Chapter 1 - siast5 | material site of siast5 · Web viewTrade discounts are not recorded in the...
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Chapter 6 Accounting for Merchandising Activities
Questions
1. WestJet is not a merchandiser since its main source of revenue is through the sale of services and not generated by the sale of merchandise inventory.
2. The calculation of the cost of goods sold is not provided.3. Additional accounts of a merchandising company include Merchandise Inventory, Sales,
Cost of Goods Sold, Sales Discounts, and Sales Returns and Allowances.4. Only merchandising companies present merchandise inventory on the balance sheet.
Only merchandising companies present sales and cost of goods sold on the income statement.
5. A company can have a net loss if its operating expenses are greater than its gross profit from sales of merchandise.
6. Cash discounts are granted in return for early payment and reduce the amount paid below the negotiated price. Trade discounts are deducted from the list or catalogue price to determine the purchase price. Trade discounts are not recorded in the accounting records.
7. A company’s manager should be concerned about the quantity of its purchase returns because the company incurs costs in receiving, inspecting, identifying, and returning the merchandise. Therefore, more returns create more expenses. By knowing more about the returns, the manager can decide if they are a problem.
8. Leon’s should attempt to negotiate the shipping terms to FOB destination. Title will pass after the goods are safely delivered to his store and transportation charges will be the responsibility of the vendor he is buying from.
9. The sender of a debit memorandum records a debit and the recipient records a credit.10. Sales discount is a term used by a seller to describe a cash discount granted to a
customer. Purchase discount is a term used by a purchaser to describe a cash discount received from a supplier.
11. A cash discount would be offered to encourage customers to pay promptly, which provides the cash more quickly to the seller and avoids the costs of additional billing.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 435
12. In today’s business world, organizations must concentrate on meeting their customers’ needs and avoiding the possibility of their dissatisfaction. If the needs aren’t met and dissatisfaction grows, the customers will deal with other companies or entities.
One measure of the dissatisfaction of a merchandiser’s customers is the amount of sold goods that are later returned by those customers. Their dissatisfaction needs to be understood and then dealt with promptly to encourage them to remain loyal to the company. The reasons for the return also need to be determined to allow the problem to be avoided in the future. For example, the returns might arise from product defects, shipping damage, misleading information provided at the time of sale, or fickle customers.
An important early step in controlling returns is to have information about their dollar amount. In addition, managers can set goals for reducing the dollar amount of sales returns. Both purposes can be helped by having the company’s accounting system record the sales value of returned goods in a separate contra account instead of the Sales account. Although this information can be gathered in other ways, this approach captures the information at the time of the return and allows it to be easily reported.
Although a company’s sales return record can be highly important for managers, there is relatively little value in the information for external decision makers because they are not concerned with day-to-day operating details. Although management might choose to report the amount of sales returns as evidence of the effectiveness of a program to reduce them, their amount is virtually never reported in financial statements provided to investors, creditors, and other external users.
13. Inventory shrinkage is determined by taking a physical count of the inventory on hand and comparing the cost of that inventory with the amount recorded in the Merchandise Inventory account.
14. The single-step format presents the cost of goods sold and operating expenses in one list, totals the list, and subtracts the total from net sales in one step. The multiple-step format presents intermediate totals, including gross profit (the difference between net sales and cost of goods sold).
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.436 Fundamental Accounting Principles, Twelfth Canadian Edition
QUICK STUDY
Quick Study 6-1A B C D E
Net sales...............$14,000
$102,000
$68,000
$540,000$398,000
Cost of goods sold......................
8,00 0
64,00 0
31,0 00
320,000 215,000
Gross profit from sales.....................
$ 6,000
$ 38,000
$37,000
$220,000$183,000
Operating expenses..............
9,00 0
31,00 0
22,0 00
261,000 106,000
Net income (loss). . $ (3,000
) $ 7,000
$15,000
$(41,000)$ 77,000
Quick Study 6-2a. Periodic AND perpetual inventory systemsb. Perpetual inventory systemsc. Perpetual inventory systemsd. Periodic inventory systemse. Perpetual inventory systems
Quick Study 6-3a. 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 6-4a. This information reflects a periodic inventory system.
170 + 700 – 120 = 750 Cost of goods sold
b. This information reflects a perpetual inventory system.200 + 1,000 – 75 = 1,125 Cost of Goods Sold
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 437
Quick Study 6-5May 1 Merchandise Inventory................ 1,200
Accounts Payable.................. 1,200 To record purchase of merchandise; terms 1/10, n30.
14
Accounts Payable........................ 1,200
Cash..................................... 1,200 To record payment of credit purchase.
15
Merchandise Inventory................ 3,000
Accounts Payable.................. 3,000 To record purchase of merchandise; terms 2/15, n30.
30
Accounts Payable........................ 3,000
Merchandise Inventory.......... 60 Cash..................................... 2,940 To record payment of credit purchase within discount period; $3,000 x 2% = $60 discount.
Quick Study 6-6Aug. 2 Merchandise Inventory................ 14,000
Accounts Payable.................. 14,000 To record purchase of merchandise; terms 1/5, n15.
4 Accounts Payable........................ 1,500 Merchandise Inventory.......... 1,500 To record allowance regarding August 2 credit purchase.
1 Accounts Payable........................ 12,500
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7 Cash..................................... 12,500 To record payment of credit purchase less allowance; 14,000 – 1,500 = 12,500.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 439
Quick Study 6-7Mar. 5 Merchandise Inventory ............ 2,000
Accounts Payable ............... 2,000(500 $5) × 80% = $2,000
7 Accounts Payable .................... 200Merchandise Inventory ........ 200
(50/500) × $2,000 = $20015 Accounts Payable .................... 1,800
Cash .................................. 1,764Merchandise Inventory ........ 36
$2,000 - $200 = $1,800; $1,800 – ($1,800 × 2%) = $1,764
Quick Study 6-8Sept. 1 Accounts Receivable – JenAir........ 6,000
Sales.................................... 6,000 To record sale; terms 2/10, n30.
1 Cost of Goods Sold...................... 4,200 Merchandise Inventory.......... 4,200 To record cost of sales.
14
Cash........................................... 6,000
Accounts Receivable – JenAir.. 6,000 To record collection from credit customer.
15
Accounts Receivable – Dennis Leval...........................................
1,800
Sales.................................... 1,800 To record sale; terms 2/10, n30.
15
Cost of Goods Sold...................... 1,500
Merchandise Inventory.......... 1,500 To record cost of sales.
25
Cash........................................... 1,764
Sales Discounts........................... 36 Accounts Receivable – Dennis Leval...........................................
1,800
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To record collection within discount period; $1,800 x 2% = $36 discount.
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Quick Study 6-9Oct. 1
5Accounts Receivable – Leslie Garth..........................................
900
Sales.................................... 900 To record sale; terms 1/5, n20.
15
Cost of Goods Sold...................... 600
Merchandise Inventory.......... 600 To record cost of sales.
16
Sales Returns and Allowances...... 100
Accounts Receivable – Leslie Garth..........................................
100
To record allowance.
25
Cash........................................... 800
Accounts Receivable – Leslie Garth..........................................
800
To record collection; 900 – 100 = 800.
Quick Study 6-10Apr. 1 Accounts Receivable ................ 2,000
Sales .................................. 2,000To record credit sale.
1 Cost of Goods Sold .................. 1,400Merchandise Inventory ........ 1,400
To record cost of sale.4 Sales Returns and Allowances... 500
Accounts Receivable ........... 500To record sales return.
4 Merchandise Inventory ............ 350Cost of Goods Sold .............. 350
To restore goods to inventory.11 Cash ....................................... 1,470
Sales Discounts ....................... 30Accounts Receivable............ 1,500
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To record payment on account; $2,000 – $500 = $1,500; $1,500 × 98% = $1,470.
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Quick Study 6-11(a) (b) (c) (d)
Sales ..............................$130,000$512,000$35,700$245,700Sales discounts ............... (4,200) (16,500) (400) (3,500)Sales returns and allowances (17,000) (5,000) (5,000)............... (700)Net sales ........................$108,800 $490,500 $30,300 .........................$241,500Cost of goods sold ........... (76,600) (326,700) (21,300) (125,900)Gross profit from sales.....$ 32,200$163,800$ 9,000$115,600Gross profit ratio.............. 29.60%1 33.39%2 29.70%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 6-12July31 Cost of Goods Sold .................. 1,900
Merchandise Inventory ........ 1,900$34,800 – $32,900 = $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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Quick Study 6-13a. Classified Multi-Step Income Statement
JETCOIncome Statement
For Year Ended December 31, 2011Sales.............................................. $1
00Less: Sales discounts.....................
4Net sales........................................ $
96Cost of goods sold.......................... 6
0Gross profit from sales.................... $
36Operating expenses: Selling expenses: Sales salaries expense............... $ 15 Advertising expense.................. 6 Total selling expenses............... $
21 General and administrative expenses: Office salaries expense............. $ 10 Office supplies expense............. 3 Total general and administrative expenses........................................
1 3
Total operating expenses............. 3 4
Income from operations.................. $ 2
Other revenues/expenses: Interest revenue......................... 5 Net income..................................... $
7
b. Single-Step Income StatementJETCO
Income StatementFor Year Ended December 31, 2011
Revenues:
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 445
Net sales.................................... $ 96
Interest revenue......................... 5 Total revenues........................... $10
1Expenses: Cost of goods sold...................... $
60 Selling expenses........................ 21 General and administrative expenses........................................
13
Total expenses............................ 94 Net income..................................... $
7
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.446 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 6-15Dec.31 Sales ...................................... 70
Income Summary................. 70To close Sales.
31 Income Summary ..................... 41Sales Discounts .................. 3Sales Returns and Allowances
4Cost of Goods Sold.............. 25Amortization Expense ......... 2Advertising Expense ........... 7
To close income statement accounts withdebit balances.
31 Income Summary ..................... 29Tony Ingram, Capital............ 29
To close income summary account to capital.31 Tony Ingram, Capital ............... 1
Tony Ingram, Withdrawals. . . 1To close withdrawals account to capital.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 447
*Quick Study 6-16a. QS6-5 – Periodic
May 1 Purchases................................... 1,200 Accounts Payable.................. 1,200 To record purchase; terms 1/10, n30.
14
Accounts Payable........................ 1,200
Cash..................................... 1,200 To record payment of credit purchase.
15
Purchases................................... 3,000
Accounts Payable.................. 3,000 To record purchase; terms 2/15, n30.
30
Accounts Payable........................ 3,000
Purchase Discounts............... 60 Cash..................................... 2,940 To record payment within discount period; $3,000 x 2% = $60 discount.
b. QS6-6 – PeriodicAug. 2 Purchases................................... 14,000
Accounts Payable.................. 14,000 To record purchase; terms 1/5, n15.
4 Accounts Payable........................ 1,500 Purchase Returns and Allowances..................................
1,500
To record allowance.
17
Accounts Payable........................ 12,500
Cash..................................... 12,500 To record payment less allowance.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.448 Fundamental Accounting Principles, Twelfth Canadian Edition
*Quick Study 6-16 (concluded)c. QS6-7 - Periodic Mar.
5 Purchases................................... 2,000
Accounts Payable................. 2,000 (500 × $5) × 80% = $2,000
7 Accounts Payable........................ 200 Purchase Returns and Allowances..................................
200
(50/500) × $2,000 = $20015
Accounts Payable........................ 1,800
Cash.................................... 1,764 Purchase Discounts.............. 36 $1,800 – ($1,800 × 2%) = $1,764
*Quick Study 6-17a. QS6-8 - PeriodicSept. 1 Accounts Receivable – JenAir........ 6,000
Sales.................................... 6,000 To record sale; terms 2/10, n30.
14
Cash........................................... 6,000
Accounts Receivable – JenAir.. 6,000 To record collection from credit customer.
15
Accounts Receivable – Dennis Leval...........................................
1,800
Sales.................................... 1,800 To record sale; terms 2/10, n30.
25
Cash........................................... 1,764
Sales Discounts........................... 36 Accounts Receivable – Dennis Leval...........................................
1,800
To record collection within discount period; $1,800 x 2% = $36 discount.
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*Quick Study 6-17 (concluded)b. QS6-9 - PeriodicOct
. 15
Accounts Receivable – Leslie Garth 900
Sales..................................... 900 To record sale; terms 1/5, n20.
16
Sales Returns and Allowances....... 100
Accounts Receivable – Leslie Garth...........................................
100
To record sales allowance.
25
Cash............................................ 800
Accounts Receivable – Leslie Garth...........................................
800
To record payment less allowance.
c. QS6-10 - PeriodicApr
.1 Accounts Receivable..................... 2,000
Sales..................................... 2,000 To record sale; terms 2,10, EOM.
4 Sales Returns and Allowances....... 500 Accounts Receivable.............. 500 To record sales return; returned to inventory.
11
Cash............................................ 1,470
Sales Discounts............................ 30 Accounts Receivable.............. 1,500 To record payment less return and discount.
*Quick Study 6-18Merchandise inventory, January 1, 2011.. $
40,000Purchases.............................................. $180,0Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.450 Fundamental Accounting Principles, Twelfth Canadian Edition
00Less: Purchase discounts...................... 1,400Add: Transportation-in.......................... 14,0
00Net Purchases....................................... 192,60
0Cost of Goods Available for Sale............. $232,6
00Less: Merchandise inventory, December 31, 2011................................
22,00 0
Cost of Goods Sold................................. $210,600
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*Quick Study 6-19Dec
31 Sales............................................ 450,000
Purchase Discounts...................... 1,400Merchandise Inventory................. 22,000 Income Summary................... 473,40
0 To close all credit balance temporary accounts.
31 Income Summary.......................... 412,000
Merchandise Inventory.......... 40,000 Sales Returns and Allowances 27,000 Purchases............................. 180,00
0 Transportation-In.................. 14,000 Salaries Expense................... 120,00
0 Amortization Expense............ 31,000 To close all debit balance temporary accounts.
31 Income Summary.......................... 61,400 Kay Bondar, Capital............... 61,400 To close the income summary to capital.
31 Kay Bondar, Capital...................... 65,000 Kay Bondar, Withdrawals....... 65,000 To close the withdrawals account to capital.
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*Quick Study 6-20a b c d
Sales............................... $ 130,00
0
$ 512,000
$ 35,700
$ 245,700
Sales discounts................ (4,200) (16,500)
(400) (3,500)
Net Sales......................... $125,800
$495,500
$35,300
$242,200
Merchandise inventory, Jan. 1, 2011......................
8,000 21,000 1,500 4,300
Purchases........................ 120,000
350,000 29,000 131,000
Purchase returns and allowances.......................
(4,000) (14,000)
(750) (3,100)
Cost of goods available for sale.................................
$ 124,000
$ 357,000
$ 29,750
$ 132,200
Merchandise inventory, Dec. 31, 2011...................
(7,500) (22,000)
(900) (4,100)
Cost of goods sold............ 116,500
335,000 28,850 128,100
Gross profit from sales..... $
9,300 $160,50
0 $
6,450 $114,10
0 Gross profit ratio.............. 7.39%1 32.39%
218.27%
347.11%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 ............. 5,000GST Receivable ........................ 300
Accounts Payable ................. 5,300To record credit purchase; $5,000 x 6% = 300 GST.
*Quick Study 6-22
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Mar.17 Accounts Receivable ................. 6,696PST Payable ........................ 348GST Payable ........................ 348Sales ................................... 5,800
To record credit sale; $5,800 x 6% = 348 PST; $5,800 x 6% = $348 GST.
17 Cost of Goods Sold.................... 5,000Merchandise Inventory ......... 5,000
To record cost of sale.
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*Quick Study 6-23
Mar. 1 Purchases ............................... 5,000GST Receivable ....................... 300
Accounts Payable ............... 5,300To record credit purchase; $5,000 x 6% = 300 GST.
*Quick Study 6-24
Mar.17 Accounts Receivable ................ 6,696PST Payable ....................... 348GST Payable ....................... 348Sales .................................. 5,800
To record credit sale; $5,800 x 6% = 348 PST; $5,800 x 6% = $348 GST.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 455
EXERCISES
Exercise 6-1 (15 minutes)a b c d e
Sales............................ $ 240,000
$ 140,000
$ 75,000
$462,000
$85,000
Cost of goods sold..............................
126,000 86,000 42,000 268,000 46,000
Gross profit from sales............................
$ 114,000
$ 54,000
$33,000
$194,000
$ 39,000
Operating expenses......................
95,000 82,000 41,000 146,000 53,000
Net Income (Loss)...........................
$ 19,000
$ (28,000)
($ 8,000)
$ 48,000
($ 14,000)
Exercise 6-2 (25 minutes)Feb. 1 Merchandise Inventory................ 7,000
Accounts Payable.................. 7,000 To record purchase; terms 1/10, n30.
5 Merchandise Inventory................ 2,400 Cash..................................... 2,400 To record purchase for cash.
6 Merchandise Inventory................ 10,000 Accounts Payable.................. 10,000 To record purchase; terms 2/15, n45.
9 Office Supplies............................ 900 Accounts Payable.................. 900 To record purchase; n15.
10
No entry.
11
Accounts Payable........................ 7,000
Cash..................................... 6,930 Merchandise Inventory.......... 70 To record payment within discount period; $7,000 x 1% = $70 discount.
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24
Accounts Payable........................ 900
Cash..................................... 900 To record payment.
Mar. 23
Accounts Payable........................ 10,000
Cash..................................... 10,000 To record payment.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 457
Exercise 6-3 (30 minutes)2011Mar. 2 Merchandise Inventory ............ 3,600
Accounts Payable — Blanton Company3,600
Purchased merchandise on credit.
3 Merchandise Inventory ............ 200Cash................................... 200
Paid shipping charges on purchased merchandise.
