ch05 PDF

CHAPTER 5
Accounting for Merchandising Operations

ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
A
Problems
B
Problems
*1.
Identify the differences

between service and
merchandising companies.
2, 3, 4
*2.
Explain the recording

of purchases under a
perpetual inventory
system.
6, 7, 8
2, 4
2, 3, 4, 11
1A, 2A, 4A
1B, 2B, 4B
*3.
Explain the recording

of sales revenues under
a perpetual inventory
system.
5, 9, 10, 11
2, 3
3, 4, 5, 11
1A, 2A, 4A
1B, 2B, 4B
*4.
Explain the steps in the

accounting cycle for a
merchandising company.
1, 12,
13, 14
5, 6
6, 7, 8
3A, 4A, 8A
3B, 4B
*5.
Prepare an income
statement for a
merchandiser.
15, 16, 17,

18
7, 8, 9, 11
6, 9, 10,
12, 13, 14
2A, 3A, 8A
2B, 3B
*6.
Explain the recording of

purchases and sales of
inventory under a periodic
inventory system.
19, 20
10, 11, 12
15, 16, 17,

18, 19
5A, 6A, 7A
5B, 6B, 7B
*7.
Prepare a worksheet for

a merchandising company.
21
13
20, 21
8A
Do It!
Exercises
1
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)
5-1
ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize purchase and sales transactions under

a perpetual inventory system.
Simple
2030
2A
Journalize, post, and prepare a partial income statement.
Simple
3040
3A
Prepare financial statements and adjusting and

closing entries.
Moderate
4050
4A
Journalize, post, and prepare a trial balance.
Simple
3040
*5A
Determine cost of goods sold and gross profit under

periodic approach.
Moderate
4050
*6A
Calculate missing amounts and assess profitability.
Moderate
2030
*7A
Journalize, post, and prepare trial balance and partial

income statement using periodic approach.
Simple
3040
*8A
Complete accounting cycle beginning with a worksheet.
Moderate
5060
1B
Journalize purchase and sales transactions under

a perpetual inventory system.
Simple
2030
2B
Journalize, post, and prepare a partial income statement.
Simple
3040
3B
Prepare financial statements and adjusting and

closing entries.
Moderate
4050
4B
Journalize, post, and prepare a trial balance.
Simple
3040
*5B
Determine cost of goods sold and gross profit under

periodic approach.
Moderate
4050
*6B
Calculate missing amounts and assess profitability.
Moderate
2030
*7B
Journalize, post, and prepare trial balance and partial

income statement using periodic approach.
Simple
3040
5-2
WEYGANDT FINANCIAL ACCOUNTING, IFRS Edition, 2e

CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
Number
LO
BT
Difficulty
Time (min.)
BE1
AP
Simple
46
BE2
2, 3
AP
Simple
24
BE3
AP
Simple
68
BE4
AP
Simple
68
BE5
AP
Simple
12
BE6
AP
Simple
24
BE7
AP
Simple
24
BE8
Simple
46
BE9
AP
Simple
46
BE10
AP
Simple
46
BE11
AP
Simple
46
BE12
AP
Simple
35
BE13
Simple
24
DI1
AP
Simple
24
DI2
AP
Simple
46
DI3
AP
Simple
46
DI4
AP
Simple
1012
EX1
Simple
35
EX2
AP
Simple
810
EX3
2, 3
AP
Simple
810
EX4
2, 3
AP
Simple
810
EX5
AP
Simple
810
EX6
4, 5
AP
Simple
68
EX7
AP
Simple
68
EX8
AP
Simple
810
EX9
AP
Simple
810
EX10
AP
Simple
810
EX11
2, 3
AN
Moderate
68
EX12
AP
Simple
810
EX13
AN
Simple
68
5-3
ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)

Number
LO
BT
Difficulty
Time (min.)
EX14
AN
Moderate
810
EX15
AP
Simple
68
EX16
AP
Simple
810
EX17
AN
Moderate
1012
EX18
AP
Simple
810
EX19
AP
Simple
810
EX20
AP
Simple
24
EX21
AP
Simple
810
P1A
2, 3
AP
Simple
2030
P2A
2, 3, 5
AP
Simple
3040
P3A
4, 5
AN
Moderate
4050
P4A
24
AP
Simple
3040
P5A
AP
Moderate
4050
P6A
AN
Moderate
2030
P7A
AP
Simple
3040
P8A
4, 5, 7
AP
Moderate
5060
P1B
2, 3
AP
Simple
2030
P2B
2, 3, 5
AP
Simple
3040
P3B
4, 5
AN
Moderate
4050
P4B
24
AP
Simple
3040
P5B
AP
Moderate
4050
P6B
AN
Moderate
2030
P7B
AP
Simple
3040
BYP1
AN, E
Simple
1015
BYP2
AN, E
Simple
1520
BYP3
AP
Simple
1015
BYP4
AN, S, E
Moderate
2030
BYP5
Simple
1015
BYP6
Simple
1015
5-4

purchases and sales under
a periodic inventory system.
Prepare a worksheet for

a merchandising company.
4.
5.
*6.
*7.
Broadening Your Perspective
Explain the steps in the

accounting cycle for a
merchandising company.
Prepare an income statement Q5-18

for a merchandiser.
Q5-19

sales revenues under a
perpetual inventory system.
3.
Q5-21
BE5-13
Q5-5
Q5-10

purchases under a perpetual
inventory system.
2.
Q5-2
Identify the differences

between service and
merchandising companies.
Knowledge
1.
Learning Objective
E5-20
E5-21
Q5-20
BE5-10
BE5-11
BE5-12
Q5-15
Q5-16
BE5-7
BE5-9
BE5-11
E5-6
E5-9
Q5-13
BE5-5
BE5-6
DI5-3
Q5-11
BE5-2
BE5-3
DI5-2
E5-3
Q5-8
BE5-2
BE5-4
DI5-1
E5-2
E5-1 BE5-1
E5-14
P5-3A
P5-3B
P5-6A
P5-6B
E5-10
E5-12
E5-13
P5-2A
E5-15
E5-17
E5-18
E5-19
P5-8A P5-3A
P5-4B P5-3B
E5-6
E5-7
E5-8
P5-4A
P5-8A
Analysis
Synthesis
Evaluation
DecisionMaking Comparative Analysis

Financial Reporting
Across the
Financial Reporting
Comparative Analysis
DecisionMaking
DecisionMaking Across Organization
Across
the Organization
the Organization
Ethics Case
P5-5A E5-16
P5-5B P5-6A
P5-7A P5-6B
P5-7B
P5-2B
P5-5A
P5-5B
P5-8A
P5-1B Q5-9
P5-2B E5-11
P5-4B
P5-2B E5-11
P5-4A
P5-4B
E5-4
E5-5
P5-1A
P5-2A
P5-4A
E5-3
E5-4
P5-1A
P5-2A
P5-1B
Application
Communication RealWorld Focus
Q5-17
BE5-8
DI5-4
Q5-1
Q5-12
Q5-14
Q5-6
Q5-7
Q5-3
Q5-4
Comprehension
Correlation Chart between Blooms Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
BLOOMS TAXONOMY TABLE
5-5
ANSWERS TO QUESTIONS
1.
(a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.
2.
The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.
3.
(a) The components of revenues and expenses differ as follows:

Merchandising
Revenues
Expenses
Service
Fees, Rents, etc.
Operating (only)
Sales
Cost of Goods Sold and Operating
(b) The income measurement process is as follows:

Sales
Revenue
Less
Cost of
Goods
Sold
Equals
Gross
Profit
Less
Operating
Expenses
Equals
Net
Income
4.
Income measurement for a merchandising company differs from a service company as follows:
(a) sales are the primary source of revenue and (b) expenses are divided into two main
categories: cost of goods sold and operating expenses.
5.
In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.
6.
The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on
board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB
destination means that the goods are placed free on board to the buyers place of business.
Thus, the seller pays the freight and debits Freight-out.
7.
Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.
8.
July 24
Accounts Payable ($2,500 $200) .................................................

Inventory ($2,300 X 2%) .........................................................
Cash ($2,300 $46) ...............................................................
2,300
46
2,254
9.
Agree. In accordance with the revenue recognition principle, companies record sales revenue
when the performance obligation is satisfied. The performance obligation is satisfied when the
goods transfer from the seller to the buyer; that is, when the exchange transaction occurs. The
earning of revenue is not dependent on the collection of credit sales.
10.
(a) The primary source documents are: (1) cash salescash register tapes and (2) credit sales
sales invoice.
5-6
Questions Chapter 5 (Continued)

(b) The entries are:
Debit
Cash sales
Credit sales
11.
July 19
Cash ...............................................................
Sales Revenue .......................................
Cost of Goods Sold ........................................
Inventory .................................................
Accounts Receivable ......................................
Sales Revenue .......................................
Inventory .................................................
Cash ($600 $12).................................................................

Sales Discounts ($600 X 2%)................................................
Accounts Receivable ($700 $100) .............................
Credit
XX
XX
XX
XX
XX
XX
XX
XX
588
12
600
12.
The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.
13.
Two closing entries are required:

(1) Sales Revenue ...............................................................................
Income Summary ...................................................................
180,000
(2) Income Summary ...........................................................................

Cost of Goods Sold ................................................................
125,000
180,000
125,000
14.
Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.
15.
Sales revenue .........................................................................................................

Cost of goods sold...................................................................................................
Gross profit ..............................................................................................................
$109,000
70,000
$ 39,000
Gross profit rate: $39,000 $109,000 = 35.8%

16.
Gross profit ..............................................................................................................

Less: Net income....................................................................................................
Operating expenses ................................................................................................
17.
There are three distinguishing features in the income statement of a merchandising company:
(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.
570,000
240,000
330,000
5-7
Questions Chapter 5 (Continued)

*18.
(a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
(b) The nonoperating activities part consists of two sections: other income and expense, and
interest expense.
*
*19.
*20.
*21.
5-8
Accounts
Added/Deducted
Purchase Returns and Allowances

Purchase Discounts
Freight-In
Deducted
Deducted
Added
July 24
Accounts Payable ($2,000 $200) .....................................................

Purchase Discounts ($1,800 X 2%) ............................................
Cash ($1,800 $36) ...................................................................
1,800
36
1,764
The columns are:

(a) InventoryTrial Balance (Dr.), Adjusted Trial Balance (Dr.), and Statement of Financial
Position (Dr.).
(b) Cost of Goods SoldTrial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1
(a) Cost of goods sold = 45,000 (75,000 30,000).
Operating expenses = 19,200 (30,000 10,800).
(b) Gross profit = 53,000 (108,000 55,000).
Operating expenses = 23,500 (53,000 29,500).
(c) Sales revenue = 163,500 (83,900 + 79,600).
Net income = 40,100 (79,600 39,500).
BRIEF EXERCISE 5-2

Giovanni Company
Inventory...............................................................
Accounts Payable ........................................
Gordon Company
Accounts Receivable ...........................................
Sales Revenue ..............................................
Cost of Goods Sold .............................................
Inventory .......................................................
780
780
780
780
560
560
BRIEF EXERCISE 5-3

(a) Accounts Receivable ...........................................
Sales Revenue ..............................................
Inventory .......................................................
800,000
(b) Sales Returns and Allowances ...........................

Accounts Receivable ...................................
Inventory...............................................................
Cost of Goods Sold......................................
120,000
800,000
620,000
620,000
120,000
90,000
90,000
5-9
BRIEF EXERCISE 5-3 (Continued)

(c) Cash ($680,000 $13,600) ..................................
Sales Discounts ($680,000 X 2%) .......................
Accounts Receivable ..................................
($800,000 $120,000)
666,400
13,600
680,000
BRIEF EXERCISE 5-4

(a) Inventory ..............................................................
Accounts Payable........................................
800,000
(b) Accounts Payable ...............................................

Inventory ......................................................
120,000
(c) Accounts Payable ($800,000 $120,000) ..........

