144,800 $33,200 Analysis component: If I were a decision maker external to Bell Servicing, I would prefer the classified multistep income statement format because it provides the greatest level of detail of the three income statement formats. As an external user, I would expect the single-step income statement format because it provides information but without giving details that might provide Bell’s competition with an edge. For example, total Selling Expenses is provided without disclosing how much Bell spends on advertising. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 495 *Problem 6-10A (40 minutes) June 1 Accounts Receivable – Avery & Wiest ................... Sales .................................................................. To record sales; terms 2/5, n15, FOB destination. 7,000 2 Purchases................................................................. Accounts Payable – Angolac Suppliers .......... To record purchase of merchandise; terms 1/10, n20, FOB shipping point. 3,500 4 Purchases................................................................. Accounts Payable – Bastille Sales .................. To record purchase of merchandise; terms 1/15, n45, FOB Bastille Sales. 14,500 5 Accounts Receivable – Gelgar................................ Sales .................................................................. To record sales; terms 2/5, n15, FOB destination. 11,000 6 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable – Avery & Wiest ............ To record collection within discount period; $7,000 x 2% = $140 discount. 6,860 140 12 Accounts Payable – Angolac Suppliers ................. Cash ................................................................... Purchase Discounts ......................................... To record payment within discount period; $3,500 x 1% = $35 discount. 3,500 20 Cash .......................................................................... Accounts Receivable – Gelgar......................... To record collection. 11,000 30 Accounts Payable – Bastille Sales ......................... Cash ................................................................... To record payment. 14,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 496 7,000 3,500 14,500 11,000 7,000 3465 35 11,000 14,500 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-11A (30 minutes) Oct. 1 Purchases ....................................................................... Accounts Payable — Zeon Company ................... 2 Cash ................................................................................ Sales ........................................................................ 7 Purchases ....................................................................... Accounts Payable — Billings Company .............. 7 Transportation-In ........................................................... Cash ......................................................................... 8 Delivery Equipment ....................................................... Accounts Payable — Finlay Supplies .................. 12 Accounts Receivable — Comry Holdings ................... Sales ........................................................................ 13 Accounts Payable — Billings Co.................................. Purchases Returns and Allowances..................... 13 Office Supplies ............................................................... Accounts Payable — Staples ................................ 15 Accounts Receivable — Tom Willis ............................. Sales ........................................................................ 15 Accounts Payable — Billings Co.................................. Purchases Discounts ............................................. Cash ......................................................................... $10,500 – $1,500 = $9,000; $9,000 × 2% = $180. 16 Accounts Payable — Staples........................................ Office Supplies........................................................ 19 Sales Returns and Allowances ..................................... Accounts Receivable — Tom Willis ...................... 25 Cash ................................................................................ Sales Discounts ............................................................. Accounts Receivable — Tom Willis $4,200 – $420 = $3,780; $3,780 × 2% = $75.60. 27 Cash ................................................................................ Sales Discounts ............................................................. Accounts Receivable — Comry Holdings ............ $6,000 × 2% = $120. 31 Accounts Payable — Zeon Company .......................... Cash ......................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 14,400 1,500 10,500 450 24,000 6,000 1,500 480 4,200 9,000 120 420 3,704.40 75.60 5,880 120 14,400 14,400 1,500 10,500 450 24,000 6,000 1,500 480 4,200 180 8,820 120 420 3,780.00 6,000 14,400 497 *Problem 6-12A (40 minutes) 1. 2. 3. 4. Net sales: Sales ....................................................................................... Less: Sales returns and allowances ................................... Sales discounts .......................................................... Net sales .................................................................................. Cost of goods purchased: Purchases ............................................................................... Less: Purchases returns and allowances........................... Purchases discounts.................................................. Transportation-in.................................................................... Cost of goods purchased ...................................................... Cost of goods sold: Beginning inventory............................................................... Cost of goods purchased (from 2) ....................................... Less: Ending inventory .......................................................... Cost of goods sold ................................................................. Multiple-step income statement: $85,000 7,500 1,125 $76,375 $ 45,000 2,150 900 1,550 $ 43,500 $ 12,500 43,500 13,500 $ 42,500 MENDELSTEIN COMPANY Income Statement For Year Ended October 31, 2011 Net Sales ........................................................................ Cost of goods sold ........................................................ Gross profit from sales ................................................. Operating expenses: Salaries expense ....................................................... Advertising expense................................................. Rent expense............................................................. Supplies expense ..................................................... Total operating expenses ...................................... Loss from operations .................................................... Other revenues and expenses: Interest revenue ......................................................... Net loss........................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 498 $76,375 42,500 $ 33,875 $22,000 9,000 6,250 1,950 39,200 $ 5,325 150 $ 5,175 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-12A (concluded) 5. Single-step income statement: MENDELSTEIN COMPANY Income Statement For Year Ended October 31, 2011 Revenues: Net sales ...................................................................... Interest revenue .......................................................... Total revenues ......................................................... Expenses: .................................................................... Cost of goods sold ..................................................... Selling expenses......................................................... General and administrative expenses ...................... Total expenses ........................................................ Net loss ........................................................................ Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $76,375 150 $76,525 $42,500 29,500 9,700 81,700 $ 5,175 499 *Problem 6-13A (30 minutes) 2011 Closing entries: Oct. 31 Interest Revenue ........................................................... Merchandise Inventory ................................................. Sales ............................................................................... Purchases Returns and Allowances ........................... Purchases Discounts ................................................... Income Summary................................................... To close temporary accounts with credit balances and record the ending inventory. 150 13,500 85,000 2,150 900 31 Income Summary .......................................................... Merchandise Inventory ......................................... Sales Returns and Allowances ............................ Sales Discounts ..................................................... Purchases............................................................... Transportation-In ................................................... Sales Salaries Expense ......................................... Rent Expense, Selling Space ............................... Store Supplies Expense........................................ Advertising Expense ............................................. Office Salaries Expense ........................................ Rent Expense, Office Space ................................. Office Supplies Expense....................................... To close temporary accounts with debit balances and to remove the beginning inventory balance. 106,875 31 Joe Mendelstein, Capital .............................................. Income Summary................................................... To close the Income Summary Account. 5,175 31 Joe Mendelstein, Capital .............................................. Joe Mendelstein, Withdrawals ............................ To close the withdrawals account. 8,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 500 101,700 12,500 7,500 1,125 45,000 1,550 14,000 5,000 1,500 9,000 8,000 1,250 450 5,175 8,500 Fundamental Accounting Principles, Twelfth Canadian Edition Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 *Problem 6-14A (60 minutes) Part 1 501 Cash................................................................................... Merchandise inventory.................................................... Store supplies .................................................................. Office supplies ................................................................. Prepaid insurance ............................................................ Store equipment............................................................... Accumulated amortization, store equipment ............... Office equipment.............................................................. Accumulated amortization, office equipment .............. Accounts payable ............................................................ Zen Woodstock, capital................................................... Zen Woodstock, withdrawals ......................................... Rental revenue ................................................................. Sales .................................................................................. Sales returns and allowances ........................................ Sales discounts................................................................ Purchases ......................................................................... Purchases returns and allowances ............................... Purchases discounts....................................................... Transportation-in ............................................................. Sales salaries expenses ................................................. Rent expense, selling space........................................... Advertising expense........................................................ Store supplies expense................................................... Amortization expense, store equipment ....................... Office salaries expense ................................................... Rent expense, office space ............................................ Office supplies expense ................................................. Insurance expense .......................................................... Amortization expense, office equipment ...................... Totals ............................................................................. Net income ........................................................................ Totals ............................................................................. WOODSTOCK STORE Work Sheet For Year Ended December 31, 2011 Unadjusted Trial Balance Debit Credit 7,305 47,000 1,715 645 3,960 57,615 8,750 14,400 9,000 4,000 89,080 31,500 680 478,850 2,915 5,190 331,315 1,845 4,725 2,810 34,710 24,000 1,220 27,630 3,000 596,930 596,930 Adjustments Debit Credit (a) 1,330 (b) 465 (c) 880 Income Statement Debit Credit 47,000 48,980 (d) 3,500 (e) 3,600 2,915 5,190 331,315 (a) 1,330 (d) 3,500 (b) 465 (c) 880 (e) 3,600 9,775 9,775 2,810 34,710 24,000 1,220 1,330 3,500 27,630 3,000 465 880 3,600 489,565 45,515 535,080 680 478,850 Balance Sheet and Statement of Owner’s Equity Debit Credit 7,305 48,980 385 180 3,080 57,615 12,250 14,400 12,600 4,000 89,080 31,500 1,845 4,725 535,080 163,445 535,080 163,445 117,930 45,515 163,445 *Problem 6-14A (concluded) Part 2 2011 Closing entries: Dec. 31 Rental Revenue ...................................................................... 680 Merchandise Inventory.......................................................... 48,980 Sales........................................................................................ 478,850 Purchase Returns and Allowances...................................... 1,845 Purchase Discounts .............................................................. 4,725 Income Summary ........................................................... To close temporary credit balance accounts. 31 Income Summary ................................................................... 489,565 Merchandise Inventory .................................................. Sales Returns and Allowances ..................................... Sales Discounts.............................................................. Purchases ....................................................................... Transportation-In............................................................ Sales Salaries Expense ................................................. Rent Expense, Selling Space ........................................ Advertising Expense ...................................................... Store Supplies Expense ................................................ Amortization Expense, Store Equipment..................... Office Salaries Expense................................................. Rent Expense, Office Space .......................................... Office Supplies Expense ............................................... Insurance Expense......................................................... Amortization Expense, Office Equipment.................... To close temporary debit balance accounts. Part 3 31 Income Summary ................................................................... Zen Woodstock, Capital ................................................ To close the Income Summary account to capital. 45,515 31 Zen Woodstock, Capital ........................................................ Zen Woodstock, Withdrawals ....................................... To close withdrawals to capital. 31,500 Merchandise Inventory Explanation PR Date 2010 Dec. 31 December 31, 2010 Balance 2011 Dec. 31 Closing-out December 31, 2010 Balance 31 December 31, 2011 Balance Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 502 Debit Page G10 535,080 47,000 2,915 5,190 331,315 2,810 34,710 24,000 1,220 1,330 3,500 27,630 3,000 465 880 3,600 45,515 31,500 Account No. 110 Credit Balance 47,000.00 G10 G10 47,000.00 48,980.00 0 48,980.00 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-15A (20 minutes) CLASSIFIED MULTIPLE-STEP INCOME STATEMENT: WOODSTOCK STORE Income Statement For Year Ended December 31, 2011 Sales ............................................................................... Less: Sales returns and allowances....................... Sales discounts.............................................. Net Sales ........................................................................ Cost of goods sold: Merchandise inventory, December 31, 2010 Purchases ................................................................. Less: Purchase returns and allowances ................ Purchase discounts Net purchases ............................................................. Add: Transportation-in ......................................... Cost of goods purchased .......................................... Goods available for sale ............................................ Less: Merchandise inventory, December 31, 2011 Cost of goods sold ..................................................... Gross profit from sales ................................................. Operating expenses: Selling expenses: Sales salaries expense ............................................ Rent expense, selling space ................................... Amortization expense, store equipment ................ Store supplies expense ........................................... Advertising expense ................................................ Total selling expenses ............................................. General and administrative expenses: Office salaries expense............................................ Rent expense, office space ..................................... Insurance expense ................................................... Amortization expense, office equipment ............... Office supplies expense .......................................... Total general and administrative expenses ........... Total operating expenses...................................... Income from operations ............................................... Other revenues and expenses: Rental revenue ........................................................... Net income ..................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $2,915 5,190 $1,845 4,725 $331,315 6,570 $324,745 2,810 $34,710 24,000 3,500 1,330 1,220 $27,630 3,000 880 3,600 465 $478,850 8,105 $470,745 $47,000 327,555 $374,555 48,980 325,575 $145,170 $64,760 35,575 100,335 $ 44,835 680 $ 45,515 503 *Problem 6-16A (40 minutes) Aug. 1 Merchandise Inventory ..................................... GST Receivable ................................................. Cash ............................................................ To record cash purchase; $1,000 x 6% = $60 GST. 1000 60 Merchandise Inventory ..................................... GST Receivable ................................................. Accounts Payable ...................................... To record credit purchase; $3,400 x 6% = $204 GST. 3,400 204 5 Accounts Receivable ........................................ PST Payable ............................................... GST Payable ............................................... Sales ............................................................ To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST. 2,912 5 Cost of Goods Sold ............................................ Merchandise Inventory .............................. To record cost of sale. 1,800 12 Accounts Payable............................................... Merchandise Inventory .............................. Cash ............................................................ To record payment within discount period; $3,400* x 2% = $68. 3,604 15 Cash..................................................................... Sales Discounts ................................................. Accounts Receivable ................................. To record collection within discount period; $2,600* x 1% = $26. 2,886 26 Merchandise Inventory ..................................... GST Receivable ................................................. Accounts Payable ...................................... To record credit purchase; $6,000 x 6% = $360 GST. 6,000 360 2 17 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 504 1060 3,604 156 156 2,600 1,800 68 3,536 2,912 6,360 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-16A (concluded) Aug. 19 19 Cash ................................................................... PST Payable ............................................... GST Payable .............................................. Sales ........................................................... To record cash sale; $7,000 x 6% = $420 PST; $7,000 x 6% = $420 GST. 7,840 Cost of Goods Sold ........................................... Merchandise Inventory ............................. To record cost of sale. 5,800 420 420 7,000 5,800 *Discounts are applied to the before tax value. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 505 *Problem 6-17A Aug. 1 2 5 Purchases .......................................................... 1,000 GST Receivable ................................................. 60 Cash ............................................................ To record cash purchase; $1,000 x 6% = $60 GST. Purchases .......................................................... 3,400 GST Receivable ................................................. 204 Accounts Payable ...................................... To record credit purchase; $3,400 x 6% = $204 GST. Accounts Receivable ........................................ PST Payable ............................................... GST Payable ............................................... Sales ............................................................ To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST. 2,912 12 Accounts Payable............................................... Purchase Discounts ................................... Cash ............................................................ To record payment within discount period; $3,400* x 2% = $68. 3,604 15 Cash..................................................................... Sales Discounts ................................................. Accounts Receivable ................................. To record collection within discount period; $2,600* x 1% = $26. 2,886 26 17 19 Purchases .......................................................... 6,000 GST Receivable ................................................. 360 Accounts Payable ...................................... To record credit purchase; $6,000 x 6% = $360 GST. Cash .................................................................... PST Payable ............................................... GST Payable ............................................... Sales ............................................................ To record cash sale; $7,000 x 6% = $420 PST; $7,000 x 6% = $420 GST. 7,910 1060 3,604 156 156 2,600 68 3,536 2,912 6,360 420 420 7,000 *Discounts are applied to the before tax value. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 506 Fundamental Accounting Principles, Twelfth Canadian Edition ALTERNATE PROBLEMS Problem 6-1B (40 minutes) Part 1 Mar. 5 Merchandise Inventory ................................................. Cash ........................................................................ To record purchase of merchandise for cash. 25,000 6 Accounts Receivable – Tessier & Welsh..................... Sales ....................................................................... To record sales; terms 2/10, n30, FOB destination. 16,000 6 Cost of Goods Sold ...................................................... Merchandise Inventory .......................................... To record cost of sales. 12,800 7 Merchandise Inventory ................................................. Accounts Payable – Janz Company ..................... To record purchase of merchandise; terms 1/10, N45, FOB shipping point. 32,000 8 Merchandise Inventory ................................................. Cash ........................................................................ To record payment of shipping costs. 75 9 Accounts Receivable – Parker Company .................... Sales ....................................................................... To record sales; terms 2/10, n30, FOB destination. 28,000 9 Cost of Goods Sold ...................................................... Merchandise Inventory .......................................... To record cost of sales. 23,000 10 Merchandise Inventory ................................................. Accounts Payable – Delton Suppliers .................. To record purchase; terms 2/10, n45, FOB destination. 7,000 16 Cash ............................................................................... Sales Discounts ............................................................ Accounts Receivable – Tessier & Welsh.............. To record collection within discount period; $16,000 x 2% = $320 discount. 15,680 320 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 25,000 16,000 12,800 32,000 75 28,000 23,000 7,000 16,000 507 Problem 6-1B (concluded) Mar. 17 Accounts Payable – Janz Company ....................... Cash ................................................................... Merchandise Inventory ..................................... To record payment within discount period; $32,000 x 1% = $320 discount. 32,000 30 Accounts Payable – Delton Suppliers .................... Cash ................................................................... To record payment. 7,000 31 Cash .......................................................................... Accounts Receivable – Parker Company ........ To record collection. 28,000 31,680 320 7,000 28,000 Part 2 a. Net sales = $43,680 ($16,000 + $28,000 – $320) b. Cost of goods sold = $35,800 ($12,800 + $23,000) c. Gross profit from sales = $7,880 ($43,680 - $35,800) Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 508 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-2B (40 minutes) May 2 Merchandise Inventory ............................................ Accounts Payable—Mobley Co. ...................... Purchased goods on credit. 9,000 4 Accounts Receivable—Cornerstone Co. ............... Sales .................................................................. Sold goods on credit. 1,200 4 Cost of Goods Sold. ................................................ Merchandise Inventory .................................... To record the cost of the May 4 sale. 750 4 Merchandise Inventory ............................................ Cash .................................................................. Paid freight on incoming goods. 150 9 Cash .......................................................................... Sales .................................................................. Sold goods for cash. 2,400 9 Cost of Goods Sold. ................................................ Merchandise Inventory .................................... To record the cost of the May 9 sale. 1,800 10 Merchandise Inventory ............................................ Accounts Payable—Richter Co. ...................... Purchased goods on credit. 3,450 12 Accounts Payable—Richter Co. ............................. Merchandise Inventory .................................... Received credit memo. 300 14 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable—Cornerstone Co. ........ Collected receivable within discount period; 1,200 x 2% = 24. 1,176 24 Cash .......................................................................... Office Equipment ............................................. To record sale of office equipment at cost. 500 15 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 9,000 1,200 750 150 2,400 1,800 3,450 300 1,200 500 509 Problem 6-2B (continued) May 17 Accounts Payable—Mobley Co. ................................. Merchandise Inventory ........................................ Cash ...................................................................... Paid payable within the discount period; 1% × $9,000 = $90. 9,000 18 Cleaning Supplies ....................................................... Accounts Payable–A & Z Suppliers .................... Purchased supplies on credit. 820 20 Accounts Receivable—Harrill Co. .............................. Sales...................................................................... Sold goods on credit. 1,875 20 Cost of Goods Sold. .................................................... Merchandise Inventory ........................................ To record the cost of the May 20 sale. 1,350 22 Sales Returns and Allowances ................................... Accounts Receivable—Harrill Co. ...................... Issued credit memo. 300 23 Sales ............................................................................. Accounts Receivable—Harrill Co. ...................... Received debit memo for error. 75 25 Accounts Payable—Richter Co. ................................. Merchandise Inventory ........................................ Cash ...................................................................... Paid within the discount period; 3,450 – 300 = 3,150; 2% × $3,150 = 63. 3,150 31 Cash.............................................................................. Sales Discounts ........................................................... Accounts Receivable—Harrill Co. ...................... Collected receivable within discount period; 1,875 – 300 – 75 = 1,500; 1,500 x 2% = 30. 1,470 30 31 Accounts Receivable—Cornerstone Co. .................. Sales...................................................................... Sold goods on credit. .............................................. 7,500 31 Cost of Goods Sold. .................................................... Merchandise Inventory ........................................ To record the cost of the May 31 sale. 4,800 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 510 90 8,910 820 1,875 1,350 300 75 63 3,087 1,500 7,500 4,800 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-2B (concluded) Analysis component: If the Richter Co. invoice is not paid on May 25, the cost of the lost discount would be $40.05*. By itself, the $40.05 does not appear to be a significant amount. However, if you multiply this by the number of lost discounts it could be a large sum that does impact net income. If a net savings results from borrowing to enable paying within the discount period, the company should borrow. Otherwise, payment should be made on the last day of the payment period. *Calculations: Amount borrowed to pay within the discount period ............... Annual rate of interest ................................................................ Interest per year ........................................................................... $3,087.00 _ × 6% $ 185.22 Interest per day ($185.22/365) ..................................................... $ 0.51 Discount ....................................................................................... Interest that would be paid on the 45-day* loan (45 $0.51) ... Net savings from borrowing to pay within the discount period .......................................................... $ 63.00 (22.95) $ 40.05 *60 days in credit period – 15 days in discount period = 45 days. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 511 Problem 6-3B (40 minutes) July 3 Merchandise Inventory ........................................... Accounts Payable—CMP Corp. ..................... Purchased goods on credit. 15,000 4 Accounts Payable—CMP Corp. ............................. Cash .................................................................. Paid freight for supplier. 250 7 Accounts Receivable—Harbison Co. .................... Sales.................................................................. Sold goods on credit. 10,500 7 Cost of Goods Sold. ................................................ Merchandise Inventory .................................... To record the cost of the July 7 sale. 7,500 10 Merchandise Inventory ........................................... Accounts Payable—Cimarron Corporation ... Purchased goods on credit. 13,250 11 Delivery Expense or Freight-Out ............................ Cash .................................................................. Paid shipping charges on July 7 sale. 300 12 Sales Returns and Allowances ............................... Accounts Receivable—Harbison Co. ............ Customer returned merchandise. 1,750 12 Merchandise Inventory ........................................... Cost of Goods Sold ......................................... Returned goods to inventory. 1,250 14 Accounts Payable—Cimarron Corporation ........... Merchandise Inventory .................................... Received a credit memorandum for July 10 purchase. 2,050 17 Cash.......................................................................... Sales Discounts ....................................................... Accounts Receivable—Harbison Co. ............ Collected receivable within discount period; 10,500 – 1,750 = 8,750; 8,750 x 2% = 175. 8,575 175 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 512 15,000 250 10,500 7,500 13,250 300 1,750 1,250 2,050 8,750 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-3B (concluded) July 18 Cash .................................................................... Land ............................................................ Sold land at cost. 15,000 19 Van ..................................................................... Cash ............................................................ Notes Payable ............................................. To record purchase of van. 18,000 20 Accounts Payable—Cimarron Corporation ..... Merchandise Inventory .............................. Cash ............................................................ Paid payable within the discount period; $13,250 – 2,050 = $11,200; 11,200 x 1% = 112. 11,200 21 Accounts Receivable—Hess ............................. Sales ............................................................ Sold goods on credit. 9,000 21 Cost of Goods Sold. .......................................... Merchandise Inventory .............................. To record the cost of the July 21 sale. 6,250 24 Sales Returns and Allowances ......................... Accounts Receivable—Hess ..................... Issued credit memo. 1,500 31 Cash .................................................................... Sales Discounts ................................................. Accounts Receivable—Hess ..................... Collected receivable within discount period; 9,000 – 1,500 = 7,500; 7,500 x 1% = 75. 7,425 75 31 Accounts Payable—CMP Corp. ........................ Cash ............................................................ Paid payable; 15,000 – 250 = 14,750. 14,750 15,000 5,000 13,000 112 11,088 9,000 6,250 1,500 7,500 14,750 Analysis component: The alternative to granting a credit memorandum would be to have the customer return the unsatisfactory merchandise and reissue the order. An advantage of having the customer return the merchandise and reissuing the order is that the customer will have the merchandise that meets their original specifications. A disadvantage of the alternative is that the cost and related efforts may be greater than issuing a credit memo. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 513 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 514 Problem 6-4B (60 minutes) Part 1 RESOURCE PRODUCTS COMPANY Work Sheet For Year Ended October 31, 2011 Unadjusted Trial Balance Debit Credit 6,400 23,000 9,450 4,750 83,800 Adjusting Entries Fundamental Accounting Principles, Twelfth Canadian Edition Account Debit Cash ................................................... Merchandise inventory .................... Store supplies ................................... Prepaid insurance............................. Store equipment ............................... Accumulated amortization, store equipment ...................................... 30,000 Accounts payable ............................. 16,000 Jan Smithers, capital ........................ 80,400 Jan Smithers, withdrawals .............. 6,000 Sales................................................... 198,000 Sales discounts ................................ 2,000 Sales returns and allowances ......... 4,000 Cost of goods sold ........................... 74,800 (d) 800 Amortization expense, store equipment (c) 3,000 Salaries expense............................... 62,000 Interest expense ............................... 400 Insurance expense ........................... (b) 3,000 Rent expense .................................... 28,000 Store supplies expense ................... (a) 6,150 Advertising expense......................... 19,800 Totals .............................................. 324,400 324,400 12,950 Net loss .............................................. Totals .............................................. Credit (d) 800 (a) 6,150 (b) 3,000 Adjusted Trial Balance Debit Credit 6,400 22,200 3,300 1,750 83,800 (c) 3,000 Income Statement Debit Credit 33,000 16,000 80,400 33,000 16,000 80,400 6,000 12,950 Balance Sheet and Statement of Owner’s Equity Debit Credit 6,400 22,200 3,300 1,750 83,800 6,000 198,000 198,000 2,000 4,000 75,600 3,000 62,000 400 3,000 28,000 6,150 19,800 327,400 327,400 2,000 4,000 75,600 3,000 62,000 400 3,000 28,000 6,150 19,800 203,950 198,000 5,950 203,950 203,950 123,450 5,950 129,400 129,400 129,400 Problem 6-4B (concluded) Part 2 Multiple-step income statement: RESOURCE PRODUCTS COMPANY Income Statement For Year Ended October 31, 2011 Net sales ................................................................. Cost of goods sold ................................................ Gross profit from sales ......................................... Operating expenses: Salaries expense ............................................... $62,000 Rent expense ...................................................... 28,000 Advertising expense ......................................... 19,800 Store supplies expense .................................... 6,150 Insurance expense ............................................ 3,000 Amortization expense, store equipment ......... 3,000 Total operating expenses .............................. Loss from operations ............................................ Other revenues and expenses: Interest expense ................................................. Net loss ................................................................... $192,000 75,600 $116,400 121,950 $ 5,550 400 $ 5,950 Analysis component: Interest Expense is shown under Other revenues and expenses because it is not a day-today operating activity for Resource Products Company. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 515 Problem 6-5B (40 minutes) 1. Classified, multiple-step income statement: REYNA COMPANY Income Statement For Year Ended May 31, 2011 Sales ............................................................................... Less: Sales discounts............................................... Sales returns and allowances ........................ Net sales ..................................................................... Cost of goods sold ........................................................ Gross profit from sales ................................................. Operating expenses: Selling expenses: Sales salaries expense .......................................... $ 43,500 Advertising expense .............................................. 27,000 Rent expense, selling space.................................. 15,000 Store supplies expense ......................................... 3,750 Total selling expenses ........................................... General and administrative expenses: Office salaries expense.......................................... $ 39,750 Rent expense, office space ................................... 3,900 Office supplies expense ........................................ 1,200 Total general and administrative expenses ......... Total operating expenses .......................................... Net income ..................................................................... 2. $ 4,875 21,000 $318,000 25,875 $292,125 123,900 $168,225 $ 89,250 44,850 134,100 $ 34,125 Single-step income statement: REYNA COMPANY Income Statement For Year Ended May 31, 2011 Net sales ......................................................................... Expenses: Cost of goods sold .................................................... Selling expenses ........................................................ General and administrative expenses ...................... Total expenses........................................................ Net income ..................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 516 $292,125 $123,900 89,250 44,850 258,000 $ 34,125 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-6B (30 minutes) 2011 May 31 Closing entries: Sales .................................................................. Income Summary ....................................... To close temporary account with credit balance. 31 Income Summary ............................................... Sales Discounts ......................................... Sales Returns and Allowances ................ Cost of Goods Sold .................................... Sales Salaries Expense.............................. Rent Expense, Selling Space .................... Store Supplies Expense ............................ Advertising Expense .................................. Office Salaries Expense ............................. Rent Expense, Office Space ...................... Office Supplies Expense ........................... To close temporary accounts with debit balances. 283,875 31 Income Summary ............................................... Paul Reyna, capital..................................... To close the Income Summary account. 34,125 31 Paul Reyna, Capital ........................................... Paul Reyna, Withdrawals ........................... To close the withdrawals account. 24,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 318,000 318,000 4,875 21,000 123,900 43,500 15,000 3,750 27,000 39,750 3,900 1,200 34,125 24,000 517 Problem 6-7B (50 minutes) 1. Classified, multiple-step income statement: BANDARA SALES Income Statement For Year Ended December 31, 2011 Sales ........................................................................ Less: Sales returns and allowances ................ Sales discounts ....................................... Net sales .............................................................. Cost of goods sold ................................................. Gross profit from sales .......................................... Operating expenses: Selling expenses: Sales salaries expense ................................... $149,4851 Rent expense, selling space .......................... 39,8082 Amortization expense, store equipment ....... 16,020 Store supplies expense .................................. 4,2003 Total selling expenses .................................... General and administrative expenses: Office salaries expense .................................. $ 64,0654 Rent expense, office space ............................ 9,9525 Office supplies expense ................................. 7,8006 Insurance expense .......................................... 6,200 Amortization expense, office equipment ...... 3,450 Total general and administrative expenses.. Total operating expenses................................... Net loss .................................................................... $ 7,345 1,390 $946,300 8,735 $937,565 649,820 $287,745 $209,513 91,467 300,980 $ 13,235 1. 70% × 213,550 2. 80% × 49,760 3. 35% × 12,000 4. 30% × 213,550 5. 20% × 49,760 6. 65% × 12,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 518 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-7B (concluded) 2. Single-step income statement: BANDARA SALES Income Statement For Year Ended December 31, 2011 Revenues: Net sales ..................................................... Expenses: Cost of goods sold .................................... Selling expenses ....................................... General and administrative expenses ..... Net loss .............................................................. $937,565 $649,820 209,513 91,467 950,800 $ 13,235 Analysis component: The gross profit ratio for Bandara Sales’ year ended December 31, 2011 is 30.69% ($287,745/$937,565 × 100 = 30.69%). This represents a favourable change when compared to the 28% gross profit ratio for the prior year. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 519 Problem 6-8B 2011 Closing entries: Dec. 31 Sales ...................................................................... Income Summary .......................................... To close temporary credit balance accounts. 946,300 31 Income Summary.................................................. Sales Returns and Allowances .................... Sales Discounts ............................................ Cost of goods sold........................................ Salaries Expense........................................... Rent Expense ................................................ Supplies Expense ......................................... Amortization Expense, Store Equipment ... Insurance Expense ....................................... Amortization Expense, Office Equipment .. To close temporary debit balance accounts. 959,535 31 Diego Amara, Capital ........................................... Income Summary .......................................... To close the Income Summary account to capital. 13,235 31 Diego Amara, Capital ........................................... Diego Amara, Withdrawals ........................... To close withdrawals to capital. 102,500 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 520 946,300 7,345 1,390 649,820 213,550 49,760 12,000 16,020 6,200 3,450 13,235 102,500 Fundamental Accounting Principles, Twelfth Canadian Edition Problem 6-9B (60 minutes) 1. Classified, multiple-step income statement: TINKER SALES Income Statement For Year Ended July 31, 2011 Sales ........................................................................ Less: Sales discounts....................................... Net sales .............................................................. Cost of goods sold................................................. Gross profit from sales .......................................... Operating expenses: Selling expenses: Sales salaries expense ................................... $18,000 Advertising expense ....................................... 9,900 Rent expense, selling space .......................... 7,000 Store supplies expense .................................. 1,600 Amortization expense, store equipment ....... 1,000 Insurance expense, store ............................... 750 Total selling expenses.................................... General and administrative expenses: Office salaries expense .................................. $ 5,000 Rent expense, office space ............................ 5,000 Amortization expense, office equipment ...... 2,500 Office supplies expense ................................. 1,200 Insurance expense, office .............................. 250 Total general and administrative expenses . Total operating expenses .................................. Net loss ................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $78,500 1,000 $77,500 47,400 $30,100 $38,250 13,950 52,200 $22,100 521 Problem 6-9B (concluded) 2. Multiple-step income statement: TINKER SALES Income Statement For Year Ended July 31, 2011 Net sales ................................................................. Cost of goods sold ................................................ Gross profit from sales ......................................... Operating expenses: Salaries expense ............................................... Rent expense...................................................... Advertising expense ......................................... Supplies expense .............................................. Amortization expense, equipment ................... Insurance expense ............................................ Total operating expenses .............................. Net loss .................................................................. $77,500 47,400 $30,100 $23,000 12,000 9,900 2,800 3,500 1,000 52,200 $ 22,100 3. Single-step income statement: TINKER SALES Income Statement For Year Ended July 31, 2011 Revenues: Net sales ................................................................. Expenses: Cost of goods sold ................................................ Selling expenses ................................................... General and administrative expenses.................. Total expenses ................................................... Net loss ...................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 522 $77,500 $47,400 38,250 13,950 99,600 $ 22,100 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-10B (40 minutes) Mar. 5 Purchases ................................................................. Cash ................................................................... To record purchase of merchandise for cash. 25,000 6 Accounts Receivable – Tessier & Welsh................ Sales .................................................................. To record sales; terms 2/10, n30, FOB destination. 16,000 7 Purchases ................................................................. Accounts Payable – Janz Company ................ To record purchase of merchandise; terms 1/10, n45, FOB shipping point. 32,000 8 Transportation-in or Freight-In ............................... Cash ................................................................... To record payment of shipping costs. 75 9 Accounts Receivable – Parker Company ............... Sales .................................................................. To record sales; terms 2/10, n30, FOB destination. 28,000 10 Purchases ................................................................. Accounts Payable – Delton Suppliers ............. To record purchase; terms 2/10, n45, FOB destination. 7,000 16 Cash .......................................................................... Sales Discounts ....................................................... Accounts Receivable – Tessier & Welsh......... To record collection within discount period; $16,000 x 2% = $320 discount. 15,680 320 17 Accounts Payable – Janz Company ....................... Cash ................................................................... Purchase Discounts.......................................... To record payment within discount period; $32,000 x 1% = $320 discount. 32,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 25,000 16,000 32,000 75 28,000 7,000 16,000 31,680 320 523 *Problem 6-10B (concluded) Mar. 30 Accounts Payable – Delton Suppliers .................... Cash ................................................................... To record payment. 7,000 31 Cash .......................................................................... Accounts Receivable – Parker Company ........ To record collection. 28,000 7,000 28,000 *Problem 6-11B (30 minutes) Date Account Mar. 1 Purchases ................................................................. Accounts Payable — Zender Holdings ........... Purchased merchandise terms 1/10, n/15. Debit 20,000 2 Cash .......................................................................... Sales .................................................................. Sold merchandise for cash. 1,800 7 Purchases ................................................................. Accounts Payable — Red River Co.................. Purchased merchandise terms 2/10, n/30. 16,000 8 Transportation-in or Freight-In................................ Accounts Payable — Dan’s Shipping ............. Paid freight charges on purchase of March 7. 350 12 Accounts Receivable — Bev Dole........................... Sales ................................................................... Sold merchandise on credit, terms 2/10, n/45. 9,000 13 Accounts Payable — Red River Co. ........................ Purchase Returns and Allowances .................. Received credit memo re purchase of March 7. 500 14 Office Furniture ........................................................ Accounts Payable — Wilson Supplies ............ Purchased office furniture on credit. 1,600 15 Accounts Receivable — Ted Smith......................... Sales ................................................................... Sold merchandise terms 2/10, n/45. 17,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 524 Credit 20,000 1,800 16,000 350 9,000 500 1,600 17,000 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-11B (concluded) Mar. 16 Accounts Payable — Red River Co. ........................ Purchase Discounts .......................................... Cash ................................................................... Paid for merchandise purchased on March 7; 16,000 – 500 = 15,500; 15,500 – 2% = 15,190. 15,500 17 Sales Returns and Allowances ................................ Accounts Receivable — Ted Smith .................. Issued credit memo to customer of March 15. 1,000 19 Accounts Payable — Wilson Supplies.................... Office Furniture ................................................. To record memorandum regarding damaged furniture purchased on March 14. 750 24 Cash........................................................................... Sales Discounts ........................................................ Accounts Receivable — Ted Smith .................. To record receipt of payment regarding March 15 sale less return and discount; 17,000 – 1,000 = 16,000; 16,000 x 2% = 320. 15,680 320 27 Cash........................................................................... Accounts Receivable — Bev Dole .................... Received payment from customer regarding March 12 sale. 9,000 31 Accounts Payable — Zender Holdings ................... Cash ................................................................... Paid for merchandise purchased on March 1. 20,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 310 15,190 1,000 750 16,000 9,000 20,000 525 *Problem 6-12B (40 minutes) 1. 2. 3. 4. Net sales: Sales ........................................................................................ Less: Sales returns and allowances..................................... Sales discounts ............................................................ Net sales .................................................................................. Cost of goods purchased: Purchases ............................................................................... Less: Purchases returns and allowances ............................ Purchases discounts ................................................... Transportation-in.................................................................... Cost of goods purchased ...................................................... Cost of goods sold: Beginning inventory............................................................... Cost of goods purchased (from 2) ....................................... Less: Ending inventory.......................................................... Cost of goods sold ................................................................. $540,000 57,000 4,700 $478,300 $ 240,000 8,100 2,300 9,700 $ 239,300 $ 50,000 239,300 32,000 $ 257,300 Multiple-step income statement: GARNEAU COMPANY Income Statement For Year Ended November 30, 2011 Net Sales ........................................................................ Cost of goods sold ........................................................ Gross profit from sales ................................................. Operating expenses: Salaries expense ...................................................... Rent expense............................................................ Advertising expense................................................ Supplies expense .................................................... Total operating expenses ...................................... Income from operations ............................................... Other revenues and expenses ..................................... Interest expense......................................................... Net income ..................................................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 526 $478,300 257,300 $221,000 $120,000 72,000 6,000 10,000 208,000 $ 13,000 700 $ 12,300 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-12B (concluded) 5. Single-step income statement: GARNEAU COMPANY Income Statement For Year Ended November 30, 2011 Revenues: Net sales............................................................................ $478,300 Expenses: ............................................................................. Cost of goods sold........................................................... $257,300 Selling expenses .............................................................. 131,900 General and administrative expenses............................ 76,100 Interest expense ............................................................... 700 Total expenses ............................................................... 466,000 Net income ............................................................................ $ 12,300 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 527 *Problem 6-13B (30 minutes) 2011 Closing entries: Nov. 30 Merchandise Inventory ........................................................ Sales ...................................................................................... Purchases Returns and Allowances .................................. Purchases Discounts .......................................................... Income Summary.......................................................... To close temporary accounts with credit balances and record the ending inventory. 32,000 540,000 8,100 2,300 30 Income Summary ................................................................. Merchandise Inventory ................................................ Sales Returns and Allowances ................................... Sales Discounts ............................................................ Purchases...................................................................... Transportation-In .......................................................... Salaries Expense .......................................................... Rent Expense ................................................................ Supplies Expense ......................................................... Advertising Expense .................................................... Interest Expense .......................................................... To close temporary accounts with debit balances and to remove the beginning inventory balance. 570,100 30 Income Summary ................................................................. Teresa Garneau, Capital............................................... To close the Income Summary Account. 12,300 30 Teresa Garneau, Capital ...................................................... Teresa Garneau, Withdrawals ..................................... To close the withdrawals account. 20,000 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 528 582,400 50,000 57,000 4,700 240,000 9,700 120,000 72,000 10,000 6,000 700 12,300 20,000 Fundamental Accounting Principles, Twelfth Canadian Edition Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 *Problem 6-14B (60 minutes) Part 1 Cash ......................................................................... Merchandise inventory .......................................... Supplies ................................................................... Prepaid rent ............................................................. Store equipment ..................................................... Accumulated amortization, store equipment ..... Office equipment .................................................... Accumulated amortization, office equipment .... Accounts payable................................................... Lucy Baker, capital................................................. Lucy Baker, withdrawals ....................................... Sales......................................................................... Sales returns and allowances............................... Sales discounts ...................................................... Purchases................................................................ Purchases returns and allowances...................... Purchases discounts ............................................. Transportation-in.................................................... Salaries expenses (60% selling; 40% office) ...... Rent expense (80% selling; 20% office) .............. Advertising expense .............................................. Supplies expense (30% selling; 70% office) ....... Amortization expense, store equipment ............. Amortization expense, office equipment ............ Totals .................................................................... Net loss .................................................................... Totals .................................................................... THE DOWNTOWN STORE Work Sheet For Year Ended March 31, 2011 Unadjusted Trial Balance Debit Credit 14,000 96,000 1,200 14,000 120,000 28,000 46,000 13,000 32,000 269,200 68,000 998,000 23,000 12,000 692,000 5,700 14,300 32,000 120,000 91,000 14,000 17,000 0 0 1,360,200 1,360,200 Adjustments Debit Credit Income Statement Debit Credit 96,000 18,000 (a) 300 (b) 10,000 (c) 3,200 (d) 6,500 Balance Sheet and Statement of Owner’s Equity Debit Credit 14,000 18,000 900 4,000 120,000 31,200 46,000 19,500 32,000 269,200 68,000 998,000 23,000 12,000 692,000 5,700 14,300 (b) 10,000 (a) 300 (c) 3,200 (d) 6,500 20,000 20,000 32,000 120,000 101,000 14,000 17,300 3,200 6,500 1,117,000 1,117,000 1,036,000 81,000 1,107,000 270,900 81,000 351,900 351,900 351,900 529 *Problem 6-14B (concluded) Part 2 2011 Closing entries: Mar. 31 Merchandise Inventory................................................... Sales................................................................................. Purchase Returns and Allowances............................... Purchase Discounts ....................................................... Income Summary .................................................... To close temporary credit balance accounts. 18,000 998,000 5,700 14,300 31 Income Summary ............................................................ Merchandise Inventory ........................................... Sales Returns and Allowances .............................. Sales Discounts....................................................... Purchases ................................................................ Transportation-In..................................................... Salaries Expense ..................................................... Rent Expense........................................................... Advertising Expense ............................................... Supplies Expense.................................................... Amortization Expense, Store Equipment.............. Amortization Expense, Office Equipment............. To close temporary debit balance accounts. 1,117,000 31 Lucy Baker, Capital ........................................................ Income Summary .................................................... To close the Income Summary account to capital. 81,000 31 Lucy Baker, Capital ........................................................ Lucy Baker, Withdrawals ........................................ To close withdrawals to capital. 68,000 Part 3 Date 2010 Mar. 31 Merchandise Inventory Explanation PR Debit March 31, 2010 balance (brought forward) 2011 Mar. 31 31 Close out March 31, 2010 balance March 31, 2011 balance Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 530 Page G14 1,036,000 96,000 23,000 12,000 692,000 32,000 120,000 101,000 14,000 17,300 3,200 6,500 81,000 68,000 Account No. 110 Credit Balance 96,000.00 G14 96,000.00 0 G14 18,000.00 18,000.00 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-15B (40 minutes) Classified multiple-step income statement: THE DOWNTOWN STORE Income Statement For Year Ended March 31, 2011 Sales ................................................................................ Less: Sales returns and allowances........................ Sales discounts............................................... Net Sales ......................................................................... Cost of goods sold: Merchandise inventory, March 31, 2010 ................... Purchases .................................................................. Less: Purchase returns and allowances ................ $ 5,700 Purchase discounts 14,300 Net purchases ............................................................. Add: Transportation-in .......................................... Cost of goods purchased .......................................... Goods available for sale............................................. Less: Merchandise inventory, March 31, 2011........ Cost of goods sold ..................................................... Gross profit from sales ................................................. Operating expenses: Selling expenses: Rent expense, selling space1................................... Sales salaries expense2............................................ Advertising expense ................................................. Store supplies expense3 .......................................... Amortization expense, store equipment ................ Total selling expenses.............................................. General and administrative expenses: Office salaries expense4 ........................................... Rent expense, office space5..................................... Office supplies expense6 ......................................... Amortization expense, office equipment................ Total general and administrative expenses ........... Total operating expenses ...................................... Net loss ........................................................................... $23,000 12,000 $692,000 20,000 $672,000 32,000 $80,800 72,000 14,000 5,190 3,200 $48,000 20,200 12,110 6,500 $998,000 35,000 $963,000 $96,000 704,000 $800,000 18,000 782,000 $181,000 $175,190 86,810 262,000 $ 81,000 Calculations: 1. 2. 3. 101,000 x 80% 120,000 x 60% 17,300 x 30% 4. 5. 6. 120,000 x 40% 101,000 x 20% 17,300 x 70% Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 531 *Problem 6-16B (40 minutes) Sept. 2 Cash ............................................................................... PST Payable .......................................................... GST Payable .......................................................... Sales ....................................................................... To record cash sale; $7,000 x 8% = $560 PST; $7,000 x 6% = $420 GST. 7,980 2 Cost of Goods Sold ....................................................... Merchandise Inventory ......................................... To record cost of sale. 5,800 3 Merchandise Inventory ................................................ GST Receivable ............................................................ Cash ....................................................................... To record cash purchase; $8,000 x 6% = $480 GST. 8,000 480 Merchandise Inventory ................................................ GST Receivable ............................................................ Accounts Payable ................................................. To record credit purchase; $5,000 x 6% = $300 GST. 5,000 300 8 Accounts Receivable ................................................... PST Payable .......................................................... GST Payable .......................................................... Sales ....................................................................... To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST. 17,100 8 Cost of Goods Sold ....................................................... Merchandise Inventory ......................................... To record cost of sale. 13,200 17 Accounts Payable.......................................................... Merchandise Inventory ......................................... Cash ....................................................................... To record payment within discount period; $5,000* x 1% = $50. 5,300 18 Cash................................................................................ Sales Discounts ............................................................ Accounts Receivable ............................................ To record collection within discount period; $15,000* x 2% = $300. 16,800 300 7 560 420 7,000 5,800 8,480 5,300 1,200 900 15,000 13,200 50 5,250 17,100 *The discount applies only to the amount before tax. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 532 Fundamental Accounting Principles, Twelfth Canadian Edition *Problem 6-17B (40 minutes) Sept. 2 Cash ............................................................................... PST Payable ........................................................... GST Payable .......................................................... Sales ....................................................................... To record cash sale; $7,000 x 8% = $560 PST; $7,000 x 6% = $420 GST. 7,980 3 Purchases ..................................................................... GST Receivable ............................................................. Cash ....................................................................... To record cash purchase; $8,000 x 6% = $480 GST. 8,000 480 Purchases ..................................................................... GST Receivable ............................................................. Accounts Payable ................................................. To record credit purchase; $5,000 x 6% = $300 GST. 5,000 300 8 Accounts Receivable .................................................... PST Payable ........................................................... GST Payable .......................................................... Sales ....................................................................... To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST. 17,100 17 Accounts Payable .......................................................... Purchase Discounts .............................................. Cash ....................................................................... To record payment within discount period; $5,000* x 1% = $50. 5,300 18 Cash ................................................................................ Sales Discounts ............................................................ Accounts Receivable ............................................ To record collection within discount period; $15,000* x 2% = $300. 16,800 300 7 560 420 7,000 8,480 5,300 1,200 900 15,000 50 5,250 17,100 *The discount applies only to the amount before tax. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 533 ANALYTICAL AND REVIEW PROBLEMS A&R Problem 6-1 – Perpetual Multiple-step income statement: DEMO SALES Income Statement For Month Ended July 31, 2011 Net sales ................................................................. Cost of goods sold ................................................ Gross profit from sales ......................................... Operating expenses: Advertising expense ......................................... Rent expense...................................................... Amortization expense, equipment ................... Insurance expense ............................................ Interest expense................................................. Total operating expenses .............................. Net income ............................................................. $559,340* 394,000 $165,340 $14,000 5,000 3,000 2,500 1,700 26,200 $139,140 *$562,140 - $2,800 = $559,340 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 534 Fundamental Accounting Principles, Twelfth Canadian Edition Ethics Challenge 1. Some students may feel that Claire has devised a clever way to beat the system. She appears to be succeeding in getting something for free. Other students will feel that Claire is definitely abusing the system and that her ethical code needs a major overhaul. Their instructor may wish to point out that customer abuses such as Claire’s usually result in stores adopting stringent return policies that will impact all customers who have legitimate needs to return unused products. At some point Claire will probably suffer discomfort when questioned about items that are returned in less than perfect condition. Also if store managers suspect Claire’s behaviour over time they may no longer allow her to shop at their store. If Claire is banned from the store she will likely suffer humiliation for herself and her family. Probably Claire’s parents do not know of her scheme and she may suffer additional consequences once they learn of her practices. 2. The store must account for sales returns using a contra-revenue account called Sales Returns and Allowances. A dress returned with a sales bill of $100 would be accounted for as follows: Sales Returns and Allowances……….. $100 Accounts Receivable……………….. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $100 535 Focus on Financial Statements FFS 6-1 Single-step income statement: COLUMBIA TEXTILES Income Statement For Year Ended December 31, 2011 (000’s) Revenues: Net sales .................................................................. Interest earned ........................................................ Total revenues Expenses: Cost of goods sold ................................................. Selling expenses1 ................................................... General and administrative expense2 ................... Interest expense ..................................................... Total expenses ........................................................ Net loss......................................................................... COLUMBIA TEXTILES Statement of Owner’s Equity For Year Ended December 31, 2011 (000’s) Brandy Columbia, capital, January 1 ......................... Add: Investments by owner ....................................... Total ......................................................................... Less: Withdrawals for the year ................................. Net loss............................................................. Brandy Columbia, capital, December 31 .................... $614 2 $459 193 114 4 $78 154 $616 770 $ 154 $5403 0 $540 232 $308 1. $21 + $46 + $120 + $6 = $193 2. $63 + $17 + $21 + $8 + $5 = $114 3. Calculated as post-closing capital balance of $308 + withdrawals of $78 + net loss of $154 = $540 capital at January 1. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 536 Fundamental Accounting Principles, Twelfth Canadian Edition FFS 6-1 (continued) COLUMBIA TEXTILES Balance Sheet December 31, 2011 (000’s) Assets Current assets: Cash .................................................................................. Accounts receivable ........................................................ Merchandise inventory .................................................... Office supplies ................................................................. Prepaid rent ...................................................................... Current portion of notes receivable ............................... Total current assets ......................................................... Long-term investments: Notes receivable, less current portion Property, plant and equipment: Office furniture ................................................................. Less: Accumulated amortization, office furniture ..... Store fixtures .................................................................... Less: Accumulated amortization, store fixtures........ Total property, plant and equipment .............................. Intangible assets: Franchise ......................................................................... Total assets .............................................................................. Liabilities Current liabilities: Accounts payable ............................................................. Unearned sales.................................................................. Current portion of notes long-term notes payable ......... Total current liabilities ................................................... Long-term liabilities: Notes payable, less current portion ................................ Total liabilities .................................................................... Owner’s Equity Brandy Columbia, capital.................................................... Total liabilities and owner’s equity ......................................... Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $ 48 106 236 5 32 3 $ 430 11 $ 52 38 $106 61 $ 14 45 59 62 $ 562 $ 17 12 45 $ 74 180 $ 254 308 $ 562 537 FFS 6-1 (concluded) Analysis component: Although Danier Leather has more total liabilities than Columbia Textiles, $28,428,000 vs. $254,000, Danier Leather’s total liabilities represent 34.10% of total assets ($28,428,000/$83,365,000 × 100) which is less than Columbia Textiles. Columbia Textiles’s total liabilities represent 45.20% of total assets ($254,000/$562,000 × 100). Therefore, Danier Leather has the stronger balance sheet. However, Danier is in the retail clothing industry while Columbia is in the textile industry; similar but different therefore there is a question of how valid the comparison is. FFS 6-2 a. Danier sells products because the income statement includes Cost of sales, another term used to describe Cost of goods sold, the expense account that represents the cost of the goods actually sold. b. WestJet sells services since its expense accounts on the income statement do not include an account for Cost of sales or Cost of goods sold. c. The gross profit of $83,487 (thousand) represents the profit earned on the sale of goods before deducting operating expenses. d. Yes, Danier had sufficient gross profit to cover operating expenses for the year ended June 25, 2005, since net earnings before discontinued operations for the year totalled $2,583 (thousand). e. Danier has prepared its income statement using the single-step format. f. According to note 3, inventory for Danier represents raw materials, work-inprocess, and finished goods whereas inventory for WestJet, according to note 1(f), represents materials and supplies. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 538 Fundamental Accounting Principles, Twelfth Canadian Edition Critical Thinking Question CT 6-1 Note to instructor: Student responses will vary therefore the answer here is only suggested and not inclusive of all possibilities; it is presented in point form for brevity. Problem(s): — Review and assess the inventory information Goal(s)*: — To review and assess the inventory information so that appropriate questions can be asked and answered to effectively manage the inventory Assumption(s)/Principle(s): — That the information provided is correct; given that the cost of merchandise sold to customers increased by 50% from 2010 to 2011 (480,000 – 320,000 = 160,000/320,000 × 100 = 50%), it can be assumed that there was a corresponding increase in sales from 2010 to 2011 Facts: — The information provided was reorganized into the following T-accounts: 2010: Merchandise Inventory Beg. 84,000 320,000 COGS Purchases 240,000 14,000 Shrinkage TI 12,000 2,400 Purch disc Sales Ret 22,400 1,200 Purch ret End. Inv. 20,800 Cost of Goods Sold COGS 320,000 22,400 Sales Ret Shrinkage 14,000 Adj. Bal. 311,600 2011: Merchandise Inventory Beg 20,800 480,000 COGS Purchases 510,000 2,500 Shrinkage TI 25,500 5,100 Purch disc Sales Ret 115,000 2,550 Purch ret End 181,150 Cost of Goods Sold COGS 480,000 115,000 Sales Ret Shrinkage 2,500 367,500 *The goal is highly dependent on “perspective.” Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 539 CT 6-1 (concluded) Conclusion(s)/Consequence(s): — Sales returns in 2011 were $115,000 which is 413% greater than in 2010 (115,000 – 22,400 = 92,600/22,400 × 100). This is an unfavourable change and requires immediate attention; questions need to be asked to determine the cause(s) so that the appropriate corrective action can be taken — Shrinkage decreased by $11,500 or 82% from 2010 to 2011 (14,000 – 2,500 = 11,500/14,000 × 100); this is a favourable change and the inventory manager should find out how this occurred and improve on it, if possible Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 540 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem, Echo Systems (150 minutes) Part 1 Journal entries: Date 2012 Jan. General Journal Account Titles and Explanations 4 5 7 9 11 13 13 15 16 17 PR Wages Expense ........................................... 623 Wages Payable ............................................. 210 Cash ...................................................... 101 Paid employee. Cash .............................................................. 101 Mary Graham, Capital .......................... 301 Investment by owner. Merchandise Inventory ................................ 119 Accounts Payable—Shephard Corp. .. 201 Purchased merchandise on credit. Cash .............................................................. 101 Accounts Receivable—Fostek Co. ...... 106.6 Collected accounts receivable. Accounts Receivable—Alamo Eng. Co. ..... 106.1 Unearned Computer Services Revenue ..... 236 Computer Services Revenue ............... 403 Completed work on project. Accounts Receivable—Elite Corp. ............. 106.5 Sales ...................................................... 413 Sold merchandise on credit. Cost of Goods Sold ..................................... 502 Merchandise Inventory ........................ 119 To record the cost of the January 13 sale. Merchandise Inventory ................................ 119 Cash ...................................................... 101 Paid freight on incoming merchandise. Cash .............................................................. 101 Computer Services Revenue ............... 403 Collected cash revenue from customer. Accounts Payable—Shephard Corp. .......... 201 Merchandise Inventory ........................ 119 Cash ...................................................... 101 Paid account payable within discount period. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 Debit 200 800 48,000 11,200 3,000 9,000 3,000 8,400 6,720 1,400 6,000 11,200 Page G7 Credit 1,000 48,000 11,200 3,000 12,000 8,400 6,720 1,400 6,000 112 11,088 541 Perpetual Serial Problem (continued) Date 2012 Jan. 20 22 24 26 26 26 29 31 Feb. 1 3 5 General Journal Account Titles and Explanations PR Sales Returns and Allowances ................... 415 Accounts Receivable—Elite Corp. ...... 106.5 Customer returned defective goods. Cash .............................................................. 101 Sales Discounts ........................................... 414 Accounts Receivable—Elite Corp. ...... 106.5 Collected accounts receivable. Accounts Payable—Shephard Corp. ......... 201 Merchandise Inventory ......................... 119 Returned merchandise for credit. Merchandise Inventory ............................... 119 Accounts Payable—Shephard Corp. .. 201 Purchased merchandise for resale. Accounts Receivable—Hacienda, Inc. ....... 106.8 Sales ...................................................... 413 Sold merchandise on credit. Cost of Goods Sold ..................................... 502 Merchandise Inventory ........................ 119 To record the cost of the January 26 sale. No entry recorded in the journal. Wages Expense ........................................... 623 Cash ...................................................... 101 Paid employee. Prepaid Rent ................................................ 131 Cash ...................................................... 101 Paid three months’ rent in advance. Accounts Payable—Shephard Corp. ......... 201 Merchandise Inventory ........................ 119 Cash ...................................................... 101 Paid account payable within discount period. Advertising Expense ................................... 655 Cash ...................................................... 101 Purchased ad in local newspaper. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 542 Debit 800 7,524 76 792 16,000 11,600 9,280 2,000 6,750 15,208 1,600 G8 Credit 800 7,600 792 16,000 11,600 9,280 2,000 6,750 160 15,048 1,600 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Date 2012 Feb. 11 Mar. Mar. General Journal Account Titles and Explanations PR G9 Credit Debit Cash .............................................................. 101 Accounts Receivable—Alamo Engin. Co. ........................................ 106.1 Collected accounts receivable. 9,000 15 Mary Graham, Withdrawals ......................... 302 Cash ...................................................... 101 Owner withdrew cash. 9,600 23 Accounts Receivable—Grandview Co. ...... 106.7 Sales ...................................................... 413 Sold merchandise on credit. 6,400 23 Cost of Goods Sold ..................................... 502 Merchandise Inventory ........................ 119 To record the cost of the February 23 sale. 5,120 26 Wages Expense ........................................... 623 Cash ...................................................... 101 Paid employee. 1,600 27 Mileage Expense .......................................... 676 Cash ...................................................... 101 Reimbursed Mary Graham for use of auto. 600 8 Computer Supplies ...................................... 126 Accounts Payable—Abbot Office Prod. ...................................................... 201 Purchased supplies on credit. 4,800 Cash .............................................................. 101 Accounts Receivable—Grandview Co. . 106.7 Collected accounts receivable. 6,400 11 Repairs Expense, Computer ....................... 684 Cash ...................................................... 101 Paid for computer repairs. 1,720 16 Cash .............................................................. 101 Computer Services Revenue ............... 403 Collected cash revenue from customer. 8,520 9 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 9,000 9,600 6,400 5,120 1,600 600 4,800 6,400 1,720 8,520 543 Perpetual Serial Problem (continued) Date 2012 Mar. 19 General Journal Account Titles and Explanations PR Debit Accounts Payable ............................................... 201 Cash ............................................................. 101 Paid accounts payable. 7,110 24 Accounts Receivable—Capital Leasing ............ 106.3 Computer Services Revenue ...................... 403 Billed customer for services. 11,800 25 Accounts Receivable—Buckman Services ....... 106.2 Sales ............................................................. 413 Sold merchandise on credit. 3,600 25 Cost of Goods Sold ............................................ 502 Merchandise Inventory ............................... 119 To record the cost of the March 25 sale. 2,004 30 Accounts Receivable—Decker Co. ................... 106.4 Sales ............................................................. 413 Sold merchandise on credit. 4,440 30 Cost of Goods Sold ............................................ 502 Merchandise Inventory ............................... 119 To record the cost of the March 30 sale. 2,200 31 Mileage Expense ................................................. 676 Cash ............................................................. 101 Reimbursed Mary Graham for use of auto. 400 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 544 G10 Credit 7,110 11,800 3,600 2,004 4,440 2,200 400 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Part 2 Date 2011 Dec. 2012 Jan. Feb. Mar. Date 2011 Dec. 2012 Jan. Feb. Date 2011 Dec. 2012 Mar. Cash Explanation PR Debit Acct. No. 101 Credit Balance 31 Beginning balance 4 5 9 15 16 17 22 31 1 3 5 11 15 26 27 9 11 16 19 31 89,090 G7 G7 G7 G7 G7 G7 G8 G8 G8 G8 G8 G9 G9 G9 G9 G9 G9 G9 G10 G10 48,000 3,000 6,000 7,524 9,000 6,400 8,520 Accounts Receivable—Alamo Engineering Co. Explanation PR Debit 1,000 1,400 11,088 2,000 6,750 15,048 1,600 9,600 1,600 600 1,720 7,110 400 Acct. No. 106.1 Credit Balance 31 Beginning balance 11 11 0 G7 G9 9,000 Accounts Receivable—Buckman Services Explanation PR Debit 31 Beginning balance 25 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 88,090 136,090 139,090 137,690 143,690 132,602 140,126 138,126 131,376 116,328 114,728 123,728 114,128 112,528 111,928 118,328 116,608 125,128 118,018 117,618 9,000 9,000 0 Acct. No. 106.2 Credit Balance 0 G10 3,600 3,600 545 Perpetual Serial Problem (continued) Part 2 Date 2011 Dec. 2012 Mar. Date 2011 Dec. 2012 Mar. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Feb. Mar. Date 2011 Dec. 2012 Jan. Accounts Receivable—Capital Leasing Explanation PR Debit Acct. No. 106.3 Credit Balance 31 Beginning balance 24 0 G10 11,800 11,800 Accounts Receivable—Decker Co. Explanation PR Debit Acct. No. 106.4 Credit Balance 31 Beginning balance 30 2,700 G10 4,440 7,140 Accounts Receivable—Elite Corporation Explanation PR Debit Acct. No. 106.5 Credit Balance 31 Beginning balance 13 20 22 0 G7 G8 G8 Accounts Receivable—Fostek Co. Explanation PR 8,400 Debit 800 7,600 Acct. No. 106.6 Credit Balance 31 Beginning balance 9 3,000 G7 3,000 Accounts Receivable—Grandview Co. Explanation PR Debit 0 G9 G9 Accounts Receivable—Hacienda, Inc. Explanation PR 6,400 Debit 31 Beginning balance 26 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 546 0 Acct. No. 106.7 Credit Balance 31 Beginning balance 23 9 8,400 7,600 0 6,400 6,400 0 Acct. No. 106.8 Credit Balance 0 G8 11,600 11,600 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Part 2 Date 2011 Dec. Date 2012 Jan. Feb. Mar. Date 2011 Dec. 2012 Mar. Date 2011 Dec. Date 2011 Dec. 2012 Feb. Date 2011 Dec. Accounts Receivable—Images, Inc. Explanation PR Debit Acct. No. 106.9 Credit Balance 31 Beginning balance 0 Merchandise Inventory Explanation PR 7 13 15 17 24 26 26 3 23 25 30 Computer Supplies Explanation Debit G7 G7 G7 G7 G8 G8 G8 G8 G9 G10 G10 11,200 PR Debit 1,400 16,000 31 Beginning balance 8 PR 31 Beginning balance Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 Acct. No. 126 Credit Balance Debit Acct. No. 128 Credit Balance 3,240 PR Debit Acct. No. 131 Credit Balance 2,250 G8 Office Equipment Explanation 9,280 160 5,120 2,004 2,200 6,240 31 Beginning balance 1 112 792 4,800 31 Beginning balance Prepaid Rent Explanation 6,720 11,200 4,480 5,880 5,768 4,976 20,976 11,696 11,536 6,416 4,412 2,212 1,440 G9 Prepaid Insurance Explanation Acct. No. 119 Credit Balance PR 6,750 9,000 Debit Acct. No. 163 Credit Balance 18,000 547 Perpetual Serial Problem (continued) Part 2 Date 2011 Dec. Date 2011 Dec. Date 2011 Dec. Date 2011 Dec. 2012 Jan. Feb. Mar. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Jan. Accumulated Amortization, Office Equipment Explanation PR Debit Acct. No. 164 Credit Balance 31 Beginning balance 1,500 Computer Equipment Explanation PR Debit Acct. No. 167 Credit Balance 31 Beginning balance 36,000 Accumulated Amortization, Computer Equipment Explanation PR Debit Acct. No. 168 Credit Balance 31 Beginning balance Accounts Payable Explanation 2,250 PR Debit Acct. No. 201 Credit Balance 31 Beginning balance 7 17 24 26 3 8 19 2,310 G7 G7 G8 G8 G8 G9 G10 Wages Payable Explanation PR 11,200 792 15,208 7,110 Debit 31 Beginning balance 4 11,200 16,000 4,800 13,510 2,310 1,518 17,518 2,310 7,110 0 Acct. No. 210 Credit Balance 800 G7 800 0 Unearned Computer Services Revenue Explanation PR Debit Acct. No. 236 Credit Balance 31 Beginning balance 11 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 548 3,000 G7 3,000 0 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Part 2 Date 2011 Dec. 2012 Jan. Date 2012 Feb. Date 2012 Jan. Mar. Date 2012 Jan. Feb. Mar. Date 2012 Jan. Date 2012 Jan. Mary Graham, Capital Explanation PR Debit Acct. No. 301 Credit Balance 31 Beginning balance 5 145,860 G7 48,000 193,860 Mary Graham, Withdrawals Explanation PR Debit Acct. No. 302 Credit Balance G9 9,600 9,600 Debit Acct. No. 403 Credit Balance 15 Computer Services Revenue Explanation PR 11 16 16 24 G7 G7 G9 G10 Sales Explanation 13 26 23 25 30 PR 12,000 6,000 8,520 11,800 Debit G7 G8 G9 G10 G10 Sales Discounts Explanation 12,000 18,000 26,520 38,320 Acct. No. 413 Credit Balance 8,400 11,600 6,400 3,600 4,440 8,400 20,000 26,400 30,000 34,440 PR Debit Acct. No. 414 Credit Balance G8 76 76 Sales Returns and Allowances Explanation PR Debit Acct. No. 415 Credit Balance G8 800 800 22 20 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 549 Perpetual Serial Problem (continued) Part 2 PR Debit Acct. No. 502 Credit Balance G7 G8 G9 G10 G10 6,720 9,280 5,120 2,004 2,200 6,720 16,000 21,120 23,124 25,324 Date Amortization Expense, Office Equipment Explanation PR Debit Acct. No. 612 Credit Balance Date Amortization Expense, Computer Equipment Explanation PR Debit Acct. No. 613 Credit Balance Date 2012 Jan. Feb. Mar. Date 2012 Jan. Feb. Cost of Goods Sold Explanation 13 26 23 25 30 Wages Expense Explanation 4 31 26 PR Debit Acct. No. 623 Credit Balance G7 G8 G9 200 2,000 1,600 200 2,200 3,800 Date Insurance Expense Explanation PR Debit Acct. No. 637 Credit Balance Date Rent Expense Explanation PR Debit Acct. No. 640 Credit Balance Date Computer Supplies Expense Explanation PR Debit Acct. No. 652 Credit Balance Advertising Expense Explanation PR Debit Acct. No. 655 Credit Balance G8 1,600 1,600 Debit Acct. No. 676 Credit Balance 600 400 600 1,000 Date 2012 Feb. Date 2012 Feb. Mar. 5 Mileage Expense Explanation 27 31 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 550 PR G9 G10 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Part 2 Date 2012 Mar. Date Repairs Expense, Computer Explanation PR Debit Acct. No. 684 Credit Balance G9 1,720 1,720 Charitable Donations Expense Explanation PR Debit Acct. No. 699 Credit Balance 11 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 551 Perpetual Serial Problem (continued) Part 3 ECHO SYSTEMS Partial Work Sheet For Three Months Ended March 31, 2012 101 106.1 106.2 106.3 106.4 106.5 106.6 106.7 106.8 106.9 119 126 128 131 163 164 167 168 201 210 236 301 302 403 413 414 415 502 612 613 623 637 640 652 655 676 684 699 Account Cash .................................................... Alamo Engineering Co. .................. Buckman Services........................... Capital Leasing ................................. Decker Co. ........................................ Elite Corporation .............................. Fostek Co. ......................................... Grandview Co. .................................. Hacienda, Inc. ................................... Images, Inc. ....................................... Merchandise inventory ................... Computer supplies .......................... Prepaid insurance ............................ Prepaid rent ....................................... Office equipment .............................. Accumulated amortization, office equipment ......................... Computer equipment ...................... Accumulated amortization, computer equipment.................. Accounts payable ............................ Wages payable ................................. Unearned computer services revenue.......................................... Mary Graham, capital ...................... May Graham, withdrawals.............. Computer services revenue .......... Sales.................................................... Sales discounts ................................ Sales returns and allowances ....... Cost of goods sold........................... Amortization expense, office equipment ......................... Amortization expense, computer equipment.................. Wages expense ................................ Insurance expense .......................... Rent expense .................................... Computer supplies expense ......... Advertising expense........................ Mileage expense............................... Repairs expense, computer........... Charitable donations expense ...... Totals .............................................. Unadjusted Trial Balance Debit Credit 117,618 0 3,600 11,800 7,140 0 0 0 11,600 0 2,212 6,240 3,240 9,000 18,000 36,000 9,600 76 800 25,324 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 552 (g) 252 (a) 2,010 (b) 1,080 (d) 6,750 1,500 (f) 1,500 2,250 0 0 (e) 2,250 36,000 252 76 800 25,576 (f) 1,500 1,500 (g) (e) (c) (b) (d) (a) 2,250 1,400 1,080 6,750 2,010 15,242 15,242 3,000 4,500 0 1,400 9,600 38,320 34,440 270,370 Adjusted Trial Balance Debit Credit 117,618 0 3,600 11,800 7,140 0 0 0 11,600 0 1,960 4,230 2,160 2,250 18,000 (c) 1,400 0 193,860 0 0 3,800 0 0 0 1,600 1,000 1,720 0 270,370 Adjustments Debit Credit 2,250 5,200 1,080 6,750 2,010 1,600 1,000 1,720 0 275,520 0 193,860 38,320 34,440 275,520 Fundamental Accounting Principles, Twelfth Canadian Edition Perpetual Serial Problem (continued) Part 4: Single-step income statement ECHO SYSTEMS Income Statement For Three Months Ended March 31, 2012 Revenues: Computer services revenue ................................. Net sales ................................................................. Total revenues .................................................... Expenses: Cost of goods sold ................................................ Rent expense ........................................................ Wages expense ..................................................... Amortization expense1 .......................................... Computer supplies expense ................................ Repairs expense, computer ................................ Advertising expense ............................................. Insurance expense ................................................ Mileage expense ................................................... Total expenses ................................................... Net income ................................................................. $38,320 33,564 $25,576 6,750 5,200 3,750 2,010 1,720 1,600 1,080 1,000 $71,884 48,686 $23,198 1. Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = Total amortization expense of $3,750. Part 5 ECHO SYSTEMS Statement of Owner’s Equity For Three Months Ended March 31, 2012 Mary Graham, capital, December 31, 2011 ........... Add: Net income .................................................. Investment by owner ................................. Total .................................................................... Less: Withdrawals by owner ................................. Mary Graham, capital, March 31, 2012 ................. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 $23,198 48,000 $ 145,860 71,198 $217,058 9,600 $207,458 553 Perpetual Serial Problem (concluded) Part 6 ECHO SYSTEMS Balance Sheet March 31, 2012 Assets Current assets: Cash ............................................................................... $117,618 Accounts receivable ..................................................... 34,140 Merchandise inventory ................................................ 1,960 Computer supplies ....................................................... 4,230 Prepaid insurance ........................................................ 2,160 Prepaid rent .................................................................. 2,250 Total current assets ...................................................... $ 162,358 Property, plant and equipment: Office equipment .......................................................... $ 18,000 Less: Accumulated amortization.............................. 3,000 $ 15,000 Computer equipment ................................................... $36,000 Less: Accumulated amortization ................................... 4,500 31,500 Total property, plant and equipment ........................... 46,500 Total assets ........................................................................... $208,858 Liabilities Current liabilities: Wages payable ............................................................. $ 1,400 Owner’s Equity Mary Graham, capital ........................................................ 207,458 Total liabilities and owner’s equity ..................................... $208,858 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 554 Fundamental Accounting Principles, Twelfth Canadian Edition *Periodic Serial Problem, Echo Systems (150 minutes) Part 1 Journal entries: Date 2012 Jan. General Journal Account Titles and Explanations PR Debit Wages Expense ........................................... 623 Wages Payable ............................................. 210 Cash ...................................................... 101 Paid employee. 200 800 5 Cash .............................................................. 101 Mary Graham, Capital .......................... 301 Investment by owner. 48,000 7 Purchases .................................................... 505 Accounts Payable—Shephard Corp. .. 201 Purchased merchandise on credit. 11,200 9 Cash .............................................................. 101 Accounts Receivable—Fostek Co. ...... 106.6 Collected accounts receivable. 3,000 11 Accounts Receivable—Alamo Eng. Co. ..... 106.1 Unearned Computer Services Revenue ..... 236 Computer Services Revenue ............... 403 Completed work on project. 9,000 3,000 13 Accounts Receivable—Elite Corp. ............. 106.5 Sales ...................................................... 413 Sold merchandise on credit. 8,400 15 Transportation-In ......................................... 508 Cash ...................................................... 101 Paid freight on incoming merchandise. 1,400 16 Cash .............................................................. 101 Computer Services Revenue ............... 403 Collected cash revenue from customer. 6,000 17 Accounts Payable—Shephard Corp. .......... 201 Purchase Discounts ............................. 507 Cash ...................................................... 101 Paid account payable within discount period. 11,200 4 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 G7 Credit 1,000 48,000 11,200 3,000 12,000 8,400 1,400 6,000 112 11,088 555 Periodic Serial Problem (continued) Date 2012 Jan. 20 22 Feb. General Journal Account Titles and Explanations PR Debit Sales Returns and Allowances ................... 415 Accounts Receivable—Elite Corp. ...... 106.5 Customer returned defective goods. 800 Cash .............................................................. 101 Sales Discounts ........................................... 414 Accounts Receivable—Elite Corp. ...... 106.5 Collected accounts receivable. 7,524 76 24 Accounts Payable—Shephard Corp. ......... 201 Purchase Returns and Allowances...... 506 Returned merchandise for credit. 792 26 Purchases .................................................... 505 Accounts Payable—Shephard Corp. .. 201 Purchased merchandise for resale. 16,000 26 Accounts Receivable—Hacienda, Inc. ....... 106.8 Sales ...................................................... 413 Sold merchandise on credit. 11,600 29 No entry recorded in the journal. 31 Wages Expense ........................................... 623 Cash ...................................................... 101 Paid employee. 2,000 1 Prepaid Rent ................................................ 131 Cash ...................................................... 101 Paid three months’ rent in advance. 6,750 3 Accounts Payable—Shephard Corp. ......... 201 Purchase Discounts ............................. 507 Cash ...................................................... 101 Paid account payable within discount period. 15,208 5 Advertising Expense ................................... 655 Cash ...................................................... 101 Purchased ad in local newspaper. 1,600 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 556 G8 Credit 800 7,600 792 16,000 11,600 2,000 6,750 160 15,048 1,600 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Date 2012 Feb. 11 Mar. General Journal Account Titles and Explanations PR Debit Cash .............................................................. 101 Accounts Receivable—Alamo Engin. Co. 106.1 Collected accounts receivable. 9,000 15 Mary Graham, Withdrawals ......................... 302 Cash ...................................................... 101 Owner withdrew cash. 9,600 23 Accounts Receivable—Grandview Co. ...... 106.7 Sales ...................................................... 413 Sold merchandise on credit. 6,400 26 Wages Expense ........................................... 623 Cash ...................................................... 101 Paid employee. 1,600 27 Mileage Expense .......................................... 676 Cash ...................................................... 101 Reimbursed Mary Graham for use of auto. 600 8 Computer Supplies ...................................... 