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.
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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).
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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
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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
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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
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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.
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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
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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 .....................................................................
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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.
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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
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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
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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 ..................................................................
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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
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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
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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.
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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Solutions Manual for Chapter 6
463
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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
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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 ................................................................
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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.
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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
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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.
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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
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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
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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.
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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
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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.
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Fundamental Accounting Principles, Twelfth Canadian Edition
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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 .................................................................
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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 .........................................................................
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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.)
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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
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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
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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)
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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.
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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
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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.
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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
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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
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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.
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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 .................................................................
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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
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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 ..............................................................
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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.
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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
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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 ..............................................................
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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
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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 .........................................................................
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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...........................................................................
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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 ........................................................................
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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
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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 .....................................................................
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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.
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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.
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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
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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)
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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
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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
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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.
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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
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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.
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Solutions Manual for Chapter 6
513
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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.
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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 .....................................................................
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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
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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
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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.
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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
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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 ...................................................................
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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 ......................................................................
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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
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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
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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
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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 .....................................................................
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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
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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
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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
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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%
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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.
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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.
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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
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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………………..
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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.
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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 .........................................
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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.
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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.”
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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
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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.
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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
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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
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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
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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
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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
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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.
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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
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568
Fundamental Accounting Principles, Twelfth Canadian Edition