4 Accounts Payable — Blanton Company 600Merchandise Inventory ........ 600
Returned unacceptable merchandise.
17 Accounts Payable — Blanton Company 3,000Merchandise Inventory........ 60Cash................................... 2,940
Paid balance within the discount period;3,600 – 600 = 3,000; 3,000 x 2% = 60.
18 Merchandise Inventory ............ 7,500Accounts Payable — Fleming Corp.
7,500Purchased merchandise on credit.
21 Accounts Payable — Fleming Corp. 2,100Merchandise Inventory ........ 2,100
Received an allowance on purchase.
28 Accounts Payable — Fleming Corp. 5,400Merchandise Inventory........ 108Cash................................... 5,292
Paid balance within the discount period; 7,500 – 2,100 = 5,400; 5,400 x 2% = 108.
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Exercise 6-4 (25 minutes)Jan. 5 Accounts Receivable.................... 4,000
Sales.................................... 4,000 To record sale; terms 1/10, n30.
5 Cost of Goods Sold...................... 3,200 Merchandise Inventory.......... 3,200 To record cost of sales.
7 Cash........................................... 3,600 Sales.................................... 3,600 To record cash sale.
7 Cost of Goods Sold...................... 3,000 Merchandise Inventory.......... 3,000 To record cost of sales.
8 Accounts Receivable.................... 9,600 Sales.................................... 9,600 To record sale; terms 1/10, n30.
8 Cost of Goods Sold...................... 8,200 Merchandise Inventory.......... 8,200 To record cost of sales.
15
Cash........................................... 3,960
Sales Discounts........................... 40 Accounts Receivable.............. 4,000 To record collection within discount period; $4,000 x 1% = $40 discount.
Feb. 4 Cash........................................... 9,600 Accounts Receivable.............. 9,600 To record collection.
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Exercise 6-5 (30 minutes)Feb. 1 Accounts Receivable.................... 2,400
Sales.................................... 2,400 To record sale; terms 2/10, n30, FOB destination.
1 Cost of Goods Sold...................... 2,000 Merchandise Inventory.......... 2,000 To record cost of sales.
2 Delivery Expense or Freight-Out... 150 Cash..................................... 150 To record delivery expenses for goods sold.
3 Sales Returns and Allowances...... 1,200 Accounts Receivable.............. 1,200 To record return of merchandise.
3 Merchandise Inventory................ 1,000 Cost of Goods Sold................ 1,000 To return merchandise to inventory.
4 Accounts Receivable.................... 3,800 Sales.................................... 3,800 To record sale; terms 2/10, n30, FOB destination.
4 Cost of Goods Sold...................... 3,100 Merchandise Inventory.......... 3,100 To record cost of sales.
11
Cash........................................... 1,176
Sales Discounts........................... 24 Accounts Receivable.............. 1,200 To record collection, less return and discount; $2,400 - $1,200 = $1,200 x 2% = $24 discount.
23
Cash........................................... 1,200
Sales.................................... 1,200 To record cash sale.
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23
Cost of Goods Sold...................... 950
Merchandise Inventory.......... 950 To record cost of sales.
28
Cash........................................... 3,800
Accounts Receivable.............. 3,800 To record collection.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 461
Exercise 6-6 (30 minutes)a.Mar. 1 Merchandise Inventory .............. 11,000
Accounts Payable - Raintree........ 11,000Purchased merchandise on credit.
11 Accounts Payable - Raintree........... 11,000Merchandise Inventory............... 330Cash.......................................... 10,670
Paid account payable within the discount period;11,000 x 3% = 330.
b.Mar. 1 Accounts Receivable – Sundown Company11,000
Sales......................................... 11,000Sold merchandise on account.
1 Cost of Goods Sold ........................ 7,500Merchandise Inventory .............. 7,500
To record cost of sale.
11 Cash.............................................. 10,670Sales Discounts............................. 330
Accounts Receivable – Sundown Company11,000
Collected account receivable.
Analysis component:
Amount borrowed to pay the balance owing$10,670.00Annual rate of interest ........................ × 8% Interest per year.................................$ 853.60
Interest per day ($853.60/365).............$ 2.34
Discount taken....................................$ 330.00Interest paid on the 50-day* loan (50 $2.34)
(117.00)Net savings from borrowing to pay within
the discount period...........................$ 213.00
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*60 days in credit period – 10 days in discount period = 50 days.
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Exercise 6-7 (25 minutes)a.2011May11 Merchandise Inventory ............ 30,000
Accounts Payable – Hostel Sales30,000
Purchased merchandise on credit.
11 Merchandise Inventory ............ 335Cash................................... 335
Paid shipping charges on purchased merchandise.
12 Accounts Payable – Hostel Sales.. 1,200Merchandise Inventory .......... 1,200
Returned unacceptable merchandise.
20 Accounts Payable – Hostel Sales.. 28,800Merchandise Inventory........... 864Cash...................................... 27,936
Paid balance within the discount period; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864.
b.2011May11 Accounts Receivable – Wilson Purchasing 30,000
Sales..................................... 30,000Sold merchandise on account.
11 Cost of Goods Sold..................... 20,000Merchandise Inventory........... 20,000
To record cost of sale.
12 Sales Returns and Allowances..... 1,200Accounts Receivable – Wilson Purchasing
1,200Accepted a return from a customer.
12 Merchandise Inventory .............. 800Cost of Goods Sold................. 800
Returned goods to inventory.
21 Cash.......................................... 27,936Sales Discounts.......................... 864
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Accounts Receivable – Wilson Purchasing28,800
Collected account receivable; 30,000 – 12,000 = 28,800; 28,800 x 3% = 864.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 465
Exercise 6-7 (concluded)Analysis Component
Amount borrowed to pay the amount owing$27,936.00
Annual rate of interest ....................... × 5% Interest per year................................$ 1,396.80
Interest per day ($1,396.80/365).........$ 3.83
Discount taken...................................$ 864.00Interest paid on the 80-day* loan (80 $3.83) (306.40)Net savings from borrowing to pay within
the discount period.........................$ 557.60
*90 days in credit period – 10 days in discount period = 80 days.
Exercise 6-8 (10 minutes) 1. d. 6. e. 2. c. 7. j. 3. f. 8. i. 4. a. 9. b. 5. h. 10. g.
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Exercise 6-9 (30 minutes)
Merchandise InventoryBalance, Dec. 31, 2010 ......................
37,000 Purchase discounts received.....................
1,600
Invoice cost of purchases...............
190,500
Purchase returns and
Returns by customers ..............
2,200 allowances received 4,100
Transportation-in . . . 1,900 Cost of sales transactions ..............
186,000
Shrinkage ................. 32,000Balance, Dec. 31, 2011.......................
7,900
Cost of Goods SoldRepresents all entries to record the cost component of sales transactions...........
186,000
Represents all entries to record merchandise returned by customers and restored to inventory during 2011
2,200
Inventory shrinkage recorded in December 31, 2011, adjusting entry.......
32,000
Balance .................. 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.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 467
Exercise 6-10 (10 minutes)a)500,000 – 17,000 – 3,000 = 480,000 net salesb)28,000 + 124,000 = 152,000 total operating expensesc) 480,000 – 124,000 = 356,000 cost of goods soldd) (124,000/480,000) × 100 = 25.83%
Analysis component:The change in the gross profit ratio for the year ended May 31, 2010 was 2.83% (from 23% to 25.83%). This is a favourable change because Westlawn is generating more gross profit per sales dollar that will contribute towards the covering of operating expenses.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.468 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-11 (30 minutes)Company A Company B2011 2010 2011 2010
Sales............................256,000
160,000
110,000
50,000
Sales discounts.............2,56
01,60
01,10
0 500Sales 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...........17,9
2016,0
0024,2
009,00
0Administrative expenses......................
25,600
24,000
29,700
11,000
Total operating expenses......................
43,520
40,000
53,900
20,000
Net income (loss)..........5,12
014,4
00(5,50
0)2,00
0
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.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 469
— Sales returns and allowances are higher as a percentage of sales for Company A than Company B (which is particularly interesting considering that Company A has a higher COGS than Company B … you might assume higher quality but then why the higher returns/allowances?).
— Company B has higher operating expenses as a percentage of sales than Company A.
Company B has more than doubled its sales from 2010 to 2011 in comparison to the growth for Company A.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.470 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-12 (20 minutes)(a) (b) (c)
Purchases......................... $ 90,000
$ 160,00
0
$ 122,000
Purchases discounts.......... (4,000) (10,000) (2,600)Purchases returns and allowances........................
(3,000) (6,000) (4,400)
Transportation-in.............. 6,400 14,
000 16,0
00Cost of goods purchased. . . $
89,400$
158,000
$ 131,000
Beginning inventory.......... $ 7,000
$38,400
$ 36,000
Cost of goods purchased. . . 89,400 158,000
131,000
Ending inventory............... (4,400
) (30,000
) (30,480)
Cost of goods sold............. $92,000
$ 166,40
0
$ 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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Exercise 6-13 (30 minutes)Company A Company B2011 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......74,3
00108,000
50,455
25,225
Gross profit from sales. .45,7
0072,0
0039,5
4519,7
75
Operating expenses.......36,0
0054,0
0027,0
0013,5
00
Net income (loss)..........9,70
018,0
0012,5
456,27
5
Gross profit ratio...........38.08% 1
40.00% 2
43.94% 3
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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Exercise 6-14 (20 minutes)(a) (b) (c)
Invoice cost of merchandise purchases............................
$ 45,000
$ 20,000
$ 15,250
Purchase discounts received. (2,000) (1,250)
(325)
Purch. returns and allow. received...............................
(1,500) (750) (550)
Cost of transportation-in....... 3,200
1,750
2, 000
Total cost of merchandise purchases............................
$ 44,700
$ 19,750
$ 16,375
Merchandise inventory (beginning)..........................
$ 3,500
$ 4,800
$ 4,500
Total cost of merchandise purchases............................
44,700 19,750 16,375
Merchandise inventory (ending)...............................
(2,200
) (3,750
) (3,810)
Cost of goods sold................ $46,000
$ 20,800
$ 17,065
a. 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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Exercise 6-15 (30 minutes)a) Multiple-step income statement:
COMPU-SOFTIncome Statement
For Month Ended November 30, 2011
Net sales..................................... $26,935*
Cost of goods sold....................... 14,8 00
Gross profit from sales................ $12,135
Operating expenses: Wages expense...................... $4,2
00 Utilities expense.................... 2,10
0 Amortization expense, store equipment...................................
12 0
Total operating expenses..... 6,4 20
Income from operations............... $ 5,715
Other revenues and expenses: Rent revenue......................... 8
50Net income.................................. $
6,565*Calculated as: 27,700 – 45 – 720 = 26,935b)2011
Closing entries:
Nov.
30
Rent Revenue............................ 850
Sales........................................ 27,700
Income Summary................. 28,550
To close temporary credit balance accounts.
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30
Income Summary....................... 21,985
Sales returns and allowances 720 Sales discounts.................... 45 Cost of goods sold................ 14,80
0 Amortization expense, store equipment................................
120
Wages expense.................... 4,200 Utilities expense.................. 2,100 To close temporary debit balance accounts.
30
Income Summary....................... 6,565
Peter Delta, capital.............. 6,565 To close income summary to capital.
30
Peter Delta, capital................... 3,500
Peter Delta, withdrawals...... 3,500 To close withdrawals to capital.
Exercise 6-15 (concluded)c)
Peter Delta, Capital
1,635 (Beg. bal.)$1,635 – $3,500 + $6,565 = $4,700 OR
(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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Exercise 6-16 (60 minutes)a)
Perdu SalesWork Sheet
For Year Ended December 31, 2011
Account
UnadjustedTrial
BalanceAdjustment
s
Income Statement
Balance Sheet and Statement of Owner’s
EquityDebit Credi
tDebit Credi
tDebit Credi
tDebi
tCredi
tCash 26,0
0026,0
00Merchandise inventory 2,00
02,00
0Prepaid selling expenses 8,00
01,50
06,50
0Store equipment 40,0
0040,0
00Accumulated amortization, store eq.
9,000
2,500
11,500
Accounts payable 14,840
14,840
Salaries payable 0 3,200
3,200
Eldon Perdu, capital 45,600
45,600
Eldon Perdu, withdrawals 3,600
3,600
Sales 858,000
858,000
Sales returns and allowances
33,000
33,000
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Fundamental Accounting Principles, Tw
elfth Canadian Edition
Sales discounts 8,000
8,000
Cost of goods sold 424,840
424,840
Sales salaries expense 94,000
3,200
97,200
Utilities expense, store 28,000
28,000
Amortization expense, store equip.
- 2,500
2,500
Other selling expenses 70,000
1,500
71,500
Other administrative expenses
190,000
190, 000
Totals 927,440
927,440
7,200
7,200
855,040
858,000
78,100
75,140
Net Income 2,9 60
2,9 60
Totals 858,000
858,000
75,600
75,600
Exercise 6-16 (continued)b) Classified multiple-step income statement:
PERDU SALESIncome Statement
For Year Ended December 31, 2011Sales.............................................. $858,0
00Less: Sales returns and allowances $33,00
0Sales discounts............. 8,000 41,0
00Net sales........................................ $817,0
00Cost of goods sold.......................... 424,84
0Gross profit from sales.................... $392,1
60Operating expenses: Selling expenses: Sales salaries expense............... $97,
200 Other selling expenses............... 71,
500 Utilities expense, store............. 28,0
00 Amortization expense, store..... 2,5
00 Total selling expenses............... $199,2
00 General and administrative expenses:.......................................
190,0 00
Total operating expenses............. 389,2 00
Net income..................................... $ 2,960
c) 2011
Closing entries:
Dec.
31
Sales............................................. 858,000
Income Summary...................... 858,000
To close sales.
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31
Income Summary........................... 855,040
Sales Returns and Allowances. . . 33,000 Sales Discounts........................ 8,000 Cost of Goods Sold.................... 424,84
0 Sales Salaries Expense.............. 97,200 Utilities Expense....................... 28,000 Selling Expenses....................... 71,500 Amortization Expense, Store Equipment.....................................
2,500
Administrative Expenses........... 190,000
To close temporary debit balance accounts.
31
Income Summary........................... 2,960
Eldon Perdu, Capital................. 2,960 To close the Income Summary account to capital.
31
Eldon Perdu, Capital...................... 3,600
Eldon Perdu, Withdrawals......... 3,600 To close withdrawals to capital.
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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 StatementFor Year Ended January 31, 2011
Revenues: Net sales............................... $510,00
0Expenses: Cost of goods sold................. $301,
000 Selling expenses..................... 117,00
0 General and administrative expenses..................................
109,000
Interest expense..................... 75 0
Total expenses....................... 527,75 0
Net loss.................................... $ 17,750
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*Exercise 6-18 (20 minutes)1) Periodic PerpetualNov.
1 Purchases................ 2,800
Merchandise Inventory 2,800
Accounts Payable 2,800
Accounts Payable 2,800
To record purchases on account.
To record purchases on account.
2)Nov.
5 Accounts Payable.... 2,800
Accounts Payable.... 2,800
Purchases Discount.................
56 Merchandise Inventory................
56
Cash.................. 2,744
Cash.................. 2,744
To record cash payment within discount period; 2,800 x 2% = 56.
To record cash payment within discount period; 2,800 x 2% = 56.
3)Nov.
7 Cash....................... 196 Cash......................... 196
Purchases Returns and Allowances....
196
Merchandise Inventory.................. To record cheque received for
196
To record cheque received for return of purchases previously paid for with discount already taken; 200 – 2% = 196.
return of merchandise previously paid for with discount already taken; 200 – 2% = 196.
4)Nov.
10
Transportation-In.... 160 Merchandise Inventory 160
Cash.................. 160 Cash.................... 160 To record payment of freight charges.
To record payment of freight charges.
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5)Nov.
13
Accounts Receivable 3,000
Accounts Receivable. 3,000
Sales................. 3,000
Sales................... 3,000
To record sale of merchandise on credit.
To record sale of merchandise on credit.
13
No entry. Cost of Goods Sold.... 1,500
Merchandise Inventory..................
1,500
To record cost of merchandise sold.
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*Exercise 6-18 (concluded)6)Nov.
16
Sales Returns and Allowances.............
400 Sales Returns and Allowances.............
400
Accounts Receivable..............
400 Accounts Receivable..............
400
To record return of merchandise bought on account.
To record return of merchandise bought on account.
16
No entry. Merchandise Inventory 200
Cost of Goods Sold 200 To record return of merchandise by customer.
*Exercise 6-19
Feb. 1 Purchases................................... 7,000 Accounts Payable.................. 7,000 To record purchase; terms 1/10, n30.
5 Purchases................................... 2,400 Cash..................................... 2,400 To record purchase for cash.
6 Purchases................................... 10,000 Accounts Payable.................. 10,000 To record purchase; terms 2/15, n45.
9 Office Supplies............................ 900 Accounts Payable.................. 900 To record purchase; n15.
10
No entry.
11
Accounts Payable........................ 7,000
Cash..................................... 6,930 Purchase Discounts............... 70
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To record payment within discount period; $3,500 x 1% = $35 discount.
24
Accounts Payable........................ 900
Cash..................................... 900 To record payment.
Mar. 23
Accounts Payable........................ 10,000
Cash..................................... 10,000 To record payment.
*Exercise 6-20 (25 minutes)2011Mar
2 Purchases........................................ 3,600
Accounts Payable — Blanton Company.................................
3,600
Purchased merchandise on credit.3 Transportation-in............................. 200
Cash................................... 200 Paid shipping charges on purchased merchandise.
4 Accounts Payable — Blanton Company.........................................
600
Purchase Returns and Allowances......................................
600
Returned unacceptable merchandise.
17 Accounts Payable — Blanton Company.........................................
3,000
Purchase Discounts.......................... 60Cash................................................ 2,940
Paid balance within the discount period; 3,600 – 600 = 3,000; 3,000 x 2% = 60.