Inventory
($680,000 X 2%)........................................
Cash ($680,000 $13,600) ..........................
680,000
800,000
120,000
13,600
666,400
BRIEF EXERCISE 5-5

Cost of Goods Sold ....................................................
Inventory ..............................................................
3,400
3,400
BRIEF EXERCISE 5-6

Sales Revenue.............................................................
Income Summary ................................................
192,000
Income Summary ........................................................

Sales Discounts ..................................................
107,000
5-10
192,000
105,000
2,000
BRIEF EXERCISE 5-7

YANGTZE COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2014
Sales revenues
Sales revenue (280,000 + 100,000) ................
Less: Sales returns and allowances ................
Sales discounts .......................................
Net sales ..............................................................
380,000
18,000
5,000
23,000
357,000
BRIEF EXERCISE 5-8

The format of an income statement for a merchandising company is
designed to differentiate between various sources of income and expense.
Item
(a)
(b)
(c)
(d)
(e)
Gain on sale of equipment

Interest expense
Casualty loss from vandalism
Cost of goods sold
Depreciation expense
Section
Other income and expense
After other income and expenses
Cost of goods sold
Operating expenses
5-11
BRIEF EXERCISE 5-9

(a) Net sales = $506,000 $13,000 = $493,000.
(b) Gross profit = $493,000 $330,000 = $163,000.
(c) Income from operations = $163,000 $110,000 = $53,000.
(d) Gross profit rate = $163,000 $493,000 = 33.1%.
*BRIEF EXERCISE 5-10
Purchases .......................................................................
Less: Purchase returns and allowances ....................
Purchase discounts ...........................................
Net purchases ................................................................
Net purchases ................................................................
Add: Freight-in ..............................................................
Cost of goods purchased ..............................................
W430,000
W13,000
8,000
21,000
W409,000
W409,000
16,000
W425,000

Net sales .........................................................................
W680,000
Beginning inventory ...................................................... W 60,000
Add: Cost of goods purchased* ..................................
425,000
Cost of goods available for sale ...................................
485,000
Less: Ending inventory .................................................
90,000
Cost of goods sold ........................................................
395,000
Gross profit ....................................................................
W285,000
*Information taken from Brief Exercise 5-10.
5-12

(a)
Purchases ..............................................................
Accounts Payable ..........................................
900,000
(b)
Accounts Payable .................................................

Purchase Returns and Allowances ..............
184,000
(c)
Accounts Payable ($900,000 $184,000) ............

Purchase Discounts ($716,000 X 2%) ...........
Cash ($716,000 $14,320) .............................
716,000
900,000
184,000
14,320
701,680

(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Statement of financial position debit column.
(b) Inventory: Trial balance debit column; Adjusted trial balance debit
column; Statement of financial position debit column.
(c) Sales revenue: Trial balance credit column; Adjusted trial balance
credit column, Income statement credit column.
(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 5-1
Oct. 5
Oct. 8
Inventory .................................................................
Accounts Payable ............................................
(To record goods purchased on account)
4,700
Accounts Payable...................................................
Inventory ...........................................................
(To record return of defective goods)
650
4,700
650
5-13
DO IT! 5-2
Oct. 5
Oct. 8
Accounts Receivable .............................................

Sales Revenue..................................................
(To record credit sales)
4,700
Cost of Goods Sold ...............................................

Inventory ..........................................................
(To record cost of goods sold)
3,100
Sales Returns and Allowances ............................

(To record credit granted for receipt
of returned goods)
650
Inventory .................................................................
(To record fair value of goods returned)
160
4,700
3,100
650
160
DO IT! 5-3
Dec. 31 Sales Revenue........................................................ 156,000
Interest Revenue ...................................................
3,000
Income Summary .............................................
159,000
(To close accounts with credit balances)
Income Summary ................................................... 128,200
Cost of Goods Sold .........................................
Sales Returns and Allowances .......................
Sales Discounts ...............................................
Freight-Out .......................................................
Utilities Expense ..............................................
Salaries and Wages Expense .........................
(To close accounts with debit balances)
5-14
92,400
4,000
3,000
1,900
7,400
19,500
DO IT! 5-4
Account
Financial Statement
Classification
Accounts Payable
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Income statement
Current liabilities
Accounts Receivable
Accumulated Depreciation
Buildings
Cash
Casualty Loss from
Vandalism
Cost of Goods Sold
Depreciation Expense
Dividends
Equipment
Freight-Out
Insurance Expense
Interest Payable
Inventory
Land
Notes Payable
(due in 5 years)
Property Taxes Payable
Salaries and Wages Expense
Salaries and Wages Payable
Sales Returns and
Allowances
Sales Revenue
Share CapitalOrdinary
Unearned Rent Revenue
Utilities Expense
Income statement
Income statement
Retained earnings
statement
Statement of
Financial Position
Income statement
Income statement
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Income statement
Statement of
Financial Position
Income statement
Income statement
Statement of
Financial Position
Statement of
Financial Position
Income statement
Current assets
Property, plant, and
equipment
Current assets
Other income and
expense
Cost of goods sold
Operating expenses
Deduction section
equipment
Operating expenses
Operating expenses
Current liabilities
Current assets
equipment
Non-current liabilities
Current liabilities
Operating expenses
Current liabilities
Sales revenues
Sales revenues
Equity
Current liabilities
Operating expenses
5-15
SOLUTIONS TO EXERCISES
EXERCISE 5-1
1.
2.
3.
4.
5.
6.
7.
8.
True.
False. For a merchandiser, sales less cost of goods sold is called
gross profit.
True.
True.
False. The operating cycle of a merchandiser differs from that of a
service company. The operating cycle of a merchandiser is ordinarily
longer.
False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
True.
False. A perpetual inventory system provides better control over inventories than a periodic system.
EXERCISE 5-2
(a) (1) April 5
Inventory ...........................................
Accounts Payable .....................
25,000
(2) April 6
Inventory ...........................................
Cash ...........................................
900
(3) April 7
Equipment .........................................
26,000
(4) April 8
Accounts Payable ............................

Inventory ...................................
2,600
(5) April 15

($25,000 $2,600)
Inventory
[($25,000 $2,600) X 2%] .....
Cash ($22,400 $448) ..............
22,400
Accounts Payable .....................................

Cash ....................................................
22,400
(b) May 4
5-16
25,000
900
26,000
2,600
448
21,952
22,400
EXERCISE 5-3
Sept. 6
9
10
12
14
20
Inventory (90 X 20) ........................................

Accounts Payable ...................................
1,800
Inventory..........................................................
Cash .........................................................
180
Accounts Payable ...........................................

Inventory ..................................................
66
Accounts Receivable (26 X 33) ....................

Sales Revenue .........................................
Cost of Goods Sold (26 X 22) ......................
Inventory ..................................................
858
1,800
180
66
858
572
572
Sales Returns and Allowances ......................

Accounts Receivable ..............................
Inventory..........................................................
Cost of Goods Sold.................................
33
Accounts Receivable (40 X 32) ....................

Sales Revenue .........................................
Cost of Goods Sold (40 X 22) ......................
Inventory ..................................................
1,280
33
22
22
1,280
880
880
EXERCISE 5-4
(a) June 10
11
12
19
Inventory ..................................................
7,600
Inventory ..................................................
Cash ..................................................
400
Accounts Payable ...................................

Inventory ..........................................
300
Accounts Payable ($7,600 $300) .........

Inventory
($7,300 X 2%) ................................
Cash ($7,300 $146) .......................
7,300
7,600
400
300
146
7,154
5-17
EXERCISE 5-4 (Continued)

(b) June 10
12
19
Accounts Receivable .............................

Sales Revenue ................................
Cost of Goods Sold ...............................
Inventory .........................................
7,600
Sales Returns and Allowances .............

Accounts Receivable .....................
Inventory.................................................
Cost of Goods Sold........................
300
Cash ($7,300 $146) ..............................

Sales Discounts ($7,300 X 2%) .............
Accounts Receivable
($7,600 $300) ............................
7,154
146
7,600
4,300
4,300
300
70
70
7,300
EXERCISE 5-5
(a) 1.
2.
3.
Dec. 3
Dec. 8
Dec. 13
Accounts Receivable ......................

Sales Revenue .........................
Cost of Goods Sold.........................
Inventory ..................................
570,000
Sales Returns and Allowances ......

Accounts Receivable ..............
20,000
Cash (HK$550,000 HK$5,500)......

Sales Discounts
[(HK$570,000 HK$20,000) X 1%]
Accounts Receivable
(HK$570,000 HK$20,000) ..
544,500
(b) Cash ..........................................................................

Accounts Receivable
( HK$570,000 HK$20,000) ..........................
5-18
570,000
364,800
364,800
20,000
5,500
550,000
550,000
550,000
EXERCISE 5-6
(a)
MENDOZA COMPANY
For the Year Ended October 31, 2014
Sales revenues
Sales revenue ..................................................
Less: Sales returns and allowances ...........
Sales discounts ..................................
Net sales .........................................................
$820,000
$28,000
13,000
41,000
$779,000
Note: Freight-Out is a selling expense.

(b) (1) Oct. 31
Sales Revenue ..............................

Income Summary ..................
820,000
Income Summary ..........................

Sales Returns and
Allowances ........................
Sales Discounts ....................
41,000
(a) Cost of Goods Sold ...............................................

Inventory .........................................................
1,400
(b) Sales Revenue .......................................................

Income Summary ...........................................
115,000
Income Summary ...................................................

Cost of Goods Sold ($60,000 + $1,400) ........
Operating Expenses ......................................
Sales Returns and Allowances .....................
Sales Discounts .............................................
93,400
Income Summary ($115,000 $93,400) ...............

Retained Earnings..........................................
21,600
(2)
31
820,000
28,000
13,000
EXERCISE 5-7
1,400
115,000
61,400
29,000
1,700
1,300
21,600
5-19
EXERCISE 5-8
(a) Cost of Goods Sold ...............................................
Inventory ........................................................
600
(b) Sales Revenue .......................................................

Income Summary...........................................
378,000
Income Summary ..................................................

Cost of Goods Sold ($208,000 + $600).........
Freight-Out .....................................................
Insurance Expense ........................................
Rent Expense .................................................
Salaries and Wages Expense .......................
Sales Discounts .............................................
Sales Returns and Allowances ....................
327,600
Income Summary ($378,000 $327,600) .............

Retained Earnings .........................................
50,400
600
378,000
208,600
7,000
12,000
20,000
59,000
8,000
13,000
50,400
EXERCISE 5-9
(a)
BACH COMPANY
Income Statement
For the Month Ended March 31, 2014
Sales revenues
Sales revenue ...................................................
Less: Sales returns and allowances ..............
Sales discounts ....................................
Net sales ............................................................
Cost of goods sold ................................................
Gross profit ............................................................
Operating expenses
Salaries and wages expense ...........................
Rent expense ....................................................
Freight-out ........................................................
Insurance expense ...........................................
Total operating expenses ....................
Net income ........................................................
380,000
13,000
6,600
19,600
360,400
212,000
148,400
58,000
32,000
9,000
6,000
105,000
43,400
(b) Gross profit rate = 148,400 360,400 = 41.18%.

5-20
EXERCISE 5-10
(a)
MICHAEL COMPANY
Income Statement
For the Year Ended December 31, 2014
Net sales ..............................................
Cost of goods sold .............................
Gross profit .........................................
Operating expenses ...........................
Income from operations .....................
Interest revenue ..........................
Loss on disposal of plant
assets ...................................
Interest expense .................................
Net income ..........................................
2,200,000
1,256,000
944,000
725,000
219,000
33,000
(17,000)
16,000
70,000
165,000
5-21
EXERCISE 5-11
1.
2.
3.
4.
Sales Returns and Allowances .........................................

Sales Revenue ............................................................
175
Supplies ..............................................................................
Cash ....................................................................................
Accounts Payable.......................................................
Inventory .....................................................................
150
150
Sales Discounts .................................................................