126 Accounts Payable—Abbot Office Prod. ...................................................... 201 Purchased supplies on credit. 4,800 Cash .............................................................. 101 Accounts Receivable—Grandview Co. . 106.7 Collected accounts receivable. 6,400 11 Repairs Expense, Computer ....................... 684 Cash ...................................................... 101 Paid for computer repairs. 1,720 16 Cash .............................................................. 101 Computer Services Revenue ............... 403 Collected cash revenue from customer. 8,520 9 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 G9 Credit 9,000 9,600 6,400 1,600 600 4,800 6,400 1,720 8,520 557 Periodic Serial Problem (continued) Date 2012 General Journal Account Titles and Explanations PR Debit 19 Accounts Payable ........................................ 201 Cash ...................................................... 101 Paid accounts payable. 7,110 24 Accounts Receivable—Capital Leasing ..... 106.3 Computer Services Revenue ............... 403 Billed customer for services. 11,800 25 Accounts Receivable—Buckman Services 106.2 Sales ...................................................... 413 Sold merchandise on credit. 3,600 30 Accounts Receivable—Decker Co. ............ 106.4 Sales....................................................... 413 Sold merchandise on credit. 4,440 31 Mileage Expense .......................................... 676 Cash ...................................................... 101 Reimbursed Mary Graham for use of auto. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 558 400 G10 Credit 7,110 11,800 3,600 4,440 400 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Part 2 Date 2011 Dec. 2012 Jan. Feb. Mar. Date 2011 Dec. 2012 Jan. Feb. Date 2011 Dec. 2012 Mar. Cash Explanation PR Debit Acct. No. 101 Credit Balance 31 Beginning balance 4 5 9 15 16 17 22 31 1 3 5 11 15 26 27 9 11 16 19 31 89,090 G7 G7 G7 G7 G7 G7 G8 G8 G8 G8 G8 G9 G9 G9 G9 G9 G9 G9 G10 G10 48,000 3,000 6,000 7,524 9,000 6,400 8,520 Accounts Receivable—Alamo Engineering Co. Explanation PR Debit 1,000 1,400 11,088 2,000 6,750 15,048 1,600 9,600 1,600 600 1,720 7,110 400 Acct. No. 106.1 Credit Balance 31 Beginning balance 11 11 0 G7 G9 9,000 Accounts Receivable—Buckman Services Explanation PR Debit 31 Beginning balance 25 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 88,090 136,090 139,090 137,690 143,690 132,602 140,126 138,126 131,376 116,328 114,728 123,728 114,128 112,528 111,928 118,328 116,608 125,128 118,018 117,618 9,000 9,000 0 Acct. No. 106.2 Credit Balance 0 G10 3,600 3,600 559 Periodic Serial Problem (continued) Part 2 Date 2011 Dec. 2012 Mar. Date 2011 Dec. 2012 Mar. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Feb. Mar. Date 2011 Dec. 2012 Jan. Accounts Receivable—Capital Leasing Explanation PR Debit Acct. No. 106.3 Credit Balance 31 Beginning balance 24 0 G10 11,800 11,800 Accounts Receivable—Decker Co. Explanation PR Debit Acct. No. 106.4 Credit Balance 31 Beginning balance 30 2,700 G10 4,440 7,140 Accounts Receivable—Elite Corporation Explanation PR Debit Acct. No. 106.5 Credit Balance 31 Beginning balance 13 20 22 0 G7 G8 G8 Accounts Receivable—Fostek Co. Explanation PR 8,400 Debit 800 7,600 Acct. No. 106.6 Credit Balance 31 Beginning balance 9 3,000 G7 3,000 Accounts Receivable—Grandview Co. Explanation PR Debit 0 G9 G9 Accounts Receivable—Hacienda, Inc. Explanation PR 6,400 Debit 31 Beginning balance 26 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 560 0 Acct. No. 106.7 Credit Balance 31 Beginning balance 23 9 8,400 7,600 0 6,400 6,400 0 Acct. No. 106.8 Credit Balance 0 G8 11,600 11,600 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Part 2 Date 2011 Dec. Date 2011 Dec. Date 2011 Dec. 2012 Mar. Date 2011 Dec. Date 2011 Dec. 2012 Feb. Date 2011 Dec. Date 2011 Dec. Accounts Receivable—Images, Inc. Explanation PR Debit 31 Beginning balance 0 Merchandise Inventory Explanation PR Debit 31 Beginning balance Computer Supplies Explanation PR Debit PR 4,800 6,240 Debit Acct. No. 128 Credit Balance 31 Beginning balance Prepaid Rent Explanation 3,240 PR Debit 31 Beginning balance 1 Office Equipment Explanation G8 6,750 9,000 PR Debit Acct. No. 163 Credit Balance Accumulated Amortization, Office Equipment Explanation PR Debit Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 Acct. No. 131 Credit Balance 2,250 31 Beginning balance 31 Beginning balance Acct. No. 126 Credit Balance 1,440 G9 Prepaid Insurance Explanation Acct. No. 119 Credit Balance 0 31 Beginning balance 8 Acct. No. 106.9 Credit Balance 18,000 Acct. No. 164 Credit Balance 1,500 561 Periodic Serial Problem (continued) Part 2 Date 2011 Dec. Date 2011 Dec. Date 2011 Dec. 2012 Jan. Feb. Mar. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Jan. Date 2011 Dec. 2012 Jan. Computer Equipment Explanation PR Debit Acct. No. 167 Credit Balance 31 Beginning balance 36,000 Accumulated Amortization, Computer Equipment Explanation PR Debit Acct. No. 168 Credit Balance 31 Beginning balance Accounts Payable Explanation 2,250 PR Debit Acct. No. 201 Credit Balance 31 Beginning balance 7 17 24 26 3 8 19 2,310 G7 G7 G8 G8 G8 G9 G10 Wages Payable Explanation PR 11,200 792 15,208 7,104 Debit 11,200 16,000 4,800 Acct. No. 210 Credit Balance 31 Beginning balance 4 13,510 2,310 1,518 17,518 2,310 7,110 0 800 G7 800 0 Unearned Computer Services Revenue Explanation PR Debit Acct. No. 236 Credit Balance 31 Beginning balance 11 3,000 G7 Mary Graham, Capital Explanation PR 3,000 0 Debit Acct. No. 301 Credit Balance 31 Beginning balance 5 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 562 145,860 G7 48,000 193,860 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Part 2 Date 2012 Feb. Date 2012 Jan. Mar. Date 2012 Jan. Feb. Mar. Date 2012 Jan. Date 2012 Jan. Date 2012 Jan. Date 2012 Jan. Mary Graham, Withdrawals Explanation PR Debit Acct. No. 302 Credit Balance G9 9,600 9,600 Computer Services Revenue Explanation PR Debit Acct. No. 403 Credit Balance 15 11 16 16 24 Sales Explanation 13 26 23 25 30 G7 G7 G9 G10 12,000 6,000 8,520 11,800 PR Acct. No. 413 Credit Balance Debit G7 G8 G9 G10 G10 Sales Discounts Explanation 8,400 11,600 6,400 3,600 4400 12,000 18,000 26,520 38,320 8,400 20,000 26,400 30,000 34,440 PR Debit Acct. No. 414 Credit Balance G8 76 76 Sales Returns and Allowances Explanation PR Debit Acct. No. 415 Credit Balance G8 800 800 PR Debit Acct. No. 505 Credit Balance G7 G8 11,200 16,000 11,200 27,200 Debit Acct. No. 506 Credit Balance 22 20 Purchases Explanation 7 26 Purchase Returns and Allowance Explanation PR 24 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 G8 792 792 563 Periodic Serial Problem (continued) Part 2 Date 2012 Jan. Feb. Purchase Discounts Explanation PR 17 3 Debit G7 G8 112 160 112 272 PR Debit Acct. No. 508 Credit Balance G7 1,400 1,400 Date Amortization Expense, Office Equipment Explanation PR Debit Acct. No. 612 Credit Balance Date Amortization Expense, Computer Equipment Explanation PR Debit Acct. No. 613 Credit Balance Date 2012 Jan. Date 2012 Jan. Feb. Transportation-In Explanation Acct. No. 507 Credit Balance 15 Wages Expense Explanation 4 31 26 PR Debit Acct. No. 623 Credit Balance G7 G8 G9 200 2,000 1,600 200 2,200 3,800 Debit Acct. No. 637 Credit Balance Date Insurance Expense Explanation Date Rent Expense Explanation PR Debit Acct. No. 640 Credit Balance Date Computer Supplies Expense Explanation PR Debit Acct. No. 652 Credit Balance Advertising Expense Explanation PR Debit Acct. No. 655 Credit Balance G8 1,600 1,600 Debit Acct. No. 676 Credit Balance 600 400 600 1,000 Date 2012 Feb. Date 2012 Feb. Mar. 5 Mileage Expense Explanation 27 31 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 564 PR PR G9 G10 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Part 2 Date 2012 Mar. Date Repairs Expense, Computer Explanation PR Debit Acct. No. 684 Credit Balance G9 1,720 1,720 Charitable Donations Expense Explanation PR Debit Acct. No. 699 Credit Balance 11 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 565 Periodic Serial Problem (continued) Part 3 ECHO SYSTEMS Partial Work Sheet For Three Months Ended March 31, 2012 Unadjusted Trial Balance 101 106.1 106.2 106.3 106.4 106.5 106.6 106.7 106.8 106.9 119 126 128 131 163 164 167 168 201 210 236 301 302 403 413 414 415 505 506 507 508 612 613 623 637 640 652 655 676 684 699 Account Cash ........................................................... Alamo Engineering Co. ........................ Buckman Services.................................. Capital Leasing ........................................ Decker Co. ............................................... Elite Corporation ..................................... Fostek Co. ................................................ Grandview Co. ......................................... Hacienda, Inc. .......................................... Images, Inc. .............................................. Merchandise inventory.......................... Computer supplies ................................. Prepaid insurance................................... Prepaid rent .............................................. Office equipment..................................... Accumulated amortization, office equipment................................ Computer equipment............................. Accumulated amortization, computer equipment........................ Accounts payable ................................... Wages payable ........................................ Unearned computer services revenue ................................................ Mary Graham, capital ............................. May Graham, withdrawals .................... Computer services revenue ................. Sales........................................................... Sales discounts ....................................... Sales returns and allowances.............. Purchases ................................................. Purchase returns and allowances ...... Purchase discounts ............................... Transportation-In..................................... Amortization expense, office equipment................................ Amortization expense, computer equipment........................ Wages expense ....................................... Insurance expense ................................. Rent expense ........................................... Computer supplies expense ................ Advertising expense .............................. Mileage expense ..................................... Repairs expense, computer ................. Charitable donations expense............. Totals ..................................................... Debit 117,618 0 3,600 11,800 7,140 0 0 0 11,600 0 0 6,240 3,240 9,000 18,000 36,000 9,600 76 800 27,200 1,400 Credit Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 566 Debit Credit (a) 2,010 (b) 1,080 (d) 6,750 1,500 (f) 1,500 2,250 0 0 (e) 2,250 Debit 117,618 0 3,600 11,800 7,140 0 0 0 11,600 0 0 4,230 2,160 2,250 18,000 36,000 76 800 27,200 792 272 1,400 (f) 1,500 (e) (c) (b) (d) (a) 3,000 0 193,860 38,320 34,440 792 272 1,500 2,250 1,400 1,080 6,750 2,010 14,990 Credit 4,500 0 1,400 9,600 38,320 34,440 271,434 Adjusted Trial Balance (c) 1,400 0 193,860 0 0 3,800 0 0 0 1,600 1,000 1,720 0 271,434 Adjustments 14,990 2,250 5,200 1,080 6,750 2,010 1,600 1,000 1,720 0 276,584 276,584 Fundamental Accounting Principles, Twelfth Canadian Edition Periodic Serial Problem (continued) Part 4 ECHO SYSTEMS Income Statement For Three Months Ended March 31, 2012 Revenues: Computer services revenue ................................. Net sales ................................................................. Total revenues .................................................... Operating Expenses: Cost of goods sold1 ............................................... Rent expense ........................................................ Wages expense ..................................................... Amortization expense2 ......................................... Computer supplies expense ................................ Repairs expense, computer ................................. Advertising expense ............................................. Insurance expense ................................................ Mileage expense ................................................... Total operating expenses .................................. Net income ................................................................. $38,320 33,564 $25,576 6,750 5,200 3,750 2,010 1,720 1,600 1,080 1,000 1. COGS = Beginning Merchandise Inventory ................... Add: Purchases ............................................... Less: Purchase Returns and Allowances ....... Purchase Discounts ............................... Add: Transportation-In .................................... Less: Ending Inventory .................................... $71,884 48,686 $23,198 $ 0 27,200 792 272 1,400 1,960 $25,576 2. Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = Total amortization expense of $3,750. Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 6 567 Periodic Serial Problem (concluded) Part 5 ECHO SYSTEMS Statement of Owner’s Equity For Three Months Ended March 31, 2012 Mary Graham, capital, December 31, 2011 .......... Add: Net income .................................................. Investment by owner ................................. Total .................................................................... Less: Withdrawals by owner ................................ Mary Graham, capital, March 31, 2012 ................. $23,198 48,000 $ 145,860 71,198 $217,058 9,600 $207,458 Part 6 ECHO SYSTEMS Balance Sheet March 31, 2012 Assets Current assets: Cash ............................................................................... $117,618 Accounts receivable ..................................................... 34,140 Merchandise inventory ................................................ 1,960 Computer supplies ....................................................... 4,230 Prepaid insurance ........................................................ 2,160 Prepaid rent .................................................................. 2,250 Total current assets ...................................................... $ 162,358 Property, plant and equipment: Office equipment .......................................................... $ 18,000 Less: Accumulated amortization.............................. 3,000 $ 15,000 Computer equipment ................................................... $36,000 Less: Accumulated amortization ................................... 4,500 31,500 Total property, plant and equipment .......................... 46,500 Total assets ........................................................................... $208,858 Liabilities Current liabilities: Wages payable ............................................................. $ 1,400 Owner’s Equity Mary Graham, capital ........................................................ 207,458 Total liabilities and owner’s equity ..................................... $208,858 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 568 Fundamental Accounting Principles, Twelfth Canadian Edition