18 Purchases........................................ 7,500Accounts Payable — Fleming Corp................................................
7,500
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Purchased merchandise on credit.21 Accounts Payable — Fleming Corp.. . . 2,100
Purchase Returns and Allowances......................................
2,100
Received an allowance on purchase.
28 Accounts Payable — Fleming Corp.. . . 5,400Purchase Discounts.......................... 108Cash................................................ 5,292
Paid balance within the discount period; 7,500 – 2,100 = 5,400; 5,400 x 2% = 108.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 485
*Exercise 6-21 (20 minutes)
Jan. 5 Accounts Receivable.................... 4,000 Sales.................................... 4,000 To record sale; terms 1/10, n30.
7 Cash........................................... 3,600 Sales.................................... 3,600 To record cash sale.
8 Accounts Receivable.................... 9,600 Sales.................................... 9,600 To record sale; terms 1/10, n30.
15
Cash........................................... 3,960
Sales Discounts........................... 40 Accounts Receivable.............. 4,000 To record collection within discount period; $2,000 x 1% = $20 discount.
Feb. 4 Cash........................................... 9,600 Accounts Receivable.............. 9,600 To record collection.
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*Exercise 6-22 (20 minutes)
Feb. 1 Accounts Receivable.................... 2,400 Sales.................................... 2,400 To record sale; terms 2/10, n30, FOB destination.
2 Delivery Expense or Freight-Out... 150 Cash..................................... 150 To record delivery expenses for goods sold.
3 Sales Returns and Allowances...... 1,200 Accounts Receivable.............. 1,200 To record return of merchandise.
4 Accounts Receivable.................... 3,800 Sales.................................... 3,800 To record sale; terms 2/10, n30, FOB destination.
11
Cash........................................... 1,176
Sales Discounts........................... 24 Accounts Receivable.............. 1,200 To record collection, less return and discount; $2,400 - $1,200 = $1,200 x 2% = $24 discount.
23
Cash........................................... 1,200
Sales.................................... 1,200 To record cash sale.
28
Cash........................................... 3,800
Accounts Receivable.............. 3,800 To record collection.
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*Exercise 6-23 (15 minutes)a)2011Mar.
1Purchases........................................ 11,000
Accounts Payable – Raintree..... 11,000 Purchased merchandise on credit.
11 Accounts Payable – Raintree............. 11,000Purchase Discounts ................. 330Cash........................................ 10,670
Paid account payable within the discount period; 11,000 x 3% = 330.
b)2011Mar.
1Accounts Receivable – Sundown Company.........................................
11,000
Sales....................................... 11,000 Sold merchandise on account.
11 Cash................................................ 10,670Sales Discounts............................... 330
Accounts Receivable – Sundown Company..................................
11,000
Collected account receivable.
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*Exercise 6-24 (20 minutes) a)
2011May
11Purchases........................................ 30,000
Accounts Payable – Hostel Sales 30,000 Purchased merchandise on credit.
11 Transportation-In............................. 335Cash........................................ 335
Paid shipping charges on purchased merchandise.
13 Accounts Payable – Hostel Sales....... 1,200Purchase Returns and Allowances...............................
1,200
Returned unacceptable merchandise.
20 Accounts Payable – Hostel Sales....... 28,800Purchase Discounts.................. 864Cash........................................ 27,936
Paid balance within the discount period; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864.
b)
2011May
11Accounts Receivable – Wilson Purchasing......................................
30,000
Sales....................................... 30,000 Sold merchandise on account.
12 Sales Returns and Allowances.......... 1,200Accounts Receivable – Wilson Purchasing...............................
1,200
Accepted a return from a customer.
21 Cash................................................ 27,936Sales Discounts............................... 864
Accounts Receivable – Wilson 28,800
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Purchasing............................... Collected account receivable; 30,000 – 1,200 = 28,800; 28,800 x 3% = 864.
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*Exercise 6-25 (35 minutes)a. Gross profit from sales...............
$145,000Less: Operating expenses..........
? Net income................................ $
65,000Therefore:Total operating expenses........... $
80,000
b. Sales.........................................$340,000Less:..................Sales discounts $ 5,500
Sales returns....................... 14,000 19,500
Net sales...................................$320,500Less: Cost of goods sold.............
? Gross profit from sales...............$145,000Therefore:Cost of goods sold.....................$175,500
c. Merchandise inventory (beginning) $ 30,000
Invoice cost of merchandise purchases $175,000Less:............Purchase discounts 3,600
Purchase returns................. 6,000Net purchases ........................... $165,400Add: Transportation-in .............. 11,000Total cost of merchandise purchased
176,400Goods available for sale ............$206,400Less: Merchandise inventory (ending)
? Cost of goods sold (from b)........$175,500Therefore:Merchandise inventory (ending). $
30,900
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 491
d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal places)
Analysis component:The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross profit ratio of 47%, this represents an unfavourable change. This is unfavourable because the gross profit generated per net sales dollar decreased in 2011 from 2010 thereby contributing less towards the coverage of operating expenses in 2011 than in 2010.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.492 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-26 (40 minutes)DEWER’S STOP‘N SHOP
Work SheetFor Year Ended December 31, 2011
Unadjusted Trial
Balance Adjustments
Income Statement
Balance Sheet and Statement of Owner’s
Equity No. Account Debit Credi
tDebit Credit Debi
tCredit Debi
tCredit
101 Cash.................... 7,400 7,400
106 Accounts receivable.....................3,600 3,600
119 Merchandise inventory.............
2,400 2,400
2,720 2,720
125 Store supplies...... 1,200 (a) 300 900201 Accounts payable. 280 280209 Salaries payable... (b)
120120
301 Mi Dewer, capital. 11,570
11,570
302 Mi Dewer, withdrawals.........
750 750
413 Sales................... 12,000
12,000
414 Sales returns and allowances...........
290 290
505 Purchases............ 6,400 6,400
506 Purchase discounts......................250 250507 Transportation-in. 160 160
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-Hill Ryerson Lim
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anual for Chapter 6475
622 Salaries expense. . 1,400 (b) 120
1,520
640 Rent expense....... 500 500651 Store supplies
expense...............
(a) 300
30 0
Totals............... 24,100
24,100
4 20
420 11,570
14,970
15,370
11,970
Net income.......... 3,400
3,400
Totals 14,970
14,970
15,370
15,370
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*Exercise 6-27 (30 minutes)
a)
Net Sales:
Sales.................................................. $445,000 Sales returns and allowances................ (25,000) Sales discounts.................................... (16,000) Net sales............................................. $404,000
b)
Cost of goods purchased:
Purchases................................................ $286,000 Purchases returns and allowances............. (22,000)Purchase discounts.................................. (11,400)Transportation-in..................................... 8,800 Cost of goods purchased........................... $261,400
c) Cost of goods sold:Beginning inventory................................. $ 15,000 Cost of goods purchased........................... 261,400 Goods available for sale............................ $276,400 Ending inventory...................................... (11,000) Cost of goods sold.................................... $265,400
d) Multiple-step income statement:
FOX FIXTURES CO.Income Statement
For Year Ended March 31, 2011Net sales...................................... $404,000Cost of goods sold........................ 265,400Gross profit from sales.................. $138,600Operating expenses: Selling expenses........................ $69,000 General and administrative expenses 33,500 Total operating expenses........ 102,500Income from operations................ $ 36,100Other revenues and expenses: Interest revenue........................ 1,200Net income................................... $ 37,300
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 495
*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 ELECTRONICSIncome Statement
For Month Ended April 30, 2011Sales............................................. $33,7
00Less: Sales returns and allowances 1,
740Net sales........................................ $31,9
60Cost of goods sold: Merchandise inventory, March 31, 2011 $
6,200 Purchases..................................$16,676 Less: Purchase discounts........... 28 Purchase returns and allowances 110 Net purchases.................................................................................$16,538 Add: Transportation-in............ 380 Cost of goods purchased............. 16,9
18 Cost of goods available for sale... $23,1
18 Less: Merchandise inventory, April 30, 2011 2,46
0Cost of goods sold.......................... 20,6
58Gross profit from sales................... $
11,302
Operating expenses:....................... Selling expenses: Wages expense, selling............... $8,000 Amortization expense, delivery trucks
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.496 Fundamental Accounting Principles, Twelfth Canadian Edition
..................................................... 640 Telephone expense, store........... 340 Total selling expenses................. $8,98
0 General and administrative expenses: Wages expense, office................. 2,800 Telephone expense, office........... 150 Total general and administrative expenses 2,950 Total operating expenses............ 11,9
30Operating loss................................ $
628Other revenues and expenses: Interest expense........................ 1
30Net loss......................................... $
758
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 497
*Exercise 6-28 (concluded)d)2011 Closing entries:Apr.
30
Merchandise Inventory............... 2,460
Purchases Returns and Allowances.................................
110
Purchases Discounts................... 28Sales......................................... 33,70
0Income Summary..................... 36,298
To close temporary credit balance accounts.
30
Income Summary........................ 37,056
Merchandise Inventory............ 6,200Sales Returns and Allowances. . 1,740Purchases............................... 16,676Transportation-In.................... 380Amortization Expense, Delivery
Trucks.......................................640
Wages Expense, Office............. 2,800Wages Expense, Selling........... 8,000Telephone Expense, Office....... 150Telephone Expense, Store........ 340Interest Expense..................... 130
To close temporary debit balance accounts.
30
John Yu, Capital.......................... 758
Income Summary..................... 758 To close income summary to capital.
30
John Yu, Capital.......................... 9,200
John Yu, Withdrawals............... 9,200 To close withdrawals to capital.
Part e:
John Yu, Capital
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.498 Fundamental Accounting Principles, Twelfth Canadian Edition
(Net loss)
758 30,300
(Beg. bal.)
$30,300 – $9,200 - $758 = $20,342 OR
(With.) 9,200
20,342
(End. bal.)
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 499
*Exercise 6-29 (15 minutes)
June 1 Merchandise Inventory ............ 2,000GST Receivable ....................... 120
Accounts Payable ............... 2,120To record credit purchase; $2,000 x 6% = 120 GST.
5 Accounts Receivable ................ 1,596PST Payable ....................... 112GST Payable ....................... 84Sales .................................. 1,400
To record credit sale; $1,400 x 8% = 112 PST; $1,400 x 6% = $84 GST.
5 Cost of Goods Sold................... 1,000Merchandise Inventory ........ 1,000
To record cost of sale.
*Exercise 6-30 (15 minutes)
June 1 Purchases ............................... 2,000GST Receivable ....................... 120
Accounts Payable ............... 2,120To record credit purchase; $2,000 x 6% = $120 GST.
5 Accounts Receivable ................ 1,596PST Payable ....................... 112GST Payable ....................... 84Sales .................................. 1,400
To record credit sale; $1,400 x 8% = 112 PST; $1,400 x 6% = $84 GST.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.500 Fundamental Accounting Principles, Twelfth Canadian Edition
PROBLEMS
Problem 6-1A (40 minutes) Part 1June 1 Accounts Receivable – Avery & Wiest 7,00
0 Sales.................................... 7,00
0 To record sales; terms 2/5, n15, FOB destination.
1 Cost of Goods Sold...................... 6,250
Merchandise Inventory.......... 6,250
To record cost of sales.
2 Merchandise Inventory................ 3,500
Accounts Payable – Angolac Suppliers.....................................
3,500
To record purchase of merchandise; terms 1/10, n20, FOB shipping point.
4 Merchandise Inventory................ 14,500
Accounts Payable – Bastille Sales 14,500
To record purchase of merchandise; terms 1/15, n45, FOB Bastille Sales.
5 Accounts Receivable – Gelgar....... 11,000
Sales.................................... 11,000
To record sales; terms 2/5, n15, FOB destination.
5 Cost of Goods Sold...................... 9,000
Merchandise Inventory.......... 9,000
To record cost of sales.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 501
6 Cash........................................... 6,860
Sales Discounts........................... 140 Accounts Receivable – Avery & Wiest..........................................
7,000
To record collection within discount period; $7,000 x 2% = $140 discount.
12
Accounts Payable – Angolac Suppliers 3,500
Cash..................................... 3,465
Merchandise Inventory.......... 35 To record payment within discount period; $3,500 x 1% = $35 discount.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.502 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-1A (concluded)June 2
0Cash........................................... 11,0
00 Accounts Receivable – Gelgar. 11,0
00 To record collection.
30
Accounts Payable – Bastille Sales. 14,500
Cash..................................... 14,500
To record payment.
Part 2a. Net sales = $17,860 ($7,000 + $11,000 - $140)b. Cost of goods sold = $15,250 ($6,250 + $9,000)c. Gross profit from sales = $2,610 ($17,860 - $15,250)
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 503
Problem 6-2A (40 minutes)July 1 Merchandise Inventory............. 12,000
Accounts Payable—Jones Co. 12,000
Purchased goods on credit.2 Accounts Receivable—Terra Co. 1,600
Sales................................... 1,600Sold goods on credit.
2 Cost of Goods Sold................... 1,000Merchandise Inventory........ 1,000
To record the cost of the July 2 sale.3 Merchandise Inventory............. 200
Cash................................... 200Paid freight on incoming goods.
8 Cash........................................ 3,200Sales................................... 3,200
Sold goods for cash.8 Cost of Goods Sold................... 2,400
Merchandise Inventory........ 2,400To record the cost of the July 8 sale.
9 Merchandise Inventory............. 4,600Accounts Payable—Keene Co.
4,600Purchased goods on credit.
12 Accounts Payable—Keene Co. . . 400Merchandise Inventory........ 400
Received credit memo.12 Cash........................................ 1,568
Sales Discounts........................ 32Accounts Receivable—Terra Co.
1,600Collected receivable within the discount period; 1,600 x 2% = 32.
13 Office Supplies ........................ 960Accounts Payable—East Co... 960
Purchased goods on credit.16 Accounts Payable—Jones Co. .... 12,000
Merchandise Inventory........ 120Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.504 Fundamental Accounting Principles, Twelfth Canadian Edition
Cash................................... 11,880Paid payable within the discount period; 12,000 x
1% = 120.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 505
Problem 6-2A (continued)19 Accounts Receivable—Urban Co. 2,500
Sales................................... 2,500Sold goods on credit.
19 Cost of Goods Sold................... 1,800Merchandise Inventory........ 1,800
To record the cost of the July 19 sale.
21 Sales Returns and Allowances... 300Accounts Receivable—Urban Co.
300Issued credit memo.
22 Sales....................................... 100Accounts Receivable—Urban Co.
100Received debit memo for error.
29 Accounts Payable—Keene Co. . . 4,200Cash................................... 4,200
Paid payable beyond the discount period.
30 Cash........................................ 2,058Sales Discounts........................ 42
Accounts Receivable—Urban Co. 2,100
Collected receivable within the discount period; 2,500 – 300 – 100 = 2,100; 2% × 2,100 = 42.
31 Accounts Receivable—Terra Co. 10,000Sales................................... 10,000
Sold goods on credit.
31 Cost of Goods Sold................... 6,400Merchandise Inventory........ 6,400
To record the cost of the July 31 sale.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.506 Fundamental Accounting Principles, Twelfth Canadian Edition
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
$ 4,116.00Annual rate of interest ............................ × 6% Interest per year......................................$ 246.96
Interest per day ($246.96/365).................$ 0.6766
Discount..................................................$ 84.00Interest that would be paid on the 45-day** loan (45 $0.6766).................................. (30.4461)Net savings from borrowing to pay within
the discount period...........................$ 53.5539 **60 days in credit period – 15 days in discount period = 45 days.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 507
Problem 6-3A (40 minutes)Aug.1 Merchandise Inventory.................... 3,000
Accounts Payable—Dickson Company3,000
Purchased goods on credit.
4 Accounts Payable—Dickson Company 50Cash.......................................... 50
Paid freight for Dickson.
5 Accounts Receivable—Griften Corp.. 2,100Sales......................................... 2,100
Sold goods on credit.
5 Cost of Goods Sold.......................... 1,500Merchandise Inventory............... 1,500
To record the cost of the July 5 sale.
8 Merchandise Inventory.................... 2,650Accounts Payable—Kendall Corporation
2,650Purchased goods on credit.
9 Delivery Expense or Freight-Out...... 60Cash.......................................... 60
Paid shipping charges on August 5 sale.
10 Sales Returns and Allowances......... 350Accounts Receivable—Griften Corp.
350Customer returned merchandise.
10 Merchandise Inventory.................... 250Cost of Goods Sold..................... 250
Returned goods to inventory.
12 Accounts Payable—Kendall Corporation 400Merchandise Inventory............... 400
Received a credit memorandum for August 8 purchase.
15 Cash............................................... 1,715Sales Discounts.............................. 35
Accounts Receivable—Griften Corp. 1,750
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.508 Fundamental Accounting Principles, Twelfth Canadian Edition
Collected receivable within the discount period; 2,100 – 350 = 1,750;2% × 1,750 = 35.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 509
Problem 6-3A (concluded)17 Office Equipment............................ 600
Accounts Payable–West Co.......... 600Purchased office equipment on credit.
18 Accounts Payable—Kendall Corporation 2,250Merchandise Inventory............... 22.50Cash..........................................
2,227.50Paid payable within the discount period; 2,650 – 400 = 2,250; 1% × 2,250 = 22.50.
19 Accounts Receivable—Farley........... 1,800Sales......................................... 1,800
Sold goods on credit.
19 Cost of Goods Sold.......................... 1,250Merchandise Inventory............... 1,250
To record the cost of the August 19 sale.
22 Sales Returns and Allowances......... 300Accounts Receivable—Farley....... 300
Issued credit memo.
29 Cash............................................... 1,485Sales Discounts.............................. 15
Accounts Receivable—Farley....... 1,500Collected receivable within the discount period; 1,800 – 300 = 1,500; 1% × 1,500 = 15.