Sales Revenue ............................................................
215
Inventory .............................................................................
Cash ....................................................................................
Freight-Out ..................................................................
20
180
175
150
150
215
200
EXERCISE 5-12
(a) $860,000 $533,200 = $326,800.
(b) $326,800/$860,000 = 38%. The gross profit rate is generally considered to
be more useful than the gross profit amount. The rate expresses a more
meaningful (qualitative) relationship between net sales and gross profit.
The gross profit rate indicates what portion of each sales dollar goes to
gross profit. The trend of the gross profit rate is closely watched by
financial statement users, and is compared with rates of competitors
and with industry averages. Such comparisons provide information about
the effectiveness of a companys purchasing function and the soundness
of its pricing policies.
(c) Income from operations is $105,800 ($326,800 $221,000), and net income
is $98,800 ($105,800 $7,000).
(d) Inventory is reported as a current asset immediately below prepaid
expenses.
5-22
EXERCISE 5-13
(a) (*missing amount)
a.
Sales revenue ...............................................................

*Sales returns ................................................................
Net sales........................................................................
py 90,000)
(9,000)
py 81,000)
b.
Net sales........................................................................
Cost of goods sold .......................................................
*Gross profit ..................................................................
py 81,000)
(56,000)
py 25,000)
c.
Gross profit ...................................................................

Operating expenses .....................................................
*Net income ....................................................................
py 25,000)
(12,000)
py 13,000)
d.
*Sales revenue ............................................................... py 103,000)

Sales returns.................................................................
(5,000)
Net sales........................................................................ py 98,000)
e.
Net sales........................................................................
*Cost of goods sold.......................................................
Gross profit ....................................................................
py 98,000)
60,500)
py 37,500)
f.
Gross profit ...................................................................

*Operating expenses .....................................................
Net income ....................................................................
py 37,500)
22,500)
py 15,000)
)
(b) Natasha Company
Gross profit Net sales = py 25,000 py 81,000 = 30.9%
Borus Company
Gross profit Net sales = py 37,500 py 98,000 = 38.3%
5-23
EXERCISE 5-14
(*Missing amount)
(a)
Sales revenue .........................................................

Sales returns and allowances ...............................
Net sales ..................................................................
$ 90,000
(4,000)*
$ 86,000
(b)
Net sales ..................................................................

Cost of goods sold .................................................
Gross profit .............................................................
$ 86,000
(56,000)
$ 30,000*
(c) and (d)

Gross profit .............................................................
Operating expenses ...............................................
Income from operations (c) ...................................
Other income and expense....................................
Net income (d).........................................................
$ 30,000
(15,000)
$ 15,000*
(4,000)
$ 11,000*
(e)
Sales revenue .........................................................

Net sales ..................................................................
$100,000*
(5,000)
$ 95,000
(f)
Net sales ..................................................................

Gross profit .............................................................
$ 95,000
(73,000)*
$ 22,000
(g) and (h)

Gross profit .............................................................
Operating expenses (g)..........................................
Income from operations (h) ...................................
Other income and expense....................................
Net income ..............................................................
$ 22,000
(8,000)*
$ 14,000*
(3,000)
$ 11,000
(i)
Sales revenue .........................................................

Net sales ..................................................................
$122,000
(12,000)
$110,000*
(j)
Net sales ..................................................................

Gross profit .............................................................
$110,000
(86,000)*
$ 24,000
5-24
EXERCISE 5-14 (Continued)

(k) and (l)
Gross profit ............................................................
Operating expenses ...............................................
Income from operations (k) ...................................
Other income and expense (l) ...............................
Net income ..............................................................
$24,000
18,000
$ 6,000*
1,000*
$ 5,000
EXERCISE 5-15
Inventory, September 1, 2013 ........................................
Purchases .......................................................................
Less: Purchase returns and allowances .....................
Net Purchases ................................................................
Add: Freight-in ...............................................................
Cost of goods purchased ..............................................
Cost of goods available for sale ...................................
Less: Inventory, August 31, 2014..................................
Rp149,000
6,000
143,000
5,000
Rp17,200
148,000
165,200
14,000
Rp151,200
EXERCISE 5-16
(a)
(b)
Sales revenue .......................................

Less: Sales returns and allowances ....
Sales discounts ........................
Net sales ...............................................
Cost of goods sold
Inventory, January 1.......................
Purchases .......................................
Less: Purch. rets. and alls. ..........
Purch. discounts.................
Net purchases .................................
Add: Freight-in ................................
Cost of goods available for sale ...
Less: Inventory, December 31.......
Cost of goods sold ..................
Gross profit .....................................
$840,000
$ 11,000
7,000
18,000
822,000
50,000
$509,000
8,000
6,000
495,000
4,000
599,000
60,000
439,000
$383,000
Gross profit $383,000 Operating expenses = Net income $130,000.

Operating expenses = $253,000.
5-25
EXERCISE 5-17
(a)
(b)
(c)
(d)
(e)
(f)
$1,580
$1,675
$1,515
$30
$250
$90
($1,620 $40)
($1,580 + $95)
($1,825 $310)
($1,060 $1,030)
($1,280 $1,030)
($1,350 $1,260)
(g)
(h)
(i)
(j)
(k)
(l)
$6,500
$1,730
$8,940
$6,200
$2,500
$43,330
($290 + $6,210)
($7,940 $6,210)
($1,000 + $7,940)
($49,530 $43,330 from (I))
($43,590 $41,090)
($41,090 + $2,240)
*EXERCISE 5-18
(a) 1.
2.
3.
4.
5.
(b)
5-26
April 5
April 6
April 7
April 8
April 15
May
Purchases .......................................
18,000
Freight-In .........................................
Cash ...........................................
820
Equipment .......................................
30,000
Accounts Payable...........................
Purchase Returns and
Allowances ............................
2,800
Accounts Payable
(18,000 2,800)........................
Purchase Discounts
[(18,000 2,800) X 2%)].....
Cash (15,200 304)...............
Accounts Payable
(18,000 2,800)........................
Cash ...........................................
18,000
820
30,000
2,800
15,200
304
14,896
15,200
15,200
*EXERCISE 5-19
(a) 1.
2.
3.
4.
5.
(b)
April 5
April 6
April 7
April 8
April 15
May
Purchases ........................................
16,000
Freight-In .........................................
Cash ...........................................
800
Equipment .......................................
27,000
Accounts Payable ...........................

Purchase Returns and
Allowances .............................
4,000

($16,000 $4,000)
Purchase Discounts
[($16,000 $4,000) X 2%)] .....
Cash ($12,000 $240) ...............
12,000
Accounts Payable
($16,000 $4,000) ........................
Cash ...........................................
16,000
800
27,000
4,000
240
11,760
12,000
12,000
*EXERCISE 5-20
Accounts
Adjusted
Trial Balance
Debit
Cash
Inventory
Sales Revenue
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold
Credit
Income
Statement
Debit
Credit
9,000
76,000
Debit
Credit
9,000
76,000
460,000
10,000
9,000
288,000
Statement of
Financial
Position
460,000
10,000
9,000
288,000
5-27
*EXERCISE 5-21
BARBOSA COMPANY
Worksheet
For the Month Ended June 30, 2014
Account Titles
Cash
Accounts Receivable
Inventory
Accounts Payable
Sales Revenue
Cost of Goods Sold
Operating Expenses
Totals
Net Income
Totals
5-28
Trial Balance
Dr.
Cr.
2,120
2,440
11,640
1,120
4,000
42,500
20,560
10,860
47,620 47,620
Adjustments
Dr.
Cr.
1,500
1,500
1,500 1,500
Adj. Trial
Income
Statement of
Balance
Statement
Financial Position
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
2,120
2,120
2,440
2,440
11,640
11,640
2,620
2,620
4,000
4,000
42,500
42,500
20,560
20,560
12,360
12,360
49,120 49,120 32,920 42,500
16,200
6,620
9,580
9,580
42,500 42,500
16,200 16,200
SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
July 1
3
12
17
18
20
21
Inventory ........................................................
Accounts Payable ..................................
1,500
Accounts Receivable ....................................

Sales Revenue .......................................
2,200
Cost of Goods Sold .......................................

Inventory ................................................
1,400
Accounts Payable .........................................

Inventory
($1,500 X .02) ......................................
Cash ........................................................
1,500
Cash................................................................
Sales Discounts.............................................
Accounts Receivable.............................
2,178
22

Sales Revenue .......................................
1,400

Inventory ................................................
1,010
Inventory ........................................................
Accounts Payable ..................................
1,900
Inventory ........................................................
Cash ........................................................
125

Inventory ................................................
300
Cash................................................................
Sales Discounts.............................................
Accounts Receivable.............................
1,386
14
1,500
2,200
1,400
30
1,470
2,200
1,400
1,010
1,900
125
300
1,400
5-29
PROBLEM 5-1A (Continued)

July 22
30
31
5-30
Accounts Receivable .....................................

Sales Revenue ........................................
2,250

Inventory .................................................
1,350

Cash ........................................................
1,600
Sales Returns and Allowances ......................

Accounts Receivable .............................
200
Inventory .........................................................
Cost of Goods Sold................................
120
2,250
1,350
1,600
200
120
PROBLEM 5-2A
(a)
Date
Apr. 2
4
5
6
11
13
14
16
18
20
General Journal
Account Titles
Inventory .............................................
Accounts Payable ......................
Ref.
120
201
Debit
6,200
Accounts Receivable .........................

Sales Revenue ............................
Cost of Goods Sold............................
Inventory .....................................
112
401
505
120
5,500
Freight-Out .........................................
Cash.............................................
644
101
240
Accounts Payable ..............................

Inventory .....................................
201
120
500
Accounts Payable (6,200 500)......

Inventory .....................................
(5,700 X 1%)
Cash.............................................
201
120
5,700
Cash ....................................................
Sales Discounts (5,500 X 1%) .........
Accounts Receivable .................
101
414
112
5,445
55
Inventory .............................................
Cash.............................................
120
101
3,800
Cash ....................................................
Inventory .....................................
101
120
500
Inventory .............................................
Accounts Payable ......................
120
201
4,500
Inventory .............................................
Cash.............................................
120
101
160
J1
Credit
6,200
5,500
3,400
3,400
240
500
57
5,643
101
5,500
3,800
500
4,500
160
5-31
Date
Apr. 23
26
27
29
30
5-32
General Journal
Account Titles
Cash .....................................................
Sales Revenue ............................
Cost of Goods Sold ............................
Inventory ......................................
Ref.
101
401
505
120
Debit
7,400
Inventory .............................................
Cash .............................................
120
101
2,300
Accounts Payable...............................
Inventory ......................................
(4,500 X 2%)
Cash .............................................
201
120
4,500
Sales Returns and Allowances .........

