101
204) The following information is available for Flanders and its two main competitors in the
industry, Sanders and Anders:
Flanders
Sanders
Anders
Cash
$ 9,800
$10,500
$26,500
Short-term investments
6,400
8,200
12,500
Accounts receivable
12,500
8,500
14,350
Merchandise inventory
30,150
40,000
40,150
Prepaid expense
900
6,750
2,450
Accounts payable
19,400
13,750
26,800
Salaries payable
1,200
3,500
6,250
Other current payables
600
1,200
2,150
The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio
is 1.
Required:
1. Calculate the current ratio and acid-test ratio for each firm.
2. Rank the firms in decreasing order of liquidity.
3. Comment on Flanders’ relative liquidity position.
205) The following information refers to Percy’s Records and its competitors in the music store
business.
Quick
Ratio
Percy’s Records
0.95
Jewel CDs
1.00
Rudy’s Raps
1.20
Marvin’s Jazz
0.80
Industry Average
1.00
Required:
Comment on the relative liquidity positions of these companies.
206) A company reported the following year-end information:
Cash
$ 52,000
Short-term investments
12,000
Accounts receivable
54,000
Inventory
325,000
Prepaid expenses
17,500
Accounts payable
106,500
Other current payables
25,000
Required:
1. Explain the purpose of the acid-test ratio.
2. Calculate the acid-test ratio for this company.
3. What does the acid-test ratio reveal about this company?
207) Calculate the gross margin ratio for each of the following separate cases A through C:
A
B
C
Net sales
$145,000
$623,500
$37,800
Cost of goods sold
83,600
269,200
13,230
208) A company reported the following information for the month of July:
Sales
$50,475
Sales discounts
1,235
Sales returns and allowances
2,840
Cost of goods sold
33,975
Required: Calculate this company’s gross profit.
Sales
Less: Sales discounts
Less: Sales returns and allowances
Net sales
Less: Cost of goods sold
Gross profit
209) A company reported the following information for the month of July:
Net Sales
$57,500
Cost of goods sold
33,200
Required: Calculate this company’s gross margin ratio.
Net sales
$57,500
Less: Cost of goods sold
(33,200)
$24,300
42.3%
210) The following information is for Barrel and its competitor Crate.
Barrel
Crate
Year 1
Year 2
Year 1
Year 2
Net sales
$347,850
$365,418
$579,750
$664,395
Cost of sales
121,747
146,167
318,862
312,265
Required:
1. Calculate the dollar amount of gross margin and the gross margin ratio to the nearest percent,
for each company for both years.
2. Which company had the more favorable ratio for each year?
3. Which company had the more favorable change in the gross margin ratio over this 2-year
period?
211) A company that uses the perpetual inventory system and the gross method of accounting for
purchases purchased $8,500 of merchandise on March 25 with credit terms of 2/10, n/30. The
invoice was paid in full on April 4. Prepare the journal entries to record the transactions on
March 25 and April 4.
212) Sabor Company uses a perpetual inventory system and the gross method of accounting for
purchases. Sabor purchased $17,800 of merchandise on April 7 with credit terms of 1/10, n/30.
Merchandise with a cost of $1,800 was damaged and returned to the seller on April 10. On April
16 the company paid the amount due. Prepare the journal entries to record the transactions on all
three dates.
213) Tahoe Ski Company uses the perpetual inventory system and the gross method of
accounting for purchases. The company had the following transactions during January:
January 6: Purchased $4,000 of inventory. The seller’s credit terms are 2/10, n/30.
January 8: Returned $200 worth of defective units and received full credit.
January 15: Paid the amount due, less the returned items.
Prepare journal entries to record each of the preceding transactions.
110
214) Serene Spa Sales uses the perpetual inventory system and the gross method of accounting
for purchases and sales, and had the following transactions during August.
Aug 1
Sold merchandise on credit for $5,000, terms 3/10, n/30. The items sold
had a cost of $3,500.
3
Purchased merchandise for cash, $2,720.
4
Purchased merchandise on credit for $2,600, terms 1/20, n/30.
5
Customer returns $3,000 of merchandise purchased July 20. The returned
items had a cost of $2,010. The returned items are restored to inventory
and the customer’s Accounts Receivable is credited.
10
Received payment for merchandise sold August 1.
15
Granted an allowance from the seller for the return of defective
merchandise purchased on August 4 for $600.
18
Paid freight charges of $200 for merchandise ordered last month. (FOB
shipping point)
23
Paid for the merchandise purchased August 4 less the portion that was
returned.
24
Sold merchandise on credit for $7,000, terms 2/10, n/30. The items had a
cost of $4,900.
31
Received payment for merchandise sold on August 24.
Required:
Prepare the general journal entries to record these transactions.