30 Accounts Payable—Dickson Company 2,950Cash.......................................... 2,950
Paid payable; $3,000 – $50 = 2,950.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.510 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-4A (80 minutes) 1.
JUMBO’SWork Sheet
For Year Ended December 31, 2011Unadjusted
Trial Balance Adjustment
s
Income Statement
Balance Sheet and
Statement of Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit CreditCash..................................... 10,275 10,275Accounts receivable............... 22,665 22,665Merchandise inventory........... 54,365 (e)
56553,800
Store supplies....................... 2,415 (a) 2,000
415
Office Supplies...................... 775 (a) 700
75
Prepaid insurance.................. 3,255 (b) 2,800
455
Equipment............................. 74,490 74,490Accumulated amortization, equipment
13,655 (c) 6,000
19,655
Accounts payable.................. 8,000 8,000Salaries payable.................... (d)
655655
Sally Fowler, capital............... 166,015
166,015
Sally Fowler, withdrawals....... 15,000 15,000Interest revenue.................... 310 310Sales..................................... 502,14
0502,14
0Sales returns and allowances. 5,070 5,070Cost of goods sold.................. 381,16
0(e)
565381,72
5Salaries expense.................... 91,550 (d)
65592,205
Rent expense........................ 29,100 29,100
Copyright © 2007 by M
cGraw
-Hill Ryerson Lim
ited. All rights reserved.Solutions M
anual for Chapter 6487
Supplies expense................... (a) 2,700
2,700
Amortization expense, equipment.............................
(c) 6,000
6,000
Insurance expense.................
(b) 2,800
2,80 0
Totals................................. 690,120
690,120
12,7 20
12,7 20
519,600
502,450
177,175
194,325
Net loss.................................
17,15 0
17,15 0
Totals................................. 519,600
519,600
194,325
194,325
Problem 6-4A (concluded) 2. Multiple-step income statement:
JUMBO’SIncome Statement
For Year Ended December 31, 2011
Net sales1................................... $497,070
Cost of goods sold.......................................................................
381,7 25
Gross profit from sales.................................................................
$115,345
Operating expenses: Salaries expense...................... $92,20
5 Rent expense........................... 29,100 Supplies expense..................... 2,700 Amortization expense, equipment..................................
6,000
Insurance expense................... 2,800 Total operating expenses.......... 132,8
05 Loss from operations....................................................................
$ 17,460
Other revenues and expenses: Interest revenue.................... 3
10 Net loss...................................... $
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 day-to-day operating activity for Jumbo’s. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 513
Problem 6-5A
1. Classified, multiple-step income statement:DAVISON COMPANYIncome Statement
For Year Ended October 31, 2011Sales............................................ $424,000 Less: Sales discounts................ $ 6,500 Sales returns and allowances 28,000...................................... 34,500 Net sales................................... $389,500Cost of goods sold........................ 165,200Gross profit from sales.................. $224,300Operating expenses:
Selling expenses:Sales salaries expense............. $58,000Advertising expense................ 36,000Rent expense, selling space...... 20,000Store supplies expense............ 5,000Total selling expenses.............. $ 119,000
General and administrative expenses:Office salaries expense............. $53,000Rent expense, office space....... 5,200Office supplies expense............ 1,600Total general and administrative expenses
59,800 ...................................Total operating expenses............ 178,800
Income from operations................ $ 45,500Other revenues and expenses: Interest revenue...................... 1,120Net income................................... $ 46,620
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.514 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-5A (concluded)2. Single-step income statement:
DAVISON COMPANYIncome Statement
For Year Ended October 31, 2011 Revenues:
Net sales.................................... $389,500Interest revenue......................... 1,120 Total revenues......................... $390,620
Expenses:Cost of goods sold......................$165,200Selling expenses........................119,000General and administrative expenses 59,800 Total expenses........................ 344,000
Net income................................... $ 46,620
Problem 6-6A (30 minutes)Oct. 31 Interest Revenue...................... 1,120
Sales ...................................... 424,000Income Summary................. 425,120
To close temporary accounts with credit balances.
31 Income Summary..................... 378,500Sales Discounts .................. 6,500Sales Returns and Allowances
28,000Cost of Goods Sold.............. 165,200Sales Salaries Expense......... 58,000Rent Expense, Selling Space. 20,000Store Supplies Expense........ 5,000Advertising Expense............ 36,000Office Salaries Expense........ 53,000Rent Expense, Office Space. . 5,200Office Supplies Expense....... 1,600
To close temporary accounts with debit balances.
31 Income Summary..................... 46,620Brenda Davison, Capital....... 46,620
To close the Income Summary account.
31 Brenda Davison, Capital........... 32,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 515
Brenda Davison, Withdrawals32,000
To close the withdrawals account.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.516 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-7A (60 minutes)1. Classified, multiple-step income statement:
PLYMOUTH ELECTRONICSIncome Statement
For Year Ended December 31, 2011
Sales........................................................................................
$963,000
Less: Sales returns and allowances................................
$ 5,715
Sales discounts............................................................
14,580 20,2 95
Net sales.............................. $942,705
Cost of goods sold.....................................................................
652,0 25
Gross profit from sales...............................................................
$290,680
Operating expenses: Selling expenses: Sales salaries expense..........................................................
$80,080
Rent expense, selling space. . 33,000
Amortization expense, store equipment.................................
8,910
Store supplies expense.........................................................
1,62 0
Total selling expenses...........................................................
$123,610
General and administrative expenses: Office salaries expense.........................................................
$ 65,94
5 Insurance expense................................................................
3,390
Rent expense, office space.... 3,000 Amortization expense, office equipment.................................
2,760
Office supplies expense.........................................................
73 5
Total general and administrative expenses............
75,83 0
Total operating expenses......... 199,4 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 517
................................................ 40 Income from operations............. $
91,240Other revenues and expenses: Dividend revenue................. 7
20 Net income................................ $
91,960
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.518 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-7A (concluded)2. Single-step income statement:
PLYMOUTH ELECTRONICSIncome Statement
For Year Ended December 31, 2011
Revenues: Net sales....................................... $942,70
5 Dividend revenue........................... 72
0 Total revenues............................ 943,425Expenses: Cost of Goods sold......................... $652,02
5 Selling expenses............................ 123,610 General and administrative expenses 75,830 Total expenses............................ 851,465 Net income....................................... $
91,960
Analysis component:The gross profit ratio for Plymouth Electronics’ year ended December 31, 2011 is 30.83% ($942,705 - $652,025 = $290,680 gross profit; $290,680/$942,705 × 100 = 69.17%). This represents an unfavourable change when compared to the 32% gross profit ratio for the prior year.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 519
Problem 6-8A (20 minutes)2011 Closing entries:Dec.
31
Dividend Revenue.......................... 720
Sales............................................. 963,000
Income Summary...................... 963,720
To close temporary accounts with credit balances.
31
Income Summary........................... 871,760
Sales Returns and Allowances.... 5,715 Sales Discounts........................ 14,580 Cost of goods sold.................... 652,02
5 Sales Salaries Expense.............. 80,080 Rent Expense, Selling Space...... 33,000 Store Supplies Expense............. 1,620 Amortization Expense, Store Equipment.....................................
8,910
Office Salaries Expense............. 65,945 Rent Expense, Office Space........ 3,000 Office Supplies Expense............. 735 Insurance Expense.................... 3,390 Amortization Expense, Office Equipment
2,760
To close temporary accounts with debit balances.
31
Income Summary........................... 91,960
Celine Plymouth, Capital............ 91,960 To close Income Summary to capital.
31
Celine Plymouth, Capital................. 50,000
Celine Plymouth, Withdrawals. . . 50,000 To close withdrawals to capital.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.520 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-9A (60 minutes)
1. Classified multiple-step income statement
Bell ServicingIncome Statement
For Year Ended December 31, 2011
Sales........................................................................................
$180,000
Less: Sales discounts............ _2,00 0
Net sales.............................. $178,000
Cost of goods sold.....................................................................
74,80 0
Gross profit from sales...............................................................
$103,200
Operating expenses: Selling expenses: Sales salaries expense..........................................................
$20,000
Advertising expense............ 17,600
Rent expense, selling space. . 7,000 Store supplies expense.........................................................
2,400
Insurance expense, store..... 2,000 Amortization expense, store equipment.................................
1, 400
Total selling expenses...........................................................
$50,400
General and administrative expenses: Office salaries expense.........................................................
$ 12,00
0 Rent expense, office space.... 3,000 Amortization expense, office equipment.................................
1,800
Insurance expense, office......................................................
1,600
Office supplies expense.........................................................
1, 200
Total general and 19,6
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 521
administrative expenses............ 00 Total operating expenses.........................................................
70,00 0
Net income................................ $33,200
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.522 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-9A (concluded) 2. Multiple-step income statement
Bell ServicingIncome Statement
For Year Ended December 31, 2011
Net sales.................................. $178,000
Cost of goods sold.................... 74,80 0
Gross profit from sales.............. $103,200
Operating expenses: Salaries expense.................... $32,00
0 Advertising expense............... 17,6
00 Rent expense......................... 10,000 Insurance expense................. 3,600 Supplies expense................... 3,600 Amortization expense, equipment...............................
3,200
Total operating expenses..... 70,00 0
Net income............................... $33,200
3. Single-step income statement
Bell ServicingIncome Statement
For Year Ended December 31, 2011
Revenues: Net sales............................... $178,0
00Expenses: Cost of goods sold................. $74,80
0 Selling expenses.................... 50,400 General and administrative expenses.................................
19,60 0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 523
Total expenses.................... 144,8 00
Net income............................... $33,200
Analysis component:If I were a decision maker external to Bell Servicing, I would prefer the classified multi-step 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.524 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-10A (40 minutes)June 1 Accounts Receivable – Avery &
Wiest..........................................7,000
Sales.................................... 7,000 To record sales; terms 2/5, n15, FOB destination.
2 Purchases................................... 3,500 Accounts Payable – Angolac Suppliers.....................................
3,500
To record purchase of merchandise; terms 1/10, n20, FOB shipping point.
4 Purchases................................... 14,500 Accounts Payable – Bastille Sales...........................................
14,500
To record purchase of merchandise; terms 1/15, n45, FOB Bastille Sales.
5 Accounts Receivable – Gelgar....... 11,000 Sales.................................... 11,000 To record sales; terms 2/5, n15, FOB destination.
6 Cash........................................... 6,860Sales Discounts........................... 140 Accounts Receivable – Avery & Wiest.......................................
7,000
To record collection within discount period; $7,000 x 2% = $140 discount.
12
Accounts Payable – Angolac Suppliers.....................................
3,500
Cash..................................... 3465 Purchase Discounts............... 35 To record payment within discount period; $3,500 x 1% = $35 discount.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 525
20
Cash........................................... 11,000
Accounts Receivable – Gelgar. 11,000 To record collection.
30
Accounts Payable – Bastille Sales. 14,500
Cash..................................... 14,500 To record payment.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.526 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-11A (30 minutes)Oct.
1 Purchases...................................... 14,400
Accounts Payable — Zeon Company.......................................
14,400
2 Cash.............................................. 1,500 Sales........................................ 1,50
07 Purchases...................................... 10,500
Accounts Payable — Billings Company.......................................
10,500
7 Transportation-In........................... 450 Cash........................................ 450
8 Delivery Equipment........................ 24,000 Accounts Payable — Finlay Supplies........................................
24,000
12
Accounts Receivable — Comry Holdings........................................
6,000
Sales........................................ 6,000
13
Accounts Payable — Billings Co....... 1,500
Purchases Returns and Allowances....................................
1,500
13
Office Supplies............................... 480
Accounts Payable — Staples....... 48015
Accounts Receivable — Tom Willis. . . 4,200
Sales........................................ 4,200
15
Accounts Payable — Billings Co....... 9,000
Purchases Discounts................. 180 Cash........................................ 8,82
0 $10,500 – $1,500 = $9,000; $9,000 × 2% = $180.
16
Accounts Payable — Staples............ 120
Office Supplies.......................... 120
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 527
19
Sales Returns and Allowances......... 420
Accounts Receivable — Tom Willis.............................................
420
25
Cash.............................................. 3,704.40
Sales Discounts.............................. 75.60
Accounts Receivable — Tom Willis
3,780.00
$4,200 – $420 = $3,780; $3,780 × 2% = $75.60.
27
Cash.............................................. 5,880
Sales Discounts.............................. 120 Accounts Receivable — Comry Holdings........................................
6,000
$6,000 × 2% = $120.31
Accounts Payable — Zeon Company. 14,400
Cash........................................ 14,400
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.528 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-12A (40 minutes)1. Net sales:
Sales................................................ $85,000 Less:
Sales returns and allowances.........7,500
Sales discounts............................ 1,125 Net sales........................................... $76,375
2. Cost of goods purchased: Purchases.......................................... $ 45,000 Less:
Purchases returns and allowances.2,150
Purchases discounts..................... 900 Transportation-in............................... 1,550 Cost of goods purchased..................... $ 43,500
3. Cost of goods sold: Beginning inventory........................... $ 12,500 Cost of goods purchased (from 2)........ 43,500 Less:
Ending inventory........................... 13,500
Cost of goods sold.............................. $ 42,500 4. Multiple-step income statement:
MENDELSTEIN COMPANYIncome Statement
For Year Ended October 31, 2011
Net Sales....................................... $76,375
Cost of goods sold......................... 42,50 0
Gross profit from sales................... $ 33,875
Operating expenses: Salaries expense........................ $22,00
0 Advertising expense................... 9,000 Rent expense............................. 6,250 Supplies expense....................... 1,950 Total operating expenses.......... 39,20
0 Loss from operations...................... $ 5,325Other revenues and expenses: Interest revenue.......................... 15
0 Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 529
Net loss......................................... $ 5,175
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.530 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-12A (concluded)5. Single-step income statement:
MENDELSTEIN COMPANYIncome Statement
For Year Ended October 31, 2011Revenues:
Net sales..................................... $76,375Interest revenue..........................
150 Total revenues.......................... $76,525
Expenses:....................................Cost of goods sold....................... $42,500Selling expenses.......................... 29,500General and administrative expenses.....................................
9,700
Total expenses.......................... 81,700 Net loss....................................... $ 5,175
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 531
*Problem 6-13A (30 minutes) 2011
Closing entries:
Oct.
31
Interest Revenue........................... 150
Merchandise Inventory.................. 13,500Sales............................................ 85,000Purchases Returns and Allowances. 2,150Purchases Discounts...................... 900 Income Summary..................... 101,7
00 To close temporary accounts with credit balances and record the ending inventory.
31
Income Summary........................... 106,875
Merchandise Inventory............. 12,500
Sales Returns and Allowances... 7,500 Sales Discounts........................ 1,125 Purchases................................ 45,00
0 Transportation-In..................... 1,550 Sales Salaries Expense............. 14,00
0 Rent Expense, Selling Space..... 5,000 Store Supplies Expense............ 1,500 Advertising Expense................. 9,000 Office Salaries Expense............. 8,000 Rent Expense, Office Space....... 1,250 Office Supplies Expense............ 450 To close temporary accounts with debit balances and to remove the beginning inventory balance.
31
Joe Mendelstein, Capital................ 5,175
Income Summary..................... 5,175 To close the Income Summary Account.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.532 Fundamental Accounting Principles, Twelfth Canadian Edition
31
Joe Mendelstein, Capital................ 8,500
Joe Mendelstein, Withdrawals. . 8,500 To close the withdrawals account.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 533
*Problem 6-14A (60 minutes) Part 1WOODSTOCK STORE
Work SheetFor Year Ended December 31, 2011
Unadjusted Trial
Balance Adjustments
Income Statement
Balance Sheet and
Statement of Owner’s Equity
Debit Credit
Debit Credit Debit Credit
Debit Credit
Cash.............................................. 7,305 7,305Merchandise inventory................... 47,00
047,000 48,98
048,98
0Store supplies................................ 1,715 (a)
1,330385
Office supplies................................ 645 (b) 465
180
Prepaid insurance........................... 3,960 (c) 880
3,080
Store equipment............................. 57,615
57,615
Accumulated amortization, store equipment......................................
8,750 (d) 3,500
12,250
Office equipment............................ 14,400
14,400
Accumulated amortization, office equipment......................................
9,000 (e) 3,600
12,600
Accounts payable........................... 4,000 4,000Zen Woodstock, capital................... 89,08
089,08
0Zen Woodstock, withdrawals........... 31,50
031,50
0Rental revenue............................... 680 680Sales.............................................. 478,8
50478,8
50Sales returns and allowances.......... 2,915 2,915Sales discounts............................... 5,190 5,190Purchases...................................... 331,3
15331,31
5Purchases returns and allowances... 1,845 1,845
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-Hill Ryerson Lim
ited. All rights reserved.Solutions M
anual for Chapter 6501
Purchases discounts....................... 4,725 4,725Transportation-in........................... 2,810 2,810Sales salaries expenses.................. 34,71
034,710
Rent expense, selling space............ 24,000
24,000
Advertising expense....................... 1,220 1,220Store supplies expense................... (a)
1,3301,330
Amortization expense, store equipment......................................
(d) 3,500
3,500
Office salaries expense................... 27,630
27,630
Rent expense, office space.............. 3,000 3,000Office supplies expense................... (b)
465465
Insurance expense.......................... (c) 880
880
Amortization expense, office equipment......................................
(e) 3,600
3,600
Totals.......................................... 596,930
596,930
9,7 75
9,77 5
489,565
535,080
163,445
117,930
Net income..................................... 45,51 5
45,5 15
Totals.......................................... 535,080
535,080
163,445
163,445
*Problem 6-14A (concluded) Part 22011 Closing entries: Page
G10Dec.