Cash .............................................
Inventory .............................................
Cost of Goods Sold ....................
412
101
120
505
90

Sales Revenue ............................
Inventory ......................................
112
401
505
120
3,400
J1
Credit
7,400
4,120
4,120
2,300
90
101
4,410
90
30
30
3,400
1,900
1,900

(b)
Cash
Date
Apr.
No. 101
1
5
11
13
14
16
20
23
26
27
29
Explanation
Balance
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Accounts Receivable
Date
Explanation
Apr. 4
13
30
Ref.
J1
J1
J1
Debit
Credit
240
5,643
5,445
3,800
500
160
7,400
2,300
4,410
90
Debit
5,500
Credit
5,500
3,400
Inventory
Date
Apr.
No. 112
Balance
5,500
0
3,400
No. 120
Explanation
2
4
6
11
14
16
18
20
23
26
27
29
30
Balance
8,000
7,760
2,117
7,562
3,762
4,262
4,102
11,502
9,202
4,792
4,702
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
6,200
Credit
3,400
500
57
3,800
500
4,500
160
4,120
2,300
90
30
1,900
Balance
6,200
2,800
2,300
2,243
6,043
5,543
10,043
10,203
6,083
8,383
8,293
8,323
6,423
5-33

Accounts Payable
Date
Apr.
Explanation
2
6
11
18
27
No. 201
Ref.
J1
J1
J1
J1
J1
Debit
Credit
6,200
500
5,700
4,500
4,500
Date
Apr.
Explanation
Balance
No. 311
Ref.
Debit
Credit
Sales Revenue
Date
Apr.
Explanation
4
23
30
Explanation
Ref.
J1
J1
J1
Debit
Credit
5,500
7,400
3,400
Explanation
Cost of Goods Sold

Date
Explanation
Apr. 4
23
29
30
5-34
Balance
5,500
12,900
16,300
No. 412
Ref.
J1
Debit
90
Credit
Sales Discounts
Date
Apr. 13
Balance
8,000
No. 401

Date
Apr. 29
Balance
6,200
5,700
0
4,500
0
Balance
90
No. 414
Ref.
J1
Ref.
J1
J1
J1
J1
Debit
55
Debit
3,400
4,120
Credit
Credit
30
1,900
Balance
55
No. 505
Balance
3,400
7,520
7,490
9,390

Freight-Out
Date
Apr. 5
(c)
No. 644
Explanation
Ref.
J1
Debit
240
Credit
Balance
240
VREE DISTRIBUTING COMPANY

For the Month Ended April 30, 2014
Sales revenues
Sales revenue .....................................................
Less: Sales returns and allowances ...............
Sales discounts ......................................
Net sales .............................................................
Cost of goods sold ....................................................
Gross profit ................................................................
16,300
90
55
145
16,155
9,390
6,765
5-35
PROBLEM 5-3A
(a)
STARZ DEPARTMENT STORE

Income Statement
Sales revenues
Sales....................................................
Less: Sales returns and
allowances ..............................
Net sales .............................................
Cost of goods sold ...................................
Gross profit ...............................................
Operating expenses
Salaries and wages expense......
Depreciation expense .................
Sales commissions expense .....
Utilities expense ..........................
Insurance expense ......................
Property tax expense ..................
Total operating expenses ....
Income from operations ...........................
Interest revenue .................................
Interest expense........................................
Net income.................................................
5-36
$724,000
8,000
716,000
412,700
303,300
$108,000
23,700
14,500
12,000
7,200
4,800
170,200
133,100
4,000
8,600
$ 128,500

Retained Earnings Statement
Retained earnings, January 1........................................................
Add: Net income ...........................................................................
Less: Dividends .............................................................................
Retained earnings, December 31 ..................................................
$64,600
128,500
193,100
24,000
$169,100

Statement of Financial Position
December 31, 2014
Assets
Property, plant, and equipment
Buildings .............................................. $290,000
Less: Accumulated depreciation
buildings ...................................
52,500
Equipment ............................................ 110,000
equipment .................................
42,900
Current assets
Prepaid insurance ................................
Inventory...............................................
Accounts receivable ............................
Cash .....................................................
Total assets ................................
$237,500
67,100
2,400
75,000
50,300
23,800
$304,600
151,500
$456,100
5-37

Statement of Financial Position (Continued)
December 31, 2014
Equity and Liabilities
Equity
Share capitalordinary .......................................... $112,000
Retained earnings ................................................... 169,100
Mortgage payable ....................................................
Current liabilities
Accounts payable ...................................................
80,300
Mortgage payable (due next year) .........................
16,000
Interest payable .......................................................
5,600
Property taxes payable ...........................................
4,800
Sales commissions payable...................................
4,300
Total equity and liabilities ..............................................
(b) Dec. 31
31
31
31
5-38
Depreciation Expense ...........................

Buildings .....................................
Equipment...................................
23,700
Insurance Expense ................................

Prepaid Insurance ..........................
7,200
Interest Expense ....................................

Interest Payable..............................
5,600
Property Tax Expense ...........................

Property Taxes Payable.................
4,800
$281,100
64,000
111,000
$456,100
10,400
13,300
7,200
5,600
4,800

31
31
(c) Dec. 31
31
31
31
Sales Commissions Expense ................

Sales Commissions Payable .........
4,300
Utilities Expense.....................................
1,000
Sales .......................................................
Interest Revenue ...................................
Income Summary ...........................
724,000
4,000
Income Summary ..................................

Sales Returns and Allowances ......
Cost of Goods Sold .......................
Salaries and Wages Expense .......
Sales Commissions Expense .......
Property Tax Expense ...................
Utilities Expense ............................
Depreciation Expense ...................
Insurance Expense ........................
Interest Expense ............................
599,500
Income Summary ..................................

Retained Earnings .........................
128,500
Retained Earnings .................................

Dividends .......................................
24,000
4,300
1,000
728,000
8,000
412,700
108,000
14,500
4,800
12,000
23,700
7,200
8,600
128,500
24,000
5-39
PROBLEM 5-4A
(a)
Date
Apr. 4
6
8
10
11
13
14
15
17
18
5-40
General Journal
Account Titles
Inventory ...............................................
Accounts Payable .........................
Ref.
120
201
Debit
760
Inventory ...............................................
Cash ...............................................
120
101
40
Accounts Receivable ...........................

Sales Revenue ..............................
112
401
1,150
Cost of Goods Sold ..............................

Inventory........................................
505
120
790
Accounts Payable ................................

Inventory........................................
201
120
60
Inventory ...............................................
Cash ...............................................
120
101
420
Accounts Payable (760 60) ...........

Inventory........................................
(700 X 2%)
Cash ...............................................
201
120
700
Inventory ...............................................
Accounts Payable .........................
120
201
800
Cash .......................................................
Inventory........................................
101
120
50
Inventory ...............................................
Cash ...............................................
120
101
30

Sales Revenue ..............................
112
401
980

Inventory........................................
505
120
520
J1
Credit
760
40
1,150
790
60
420
14
101
686
800
50
30
980
520
Date
Apr. 20
21
27
30
General Journal
Account Titles
Cash .....................................................
Accounts Receivable ..................
Ref.
101
112
Debit
600
Accounts Payable ...............................

Inventory (800 X 3%) .................
Cash ..............................................
201
120
101
800
Sales Returns and Allowances ..........

412
112
40
Cash .....................................................
101
112
820
J1
Credit
600
24
776
40
820
(b)
Cash
Date
Apr. 1
6
11
13
15
17
20
21
30
Explanation
Balance
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
Debit
Credit
40
420
686
50
30
600
776
820
Accounts Receivable
Date
Apr. 8
18
20
27
30
Explanation
No. 101
Balance
2,200
2,160
1,740
1,054
1,104
1,074
1,674
898
1,718
No. 112
Ref.
J1
J1
J1
J1
J1
Debit
1,150
980
Credit
600
40
820
Balance
1,150
2,130
1,530
1,490
670
5-41

Inventory
Date
Apr. 1
4
6
8
10
11
13
14
15
17
18
21
No. 120
Explanation
Balance
Ref.
Debit
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
760
40
Credit
790
60
420
14
800
50
30
520
24
Accounts Payable
Date
Apr. 4
10
13
14
21
Explanation
No. 201
Ref.
J1
J1
J1
J1
J1
Debit
Credit
760
60
700
800
800
Date
Apr. 1
Explanation
Balance
5-42
Explanation
Balance
760
700
0
800
0
No. 311
Ref.
Debit
Credit
Sales Revenue
Date
Apr. 8
18
Balance
1,800
2,560
2,600
1,810
1,750
2,170
2,156
2,956
2,906
2,936
2,416
2,392
Balance
4,000
No. 401
Ref.
J1
J1
Debit
Credit
1,150
980
Balance
1,150
2,130

Date
Apr. 27
Explanation
Cost of Goods Sold

Date
Explanation
Apr. 8
18
(c)
No. 412
Ref.
J1
Ref.
J1
J1
Debit
40
Debit
790
520
Credit
Credit
Balance
40
No. 505
Balance
790
1,310
ZHENGS TENNIS SHOP

Trial Balance
April 30, 2014
Cash .........................................................................
Inventory .................................................................
Share CapitalOrdinary ........................................
Sales Revenue ........................................................
Sales Returns and Allowances .............................
Cost of Goods Sold ................................................
Debit
1,718
670
2,392
Credit
4,000
2,130
40
1,310
6,130
6,130
5-43
*PROBLEM 5-5A
APEX DEPARTMENT STORE

Sales revenues
Sales revenue ...........................
allowances ....................
Net sales ...................................
Cost of goods sold
Inventory, January 1 ................
Purchases .................................
Less: Purchase returns
and allowances .............
Purchase discounts .....
Net purchases ..........................
Add: Freight-in ........................
Cost of goods purchased .........
Cost of goods available
for sale ...............................
Less: Inventory, December 31
Cost of goods sold............
Gross profit .....................................
5-44
$718,000
18,000
700,000
$ 40,500
$442,000
$ 6,400
12,000
18,400
423,600
5,600
429,200
469,700
65,000
404,700
$295,300
*PROBLEM 5-6A
(a)
Cost of goods sold:
Beginning inventory
Plus: Purchases
Less: Ending inventory
Cost of goods sold
(b)
Sales revenue
Less: CGS
Gross profit
(c)
Beginning accounts payable
Plus: Purchases
Less: Payments to suppliers
Ending accounts payable
2012
2013
2014
$ 13,000
141,000
154,000
(11,300)
$142,700
$ 11,300
150,000
161,300
(14,700)
$146,600
$ 14,700
132,000
146,700
(12,200)
$134,500
2012
$225,700
142,700
$ 83,000
2013
$240,300
146,600
$ 93,700
2014
$235,000
134,500
$100,500
2012
$ 20,000
141,000
135,000
$ 26,000
2013
$ 26,000
150,000
161,000
$ 15,000
2014
$ 15,000
132,000
127,000
$ 20,000
(d) Gross profit rate
36.8%
$83,000
$225,700
39.0%
$93,700
$240,300
42.8%
$100,500
$235,000
No. Even though sales declined in 2014 from the prior year, the gross
profit rate increased. This means that cost of goods sold declined more
than sales did, reflecting better purchasing power or control of costs.
Therefore, in spite of declining sales, profitability, as measured by the
gross profit rate, actually improved.
5-45
*PROBLEM 5-7A
(a)
General Journal
Date
Account Titles
Apr. 4 Purchases .........................................................
Accounts Payable ....................................
5-46
Debit
860
6 Freight-In ..........................................................
Cash ..........................................................
74
8 Accounts Receivable .......................................

Sales Revenue ..........................................
900
10 Accounts Payable ............................................

Purchase Returns and Allowances ........
60
11 Purchases .........................................................
Cash ..........................................................
300
13 Accounts Payable (CHF860 CHF60)............

Purchase Discounts (CHF800 X 3%) ......
Cash ..........................................................
800
14 Purchases .........................................................
700
15 Cash ..................................................................
Purchase Returns and Allowances ........
50
17 Freight-In ..........................................................
Cash ..........................................................
30
18 Accounts Receivable .......................................

Sales Revenue ..........................................
1,200
20 Cash ..................................................................
Accounts Receivable ...............................
500
21 Accounts Payable ............................................

