PROBLEM 5-6B
(a) Dec. 31 Cost of Goods Sold........................ 1,800
Merchandise Inventory
($72,400 - $70,600) .....................
1,800
(b)
CLUB CANADA WHOLESALE COMPANY
Income Statement
Year Ended December 31, 2008
Sales ................................................................................. $923,470
Less: Sales returns and allowances ......... $18,050
Sales discounts ...............................
4,615
22,665
Net sales ...................................................................... 900,805
Cost of goods sold ($712,100 + $1,800) ......................... 713,900
Gross profit ...................................................................... 186,905
Operating expenses
Freight out .................................................. $$ 5,900
Salaries expense ........................................
69,800
Utilities expense .........................................
9,400
Insurance expense .....................................
3,640
Amortization expense ................................
13,275
Total operating expenses ....................................... 0 102,015
Income from operations ..................................................
84,890
Other expenses and revenues
Interest expense ........................................
$8,525
Interest revenue .........................................
1,200
7,325
Net income ....................................................................... $ 77,565
PROBLEM 5-6B (Continued)
(c)
CLUB CANADA WHOLESALE COMPANY
Income Statement
Year Ended November 30, 2008
Revenues
Sales ............................................................. $923,470
Less: Sales returns and allowances$18,050
Sales discounts ...................
4,615 22,665
Net sales ....................................................... 900,805
Interest revenue .........................................
1,200 $902,005
Expenses
Cost of goods sold ($712,100 + $1,800) ..... $713,900
Freight out ....................................................
$5,900
Salaries expense..........................................
69,800
Utilities expense ..........................................
9,400
Insurance expense ......................................
3,640
Amortization expense..................................
13,275
Interest expense ............................................. 8,525 824,440
Net income
$ 77,565
(d)
Both income statements result in the same amount of net
income. The multiple-step income statement provides the user
with much more information than the single-step income
statement does. The multiple-step income statement provides
information on gross profit and income from operations which is
not included on the single-step income statement.
PROBLEM 5-6B (Continued)
(e)
Gross profit margin 2008 = $186,905 ÷ $900,805 = 20.7%
Profit margin 2008 = $77,565 ÷ $900,805 = 8.6%
The gross profit margin has declined since 2007 but the profit
margin has increased. This indicates that operating expenses
have been reduced to compensate for lower gross margin.
(f)
Dec. 31 Interest Revenue ................................
1,200
Sales ................................................... 923,470
Income Summary ..........................
924,670
31 Income Summary ............................... 847,105
Sales Returns and Allowances ....
Sales Discount ..............................
Cost of Goods Sold ......................
Freight Out...................................
Salaries Expense.........................
Utilities Expense .........................
Insurance Expense .....................
Amortization Expense.................
Interest Expense ...........................
18,050
4,615
713,900
$ 5,900
69,800
9,400
3,640
13,275
8,525
31 Income Summary ...............................
E. Martel, Capital ...........................
77,565
31 E. Martel, Capital ................................
E. Martel, Drawings .......................
72,500
Income Summary
924,670
847,105
Bal.* 77,565
77,565
Bal.
0
* Check $77,565 = Net income
77,565
72,500
*PROBLEM 5-9B
GENERAL JOURNAL
Date
July
Account Titles and Explanation
1 Purchases (50 x $30) ........................
Accounts Payable ........................
Debit
Credit
1,500
1,500
(FOB destination means the seller pays
the freight therefore no entry required here.)
2 Accounts Payable .............................
Purchase Returns and Allowances
150
150
3 Accounts Receivable (35 x $55) ......
Sales .............................................
1,925
4 Sales Returns and Allowances .......
Accounts Receivable ...................
55
18 Purchases ..........................................
Accounts Payable ........................
1,700
18 Freight In............................................
Cash .............................................
100
21 Accounts Receivable (54 x $55) ......
Sales .............................................
2,970
23 Sales Returns and Allowances .......
Accounts Receivable ...................
220
30 Accounts Payable ($1,500 - $150) ...
Cash .............................................
1,350
1,925
55
1,700
100
2,970
220
30 Cash .................................................. 1,870
Accounts Receivable ($1,925- $55)
1,350
1,870