31
Rental Revenue.................................. 680
Merchandise Inventory........................48,980Sales..................................................478,85
0Purchase Returns and Allowances........ 1,845Purchase Discounts............................. 4,725 Income Summary........................... 535,08
0 To close temporary credit balance accounts.
31
Income Summary................................489,565
Merchandise Inventory................... 47,000 Sales Returns and Allowances........ 2,915 Sales Discounts............................. 5,190 Purchases..................................... 331,31
5 Transportation-In.......................... 2,810 Sales Salaries Expense................... 34,710 Rent Expense, Selling Space........... 24,000 Advertising Expense...................... 1,220 Store Supplies Expense.................. 1,330 Amortization Expense, Store Equipment..........................................
3,500
Office Salaries Expense.................. 27,630 Rent Expense, Office Space............ 3,000 Office Supplies Expense................. 465 Insurance Expense......................... 880 Amortization Expense, Office Equipment..........................................
3,600
To close temporary debit balance accounts.
31
Income Summary................................45,515
Zen Woodstock, Capital.................. 45,515 To close the Income Summary account to capital.
31
Zen Woodstock, Capital.......................31,500
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Zen Woodstock, Withdrawals.......... 31,500 To close withdrawals to capital.
Part 3Merchandise Inventory Account No.
110Date
Explanation PR Debit Credit Balance
2010Dec.
31
December 31, 2010 Balance
47,000.00
2011Dec.
31
Closing-out December 31, 2010 Balance
G10
47,000.00
0
31
December 31, 2011 Balance
G10
48,980.00
48,980.00
*Problem 6-15A (20 minutes)CLASSIFIED MULTIPLE-STEP INCOME STATEMENT:
WOODSTOCK STOREIncome Statement
For Year Ended December 31, 2011
Sales............................................. $478,850
Less:Sales returns and allowances.
$2,915
Sales discounts..................... 5,190 8,1 05
Net Sales....................................... $470,745
Cost of goods sold: Merchandise inventory, December 31, 2010
$47,000
Purchases................................. $331,315
Less:Purchase returns and
allowances....................................
$1,845
Purchase discounts 4,725
6,5 70
Net purchases............................. $324,745
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 537
Add: Transportation-in............ 2,8 10
Cost of goods purchased.............. 327,555
Goods available for sale............... $374,555
Less: Merchandise inventory, December 31, 2011........................
48,9 80
Cost of goods sold....................... 325,575
Gross profit from sales................... $145,170
Operating expenses: Selling expenses: Sales salaries expense............... $34,7
10 Rent expense, selling space....... 24,00
0 Amortization expense, store equipment.....................................
3,500
Store supplies expense.............. 1,330 Advertising expense.................. 1,22
0 Total selling expenses................ $64,7
60 General and administrative expenses: Office salaries expense.............. $27,6
30 Rent expense, office space......... 3,000 Insurance expense..................... 880 Amortization expense, office equipment.....................................
3,600
Office supplies expense.............. 465 Total general and administrative expenses.......................................
35,5 75
Total operating expenses.......... 100, 335
Income from operations.................. $ 44,83
5Other revenues and expenses: Rental revenue............................ 6
80 Net income.................................... $
45,51
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5
*Problem 6-16A (40 minutes)Aug.1 Merchandise Inventory ............ 1000
GST Receivable ....................... 60Cash .................................. 1060
To record cash purchase; $1,000 x 6% = $60 GST.
2 Merchandise Inventory ............ 3,400GST Receivable ....................... 204
Accounts Payable ............... 3,604To record credit purchase; $3,400 x 6% = $204 GST.
5 Accounts Receivable ................ 2,912PST Payable ....................... 156GST Payable ....................... 156Sales .................................. 2,600
To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST.
5 Cost of Goods Sold................... 1,800Merchandise Inventory ........ 1,800
To record cost of sale.12 Accounts Payable..................... 3,604
Merchandise Inventory ........ 68Cash .................................. 3,536
To record payment within discount period; $3,400* x 2% = $68.
15 Cash........................................ 2,886Sales Discounts ....................... 26
Accounts Receivable ........... 2,912To record collection within discount period; $2,600* x 1% = $26.
17 Merchandise Inventory ............ 6,000GST Receivable ....................... 360
Accounts Payable ............... 6,360To record credit purchase; $6,000 x 6% = $360 GST.
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*Problem 6-16A (concluded)Aug.19 Cash ....................................... 7,840
PST Payable ....................... 420GST Payable ....................... 420Sales .................................. 7,000
To record cash sale; $7,000 x 6% = $420 PST; $7,000 x 6% = $420 GST.
19 Cost of Goods Sold................... 5,800Merchandise Inventory ........ 5,800
To record cost of sale.
*Discounts are applied to the before tax value.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.540 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-17AAug.1 Purchases ............................... 1,000
GST Receivable ....................... 60Cash .................................. 1060
To record cash purchase; $1,000 x 6% = $60 GST.2 Purchases ............................... 3,400
GST Receivable ....................... 204Accounts Payable ............... 3,604
To record credit purchase; $3,400 x 6% = $204 GST.
5 Accounts Receivable ................ 2,912PST Payable ....................... 156GST Payable ....................... 156Sales .................................. 2,600
To record credit sale; $2,600 x 6% = $156 PST; $2,600 x 6% = $156 GST.
12 Accounts Payable..................... 3,604Purchase Discounts ............. 68Cash .................................. 3,536
To record payment within discount period; $3,400* x 2% = $68.
15 Cash........................................ 2,886Sales Discounts ....................... 26
Accounts Receivable ........... 2,912To record collection within discount period; $2,600* x 1% = $26.
17 Purchases ............................... 6,000GST Receivable ....................... 360
Accounts Payable ............... 6,360To record credit purchase; $6,000 x 6% = $360
GST.19 Cash ....................................... 7,910
PST Payable ....................... 420GST Payable ....................... 420Sales .................................. 7,000
To record cash sale; $7,000 x 6% = $420 PST; $7,000 x 6% = $420 GST.
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*Discounts are applied to the before tax value.
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ALTERNATE PROBLEMS
Problem 6-1B (40 minutes)Part 1Mar. 5 Merchandise Inventory.................... 25,0
00 Cash........................................ 25,000 To record purchase of merchandise for cash.
6 Accounts Receivable – Tessier & Welsh.............................................
16,000
Sales........................................ 16,000 To record sales; terms 2/10, n30, FOB destination.
6 Cost of Goods Sold.......................... 12,800
Merchandise Inventory.............. 12,800 To record cost of sales.
7 Merchandise Inventory.................... 32,000
Accounts Payable – Janz Company........................................
32,000
To record purchase of merchandise; terms 1/10, N45, FOB shipping point.
8 Merchandise Inventory.................... 75 Cash........................................ 75 To record payment of shipping costs.
9 Accounts Receivable – Parker Company........................................
28,000
Sales........................................ 28,000 To record sales; terms 2/10, n30, FOB destination.
9 Cost of Goods Sold.......................... 23,000
Merchandise Inventory.............. 23,000 To record cost of sales.
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10
Merchandise Inventory.................... 7,000
Accounts Payable – Delton Suppliers........................................
7,000
To record purchase; terms 2/10, n45, FOB destination.
16
Cash............................................... 15,680
Sales Discounts............................... 320 Accounts Receivable – Tessier & Welsh.............................................
16,000
To record collection within discount period; $16,000 x 2% = $320 discount.
Problem 6-1B (concluded)Mar. 1
7Accounts Payable – Janz Company 32,000
Cash..................................... 31,680 Merchandise Inventory.......... 320 To record payment within discount period; $32,000 x 1% = $320 discount.
30
Accounts Payable – Delton Suppliers.....................................
7,000
Cash..................................... 7,000 To record payment.
31
Cash........................................... 28,000
Accounts Receivable – Parker Company.....................................
28,000
To record collection.
Part 2a. 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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Problem 6-2B (40 minutes)May 2 Merchandise Inventory................ 9,000
Accounts Payable—Mobley Co.. 9,000Purchased goods on credit.
4 Accounts Receivable—Cornerstone Co. 1,200Sales...................................... 1,200
Sold goods on credit.
4 Cost of Goods Sold...................... 750Merchandise Inventory............ 750
To record the cost of the May 4 sale.
4 Merchandise Inventory................ 150Cash....................................... 150
Paid freight on incoming goods.
9 Cash........................................... 2,400Sales...................................... 2,400
Sold goods for cash.
9 Cost of Goods Sold...................... 1,800Merchandise Inventory............ 1,800
To record the cost of the May 9 sale.
10 Merchandise Inventory................ 3,450Accounts Payable—Richter Co.. 3,450
Purchased goods on credit.
12 Accounts Payable—Richter Co...... 300Merchandise Inventory............ 300
Received credit memo.
14 Cash........................................... 1,176Sales Discounts........................... 24
Accounts Receivable—Cornerstone Co.1,200
Collected receivable within discount period; 1,200 x 2% = 24.
15 Cash........................................... 500Office Equipment..................... 500
To record sale of office equipment at cost.
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Problem 6-2B (continued)May17 Accounts Payable—Mobley Co.........9,000
Merchandise Inventory.............. 90Cash......................................... 8,910
Paid payable within the discount period; 1% × $9,000 = $90.
18 Cleaning Supplies.......................... 820Accounts Payable–A & Z Suppliers
820Purchased supplies on credit.
20 Accounts Receivable—Harrill Co......1,875Sales........................................ 1,875
Sold goods on credit.
20 Cost of Goods Sold.........................1,350Merchandise Inventory.............. 1,350
To record the cost of the May 20 sale.
22 Sales Returns and Allowances........ 300Accounts Receivable—Harrill Co.
300Issued credit memo.
23 Sales............................................. 75Accounts Receivable—Harrill Co.
75Received debit memo for error.
25 Accounts Payable—Richter Co.........3,150Merchandise Inventory.............. 63Cash......................................... 3,087
Paid within the discount period; 3,450 – 300 = 3,150; 2% × $3,150 = 63.
31 Cash..............................................1,470Sales Discounts............................. 30
Accounts Receivable—Harrill Co. 1,500
Collected receivable within discount period; 1,875 – 300 – 75 = 1,500; 1,500 x 2% = 30.
31 Accounts Receivable—Cornerstone Co. 7,500Sales........................................ 7,500
Sold goods on credit....................
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31 Cost of Goods Sold.........................4,800Merchandise Inventory.............. 4,800
To record the cost of the May 31 sale.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 547
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
$3,087.00Annual rate of interest ............................_ × 6% Interest per year......................................$ 185.22 Interest per day ($185.22/365).................$ 0.51
Discount..................................................$ 63.00Interest that would be paid on the 45-day* loan (45 $0.51)
(22.95)Net savings from borrowing to pay within
the discount period...........................$ 40.05
*60 days in credit period – 15 days in discount period = 45 days.
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Problem 6-3B (40 minutes)July 3 Merchandise Inventory................15,000
Accounts Payable—CMP Corp. . 15,000Purchased goods on credit.
4 Accounts Payable—CMP Corp. ..... 250Cash....................................... 250
Paid freight for supplier.
7 Accounts Receivable—Harbison Co. 10,500Sales...................................... 10,500
Sold goods on credit.
7 Cost of Goods Sold...................... 7,500Merchandise Inventory............ 7,500
To record the cost of the July 7 sale.
10 Merchandise Inventory................13,250Accounts Payable—Cimarron Corporation
13,250Purchased goods on credit.
11 Delivery Expense or Freight-Out... 300Cash....................................... 300
Paid shipping charges on July 7 sale.
12 Sales Returns and Allowances...... 1,750Accounts Receivable—Harbison Co.
1,750Customer returned merchandise.
12 Merchandise Inventory................ 1,250Cost of Goods Sold.................. 1,250
Returned goods to inventory.
14 Accounts Payable—Cimarron Corporation 2,050Merchandise Inventory............ 2,050
Received a credit memorandum for July 10 purchase.
17 Cash........................................... 8,575Sales Discounts........................... 175
Accounts Receivable—Harbison Co. 8,750
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Collected receivable withindiscount period; 10,500 – 1,750 = 8,750; 8,750 x 2% = 175.
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Problem 6-3B (concluded)July18 Cash........................................ 15,000
Land................................... 15,000Sold land at cost.
19 Van......................................... 18,000Cash................................... 5,000Notes Payable..................... 13,000
To record purchase of van.
20 Accounts Payable—Cimarron Corporation 11,200Merchandise Inventory........ 112Cash................................... 11,088
Paid payable within the discount period;$13,250 – 2,050 = $11,200; 11,200 x 1% = 112.
21 Accounts Receivable—Hess....... 9,000Sales................................... 9,000
Sold goods on credit.
21 Cost of Goods Sold................... 6,250Merchandise Inventory........ 6,250
To record the cost of the July 21 sale.
24 Sales Returns and Allowances... 1,500Accounts Receivable—Hess. . 1,500
Issued credit memo.
31 Cash........................................ 7,425Sales Discounts........................ 75
Accounts Receivable—Hess. . 7,500Collected receivable within discount period; 9,000 – 1,500 = 7,500; 7,500 x 1% = 75.
31 Accounts Payable—CMP Corp.... 14,750Cash................................... 14,750
Paid payable; 15,000 – 250 = 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
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 551
cost and related efforts may be greater than issuing a credit memo.
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Problem 6-4B (60 minutes) Part 1RESOURCE PRODUCTS COMPANY
Work SheetFor Year Ended October 31, 2011
Unadjusted Trial
Balance
Adjusting Entries
Adjusted Trial
Balance
Income Statement
Balance Sheet and
Statement of Owner’s Equity
Account Debit Credit
Debit Credit Debit Credit
Debit Credit
Debit Credit
Cash............................ 6,400
6,400 6,400
Merchandise inventory. 23,000
(d) 800
22,200
22,200
Store supplies.............. 9,450
(a) 6,150
3,300 3,300
Prepaid insurance......... 4,750
(b) 3,000
1,750 1,750
Store equipment........... 83,800
83,800
83,800
Accumulated amortization, store equipment.................
30,000
(c) 3,000
33,000
33,000
Accounts payable......... 16,000
16,000
16,000
Jan Smithers, capital..... 80,400
80,400
80,400
Jan Smithers, withdrawals 6,000
6,000 6,000
Sales........................... 198,000
198,000
198,000
Sales discounts............ 2,000
2,000 2,000
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Fundamental Accounting Principles, Tw
elfth Canadian Edition
Sales returns and allowances...................
4,000
4,000 4,000
Cost of goods sold........ 74,800
(d) 800
75,600
75,600
Amortization expense, store equipment
(c) 3,000
3,000 3,000
Salaries expense.......... 62,000
62,000
62,000
Interest expense.......... 400 400 400Insurance expense........ (b)
3,0003,000 3,000
Rent expense............... 28,000
28,000
28,000
Store supplies expense. (a) 6,150
6,150 6,150
Advertising expense..... 19,800
19,800
19,800
Totals........................ 324,400
324,400
12,950
12,950
327,400
327,400
203,950
198,000
123,450
129,400
Net loss....................... 5,950
5,950
Totals........................ 203,950
203,950
129,400
129,400
Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 555
Problem 6-4B (concluded)Part 2 Multiple-step income statement:
RESOURCE PRODUCTS COMPANYIncome Statement
For Year Ended October 31, 2011Net sales.................................... $192,000Cost of goods sold...................... 75,600Gross profit from sales............... $116,400Operating 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....... 121,950
Loss from operations.................. $ 5,550Other revenues and expenses: Interest expense...................... 400Net loss..................................... $ 5,950
Analysis component:Interest Expense is shown under Other revenues and expenses because it is not a day-to-day operating activity for Resource Products Company. Revenues and expenses not related to day-to-day operations are listed under Other revenues and expenses.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.556 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-5B (40 minutes)
1. Classified, multiple-step income statement:
REYNA COMPANYIncome Statement
For Year Ended May 31, 2011Sales..............................................
$318,000 Less:....................Sales discounts $ 4,875 . Sales returns and allowances 21,000.............................. 25,875 Net sales.....................................
$292,125Cost of goods sold......................... 123,900Gross profit from sales....................
$168,225Operating expenses:
Selling expenses:Sales salaries expense................$ 43,500Advertising expense................... 27,000Rent expense, selling space........ 15,000Store supplies expense............... 3,750Total selling expenses................ $ 89,250
General and administrative expenses:Office salaries expense...............$ 39,750Rent expense, office space.......... 3,900Office supplies expense.............. 1,200Total general and administrative expenses
44,850Total operating expenses..............
134,100Net income..................................... $ 34,125
2. Single-step income statement:REYNA COMPANYIncome Statement
For Year Ended May 31, 2011Net sales........................................ $292,125Expenses:
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Cost of goods sold........................$123,900 Selling expenses.......................... 89,250 General and administrative expenses 44,850 Total expenses.......................... 258,000Net income..................................... $ 34,125
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Problem 6-6B (30 minutes) 2011 Closing entries:May31 Sales ...................................... 318,000
Income Summary................. 318,000To close temporary account with credit balance.
31 Income Summary..................... 283,875Sales Discounts .................. 4,875Sales Returns and Allowances
21,000Cost of Goods Sold.............. 123,900Sales Salaries Expense......... 43,500Rent Expense, Selling Space. 15,000Store Supplies Expense........ 3,750Advertising Expense............ 27,000Office Salaries Expense........ 39,750Rent Expense, Office Space. . 3,900Office Supplies Expense....... 1,200
To close temporary accounts with debit balances.
31 Income Summary..................... 34,125Paul Reyna, capital.............. 34,125
To close the Income Summary account.
31 Paul Reyna, Capital.................. 24,000Paul Reyna, Withdrawals..... 24,000
To close the withdrawals account.