Purchase Discounts (CHF700 X 2%) ......
Cash ..........................................................
700
Credit
860
74
900
60
300
24
776
700
50
30
1,200
500
14
686
*PROBLEM 5-7A (Continued)

Date
Account Titles
Apr. 27 Sales Returns and Allowances ...................
Debit
25
30 Cash ..............................................................
620
(b)
Cash
4/1 Bal. 2,500 4/6
4/15
50 4/11
4/20
500 4/13
4/30
620 4/17
4/21
4/30 Bal. 1,804
74
300
776
30
686
Accounts Receivable
4/8
900 4/20
500
4/18
1,200 4/27
25
4/30
620
4/30 Bal.
955
Inventory
4/1 Bal. 1,700
4/30 Bal. 1,700
4/27
25
4/30 Bal.
25
Purchases
4/4
860
4/11
300
4/14
700
4/30 Bal. 1,860
4/10
4/13
4/21
Accounts Payable
60 4/4
800 4/14
700
4/30 Bal.
Credit
25
620
860
700
0
4/1 Bal.
4,200
4/30 Bal.
4,200
Sales Revenue
4/8
4/18
4/30 Bal.
Purchase Discounts
4/13
4/21
4/30 Bal.
4/6
4/17
4/30 Bal.
900
1,200
2,100
24
14
38
Freight-In
74
30
104
Purchase
Returns and Allowances
4/10
60
4/15
50
4/30 Bal.
110
5-47

(c)
VILLAGE TENNIS SHOP

Trial Balance
April 30, 2014
Debit
Cash ........................................................................ CHF1,804
955
1,700
Inventory .................................................................
Share CapitalOrdinary........................................
Sales Revenue ........................................................
25
Sales Returns and Allowances .............................
1,860
Purchases ...............................................................
Purchase Returns and Allowances ......................
Purchase Discounts...............................................
104
Freight-In.................................................................
CHF 6,448
Credit
CHF4,200
2,100
110
38
CHF 6,448
VILLAGE TENNIS SHOP

Sales revenues
Sales revenue ..............................
CHF2,100
allowances .......................
25
Net sales ......................................
2,075
Cost of goods sold
Inventory, April 1 .........................
CHF1,700
Purchases ....................................
CHF1,860
and allowances ................ CHF110
148
Purchase discounts ........
38
Net purchases .............................
1,712
Add: Freight-in ...........................
104
Cost of goods purchased ...........
1,816
for sale ..................................
3,516
Less: Inventory, April 30 ............
2,296
Cost of goods sold...............
1,220
Gross profit ........................................
CHF 855
5-48
Account Titles
(a)
(b)
(c)
19,780
4,100
11,500
4,000
(c)
4,000
19,780
11,500
180
4,100
12,800
497,580
8,000
8,700
27,700
44,520
2,100
133,000
Dr.
981,200
4,100
11,500
4,000
12,100
16,700
24,000
180
(b)
(d)
(a)
Cr.
12,100
16,700
24,000
965,700
(d)
Dr.
4,000
981,200
755,200
34,500
51,000
48,500
50,000
38,000
Cr.
Adjusted
Trial Balance
136,000
24,400
14,000
965,700
755,200
23,000
51,000
48,500
50,000
38,000
Cr.
Adjustments
136,000
24,400
14,000
12,800
497,400
8,000
8,700
27,700
44,700
6,200
133,000
Dr.
Trial Balance
MR. ROSIAK FASHION CENTER

Worksheet
For the Year Ended November 30, 2014
757,180
757,180
4,100
11,500
4,000
12,100
16,700
24,000
136,000
24,400
14,000
12,800
497,580
Dr.
755,200
1,980
757,180
755,200
Cr.
Income
Statement
Key: (a) Supplies used, (b) Depreciation expense, (c) Accrued interest payable, (d) Adjustment of inventory.
Cash
Accounts Receivable
Inventory
Supplies
Equipment
Accum. Depreciation
Equipment
Notes Payable
Accounts Payable
Retained Earnings
Dividends
Sales Revenue
Sales Returns and
Allowances
Cost of Goods Sold
Salaries and Wages
Expense
Advertising Expense
Utilities Expense
Maintenance and Repairs
Expense
Freight-Out
Rent Expense
Totals
Supplies Expense
Interest Expense
Interest Payable
Totals
Net Loss
Totals
(a)
224,020
1,980
226,000
8,000
8,700
27,700
44,520
2,100
133,000
Dr.
226,000
4,000
226,000
34,500
51,000
48,500
50,000
38,000
Cr.
Statement of
Financial Position
*PROBLEM 5-8A
5-49

(b)

Income Statement
Sales revenues
Sales revenue ..............................................
allowances .......................................
Net sales ......................................................
Cost of goods sold ............................................
Gross profit ........................................................
Operating expenses
Salaries and wages expense...............
Advertising expense ............................
Rent expense ........................................
Freight-out ............................................
Utilities expense ...................................
Maintenance and repairs expense......
Depreciation expense ..........................
Supplies expense .................................
Total operating expenses .............
Income from operations ....................................
Interest expense.................................................
Net loss ...............................................................
5-50
$755,200
12,800
742,400
497,580
244,820
$136,000
24,400
24,000
16,700
14,000
12,100
11,500
4,100
242,800
2,020
4,000
$ (1,980)

Retained Earnings, December 1, 2013.......................
Less: Net loss .............................................................
Dividends ..........................................................
Retained Earnings, November 30, 2014 ....................
$38,000
$ 1,980
8,000
9,980
$ 28,020

November 30, 2014
Assets
Equipment ........................................
Accumulated depreciation
equipment....................................
Current assets
Supplies ............................................
Inventory...........................................
Accounts receivable ........................
Cash ..................................................
Total assets ..............................
$133,000
34,500
2,100
44,520
27,700
8,700
$98,500
83,020
$181,520
5-51

November 30, 2014
Equity
Share capitalordinary .............................................
Retained earnings ......................................................
Notes payable .............................................................
Current liabilities
Notes payable (due next year) ..................................
Accounts payable ......................................................
Interest payable ..........................................................
Total equity and liabilities ................................................
(c) Nov. 30
30
30
30
5-52
$50,000
28,020 $ 78,020
45,000
6,000
48,500
4,000
Supplies Expense .....................................

Supplies .............................................
4,100
Depreciation Expense ..............................

Equipment ....................................
11,500
Interest Expense .......................................

Interest Payable ................................
4,000
Cost of Goods Sold ..................................

Inventory ............................................
180
58,500
$181,520
4,100
11,500
4,000
180

(d) Nov. 30
30
30
30
Sales Revenue .......................................

Income Summary ..........................
755,200
Income Summary ..................................

Sales Returns and
Allowances .................................
Cost of Goods Sold .......................
Salaries and Wages Expense .......
Advertising Expense .....................
Utilities Expense ............................
Maintenance and Repairs
Expense......................................
Freight-Out .....................................
Rent Expense .................................
Supplies Expense ..........................
Depreciation Expense ...................
Interest Expense ............................
757,180
Retained Earnings.................................
Income Summary ..........................
1,980
Retained Earnings.................................
Dividends .......................................
8,000
755,200
12,800
497,580
136,000
24,400
14,000
12,100
16,700
24,000
4,100
11,500
4,000
1,980
8,000
5-53

(e)

Post-Closing Trial Balance
November 30, 2014
Cash .................................................................
Inventory ..........................................................
Supplies ...........................................................
Equipment........................................................
Accumulated DepreciationEquipment .......
Notes Payable..................................................
Accounts Payable ...........................................
Interest Payable...............................................
Share CapitalOrdinary.................................
Retained Earnings...........................................
Debit
$ 8,700
27,700
44,520
2,100
133,000
$216,020
5-54
Credit
$ 34,500
51,000
48,500
4,000
50,000
28,020
$216,020
PROBLEM 5-1B
(a) June 1
Inventory .......................................................
1,850

Sales Revenue ......................................
2,500
Cost of Goods Sold .....................................

Inventory ...............................................
1,440

Inventory ...............................................
150
Accounts Payable (1,850 150)..............

Inventory
(1,700 X .02) ....................................
Cash ......................................................
1,700
15
Cash ..............................................................
2,500
17

Sales Revenue ......................................
1,800
Cost of Goods Sold .....................................

Inventory ...............................................
1,020
20
Inventory .......................................................
1,500
24
Cash ..............................................................
Sales Discounts (1,800 X .02) ...................
1,764
36

Inventory
(1,500 X .02) ....................................
Cash ......................................................
1,500
26
1,850
2,500
1,440
150
34
1,666
2,500
1,800
1,020
1,500
1,800
30
1,470
5-55
PROBLEM 5-1B (Continued)

June 28
30
5-56

Sales Revenue ......................................
1,300
Cost of Goods Sold ......................................

Inventory ...............................................
850
Sales Returns and Allowances ...................

120
Inventory .......................................................
72
1,300
850
120
72
PROBLEM 5-2B
(a)
Date
May 1
2
5
9
10
11
12
15
17
19
General Journal
Account Titles
Inventory............................................
Ref.
120
201
Debit
4,200
Accounts Receivable........................
Sales Revenue ...........................
112
401
2,300
Cost of Goods Sold ..........................

Inventory ....................................
505
120
1,300
Accounts Payable.............................
Inventory ....................................
201
120
500
Cash ($2,300 $23)...........................

Sales Discounts ($2,300 X 1%) ........
Accounts Receivable ................
101
414
112
2,277
23
Accounts Payable ($4,200 $500) ......

Inventory ($3,700 X 2%) ............
Cash ...........................................
201
120
101
3,700
Supplies .............................................
Cash ...........................................
126
101
400
Inventory............................................
Cash ...........................................
120
101
1,400
Cash ...................................................
Inventory ....................................
101
120
150
Inventory............................................
120
201
1,300
Inventory............................................
Cash ...........................................
120
101
130
J1
Credit
4,200
2,300
1,300
500
2,300
74
3,626
400
1,400
150
1,300
130
5-57
Date
May 24
25
27
29
31
5-58
General Journal
Account Titles
Cash .....................................................
Sales Revenue ............................
Ref.
101
401
Debit
3,200

Inventory ......................................
505
120
2,000
Inventory .............................................
Accounts Payable .......................
120
201
620
Inventory
($1,300 X 2%) ...........................
Cash .............................................
201
1,300
Sales Returns and Allowances .........

Cash .............................................
412
101
90
Inventory .............................................
Cost of Goods Sold ....................
120
505
40

Sales Revenue ............................
112
401
1,000

Inventory ......................................
505
120
560
J1
Credit
3,200
2,000
620
120
101
26
1,274
90
40
1,000
560

(b)
Cash
Date
May
No. 101
1
9
10
11
12
15
19
24
27
29
Explanation
Balance
Ref.
Debit
J1
J1
J1
J1
J1
J1
J1
J1
J1
2,277
Credit
3,626
400
1,400
150
130
3,200
1,274
90
Accounts Receivable
Date
May
Explanation
2
9
31
No. 112
Ref.
J1
J1
J1
Debit
2,300
Credit
2,300
1,000
Inventory
Date
May
Balance
2,300
0
1,000
No. 120
Explanation
1
2
5
10
12
15
17
19
24
25
27
29
31
Balance
5,000
7,277
3,651
3,251
1,851
2,001
1,871
5,071
3,797
3,707
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
4,200
Credit
1,300
500
74
1,400
150
1,300
130
2,000
620
26
40
560
Balance
4,200
2,900
2,400
2,326
3,726
3,576
4,876
5,006
3,006
3,626
3,600
3,640
3,080
5-59

Supplies
No. 126
Date
Explanation
May 11
Accounts Payable
Date
Explanation
May
1
5
10
17
25
27
Date
Explanation
May
1 Balance
Ref.
J1
Ref.
J1
J1
J1
J1
J1
J1
Ref.
Debit
400
Debit
Credit
Credit
4,200
500
3,700
1,300
620
1,300
Debit
Credit
Sales Revenue
Date
May
Explanation
2
24
31
Explanation
Ref.
J1
J1
J1
Debit
Credit
2,300
3,200
1,000
5-60
Explanation
9
No. 311
Balance
5,000
Balance
2,300
5,500
6,500
No. 412
Ref.
J1
Debit
90
Credit
Sales Discounts
Date
May
No. 201
Balance
4,200
3,700
0
1,300
1,920
620
No. 401

Date
May 29
Balance
400
Balance
90
No. 414
Ref.
J1
Debit
23
Credit
Balance
23

Cost of Goods Sold
Date
May
(c)
No. 505
Explanation
2
24
29
31
Ref.
J1
J1
J1
J1
Debit
1,300
2,000
Credit
40
560
Balance
1,300
3,300
3,260
3,820
COPPLE HARDWARE STORE

For the Month Ended May 31, 2014
Sales revenues
Sales revenue .....................................................
Less: Sales returns and allowances ...............
Sales discounts ......................................
Net sales .............................................................
Cost of goods sold ....................................................
Gross profit ................................................................
$6,500
$90
23
113
6,387
3,820
$2,567
5-61
PROBLEM 5-3B
(a)
THE MOULTON STORE

Income Statement
Sales revenues
Sales....................................................
Less: Sales returns & allowances ...
Net sales .............................................
Cost of goods sold ...................................
Gross profit ...............................................
Operating expenses
Salaries and wages expense......
Rent expense ...............................
Sales commissions expense .....
Depreciation expense .................
Utilities expense ..........................
Insurance expense ......................
Freightout ..................................
Property tax expense ..................
Total oper. expenses ...........
Income from operations ...........................
Interest revenue .................................
Interest expense........................................
Net income.................................................
5-62
706,000
9,000
697,000
507,000
190,000
96,000
15,000
13,500
11,000
8,500
7,000
6,500
3,500
161,000
29,000
8,000
6,100
30,900

THE MOULTON STORE
Retained earnings, December 1, 2013 ............................................
Add: Net income .............................................................................
Less: Dividends ...............................................................................
Retained earnings, November 30, 2014 ..........................................
61,700
30,900
92,600
8,000
84,600
THE MOULTON STORE

November 30, 2014
Assets
Equipment ..........................................
equipment ...............................
Current assets
Prepaid insurance ..............................
Inventory.............................................
Accounts receivable ..........................
Cash ....................................................
Total assets ................................
154,300
33,000
3,500
26,000
30,500
26,000
121,300
86,000
207,300
5-63

THE MOULTON STORE
November 30, 2014
Equity
Share capitalordinary .............................................. 50,000
Retained earnings ....................................................... 84,600 134,600
Notes payable ..............................................................
37,000
Current liabilities
Accounts payable .......................................................
25,200
Sales commissions payable.......................................
7,000
Property taxes payable ...............................................
3,500
35,700
Total equity and liabilities .................................................
207,300
(b) Nov. 30
30
30
30
5-64
Depr. Expense............................................
Equipment .....................................
11,000
Insurance Expense ....................................

Prepaid Insurance ..............................
7,000
Property Tax Expense ...............................

Property Taxes Payable ....................
3,500
Sales Commissions Expense ...................

Sales Commissions Payable ............
7,000
11,000
7,000
3,500
7,000

(c) Nov. 30
30
30
30
Sales Revenue ........................................

Interest Revenue .....................................
Income Summary ............................
706,000
8,000
Income Summary ....................................

Sales Returns and
Allowances ...................................
Cost of Goods Sold .........................
Salaries and Wages Expense .........
Depreciation Expense .....................
FreightOut ......................................
Sales Commissions Expense .........
Insurance Expense ..........................
Rent Expense ...................................
Property Tax Expense .....................
Utilities Expense ..............................
Interest Expense ..............................
683,100
Income Summary ....................................

Retained Earnings ...........................
30,900
Retained Earnings...................................
Dividends .........................................
8,000
714,000
9,000
507,000
96,000
11,000
6,500
13,500
7,000
15,000
3,500
8,500
6,100
30,900
8,000
5-65
PROBLEM 5-4B
(a)
General Journal
Account Titles
Inventory .............................................
Ref.
120
201
Debit
1,200
Inventory .............................................
Cash .............................................
120
101
75
Inventory ......................................
201
120
100
10

Sales Revenue ............................
112
401
930

Inventory ......................................
505
120
540
12
Inventory .............................................
120
201
720
14
Accounts Payable ($1,200 $100) ....

Inventory
($1,100 X 2%) ...........................
Cash .............................................
201
1,100
17
Inventory ......................................
201
120
120
20

Sales Revenue ............................
112
401
610

Inventory ......................................
505
120
370
Accounts Payable ($720 $120) .......

Inventory
($600 X 1%) ..............................
Cash .............................................
201
600
Date
Apr. 5
21
5-66
120
101
120
101
J1
Credit
1,200
75
100
930
540
720
22
1,078
120
610
370
6
594
Date
Apr. 27
30
Account Titles
Sales Returns and Allowances......
Ref.
412
112
Debit
20
Cash .................................................
101
112
960
J1
Credit
20
960
(b)
Cash
Date
Apr.
No. 101
1
7
14
21
30
Explanation
Balance
Ref.
J1
J1
J1
J1
Debit
Credit
75
1,078
594
960
Accounts Receivable
Date
Apr. 10
20
27
30
Explanation
Inventory
Date
Explanation
Apr. 1 Balance
5
7
9
10
12
14
17
20
21
Balance
1,850
1,775
697
103
1,063
No. 112
Ref.
J1
J1
J1
J1
Debit
930
610
Credit
20
960
Ref.
Debit
J1
J1
J1
J1
J1
J1
J1
J1
J1
1,200
75
Credit
100
540
720
22
120
370
6
Balance
930
1,540
1,520
560
No. 120
Balance
2,150
3,350
3,425
3,325
2,785
3,505
3,483
3,363
2,993
2,987
5-67

Accounts Payable
Date
Explanation
Apr. 5
9
12
14
17
21
No. 201
Ref.
J1
J1
J1
J1
J1
J1
Debit
Credit
1,200
100
720
1,100
120
600
Date
Apr.
Explanation
1 Balance
Sales Revenue
Date
Explanation
Apr. 10
20
No. 311
Ref.
Ref.
J1
J1
Debit
Debit
Credit
Credit
930
610

Date
Explanation
Apr. 27
Cost of Goods Sold

Date
Explanation
Apr. 10
20
5-68
Balance
1,200
1,100
1,820
720
600
0
Balance
4,000
No. 401
Balance
930
1,540
No. 412
Ref.
J1
Ref.
J1
J1
Debit
20
Debit
540
370
Credit
Credit
Balance
20
No. 505
Balance
540
910

(c)
BILL'S DISCORAMA
Trial Balance
April 30, 2014
Cash .........................................................................
Accounts Receivable..............................................
Inventory .................................................................
Share CapitalOrdinary ........................................
Sales Revenue ........................................................
Sales Returns and Allowances..............................
Cost of Goods Sold ................................................
Debit
$ 1,063
560
2,987
Credit
$4,000
1,540
20
910
$5,540
$5,540
5-69
*PROBLEM 5-5B
ILHAN DEPARTMENT STORE
Sales revenues
Sales revenue .........................
allowances...................
Net sales .................................
Cost of goods sold
Inventory, Dec. 1, 2013...........
Purchases ...............................
and allowances........... $2,900
Purchase discounts ...
5,300
Net purchases ........................
Add: Freight-in ......................
Cost of goods purchased ......
for sale ........................
Less: Inventory, Nov. 30,
2014 ..........................
Cost of goods sold.....
Gross profit ...................................
5-70
$1,000,000
28,000
972,000
$585,000
8,200
576,800
7,500
$40,000
584,300
624,300
54,600
569,700
$402,300
*PROBLEM 5-6B
(1)
(a)
Cost of goods sold = Sales Gross profit

= $53,000 $38,300 = $14,700
(b)
Net income = Gross profit Operating expenses

= $38,300 $35,900 = $2,400
(c)
Inventory = 2011 Inventory + Purchases CGS

= $7,200 + $14,200 $14,700 = $6,700
(d)
Cash payments to suppliers = 2011 Accounts payable +

Purchases 2012 Accounts payable
= $3,200 + $14,200 $3,400 = $14,000
(e)
Sales revenue = Cost of goods sold + Gross profit

= $13,800 + $35,200 = $49,000
(f)
Operating expenses = Gross profit Net income

= $35,200 $2,500 = $32,700
(g)
2012 Inventory + Purchases 2013 Inventory = CGS

Purchases = CGS 2012 Inventory + 2013 Inventory
= $13,800 $6,700 [from (c)] + $8,100
= $15,200
(h)
Cash payments to suppliers = 2012 Accounts payable +

Purchases 2013 Accounts Payable
= $3,400 + $15,200 [from (g)]
$2,500
= $16,100
(i)
Gross profit = Sales CGS

= $46,000 $14,300 = $31,700
(j)
Net income = Gross profit Operating expenses

= $31,700 [from (i)] $28,600 = $3,100
(k)
2013 Inventory + Purchases 2014 Inventory = CGS

Inventory = 2013 Inventory + Purchases CGS
= $8,100 + $13,200 $14,300 = $7,000
(I)
Accounts payable = 2013 Accounts payable +

Purchases Cash payments
= $2,500 + $13,200 $13,600 = $2,100
5-71
*PROBLEM 5-6B (Continued)

(2) A decline in sales does not necessarily mean that profitability declined.
Profitability is affected by sales, cost of goods sold, and operating
expenses. If cost of goods sold or operating expenses decline more
than sales, profitability can increase even when sales decline. In this
particular case, the sales decline was offset by cost savings to improve
profitability. Therefore, profitability increased for Psang Inc. from 2012
to 2014.
2012
Gross profit rate
2014
$38,300 $53,000 $35,200 $49,000 $31,700 $46,000

= 72.3%
= 71.8%
= 68.9%
Profit margin ratio $2,400 $53,000

= 4.5%
5-72
2013
$2,500 $49,000
= 5.1%
$3,100 $46,000
= 6.7%
*PROBLEM 5-7B
(a)
Date
Apr. 5
7
9
10
12
14
17
20
21
27
30
General Journal
Account Titles
Purchases ......................................................
Accounts Payable .................................
Debit
1,300
Credit
1,300
Freight-In .......................................................
Cash........................................................
70

Purchase Returns and Allowances .....
100

Sales Revenue .......................................
670
Purchases ......................................................
Accounts Payable .................................
450
Accounts Payable (1,300 100) ...............

Purchase Discounts (1,200 X 2%) .......
Cash (1,200 24) ...............................
1,200

Purchase Returns and Allowances .......
50

Sales Revenue .......................................
600
Accounts Payable (450 50)....................

Purchase Discounts
(400 X 1%) .......................................
Cash (400 4) ....................................
400
Sales Returns and Allowances ....................

Accounts Receivable ............................
55
Cash ...............................................................
Accounts Receivable ............................
630
70
100
670
450
24
1,176
50
600
4
396
55
630
5-73

(b)
4/1 Bal.
4/30
4/30 Bal.
Cash
3,000 4/7
630 4/14
4/21
1,988
Accounts Receivable
4/10
670 4/27
4/20
600 4/30
4/30 Bal.
585
4/1 Bal.
4/30 Bal.
4/9
4/14
4/17
4/21
70
1,176
396
Sales Revenue
4/10
4/20
4/30 Bal.
55
630
670
600
1,270

4/27
55
4/30 Bal.
55
Inventory
4,000
4,000
Accounts Payable
100 4/5
1,200 4/12
50
400
4/30 Bal.
4/1 Bal.
7,000
4/30 Bal. 7,000
1,300
450
0
4/5
4/12
4/30 Bal.
Purchases
1,300
450
1,750
4/7
4/30 Bal.
Freight-In
70
70
Purchase
Returns and Allowances
4/9
100
4/17
50
4/30 Bal.
150
Purchase Discounts
4/14
4/21
4/30 Bal.
5-74
24
4
28

(c)
OOSTHUIZEN PRO SHOP

Trial Balance
April 30, 2014
Cash .......................................................................
Accounts Receivable ...........................................
Inventory ...............................................................
Share CapitalOrdinary ......................................
Sales Revenue ......................................................
Sales Returns and Allowances ...........................
Purchases .............................................................
Purchase Returns and Allowances.....................
Purchase Discounts .............................................
Freight-In ...............................................................
(d)
Debit
1,988
585
4,000
Credit
7,000
1,270
55
1,750
150
28
70
8,448
8,448
OOSTHUIZEN PRO SHOP

Sales revenues
Sales revenue ................................
allowances ..........................
Net sales .........................................
Cost of goods sold
Inventory, April 1 ...........................
Purchases ......................................
and allowances ..................
Purchase discounts ...........
Net purchases ................................
Add: Freight-in ..............................
Cost of goods purchased ...............
for sale ........................................
Less: Inventory, April 30 ...............
Cost of goods sold .................
Gross profit ...........................................
1,270
55
1,215
1,750
150
28
178
1,572
70
4,000
1,642
5,642
4,824
818
397
5-75
COMPREHENSIVE PROBLEM SOLUTION
(a)
Dec. 6
8
10
13
15
18
20
23
27
5-76
Salaries and Wages Payable .....................