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Problem 6-7B (50 minutes)1. Classified, multiple-step income statement:
BANDARA SALESIncome Statement
For Year Ended December 31, 2011Sales........................................ $946,3
00 Less:......................................Sales returns and allowances..............
$ 7,345
Sales discounts................ 1,390 8,7 35
Net sales................................ $937,565
Cost of goods sold..................... 649,8 20
Gross profit from sales............... $287,745
Operating expenses: Selling expenses: Sales salaries expense.......... $149,4
851
Rent expense, selling space. . 39,8082
Amortization expense, store equipment.................................
16,020
Store supplies expense......... 4,20 0
3
Total selling expenses........... $209,513
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.................................
3,45 0
Total general and administrative expenses...................................
91,4 67
Total operating expenses......... 300,98 0
Net loss.................................... $ 13,235
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1. 70% × 213,5502. 80% × 49,7603. 35% × 12,0004. 30% × 213,5505. 20% × 49,7606. 65% × 12,000
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Problem 6-7B (concluded)2. Single-step income statement:
BANDARA SALESIncome Statement
For Year Ended December 31, 2011
Revenues: Net sales......................... $937,5
65Expenses: Cost of goods sold............. $649,
820 Selling expenses............... 209,5
13 General and administrative expenses.............
91,4 67
950,8 00
Net loss................................. $ 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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Problem 6-8B2011 Closing entries:
Dec.
31
Sales....................................... 946,300
Income Summary................. 946,300
To close temporary credit balance accounts.
31
Income Summary...................... 959,535
Sales Returns and Allowances...............................
7,345
Sales Discounts................... 1,390 Cost of goods sold............... 649,8
20 Salaries Expense................. 213,5
50 Rent Expense...................... 49,76
0 Supplies Expense................ 12,00
0 Amortization Expense, Store Equipment...............................
16,020
Insurance Expense............... 6,200 Amortization Expense, Office Equipment...............................
3,450
To close temporary debit balance accounts.
31
Diego Amara, Capital................ 13,235
Income Summary................. 13,235
To close the Income Summary account to capital.
31
Diego Amara, Capital................ 102,500
Diego Amara, Withdrawals... 102,500
To close withdrawals to capital.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 563
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.564 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-9B (60 minutes)1. Classified, multiple-step income statement:
TINKER SALESIncome Statement
For Year Ended July 31, 2011Sales........................................ $78,50
0 Less:......................................Sales discounts..................................
1,000
Net sales................................ $77,500
Cost of goods sold..................... 47,400 Gross profit from sales............... $30,10
0Operating expenses: Selling expenses: Sales salaries expense......... $18,00
0 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........... $38,25
0 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...................................
13,9 50
Total operating expenses......... 52,200 Net loss.................................... $22,10
0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 565
Problem 6-9B (concluded)2. Multiple-step income statement:
TINKER SALESIncome Statement
For Year Ended July 31, 2011
Net sales.................................... $77,500Cost of goods sold...................... 47,400Gross profit from sales............... $30,100Operating expenses:
Salaries expense .....................$23,000Rent expense........................... 12,000Advertising expense ................ 9,900Supplies expense .................... 2,800Amortization expense, equipment 3,500Insurance expense .................. 1,000 Total operating expenses....... 52,200
Net loss..................................... $ 22,100
3. Single-step income statement:TINKER SALES
Income StatementFor Year Ended July 31, 2011
Revenues:Net sales.................................... $77,500
Expenses:Cost of goods sold......................$47,400Selling expenses........................ 38,250General and administrative expenses 13,950 Total expenses....................... 99,600
Net loss....................................... $ 22,100
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*Problem 6-10B (40 minutes)Mar. 5 Purchases................................... 25,00
0 Cash..................................... 25,000 To record purchase of merchandise for cash.
6 Accounts Receivable – Tessier & Welsh..........................................
16,000
Sales.................................... 16,000 To record sales; terms 2/10, n30, FOB destination.
7 Purchases................................... 32,000
Accounts Payable – Janz Company.....................................
32,000
To record purchase of merchandise; terms 1/10, n45, FOB shipping point.
8 Transportation-in or Freight-In..... 75 Cash..................................... 75 To record payment of shipping costs.
9 Accounts Receivable – Parker Company.....................................
28,000
Sales.................................... 28,000 To record sales; terms 2/10, n30, FOB destination.
10
Purchases................................... 7,000
Accounts Payable – Delton Suppliers.....................................
7,000
To record purchase; terms 2/10, n45, FOB destination.
16
Cash........................................... 15,680
Sales Discounts........................... 320 Accounts Receivable – Tessier 16,000
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& Welsh...................................... To record collection within discount period; $16,000 x 2% = $320 discount.
17
Accounts Payable – Janz Company 32,000
Cash..................................... 31,680 Purchase Discounts............... 320 To record payment within discount period; $32,000 x 1% = $320 discount.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.568 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-10B (concluded)Mar. 3
0Accounts Payable – Delton Suppliers.....................................
7,000
Cash..................................... 7,000 To record payment.
31
Cash........................................... 28,000
Accounts Receivable – Parker Company.....................................
28,000
To record collection.
*Problem 6-11B (30 minutes)Date Account Debit CreditMar.
1Purchases.................................... 20,000
Accounts Payable — Zender Holdings......................................
20,000
Purchased merchandise terms 1/10, n/15.
2 Cash............................................ 1,800 Sales..................................... 1,800 Sold merchandise for cash.
7 Purchases.................................... 16,000 Accounts Payable — Red River Co...............................................
16,000
Purchased merchandise terms 2/10, n/30.
8 Transportation-in or Freight-In..... 350 Accounts Payable — Dan’s Shipping......................................
350
Paid freight charges on purchase of March 7.
12 Accounts Receivable — Bev Dole.. . 9,000 Sales...................................... 9,000 Sold merchandise on credit, terms 2/10, n/45.
13 Accounts Payable — Red River Co.. 500 Purchase Returns and Allowances...................................
500
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Received credit memo re purchase of March 7.
14 Office Furniture............................ 1,600 Accounts Payable — Wilson Supplies......................................
1,600
Purchased office furniture on credit.
15 Accounts Receivable — Ted Smith. 17,000 Sales...................................... 17,000 Sold merchandise terms 2/10, n/45.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.570 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-11B (concluded)Mar. 16
Accounts Payable — Red River Co.. 15,500
Purchase Discounts................. 310 Cash....................................... 15,190 Paid for merchandise purchased on March 7; 16,000 – 500 = 15,500; 15,500 – 2% = 15,190.
17 Sales Returns and Allowances....... 1,000 Accounts Receivable — Ted Smith..........................................
1,000
Issued credit memo to customer of March 15.
19 Accounts Payable — Wilson Supplies 750 Office Furniture....................... 750 To record memorandum regarding damaged furniture purchased on March 14.
24 Cash............................................ 15,680Sales Discounts............................ 320 Accounts Receivable — Ted Smith..........................................
16,000
To record receipt of payment regarding March 15 sale less return and discount; 17,000 – 1,000 = 16,000; 16,000 x 2% = 320.
27 Cash............................................ 9,000 Accounts Receivable — Bev Dole 9,000 Received payment from customer regarding March 12 sale.
31 Accounts Payable — Zender Holdings......................................
20,000
Cash....................................... 20,000 Paid for merchandise purchased on March 1.
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*Problem 6-12B (40 minutes)1. Net sales:
Sales................................................. $540,000
Less: Sales returns and allowances...... 57,000 Sales discounts............................. 4,7
00 Net sales........................................... $478,3
00 2. Cost of goods purchased:
Purchases.......................................... $ 240,00
0 Less:
Purchases returns and allowances..8,100
Purchases discounts...................... 2,300 Transportation-in............................... 9,7
00 Cost of goods purchased..................... $
239,300
3. Cost of goods sold: Beginning inventory........................... $
50,000 Cost of goods purchased (from 2)........ 239,30
0 Less: Ending inventory........................ 32,0
00 Cost of goods sold.............................. $
257,300
4. Multiple-step income statement:GARNEAU COMPANYIncome Statement
For Year Ended November 30, 2011
Net Sales....................................... $478,300
Cost of goods sold......................... 257,3 00
Gross profit from sales................... $221,000
Operating expenses: Salaries expense....................... $120,0
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00 Rent expense............................ 72,000 Advertising expense.................. 6,000 Supplies expense....................... 10,00
0 Total operating expenses.......... 208,0
00 Income from operations.................. $
13,000Other revenues and expenses......... Interest expense......................... 70
0 Net income.................................... $
12,300
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*Problem 6-12B (concluded)5. Single-step income statement:
GARNEAU COMPANYIncome Statement
For Year Ended November 30, 2011
Revenues: Net sales....................................... $478,3
00Expenses:......................................... Cost of goods sold..........................$257,3
00 Selling expenses............................131,90
0 General and administrative expenses..........................................
76,100
Interest expense............................ 70 0
Total expenses............................. 466,00 0
Net income........................................ $ 12,300
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*Problem 6-13B (30 minutes) 2011 Closing entries:
Nov.
30
Merchandise Inventory....................... 32,000
Sales................................................. 540,000
Purchases Returns and Allowances..... 8,100Purchases Discounts.......................... 2,300 Income Summary.......................... 582,4
00 To close temporary accounts with credit balances and record the ending inventory.
30
Income Summary............................... 570,100
Merchandise Inventory.................. 50,000
Sales Returns and Allowances....... 57,000
Sales Discounts............................ 4,700 Purchases.................................... 240,0
00 Transportation-In......................... 9,700 Salaries Expense.......................... 120,0
00 Rent Expense............................... 72,00
0 Supplies Expense.......................... 10,00
0 Advertising Expense..................... 6,000 Interest Expense......................... 700 To close temporary accounts with debit balances and to remove the beginning inventory balance.
30
Income Summary............................... 12,300
Teresa Garneau, Capital................ 12,300
To close the Income Summary Account.
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30
Teresa Garneau, Capital..................... 20,000
Teresa Garneau, Withdrawals........ 20,000
To close the withdrawals account.
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*Problem 6-14B (60 minutes) Part 1THE DOWNTOWN STORE
Work SheetFor Year Ended March 31, 2011Unadjusted
Trial Balance Adjustments
Income Statement
Balance Sheet and Statement of Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit CreditCash....................................... 14,000 14,000Merchandise inventory............. 96,000 96,00
018,000 18,000
Supplies.................................. 1,200 (a) 300
900
Prepaid rent............................ 14,000 (b) 10,000
4,000
Store equipment...................... 120,000
120,000
Accumulated amortization, store equipment...............................
28,000 (c) 3,200
31,200
Office equipment...................... 46,000 46,000Accumulated amortization, office equipment...............................
13,000 (d) 6,500
19,500
Accounts payable..................... 32,000 32,000Lucy Baker, capital................... 269,20
0269,200
Lucy Baker, withdrawals........... 68,000 68,000Sales....................................... 998,00
0998,000
Sales returns and allowances.... 23,000 23,000
Sales discounts........................ 12,000 12,000
Purchases............................... 692,000
692,000
Purchases returns and allowances..............................
5,700 5,700
Purchases discounts................. 14,300 14,300Transportation-in..................... 32,000 32,00
Copyright © 2007 by M
cGraw
-Hill Ryerson Lim
ited. All rights reserved.Solutions M
anual for Chapter 6529
0Salaries expenses (60% selling; 40% office)..............................
120,000
120,000
Rent expense (80% selling; 20% office).....................................
91,000 (b) 10,000
101,000
Advertising expense................. 14,000 14,000
Supplies expense (30% selling; 70% office)..............................
17,000 (a) 300
17,300
Amortization expense, store equipment...............................
0 (c) 3,200
3,200
Amortization expense, office equipment...............................
0
(d) 6,500
6, 500
Totals................................... 1,360,200
1,360,200
20,000
20,000
1,117,000
1,036,000
270,900 351,900
Net loss...................................
81,00 0
81,000
Totals................................... 1,117,000
1,107,000
351,900 351,900
*Problem 6-14B (concluded) Part 22011 Closing entries: Page
G14Mar.
31
Merchandise Inventory................... 18,000
Sales............................................. 998,000
Purchase Returns and Allowances.... 5,700Purchase Discounts........................ 14,300 Income Summary....................... 1,036,
000 To close temporary credit balance accounts.
31
Income Summary............................ 1,117,000
Merchandise Inventory.............. 96,000 Sales Returns and Allowances.... 23,000 Sales Discounts......................... 12,000 Purchases................................. 692,00
0 Transportation-In...................... 32,000 Salaries Expense....................... 120,00
0 Rent Expense............................ 101,00
0 Advertising Expense.................. 14,000 Supplies Expense...................... 17,300 Amortization Expense, Store Equipment.....................................
3,200
Amortization Expense, Office Equipment.....................................
6,500
To close temporary debit balance accounts.
31
Lucy Baker, Capital......................... 81,000
Income Summary....................... 81,000 To close the Income Summary account to capital.
31
Lucy Baker, Capital......................... 68,000
Lucy Baker, Withdrawals............ 68,000 To close withdrawals to capital.
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Part 3 Merchandise Inventory Account No. 110
Date Explanation PR Debit Credit Balance
2010Mar.
31March 31, 2010 balance (brought forward)
96,000.00
2011Mar.
31Close out March 31, 2010 balance
G14
96,000.00
0
31 March 31, 2011 balance G14
18,000.00
18,000.00
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.580 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-15B (40 minutes)Classified multiple-step income statement:
THE DOWNTOWN STOREIncome Statement
For Year Ended March 31, 2011
Sales............................................. $998,000
Less:Sales returns and allowances.
$23,000
Sales discounts.....................
12,00 0
35,0 00
Net Sales....................................... $963,000
Cost of goods sold: Merchandise inventory, March 31, 2010.............................................
$96,000
Purchases................................. $692,000
Less:Purchase returns and
allowances....................................
$ 5,700
Purchase discounts
14,300
20,0 00
Net purchases............................. $672,000
Add: Transportation-in............ 32,00 0
Cost of goods purchased.............. 704,000
Goods available for sale............... $800,000
Less: Merchandise inventory, March 31, 2011..............................
18,00 0
Cost of goods sold....................... 782,000
Gross profit from sales................... $181,000
Operating expenses: Selling expenses: Rent expense, selling space1...... $80,80
0 Sales salaries expense2.............. 72,000 Advertising expense.................. 14,000 Store supplies expense3............. 5,190Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 581
Amortization expense, store equipment.....................................
3,20 0
Total selling expenses................ $175,190
General and administrative expenses: Office salaries expense4............. $48,00
0 Rent expense, office space5........ 20,200 Office supplies expense6............. 12,110 Amortization expense, office equipment.....................................
6,500
Total general and administrative expenses.......................................
86,81 0
Total operating expenses.......... 262,0 00
Net loss......................................... $ 81,000
Calculations:
1. 101,000 x 80% 4. 120,000 x 40%2. 120,000 x 60% 5. 101,000 x 20%3. 17,300 x 30% 6. 17,300 x 70%
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*Problem 6-16B (40 minutes)Sept.2 Cash .............................................. 7,980
PST Payable .............................. 560GST Payable .............................. 420Sales ........................................ 7,000
To record cash sale; $7,000 x 8% = $560 PST; $7,000 x 6% = $420 GST.
2 Cost of Goods Sold.......................... 5,800Merchandise Inventory .............. 5,800
To record cost of sale.3 Merchandise Inventory ................... 8,000
GST Receivable .............................. 480Cash ......................................... 8,480
To record cash purchase; $8,000 x 6% = $480 GST.7 Merchandise Inventory ................... 5,000
GST Receivable .............................. 300Accounts Payable ...................... 5,300
To record credit purchase; $5,000 x 6% = $300 GST.
8 Accounts Receivable ...................... 17,100PST Payable .............................. 1,200GST Payable .............................. 900Sales ........................................ 15,000
To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST.
8 Cost of Goods Sold.......................... 13,200Merchandise Inventory .............. 13,200
To record cost of sale.17 Accounts Payable............................ 5,300
Merchandise Inventory .............. 50Cash ......................................... 5,250
To record payment within discount period; $5,000* x 1% = $50.
18 Cash............................................... 16,800Sales Discounts .............................. 300
Accounts Receivable .................. 17,100To record collection within discount period; $15,000* x 2% = $300.
*The discount applies only to the amount before tax.
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*Problem 6-17B (40 minutes)Sept.2 Cash .............................................. 7,980
PST Payable .............................. 560GST Payable .............................. 420Sales ........................................ 7,000
To record cash sale; $7,000 x 8% = $560 PST; $7,000 x 6% = $420 GST.
3 Purchases ...................................... 8,000GST Receivable .............................. 480
Cash ......................................... 8,480To record cash purchase; $8,000 x 6% = $480 GST.
7 Purchases ...................................... 5,000GST Receivable .............................. 300
Accounts Payable ...................... 5,300To record credit purchase; $5,000 x 6% = $300
GST.8 Accounts Receivable ......................17,100
PST Payable .............................. 1,200GST Payable .............................. 900Sales ........................................ 15,000
To record credit sale; $15,000 x 8% = $1,200 PST; $15,000 x 6% = $900 GST.
17 Accounts Payable............................ 5,300Purchase Discounts ................... 50Cash ......................................... 5,250
To record payment within discount period; $5,000* x 1% = $50.
18 Cash...............................................16,800Sales Discounts .............................. 300
Accounts Receivable .................. 17,100To record collection within discount period; $15,000* x 2% = $300.
*The discount applies only to the amount before tax.