Salaries and Wages Expense ....................
Cash .....................................................
1,000
600
Cash ............................................................
2,100
Cash ............................................................
Sales Revenue ....................................
6,600
Cost of Goods Sold ....................................

Inventory .............................................
4,100
Inventory .....................................................
9,000
Supplies ......................................................
Cash .....................................................
2,000
Accounts Receivable .................................

Sales Revenue ....................................
12,000
Cost of Goods Sold ....................................

Inventory .............................................
8,400
Salaries and Wages Expense....................

Cash .....................................................
1,800
Accounts Payable ......................................

Cash .....................................................
Inventory ($9,000 X .02) ......................
9,000
Cash ............................................................
Sales Discounts ($12,000 X .03) ................
11,640
360
1,600
2,100
6,600
4,100
9,000
2,000
12,000
8,400
1,800
8,820
180
12,000
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(c)
Dec. 31
Salaries and Wages Expense ....................

Salaries and Wages Payable ..............
800
Depreciation Expense ................................

Equipment.........................................
200
Supplies Expense .......................................

Supplies ($3,200 $1,700) ..................
1,500
(b) & (c)

Cash
12/1 Bal. 7,200 12/6
12/8
2,100 12/15
12/10
6,600 12/20
12/27
11,640 12/23
12/31 Bal. 13,320
Supplies
12/1 Bal. 1,200 12/31
12/15
2,000
12/31 Bal. 1,700
200
1,500
General Ledger
1,600
2,000
1,800
8,820
Accounts Receivable
12/1 Bal. 4,600 12/8
2,100
12/18
12,000 12/27
12,000
12/31 Bal. 2,500
Inventory
12/1 Bal. 12,000 12/10
12/13
9,000 12/18
12/23
12/31 Bal. 8,320
800
Equipment
12/1 Bal. 22,000
12/31 Bal.22,000
Accumulated Depr.Equipment
12/1 Bal. 2,200
12/31
200
12/31 Bal. 2,400
12/23
4,100
8,400
180
1,500
Accounts Payable
9,000 12/1 Bal. 4,500
12/13
9,000
12/31 Bal. 4,500

12/6
1,000 12/1 Bal. 1,000
12/31
800
12/31 Bal. 800
5-77

12/1 Bal. 30,000
12/31 Bal. 30,000
Retained Earnings
12/1 Bal. 9,300
12/31 Bal. 9,300
Sales Revenue
12/10
6,600
12/18
12,000
12/31 Bal. 18,600
12/31
200
12/31 Bal. 200
12/6
600
12/20
1,800
12/31
800
12/31 Bal. 3,200
Supplies Expense
12/31
1,500
12/31 Bal. 1,500
Sales Discounts
12/27
360
12/31 Bal. 360
Cost of Goods Sold
12/10
4,100
12/18
8,400
12/31 Bal. 12,500
5-78

(d)
JURCZYK DISTRIBUTING COMPANY

Adjusted Trial Balance
December 31, 2014
Cash ................................................................
Accounts Receivable .....................................
Inventory .........................................................
Supplies ..........................................................
Equipment.......................................................
Accumulated DepreciationEquipment......
Salaries and Wages Payable.........................
Share CapitalOrdinary................................
Retained Earnings ..........................................
Sales Revenue ................................................
Sales Discounts .............................................
Cost of Goods Sold........................................
Depreciation Expense....................................
Salaries and Wages Expense........................
Supplies Expense ..........................................
(e)
DR.
$13,320
2,500
8,320
1,700
22,000
360
12,500
200
3,200
1,500
$65,600
CR.
$ 2,400
4,500
800
30,000
9,300
18,600
$65,600

Income Statement
For the Month Ending December 31, 2014
Sales revenue .................................................
Less: Sales discounts ..................................
Net sales .........................................................
Cost of goods sold ........................................
Gross profit ....................................................
Operating expenses
Salaries and wages expense .................
Supplies expense ...................................
Depreciation expense ............................
Net income......................................................
$18,600
360
18,240
12,500
5,740
$3,200
1,500
200
4,900
$ 840
5-79

For the Month Ended December 31, 2014
Retained Earnings, Dec. 1 .............................................
Add: Net income ...........................................................
Retained Earnings, Dec. 31 ...........................................
$9,300
840
$10,140

December 31, 2014
Assets
Equipment .................................................
Less: Accumulated depreciation............
Current assets
Supplies .....................................................
Inventory ....................................................
Accounts receivable .................................
Cash ...........................................................
Total assets .........................................
$ 22,000
2,400
1,700
8,320
2,500
13,320
$19,600
25,840
$45,440
Equity and Liabilities Equity

Equity
Share CapitalOrdinary ..........................
Retained earnings .....................................
Current liabilities
Accounts payable .....................................
Salaries and wages payable ....................
Total equity and liabilities ...............................
5-80
$ 30,000
10,140
$4,500
800
$40,140
5,300
$45,440
CCC5
CONTINUING COOKIE CHRONICLE
(a) Responses to Natalies questions

1. The mixers should be classified as inventory as they are for resale.
2. A perpetual inventory system will provide better control over
inventory. Because you are dealing with high-value items you
should use the perpetual system.
3. You still need to count inventory to ensure that your records are
accurate and that the inventory that is supposed to be on hand is
actually there. I suggest you should count the inventory once a
month.
(b)
GENERAL JOURNAL
J1
Date
Account Titles
Debit
Credit
Jan. 4
6
7
8
12
12
Inventory .......................................................
2,875
Inventory .......................................................
Cash ..........................................................
100
Accounts Payable [($2,875 5) + $20] ........

Inventory ...................................................
595
Cash ...............................................................
Accounts Receivable ...............................
375

Sales Revenue..........................................
3,450
Cost of Goods Sold ($595 X 3) ....................

Inventory ...................................................
1,785
2,875
100
595
375
3,450
1,785
5-81
CCC5 (Continued)
(b) (Continued)
Jan. 14
14
17
18
20
20
28
28
30
31
31
5-82
Freight-Out ...........................................
Cash..................................................
75
Inventory ...............................................
2,300
Cash ......................................................
Share CapitalOrdinary .................
1,000
Inventory ...............................................
Cash..................................................
80
Cash ......................................................
Sales Revenue .................................
2,300
Cost of Goods Sold ($595 X 2) ............

Inventory ..........................................
1,190
Salaries and Wages Expense .............

Salaries and Wages Payable ..............
Cash..................................................
160
56
Cash ......................................................
Accounts Receivable ......................
3,450

Utilities Expense ..................................
Cash..................................................
75
70
Accounts Payable
($2,875 $595 + $2,300)....................
Cash..................................................
Dividends ..............................................
Cash..................................................
75
2,300
1,000
80
2,300
1,190
216
3,450
145
4,580
4,580
750
750
CCC5 (Continued)
(b) and (d)
Date
Explanation
Jan. 1 Balance
6
8
14
17
18
20
28
28
30
31
31
Date
Explanation
Jan. 1 Balance
8
12
28
Date
Jan. 4
6
7
12
14
18
20
Explanation
Cash
Ref.
9
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
Debit
145
4,580
750
1,180
1,080
1,455
1,380
2,380
2,300
4,600
4,384
7,834
7,689
3,109
2,359
Credit
Balance
375
75
1,000
80
2,300
216
3,450
3,450
875
500
3,950
500
Credit
Balance
375
3,450
Inventory
Ref.
Debit
J1
J1
J1
J1
J1
J1
J1
Balance
100
Accounts Receivable
Ref.
Debit
9
J1
J1
J1
Credit
2,875
100
595
1,785
2,300
80
1,190
2,875
2,975
2,380
595
2,895
2,975
1,785
5-83
CCC5 (Continued)
(b) and (d) (Continued)
Explanation
Date
Jan. 1 Balance
Supplies
Ref.
Debit
9
Prepaid Insurance
Explanation
Date
Ref.
Debit
Jan. 1 Balance
9
31
Adjusting entry
J2
Date
Explanation
Jan. 1 Balance
Equipment
Ref.
Debit
9
Credit
Balance
350
Credit
Balance
1,210
1,100
110
Credit
Accumulated DepreciationEquipment
Date
Explanation
Ref.
Debit
Credit
Jan. 1 Balance
9
31
Adjusting entry
J2
20
Explanation
Date
Jan. 1 Balance
4
7
14
30
31
5-84
Accounts Payable
Ref.
Debit
9
J1
J1
595
J1
J1
75
J1
4,580
Credit
2,875
2,300
Balance
1,200
Balance
40
60
Balance
75
2,950
2,355
4,655
4,580
0
CCC5 (Continued)
Date
Jan. 1
28
Date
Jan. 1
Date
Explanation

Ref.
Debit
Balance
J1
Explanation
Explanation
Jan. 1
Balance
31 Adjusting entry
Date
Jan. 1
Date
Jan. 1
17
Date
Jan. 31
Explanation
Interest Payable
Ref.
Debit
Credit
Balance
300
Credit
Balance
15
25
9
J2
10
Notes Payable
Ref.
Debit
Credit
Balance
2,000
9
Ref.
Debit
Balance
Explanation
56
0
Balance
Explanation
Balance
9
56
Unearned Service Revenue

Ref.
Debit
Balance
Credit
Dividends
Ref.
Credit
Balance
9
J1
1,000
2,329
3,329
Debit
Credit
J1
750
Balance
750
5-85
CCC5 (Continued)
Date
Sales Revenue
Ref.
Explanation
Jan. 12
20
Date
J1
J1
Cost of Goods Sold
Ref.
Debit
Explanation
Jan. 12
20
Date
J1
J1
J1
Jan. 30
J1
Explanation
Jan. 31
Adjusting entry
Date
Explanation
Jan. 31
Adjusting entry
5-86
J2
3,450
5,750
Credit
Balance
1,785
2,975
Credit
110
Balance
160
Credit
Balance
70
Credit
20
Insurance Expense
Ref.
Debit
J2
3,450
2,300
70
Ref.
Debit
Date
Balance
160
Utilities Expense
Ref.
Debit
Explanation
Credit
1,785
1,190

Explanation
Ref.
Debit
Jan. 28
Date
Debit
Balance
20
Credit
Balance
110
CCC5 (Continued)
Date
Explanation
Jan. 14
Date
Jan. 31
Freight-Out
Ref.
Debit
J1
Explanation
Adjusting entry
Balance
75
Interest Expense
Ref.
Debit
J2
Credit
75
Credit
Balance
10
10
5-87
CCC5 (Continued)
(c)
Cookie Creations
Trial Balance
January 31, 2014
Cash ............................................................................
Accounts Receivable .................................................
Inventory ....................................................................
Supplies ......................................................................
Prepaid Insurance ......................................................
Equipment ..................................................................
Accumulated DepreciationEquipment .................
Accounts Payable......................................................
Salaries and Wages Payable ....................................
Unearned Service Revenue.......................................
Interest Payable .........................................................
Notes Payable ............................................................
Share CapitalOrdinary ...........................................
Dividends ....................................................................
Sales Revenue............................................................
Cost of Goods Sold ...................................................
Salaries and Wages Expense ...................................
Utilities Expense ........................................................
Depreciation Expense ...............................................
Insurance Expense ....................................................
Freight-Out .................................................................
Interest Expense ........................................................
Debit
$ 2,359
500
1,785
350
1,210
1,200
40
300
15
2,000
3,329
750
5,750
2,975
160
70
75
$11,434
5-88
Credit
$11,434
CCC5 (Continued)
(d)
Date
GENERAL JOURNAL
Account Titles
Debit
Jan. 31 Depreciation Expense ...............................

Equipment ($1,200 60 months) .....
20
31 Interest Expense ........................................

Interest Payable ....................................
($2,000 X 6% X 1/12)
10
31 Insurance Expense ....................................