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ANALYTICAL AND REVIEW PROBLEMS
A&R Problem 6-1 – PerpetualMultiple-step income statement:
DEMO SALESIncome Statement
For Month Ended July 31, 2011
Net sales.................................... $559,340*Cost of goods sold...................... 394,000Gross profit from sales............... $165,340Operating expenses:
Advertising expense ................ $14,000Rent expense........................... 5,000Amortization expense, equipment 3,000Insurance expense .................. 2,500Interest expense...................... 1,700 Total operating expenses....... 26,200
Net income................................. $139,140
*$562,140 - $2,800 = $559,340
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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……………….. $100
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Focus on Financial StatementsFFS 6-1Single-step income statement:
COLUMBIA TEXTILESIncome Statement
For Year Ended December 31, 2011(000’s)
Revenues: Net sales.................................. $614 Interest earned......................... 2 Total revenues $616Expenses: Cost of goods sold..................... $459 Selling expenses1...................... 193 General and administrative expense2 114 Interest expense....................... 4 Total expenses.......................... 770 Net loss......................................... $ 154
COLUMBIA TEXTILESStatement of Owner’s Equity
For Year Ended December 31, 2011(000’s)
Brandy Columbia, capital, January 1 $5403
Add: Investments by owner........... 0 Total......................................... $540Less: Withdrawals for the year..... $78 Net loss.............................. 154 232Brandy Columbia, capital, December 31 $308
1. $21 + $46 + $120 + $6 = $1932. $63 + $17 + $21 + $8 + $5 = $1143. Calculated as post-closing capital balance of $308 + withdrawals
of $78 + net loss of $154 = $540 capital at January 1.
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FFS 6-1 (continued)COLUMBIA TEXTILES
Balance SheetDecember 31, 2011
(000’s)Assets Current assets: Cash.............................................. $
48 Accounts receivable........................ 106 Merchandise inventory................... 236 Office supplies................................ 5 Prepaid rent................................... 32 Current portion of notes receivable. 3 Total current assets........................ $
430 Long-term investments: Notes receivable, less current portion
11
Property, plant and equipment: Office furniture............................... $
52 Less: Accumulated amortization, office furniture.......................................
38 $ 14
Store fixtures................................. $106
Less: Accumulated amortization, store fixtures.........................................
61 45
Total property, plant and equipment.............................................
59
Intangible assets: Franchise...................................... 6
2Total assets........................................... $
562
Liabilities Current liabilities: Accounts payable............................ $
17 Unearned sales................................ 12 Current portion of notes long-term notes payable........................................
4 5
Total current liabilities.................. $ 74 Long-term liabilities:Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.588 Fundamental Accounting Principles, Twelfth Canadian Edition
Notes payable, less current portion.. 18 0
Total liabilities.................................. $ 254
Owner’s Equity Brandy Columbia, capital.................... 30
8Total liabilities and owner’s equity......... $
562
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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 6-2a. 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-in-process, and finished goods whereas inventory for WestJet, according to note 1(f), represents materials and supplies.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.590 Fundamental Accounting Principles, Twelfth Canadian Edition
Critical Thinking QuestionCT 6-1Note 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 Cost of Goods Sold
Beg.84,0
00320,000 COGS COGS
320,000
22,400
Sales Ret
Purchases
240,000
14,000
Shrinkage
Shrinkage
14,000
TI12,0
002,40
0 Purch discAdj. Bal.
311,600
Sales Ret
22,400
1,200
Purch ret
End. Inv.
20,800
2011: Merchandise Inventory Cost of Goods Sold
Beg20,8
00480,000 COGS COGS
480,000
115,000
Sales Ret
Purchases
510,000
2,500
Shrinkage
Shrinkage
2,500
TI 25,5 5,10 Purch 367,
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00 0 disc 500Sales Ret
115,000
2,550
Purch ret
End181,150
*The goal is highly dependent on “perspective.”
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CT 6-1 (concluded)Conclusion(s)/Consequence(s):
— Sales returns in 2011 were $115,000 which is 413% greater than in 2010 (115,000 – 22,400 = 92,600/22,400 × 100). This is an unfavourable change and requires immediate attention; questions need to be asked to determine the cause(s) so that the appropriate corrective action can be taken
— Shrinkage decreased by $11,500 or 82% from 2010 to 2011 (14,000 – 2,500 = 11,500/14,000 × 100); this is a favourable change and the inventory manager should find out how this occurred and improve on it, if possible
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 593
Perpetual Serial Problem, Echo Systems (150 minutes) Part 1Journal entries:
General Journal Page G7Date Account Titles and Explanations PR DebitCredit2012Jan. 4 Wages Expense ....................623 200
Wages Payable ....................210 800Cash ...............................101 1,000
Paid employee.5 Cash ....................................101 48,000
Mary Graham, Capital ......301 48,000Investment by owner.
7 Merchandise Inventory .........119 11,200Accounts Payable—Shephard Corp. 201
11,200Purchased merchandise on credit.
9 Cash ....................................101 3,000Accounts Receivable—Fostek Co. 106.6
3,000Collected accounts receivable.
11 Accounts Receivable—Alamo Eng. Co. 106.19,000
Unearned Computer Services Revenue 2363,000
Computer Services Revenue 40312,000
Completed work on project.13 Accounts Receivable—Elite Corp. 106.5
8,400Sales ..............................413 8,400
Sold merchandise on credit.13 Cost of Goods Sold ...............502 6,720
Merchandise Inventory ....119 6,720To record the cost of the January 13 sale.
15 Merchandise Inventory .........119 1,400Cash ...............................101 1,400
Paid freight on incoming merchandise.16 Cash ....................................101 6,000
Computer Services Revenue 4036,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.594 Fundamental Accounting Principles, Twelfth Canadian Edition
Collected cash revenue from customer.17 Accounts Payable—Shephard Corp. 201
11,200Merchandise Inventory ....119 112Cash ...............................101 11,088
Paid account payable within discount period.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 595
Perpetual Serial Problem (continued)General Journal G8
Date Account Titles and Explanations PR DebitCredit2012Jan.20 Sales Returns and Allowances 415 800
Accounts Receivable—Elite Corp. 106.5800
Customer returned defective goods.22 Cash ....................................101 7,524
Sales Discounts ...................414 76Accounts Receivable—Elite Corp. 106.5
7,600Collected accounts receivable.
24 Accounts Payable—Shephard Corp. 201792
Merchandise Inventory.....119 792Returned merchandise for credit.
26 Merchandise Inventory .........119 16,000Accounts Payable—Shephard Corp. 201
16,000Purchased merchandise for resale.
26 Accounts Receivable—Hacienda, Inc. 106.811,600
Sales ..............................413 11,600Sold merchandise on credit.
26 Cost of Goods Sold ...............502 9,280Merchandise Inventory ....119 9,280
To record the cost of the January 26 sale.29 No entry recorded in the journal.31 Wages Expense ....................623 2,000
Cash ...............................101 2,000Paid employee.
Feb. 1 Prepaid Rent .......................131 6,750Cash ...............................101 6,750
Paid three months’ rent in advance.3 Accounts Payable—Shephard Corp. 201
15,208Merchandise Inventory ....119 160Cash ...............................101 15,048
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.596 Fundamental Accounting Principles, Twelfth Canadian Edition
Paid account payable within discount period.
5 Advertising Expense ............655 1,600Cash ...............................101 1,600
Purchased ad in local newspaper.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 597
Perpetual Serial Problem (continued)General Journal G9
Date Account Titles and Explanations PR DebitCredit2012Feb.11 Cash ....................................101 9,000
Accounts Receivable—Alamo Engin. Co. .................106.1 9,000
Collected accounts receivable.
15 Mary Graham, Withdrawals . .302 9,600Cash ...............................101 9,600
Owner withdrew cash.
23 Accounts Receivable—Grandview Co. 106.76,400
Sales ..............................413 6,400Sold merchandise on credit.
23 Cost of Goods Sold ...............502 5,120Merchandise Inventory ....119 5,120
To record the cost of the February 23 sale.
26 Wages Expense ....................623 1,600Cash ...............................101 1,600
Paid employee.
27 Mileage Expense ..................676 600Cash ...............................101 600
Reimbursed Mary Graham for use of auto.
Mar. 8 Computer Supplies ...............126 4,800Accounts Payable—Abbot Office Prod. ..............................201 4,800
Purchased supplies on credit.
Mar. 9 Cash ....................................101 6,400Accounts Receivable—Grandview Co. 106.7
6,400Collected accounts receivable.
11 Repairs Expense, Computer ..684 1,720Cash ...............................101 1,720
Paid for computer repairs.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.598 Fundamental Accounting Principles, Twelfth Canadian Edition
16 Cash ....................................101 8,520Computer Services Revenue 403
8,520Collected cash revenue from customer.
Perpetual Serial Problem (continued)General Journal G10
Date Account Titles and ExplanationsPR Debit Credit2012Mar.19 Accounts Payable .....................201 7,110
Cash ....................................101 7,110Paid accounts payable.
24 Accounts Receivable—Capital Leasing 106.311,800
Computer Services Revenue . 403 11,800Billed customer for services.
25 Accounts Receivable—Buckman Services 106.23,600
Sales ...................................413 3,600Sold merchandise on credit.
25 Cost of Goods Sold ...................502 2,004Merchandise Inventory .........119 2,004
To record the cost of the March 25 sale.
30 Accounts Receivable—Decker Co. 106.4 4,440Sales ...................................413 4,440
Sold merchandise on credit.
30 Cost of Goods Sold ...................502 2,200Merchandise Inventory .........119 2,200
To record the cost of the March 30 sale.
31 Mileage Expense ......................676 400Cash ....................................101 400
Reimbursed Mary Graham for use of auto.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 599
Perpetual Serial Problem (continued) Part 2Cash Acct. No. 101
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 89,090
2012Jan. 4 G7 1,00
088,090
5 G7 48,000
136,090
9 G7 3,000 139,090
15
G7 1,400
137,690
16
G7 6,000 143,690
17
G7 11,088
132,602
22
G8 7,524 140,126
31
G8 2,000
138,126
Feb.
1
G8 6,750
131,376
3
G8 15,048
116,328
5
G8 1,600
114,728
11
G9 9,000 123,728
15
G9 9,600
114,128
26
G9 1,600
112,528
27
G9 600 111,928
Mar.
9
G9 6,400 118,328
11
G9 1,720
116,608
1 G9 8,520 125,12Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.600 Fundamental Accounting Principles, Twelfth Canadian Edition
6 819
G10
7,110
118,018
31
G10
400 117,618
Accounts Receivable—Alamo Engineering Co.
Acct. No. 106.1
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 1
1 G7 9,000 9,000
Feb.
11
G9 9,000
0
Accounts Receivable—Buckman Services
Acct. No. 106.2
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Mar.
25
G10
3,600 3,600
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 601
Perpetual Serial Problem (continued) Part 2Accounts Receivable—Capital
LeasingAcct. No.
106.3Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Mar.
24
G10
11,800
11,800
Accounts Receivable—Decker Co. Acct. No. 106.4
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,700
2012Mar.
30
G10
4,440 7,140
Accounts Receivable—Elite Corporation
Acct. No. 106.5
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 1
3G7 8,400 8,400
20
G8 800 7,600
22
G8 7,600
0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.602 Fundamental Accounting Principles, Twelfth Canadian Edition
Accounts Receivable—Fostek Co. Acct. No. 106.6
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,000
2012Jan.
9 G7 3,00
0 0
Accounts Receivable—Grandview Co. Acct. No. 106.7
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Feb.
23
G9 6,400 6,400
Mar.
9
G9 6,400
0
Accounts Receivable—Hacienda, Inc. Acct. No. 106.8
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 2
6 G8 11,6
0011,600
Perpetual Serial Problem (continued) Part 2Accounts Receivable—Images, Inc. Acct. No.
106.9Date
Explanation PR Debit Credit
Balance
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 603
2011Dec.
31
Beginning balance 0
Merchandise Inventory Acct. No. 119Date
Explanation PR Debit Credit
Balance
2012Jan.
7G7 11,20
011,200
13
G7 6,720
4,480
15
G7 1,400 5,880
17
G7 112 5,768
24
G8 792 4,976
26
G8 16,000
20,976
26
G8 9,280
11,696
Feb.
3
G8 160 11,536
23
G9 5,120
6,416
Mar.
25
G10
2,004
4,412
30
G10
2,200
2,212
Computer Supplies Acct. No. 126Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 1,440
2012Mar.
8
G9 4,800 6,240
Prepaid Insurance Acct. No. 128Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.604 Fundamental Accounting Principles, Twelfth Canadian Edition
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,240
Prepaid Rent Acct. No. 131Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,250
2012Feb.
1
G8 6,750
9,000
Office Equipment Acct. No. 163Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 18,000
Perpetual Serial Problem (continued) Part 2Accumulated Amortization, Office
EquipmentAcct. No. 164
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 1,500
Computer Equipment Acct. No. 167Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 36,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 605
Accumulated Amortization, Computer Equipment
Acct. No. 168
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,250
Accounts Payable Acct. No. 201Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,310
2012Jan.
7 G7 11,2
0013,510
17
G7 11,200
2,310
24
G8 792 1,518
26
G8 16,000
17,518
Feb.
3
G8 15,208
2,310
Mar.
8
G9 4,800
7,110
19
G10
7,110 0
Wages Payable Acct. No. 210Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 800
2012Jan.
4 G7 800 0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.606 Fundamental Accounting Principles, Twelfth Canadian Edition
Unearned Computer Services Revenue
Acct. No. 236
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,000
2012Jan. 1
1 G7 3,000 0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 607
Perpetual Serial Problem (continued) Part 2Mary Graham, Capital Acct. No. 301
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 145,860
2012Jan.
5 G7 48,0
00193,86
0
Mary Graham, Withdrawals Acct. No. 302Date
Explanation PR Debit Credit
Balance
2012Feb.
15
G9 9,600 9,600
Computer Services Revenue Acct. No. 403Date
Explanation PR Debit Credit
Balance
2012Jan. 1
1 G7 12,0
00 12,000
16
G7 6,000
18,000
Mar.
16
G9 8,520
26,520
24
G10
11,800
38,320
Sales Acct. No. 413Date
Explanation PR Debit Credit
Balance
2012Jan. 1
3 G7 8,40
08,400
26
G8 11,600
20,000
Feb 2 G9 6,40 26,400Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.608 Fundamental Accounting Principles, Twelfth Canadian Edition
. 3 0Mar.
25
G10
3,600
30,000
30
G10
4,440
34,440
Sales Discounts Acct. No. 414Date
Explanation PR Debit Credit
Balance
2012Jan. 2
2 G8 76 76
Sales Returns and Allowances Acct. No. 415Date
Explanation PR Debit Credit
Balance
2012Jan. 2
0 G8 800 800
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 609
Perpetual Serial Problem (continued) Part 2Cost of Goods Sold Acct. No. 502
Date
Explanation PR Debit Credit
Balance
2012Jan. 1
3 G7 6,720 6,720
26
G8 9,280 16,000
Feb.
23
G9 5,120 21,120
Mar.
25
G10
2,004 23,124
30
G10
2,200 25,324
Amortization Expense, Office Equipment
Acct. No. 612
Date
Explanation PR Debit Credit
Balance
Amortization Expense, Computer Equipment
Acct. No. 613
Date
Explanation PR Debit Credit
Balance
Wages Expense Acct. No. 623Date
Explanation PR Debit Credit
Balance
2012Jan.
4G7 200 200
31
G8 2,000 2,200
Feb.
26
G9 1,600 3,800
Insurance Expense Acct. No. 637Date
Explanation PR Debit Credit
Balance
Rent Expense Acct. No. 640Dat Explanation PR Debit Cred Balanc
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.610 Fundamental Accounting Principles, Twelfth Canadian Edition
e it e
Computer Supplies Expense Acct. No. 652Date
Explanation PR Debit Credit
Balance
Advertising Expense Acct. No. 655Date
Explanation PR Debit Credit
Balance
2012Feb.
5
G8 1,600 1,600
Mileage Expense Acct. No. 676Date
Explanation PR Debit Credit
Balance
2012Feb.
27
G9 600 600
Mar.
31
G10
400 1,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 611
Perpetual Serial Problem (continued) Part 2Repairs Expense, Computer Acct. No. 684
Date
Explanation PR Debit Credit
Balance
2012Mar.
11
G9 1,720 1,720
Charitable Donations Expense Acct. No. 699Date
Explanation PR Debit Credit
Balance
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.612 Fundamental Accounting Principles, Twelfth Canadian Edition
Perpetual Serial Problem (continued) Part 3
ECHO SYSTEMSPartial Work Sheet
For Three Months Ended March 31, 2012Unadjusted Trial Adjusted Trial
Balance Adjustments BalanceAccount Debit Credit Debit Credit Debit Credit
101 Cash........................ 117,618 117,618106.1 Alamo Engineering Co. 0 0106.2 Buckman Services... 3,600 3,600106.3 Capital Leasing....... 11,800 11,800106.4 Decker Co. ............. 7,140 7,140106.5 Elite Corporation..... 0 0106.6 Fostek Co. ............. 0 0106.7 Grandview Co......... 0 0106.8 Hacienda, Inc. ........ 11,600 11,600106.9 Images, Inc. ........... 0 0119 Merchandise inventory 2,212 (g) 252 1,960126 Computer supplies..... 6,240 (a)2,010 4,230128 Prepaid insurance...... 3,240 (b)1,080 2,160131 Prepaid rent.............. 9,000 (d)6,750 2,250163 Office equipment....... 18,000 18,000164 Accumulated amortization,
office equipment..... 1,500 (f)1,500 3,000167 Computer equipment. 36,000 36,000168 Accumulated amortization,
computer equipment 2,250 (e) 2,2504,500
201 Accounts payable...... 0 0210 Wages payable.......... 0 (c)1,400 1,400236 Unearned computer services
revenue................. 0 0301 Mary Graham, capital. 193,860 193,860302 May Graham, withdrawals 9,600 9,600403 Computer services revenue 38,320
38,320413 Sales........................ 34,440 34,440414 Sales discounts......... 76 76415 Sales returns and allowances 800 800502 Cost of goods sold...... 25,324 (g) 252 25,576612 Amortization expense,
office equipment..... 0 (f)1,500 1,500613 Amortization expense,
computer equipment 0 (e)2,250 2,250623 Wages expense......... 3,800 (c)1,400 5,200637 Insurance expense..... 0 (b)1,080 1,080640 Rent expense............ 0 (d)6,750 6,750652 Computer supplies expense 0 (a)2,010 2,010655 Advertising expense... 1,600 1,600676 Mileage expense........ 1,000 1,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 613
684 Repairs expense, computer 1,720 1,720.................
699 Charitable donations expense 0 .... 0 Totals.................... 270,370270,370 15,242 15,242 275,520 275,520
Perpetual Serial Problem (continued) Part 4: Single-step income statement
ECHO SYSTEMSIncome Statement
For Three Months Ended March 31, 2012
Revenues:Computer services revenue ........$38,320Net sales.................................... 33,564 Total revenues......................... $71,884
Expenses:Cost of goods sold......................$25,576Rent expense ............................ 6,750 Wages expense ......................... 5,200 Amortization expense1................ 3,750 Computer supplies expense ....... 2,010 Repairs expense, computer ....... 1,720 Advertising expense .................. 1,600 Insurance expense ..................... 1,080 Mileage expense ........................ 1,000 Total expenses........................ 48,686
Net income................................... $23,198
1. Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = Total amortization expense of $3,750.