Prepaid Insurance .................................
110
J2
Credit
20
10
110
5-89
CCC5 (Continued)
(e)
Cookie Creations
Adjusted Trial Balance
January 31, 2014
Cash ...........................................................................
Accounts Receivable ................................................
Inventory ....................................................................
Supplies .....................................................................
Prepaid Insurance .....................................................
Equipment .................................................................
Accumulated DepreciationEquipment.................
Accounts Payable.....................................................
Salaries and Wages Payable....................................
Unearned Service Revenue......................................
Interest Payable ........................................................
Notes Payable ...........................................................
Share CapitalOrdinary ..........................................
Dividends ...................................................................
Sales Revenue...........................................................
Cost of Goods Sold ..................................................
Salaries and Wages Expense ..................................
Utilities Expense .......................................................
Depreciation Expense ..............................................
Insurance Expense ...................................................
Freight-Out ................................................................
Interest Expense .......................................................
5-90
Debit
$ 2,359
500
1,785
350
1,100
1,200
750
2,975
160
70
20
110
75
10
$11,464
Credit
60
300
25
2,000
3,329
5,750
$11,464
CCC5 (Continued)
(f)
COOKIE CREATIONS
Income Statement
For the Month Ended January 31, 2014
Sales revenue ...................................................................
Cost of goods sold ...........................................................
Gross profit .......................................................................
Operating expenses
Salaries and wages expense ......................................
Insurance expense ......................................................
Freight-out ....................................................................
Utilities expense ..........................................................
Depreciation expense ..................................................
Total operating expenses .......................................
Income from operations...................................................
Interest expense ...............................................................
Net income ........................................................................
$5,750
2,975
2,775
$160
110
75
70
20
435
2,340
10
$2,330
5-91
BYP 5-1
FINANCIAL REPORTING PROBLEM
2009
(a)
(1)
(2)
(b)
(c)
2010
Percentage change in sales:

(W154,630,328 W136,323,670)
W136,323,670
13.4% increase
Percentage change in net income:

(W16,146,525 W9,760,550)
W9,760,550
65.4% increase
Gross profit rate:

W41,728,807 W136,323,670
W51,963,504 W154,630,328
30.6%
Percentage of net income to sales:

W9,760,550 W136,323,670
W16,146,525 W154,630,328
7.2%
33.6%
10.4%
Comment
The percentage of net income to sales increased 44.4% from 2009 to 2010
(7.2% to 10.4%). The gross profit rate increased 9.8% during this time. (30.6%
to 33.6%)
This indicates the company did a significantly better job of controlling
operating expenses in 2010 than in 2009.
5-92
BYP 5-2
(a) (1)
COMPARATIVE ANALYSIS PROBLEM
Gross profit
Zetar
( 000)
Nestl
(CHF in Millions)
27,321
CHF63,8731
(2)
Gross profit rate
20.2%2
58.2%3
(3)
Operating income
6,733
CHF16,194
(4)
Percent change in operating

income
0.1%4
increase
3.2%5
increase
CHF109,722 CHF45,849
CHF63,873 CHF109,722
27,321 134,998
(6,733 6,726) 6,726
(CHF16,194 CHF15,699) CHF15,699
(b) Because the companies report using different currencies, direct comparisons of total gross profit, or total operating income are difficult.
Comparisons of ratios and percentages can be performed. Nestl
reported a significantly higher gross profit rate, and a much bigger
percentage increase in operating income.
5-93
BYP 5-3
REAL-WORLD FOCUS
The answers to this assignment will be dependent upon the articles selected
from the Internet by the student.
5-94
BYP 5-4
(a) (1)
DECISION MAKING ACROSS THE ORGANIZATION
FAMILY DEPARTMENT STORE

Income Statement
Net sales [$700,000 + ($700,000 X 5%)] ......
Cost of goods sold ($735,000 X 76%)* .......
Gross profit ($735,000 X 24%) .....................
Operating expenses
Selling expenses ..................................
Administrative expenses .....................
Total operating expenses ............
Net income ....................................................
$735,000
558,600
176,400
$100,000
20,000
120,000
$ 56,400
**Alternatively: Net sales, $735,000 gross profit, $176,400.

(2)

Income Statement
Net sales .......................................................
Cost of goods sold.......................................
Gross profit...................................................
Operating expenses
Selling expenses ..................................
Administrative expenses .....................
Net income ....................................................
$700,000
553,000
147,000
$72,000*
20,000*
92,000
$ 55,000
*$100,000 $30,000 + ($700,000 X 2%) ($30,000 X 40%) = $72,000.

(b) Debbies proposed changes will increase net income by $29,400. Mikes
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Debbies plan and Mikes plan, Debbies plan should be
adopted. While Mikes plan will increase net income, it may also have an
adverse effect on sales personnel. Under Mikes plan, sales personnel
will be taking a cut of $16,000 in compensation [$60,000 ($30,000 +
$14,000)].
5-95
BYP 5-4 (Continued)

(c)

Income Statement
Net sales .............................................................
Cost of goods sold .............................................
Gross profit .........................................................
Operating expenses
Selling expenses ........................................
Administrative expenses ...........................
Total operating expenses...................
Net income ..........................................................
$735,000
558,600
176,400
$72,700*
20,000*
92,700
$ 83,700
*$72,000 + [2% X ($735,000 $700,000)] = $72,700.

If both plans are implemented, net income will be $56,700 ($83,700
$27,000) higher than the 2013 results. This is an increase of over 200%.
Given the size of the increase, Mikes plan to compensate sales personnel might be modified so that they would not have to take a pay cut.
For example, if sales commissions were 3%, the compensation cut would
be reduced to $8,650 [$16,000 (from (b)) $735,000 X (3% 2%)].
5-96
BYP 5-5
COMMUNICATION ACTIVITY
(a), (b)
President
Boardin Co.
Dear Sir:
As you know, the financial statements for Boardin USA Co. are prepared in
accordance with IFRS. One of these principles is the revenue recognition
principle, which provides that revenues should be recognized when the
performance obligation is satisfied.
Typically, sales revenues are recognized when the goods are transferred to
the buyer from the seller. At this point, the sales transaction is completed
and the sales price is established. Thus, in the typical situation, revenue on
the surfboard ordered by Dexter is earned at event No. 8, when Dexter
picks up the surfboard.
The circumstances pertaining to this sale may seem to you to be atypical
because Dexter has ordered a specific kind of surfboard. From an
accounting standpoint, this would be true only if you could not reasonably
expect to sell this surfboard to another customer. In such case, it would be
proper under IFRS to recognize sales revenue when you have completed
the surfboard for Dexter.
Whether Dexter makes a down payment with the purchase order is
irrelevant in recognizing sales revenue because at this time, the
performance obligation has not been satisfied. A down payment may be an
indication of Dexters good faith. However, its effect on your financial
statements is limited entirely to recognizing the down payment as unearned
revenue.
If you have further questions about the accounting for this sale, please let
me know.
Sincerely,
5-97
BYP 5-6
ETHICS CASE
(a) Anita Zurbrugg, as a new employee, is placed in a position of responsibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
undeserved cash discounts. Her dilemma is either follow her bosss
unethical instructions or offend her boss and maybe lose the job she
just assumed.
(b) The stakeholders (affected parties) are:
Anita Zurbrugg, the assistant treasurer.
Chris Dadian, the treasurer.
Yorktown Stores, the company.
Creditors of Yorktown Stores (suppliers).
Mail room employees (those assigned the blame).
(c) Anitas alternatives:
1. Tell the treasurer (her boss) that she will attempt to take every allowable cash discount by preparing and mailing checks within the
discount periodthe ethical thing to do. This will offend her boss
and may jeopardize her continued employment.
2. Join the team and continue the unethical practice of taking undeserved
cash discounts.
3. Go over her bosss head and take the chance of receiving just and
reasonable treatment from an officer superior to Chris. The company
may not condone this practice. Anita definitely has a choice, but
probably not without consequence. To continue the practice is
definitely unethical. If Anita submits to this request, she may be
asked to perform other unethical tasks. If Anita stands her ground
and refuses to participate in this unethical practice, she probably
wont be asked to do other unethical thingsif she isnt fired.
Maybe nobody has ever challenged Chriss unethical behavior and
his reaction may be one of respect rather than anger and retribution.
Being ethically compromised is no way to start a new job.
5-98
GAAP EXERCISES
GAAP 5-1
Expenses may be classified by nature or by function. The nature-ofexpense classification organizes expenses by type of expense, such as
salaries, depreciation, rent, or supplies. The function-of-expense classification presents expenses by type of business activity. Examples would include
cost of goods sold, selling, administrative, operating, and non-operating.
GAAP5-2
By function
By nature
By nature
By function
By nature
By nature
By function
Cost of goods sold

Depreciation expense
Salaries and wages expense
Selling expenses
Utilities expense
Delivery expense
General and administrative expenses
GAAP5-3
ATLANTIS COMPANY
Comprehensive Income Statement
For the Year Ended 2014
(in thousands of dollars)
Net income ................................................................................
Unrealized gain related to revaluation of buildings ..............
Unrealized loss on available for sale securities ....................
Comprehensive income ..................................................
$150
$10
(35)
(25)
$125
5-99
GAAP FINANCIAL REPORTING PROBLEM
GAAP 5-4
(a) Percentage change in
(1) Total revenue
($499,331 $496,016) $496,016
($521,448 $499,331) $499,331
(2) Net Income
($53,878 $39,315) $39,315
($53,714 $53,878) $53,878
(b) Gross profit rate
$161,781 $496,016
$179,834 $499,331
$172,047 $521,448
(c) Percentage of net income
to total revenue
$39,315 $496,016
$53,878 $499,331
$53,714 $521,448
5-100
2008 to 2009
2009 to 2010
0.7%
4.4%
37.0%
(0.3)%
2008
32.6%
2009
2010
36.0%
33.0%
7.9%
10.8%
10.3%

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CHAPTER 5

Accounting for Merchandising Operations

Identify the differences

Explain the recording

Explain the recording

Explain the steps in the

15, 16, 17,

Explain the recording of

15, 16, 17,

Prepare a worksheet for

ASSIGNMENT CHARACTERISTICS TABLE

Journalize purchase and sales transactions under

Journalize, post, and prepare a partial income statement.

Prepare financial statements and adjusting and

Journalize, post, and prepare a trial balance.

Determine cost of goods sold and gross profit under

Calculate missing amounts and assess profitability.

Journalize, post, and prepare trial balance and partial

Complete accounting cycle beginning with a worksheet.

Journalize purchase and sales transactions under

Journalize, post, and prepare a partial income statement.

Prepare financial statements and adjusting and

Journalize, post, and prepare a trial balance.

Determine cost of goods sold and gross profit under

Calculate missing amounts and assess profitability.

Journalize, post, and prepare trial balance and partial

WEYGANDT FINANCIAL ACCOUNTING, IFRS Edition, 2e

ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)

Explain the recording of

Prepare a worksheet for

Broadening Your Perspective

Explain the steps in the

Prepare an income statement Q5-18

Explain the recording of

Explain the recording of

Identify the differences

DecisionMaking Comparative Analysis

Communication RealWorld Focus

BLOOMS TAXONOMY TABLE

(a) The components of revenues and expenses differ as follows:

(b) The income measurement process is as follows:

Accounts Payable ($2,500 $200) .................................................

Questions Chapter 5 (Continued)

Cash ($600 $12).................................................................

Two closing entries are required:

(2) Income Summary ...........................................................................

Sales revenue .........................................................................................................

Gross profit rate: $39,000 $109,000 = 35.8%

Gross profit ..............................................................................................................

Questions Chapter 5 (Continued)

Purchase Returns and Allowances

Accounts Payable ($2,000 $200) .....................................................

The columns are:

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-2

BRIEF EXERCISE 5-3

(b) Sales Returns and Allowances ...........................

BRIEF EXERCISE 5-3 (Continued)

BRIEF EXERCISE 5-4

(b) Accounts Payable ...............................................

(c) Accounts Payable ($800,000 $120,000) ..........

BRIEF EXERCISE 5-5