Part 5
ECHO SYSTEMSStatement of Owner’s Equity
For Three Months Ended March 31, 2012
Mary Graham, capital, December 31, 2011................................$ 145,860
Add:..........................Net income $23,198
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.614 Fundamental Accounting Principles, Twelfth Canadian Edition
Investment by owner .......... 48,000 71,198 Total....................................... $217,058Less: Withdrawals by owner........ 9,600Mary Graham, capital, March 31, 2012
$207,458
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 615
Perpetual Serial Problem (concluded) Part 6
ECHO SYSTEMSBalance SheetMarch 31, 2012
AssetsCurrent assets:
Cash............................................... $117,618Accounts receivable........................ 34,140Merchandise inventory ................... 1,960Computer supplies ......................... 4,230Prepaid insurance .......................... 2,160Prepaid rent .................................. 2,250Total current assets........................ $
162,358Property, 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
LiabilitiesCurrent liabilities:
Wages payable .............................. $ 1,400Owner’s Equity Mary Graham, capital........................ 207,458Total liabilities and owner’s equity.......
$208,858
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.616 Fundamental Accounting Principles, Twelfth Canadian Edition
*Periodic Serial Problem, Echo Systems (150 minutes) Part 1Journal entries:
General Journal G7Date Account Titles and Explanations PR DebitCredit2012Jan. 4 Wages Expense ....................623 200
Wages Payable ....................210 800Cash ...............................101 1,000
Paid employee.
5 Cash ....................................101 48,000Mary Graham, Capital ......301 48,000
Investment by owner.
7 Purchases ............................505 11,200Accounts Payable—Shephard Corp. 201
11,200Purchased merchandise on credit.
9 Cash ....................................101 3,000Accounts Receivable—Fostek Co. 106.6
3,000Collected accounts receivable.
11 Accounts Receivable—Alamo Eng. Co. 106.19,000
Unearned Computer Services Revenue 2363,000
Computer Services Revenue 40312,000
Completed work on project.
13 Accounts Receivable—Elite Corp. 106.58,400
Sales ..............................413 8,400Sold merchandise on credit.
15 Transportation-In .................508 1,400Cash ...............................101 1,400
Paid freight on incoming merchandise.
16 Cash ....................................101 6,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 617
Computer Services Revenue 4036,000
Collected cash revenue from customer.
17 Accounts Payable—Shephard Corp. 20111,200
Purchase Discounts .........507 112Cash ...............................101 11,088
Paid account payable within discount period.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.618 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued)General Journal G8
Date Account Titles and Explanations PR DebitCredit2012Jan.20 Sales Returns and Allowances 415 800
Accounts Receivable—Elite Corp. 106.5800
Customer returned defective goods.
22 Cash ....................................101 7,524Sales Discounts ...................414 76
Accounts Receivable—Elite Corp. 106.57,600
Collected accounts receivable.
24 Accounts Payable—Shephard Corp. 201792
Purchase Returns and Allowances 506792
Returned merchandise for credit.
26 Purchases ............................505 16,000Accounts Payable—Shephard Corp. 201
16,000Purchased merchandise for resale.
26 Accounts Receivable—Hacienda, Inc. 106.811,600
Sales ..............................413 11,600Sold merchandise on credit.
29 No entry recorded in the journal.
31 Wages Expense ....................623 2,000Cash ...............................101 2,000
Paid employee.
Feb. 1 Prepaid Rent .......................131 6,750Cash ...............................101 6,750
Paid three months’ rent in advance.
3 Accounts Payable—Shephard Corp. 20115,208
Purchase Discounts .........507 160
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 619
Cash ...............................101 15,048Paid account payable within discount period.
5 Advertising Expense ............655 1,600Cash ...............................101 1,600
Purchased ad in local newspaper.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.620 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued)General Journal G9
Date Account Titles and Explanations PR DebitCredit2012Feb.11 Cash ....................................101 9,000
Accounts Receivable—Alamo Engin. Co. 106.1 9,000
Collected accounts receivable.
15 Mary Graham, Withdrawals . .302 9,600Cash ...............................101 9,600
Owner withdrew cash.
23 Accounts Receivable—Grandview Co. 106.76,400
Sales ..............................413 6,400Sold merchandise on credit.
26 Wages Expense ....................623 1,600Cash ...............................101 1,600
Paid employee.
27 Mileage Expense ..................676 600Cash ...............................101 600
Reimbursed Mary Graham for use of auto.
Mar. 8 Computer Supplies ...............126 4,800Accounts Payable—Abbot Office Prod. ..............................201 4,800
Purchased supplies on credit.
9 Cash ....................................101 6,400Accounts Receivable—Grandview Co. 106.7
6,400Collected accounts receivable.
11 Repairs Expense, Computer ..684 1,720Cash ...............................101 1,720
Paid for computer repairs.
16 Cash ....................................101 8,520Computer Services Revenue 403
8,520Collected cash revenue from customer.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 621
Periodic Serial Problem (continued)General Journal G10
Date Account Titles and Explanations PR DebitCredit2012
19 Accounts Payable .................201 7,110Cash ...............................101 7,110
Paid accounts payable.
24 Accounts Receivable—Capital Leasing 106.311,800
Computer Services Revenue 40311,800
Billed customer for services.
25 Accounts Receivable—Buckman Services 106.23,600
Sales .............................413 3,600Sold merchandise on credit.
30 Accounts Receivable—Decker Co. 106.4 4,440Sales.............................413 4,440
Sold merchandise on credit.
31 Mileage Expense ................676 400Cash .............................101 400
Reimbursed Mary Graham for use of auto.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.622 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 2Cash Acct. No. 101
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 89,090
2012Jan. 4 G7 1,00
088,090
5 G7 48,000
136,090
9 G7 3,000 139,090
15
G7 1,400
137,690
16
G7 6,000 143,690
17
G7 11,088
132,602
22
G8 7,524 140,126
31
G8 2,000
138,126
Feb.
1
G8 6,750
131,376
3
G8 15,048
116,328
5
G8 1,600
114,728
11
G9 9,000 123,728
15
G9 9,600
114,128
26
G9 1,600
112,528
27
G9 600 111,928
Mar.
9
G9 6,400 118,328
11
G9 1,720
116,608
1 G9 8,520 125,12
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 623
6 819
G10
7,110
118,018
31
G10
400 117,618
Accounts Receivable—Alamo Engineering Co.
Acct. No. 106.1
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 1
1 G7 9,000 9,000
Feb.
11
G9 9,000
0
Accounts Receivable—Buckman Services
Acct. No. 106.2
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Mar.
25
G10
3,600 3,600
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.624 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 2Accounts Receivable—Capital
LeasingAcct. No.
106.3Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Mar.
24
G10
11,800
11,800
Accounts Receivable—Decker Co. Acct. No. 106.4
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,700
2012Mar.
30
G10
4,440 7,140
Accounts Receivable—Elite Corporation
Acct. No. 106.5
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 1
3G7 8,400 8,400
20
G8 800 7,600
22
G8 7,600
0
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 625
Accounts Receivable—Fostek Co. Acct. No. 106.6
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,000
2012Jan.
9 G7 3,00
0 0
Accounts Receivable—Grandview Co. Acct. No. 106.7
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Feb.
23
G9 6,400 6,400
Mar.
9
G9 6,400
0
Accounts Receivable—Hacienda, Inc. Acct. No. 106.8
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
2012Jan. 2
6 G8 11,6
0011,600
Periodic Serial Problem (continued) Part 2Accounts Receivable—Images, Inc. Acct. No.
106.9Date
Explanation PR Debit Credit
Balance
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.626 Fundamental Accounting Principles, Twelfth Canadian Edition
2011Dec.
31
Beginning balance 0
Merchandise Inventory Acct. No. 119Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 0
Computer Supplies Acct. No. 126Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 1,440
2012Mar.
8
G9 4,800 6,240
Prepaid Insurance Acct. No. 128Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,240
Prepaid Rent Acct. No. 131Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,250
2012Feb.
1
G8 6,750
9,000
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 627
Office Equipment Acct. No. 163Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 18,000
Accumulated Amortization, Office Equipment
Acct. No. 164
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 1,500
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.628 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 2Computer Equipment Acct. No. 167
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 36,000
Accumulated Amortization, Computer Equipment
Acct. No. 168
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,250
Accounts Payable Acct. No. 201Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 2,310
2012Jan.
7 G7 11,2
0013,510
17
G7 11,200
2,310
24
G8 792 1,518
26
G8 16,000
17,518
Feb.
3
G8 15,208
2,310
Mar.
8
G9 4,800
7,110
19
G10
7,104 0
Wages Payable Acct. No. 210Date
Explanation PR Debit Credit
Balance
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 629
2011Dec.
31
Beginning balance 800
2012Jan.
4 G7 800 0
Unearned Computer Services Revenue
Acct. No. 236
Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 3,000
2012Jan. 1
1 G7 3,000 0
Mary Graham, Capital Acct. No. 301Date
Explanation PR Debit Credit
Balance
2011Dec.
31
Beginning balance 145,860
2012Jan.
5 G7 48,0
00193,86
0
Periodic Serial Problem (continued) Part 2Mary Graham, Withdrawals Acct. No. 302
Date
Explanation PR Debit Credit
Balance
2012Feb.
15
G9 9,600 9,600
Computer Services Revenue Acct. No. 403Dat Explanation PR Debit Cred Balanc
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.630 Fundamental Accounting Principles, Twelfth Canadian Edition
e it e2012Jan. 1
1 G7 12,0
00 12,000
16
G7 6,000
18,000
Mar.
16
G9 8,520
26,520
24
G10
11,800
38,320
Sales Acct. No. 413Date
Explanation PR Debit Credit
Balance
2012Jan. 1
3 G7 8,40
08,400
26
G8 11,600
20,000
Feb.
23
G9 6,400
26,400
Mar.
25
G10
3,600
30,000
30
G10
4400 34,440
Sales Discounts Acct. No. 414Date
Explanation PR Debit Credit
Balance
2012Jan. 2
2 G8 76 76
Sales Returns and Allowances Acct. No. 415Date
Explanation PR Debit Credit
Balance
2012Jan. 2
0 G8 800 800
Purchases Acct. No. 505
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 631
Date
Explanation PR Debit Credit
Balance
2012Jan. 7 G7 11,20
011,200
26
G8 16,000
27,200
Purchase Returns and Allowance Acct. No. 506Date
Explanation PR Debit Credit
Balance
2012Jan. 2
4G8 792 792
Periodic Serial Problem (continued) Part 2Purchase Discounts Acct. No. 507
Date
Explanation PR Debit Credit
Balance
2012Jan. 1
7G7 112 112
Feb.
3 G8 160 272
Transportation-In Acct. No. 508Date
Explanation PR Debit Credit
Balance
2012Jan. 1
5G7 1,400 1,400
Amortization Expense, Office Equipment
Acct. No. 612
Date
Explanation PR Debit Credit
Balance
Amortization Expense, Computer Equipment
Acct. No. 613
Dat Explanation PR Debit Cred BalancCopyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.632 Fundamental Accounting Principles, Twelfth Canadian Edition
e it e
Wages Expense Acct. No. 623Date
Explanation PR Debit Credit
Balance
2012Jan.
4G7 200 200
31
G8 2,000 2,200
Feb.
26
G9 1,600 3,800
Insurance Expense Acct. No. 637Date
Explanation PR Debit Credit
Balance
Rent Expense Acct. No. 640Date
Explanation PR Debit Credit
Balance
Computer Supplies Expense Acct. No. 652Date
Explanation PR Debit Credit
Balance
Advertising Expense Acct. No. 655Date
Explanation PR Debit Credit
Balance
2012Feb.
5
G8 1,600 1,600
Mileage Expense Acct. No. 676Date
Explanation PR Debit Credit
Balance
2012Feb.
27
G9 600 600
Mar.
31
G10
400 1,000
Periodic Serial Problem (continued) Part 2Repairs Expense, Computer Acct. No. 684
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 633
Date
Explanation PR Debit Credit
Balance
2012Mar.
11
G9 1,720 1,720
Charitable Donations Expense Acct. No. 699Date
Explanation PR Debit Credit
Balance
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.634 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 3ECHO SYSTEMS
Partial Work SheetFor Three Months Ended March 31, 2012
Unadjusted Trial Adjusted TrialBalance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit101 Cash............................ 117,618 117,618106.1 Alamo Engineering Co. .. 0 0106.2 Buckman Services......... 3,600 3,600106.3 Capital Leasing............. 11,800 11,800106.4 Decker Co. ................... 7,140 7,140106.5 Elite Corporation........... 0 0106.6 Fostek Co. ................... 0 0106.7 Grandview Co............... 0 0106.8 Hacienda, Inc. .............. 11,600 11,600106.9 Images, Inc. ................. 0 0119 Merchandise inventory. . 0 0126 Computer supplies........ 6,240 (a)2,010 4,230128 Prepaid insurance......... 3,240 (b)1,080 2,160131 Prepaid rent................. 9,000 (d)6,750 2,250163 Office equipment.......... 18,000 18,000164 Accumulated amortization,
office equipment........ 1,500 (f)1,500 3,000167 Computer equipment.... 36,000 36,000168 Accumulated amortization,
computer equipment.. 2,250 (e)2,250 4,500201 Accounts payable.......... 0 0210 Wages payable............. 0 (c)1,400 1,400236 Unearned computer services
revenue.................... 0 0301 Mary Graham, capital.... 193,860 193,860302 May Graham, withdrawals 9,600 9,600403 Computer services revenue 38,320
38,320413 Sales........................... 34,440 34,440414 Sales discounts............. 76 76415 Sales returns and allowances 800 800505 Purchases.................... 27,200 27,200506 Purchase returns and allowances 792
792507 Purchase discounts....... 272 272508 Transportation-In.......... 1,400 1,400612 Amortization expense,
office equipment........ 0 (f)1,500 1,500613 Amortization expense,
computer equipment.. 0 (e)2,250 2,250623 Wages expense............ 3,800 (c)1,400 5,200637 Insurance expense........ 0 (b)1,080 1,080640 Rent expense............... 0 (d)6,750 6,750652 Computer supplies expense 0 (a)2,010 2,010655 Advertising expense...... 1,600 1,600676 Mileage expense........... 1,000 1,000684 Repairs expense, computer 1,720 1,720699 Charitable donations expense 0
0 ..........
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 635
Totals....................... 271,434271,434 14,990 14,990 276,584 276,584
Periodic Serial Problem (continued) Part 4
ECHO SYSTEMSIncome Statement
For Three Months Ended March 31, 2012
Revenues:Computer services revenue ........$38,320Net sales.................................... 33,564 Total revenues......................... $71,884
Operating Expenses:Cost of goods sold1..................... $25,576Rent expense ............................ 6,750 Wages expense ......................... 5,200 Amortization expense2 ............... 3,750 Computer supplies expense ....... 2,010 Repairs expense, computer ........ 1,720 Advertising expense .................. 1,600 Insurance expense ..................... 1,080 Mileage expense ........................ 1,000 Total operating expenses......... 48,686
Net income................................... $23,198
1. COGS =
Beginning Merchandise Inventory................................................................................
$ 0
Add: ........................Purchases 27,200Less: .....Purchase Returns and Allowances..............................
792
Purchase Discounts........... 272Add: .............Transportation-In 1,400Less: .............Ending Inventory 1,96
0$25,576
2. Amortization expense, office equipment of $1,500 + amortization expense, computer equipment of $2,250 = Total amortization expense of $3,750.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.636 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (concluded) Part 5ECHO SYSTEMS
Statement of Owner’s EquityFor Three Months Ended March 31, 2012
Mary Graham, capital, December 31, 2011................................$ 145,860
Add:..........................Net income $23,198
Investment by owner .......... 48,000 71,198 Total....................................... $217,058Less: Withdrawals by owner........ 9,600Mary Graham, capital, March 31, 2012
$207,458
Part 6
ECHO SYSTEMSBalance SheetMarch 31, 2012
AssetsCurrent assets:
Cash............................................... $117,618Accounts receivable........................ 34,140Merchandise inventory ................... 1,960Computer supplies ......................... 4,230Prepaid insurance .......................... 2,160Prepaid rent .................................. 2,250Total current assets........................ $
162,358Property, plant and equipment:
Office equipment ............................$ 18,000Less: 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
LiabilitiesCurrent liabilities:
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.Solutions Manual for Chapter 6 637
Wages payable .............................. $ 1,400Owner’s Equity Mary Graham, capital........................ 207,458Total liabilities and owner’s equity.......
$208,858
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.638 Fundamental Accounting Principles, Twelfth Canadian Edition