215) Craig’s Snowboards uses the perpetual inventory system and the gross method of
accounting for sales, and had the following sales transactions during June:
June 2
Sold merchandise to General Sports Store on credit for $4,800, terms 1/15,
n/60. The items sold had a cost of $2,700.
June 4
General Sports Store returned merchandise that had a selling price of
$200. The cost of the merchandise returned was $110.
June 13
General Sports Store paid for the merchandise sold on June 2 less the
return, taking any appropriate discount earned.
Prepare the journal entries that Craig’s Snowboards must make to record these transactions.
June 2
Accounts receivable
Sales
Cost of goods sold
Merchandise inventory
June 4
Sales returns and allowances
Accounts receivable
Merchandise inventory
Cost of goods sold
June 13
Cash
Sales discounts
Accounts receivable
113
216) Forrest’s Cycle Shop uses a perpetual inventory accounting system and the gross method of
accounting for sales had the following transactions during the month of July:
July 3
Sold merchandise to a customer on credit for $600, terms 2/10, n30. The
cost of the merchandise sold was $350.
July 4
Sold merchandise to a customer for cash of $425. The cost of the
merchandise was $250.
July 6
Sold merchandise to a customer on credit for $1,300, terms 2/10, n/30.
The cost of the merchandise sold was $750.
July 8
The customer from July 3 returned merchandise with a selling price of
$100. The cost of the merchandise returned was $55.
July 15
The customer from July 6 paid the full amount due, less any appropriate
discounts earned.
July 31
The customer from July 3 paid the full amount due, less any appropriate
discounts earned.
Prepare the required journal entries that Forrest’s Cycle Shop must make to record these
transactions.
115
217) Following is the year-end adjusted trial balance for Fred’s Corner Grocery for the current
year:
Fred’s Corner Grocery
Adjusted Trial Balance December
31
Dr.
Cr.
Cash……………………………………………………..
$ 67,500
Accounts receivable……………………………………
46,000
Merchandise inventory…………………………………
60,000
Store supplies………………………………………….
800
Accounts payable………………………………………
$ 16,000
Salaries payable………………………………………..
850
Common stock……………………………………..
100,000
Retained earnings……………………………………..
25,630
Dividends……………………………….
45,000
Sales……………………………………………………..
550,000
Sales returns & allowances……………………………
4,500
Sales discounts…………………………………………
4,250
Cost of goods sold..…………………………………….
382,450
Sales salaries expense…………………………………
44,000
Advertising expense…………………………………….
8,150
Store salaries expense…………………………………
24,325
Store supplies expense………………………………..
450
Interest expense…………………………………………
5,055
Totals……………………………………………………..
$692,480
$692,480
Prepare the closing entries at December 31 for the current year.
218) The year-end adjusted trial balance of Gordon Produce for the current year, is shown below:
GORDON PRODUCE
Adjusted Trial Balance
December 31
Debit
Credit
Cash
$ 1,500
Store supplies
500
Merchandise inventory
11,000
Store equipment
18,000
Accum. depr.–store equipment
$ 3,000
Accounts payable
6,000
Common stock
10,000
Retained earnings
40,000
Dividends
22,000
Sales
60,500
Cost of goods sold
48,000
Depreciation expense–Store equipment
1,000
Store supplies expense
1,500
Salaries expense
14,000
Rent expense
2,000
$119,500
$119,500
Prepare closing entries at December 31 for the current year.
Dec. 31
Sales
60,500
Income Summary
60,500
Income Summary
66,500
Cost of goods sold
48,000
Salaries Expense
14,000
Rent Expense
2,000
Store Supplies Expense
1,500
Depreciation Expense–Store Equip.
1,000
Retained earnings
6,000
Income Summary
6,000
Retained earnings
22,000
Dividends
22,000
118
219) From the adjusted trial balance for Brookstone Art Supplies given below, prepare a
multiple-step income statement in good form.
Brookstone Art Supplies
Adjusted Trial Balance
December 31
Debit
Credit
Cash
$9,400
Accounts receivable
25,000
Merchandise inventory
36,000
Office supplies
900
Store equipment
75,000
Accumulated depreciation–store equipment
$22,000
Office equipment
60,000
Accumulated depreciation–office equipment
15,000
Accounts payable
42,000
Notes payable
10,000
Common stock
10,000
Retained earnings
100,700
Dividends
48,000
Sales
325,000
Sales discounts
6,000
Sales returns and allowances
16,500
Cost of goods sold
195,000
Selling expenses
32,500
General and administrative expenses
19,800
Interest expense
600
Totals
$524,700
$524,700
120
220) From the adjusted trial balance for Fabricated Products Company given below, prepare the
necessary closing entries.
Fabricated Products Company
Adjusted Trial Balance
December 31
Debit
Credit
Cash
$19,400
Accounts receivable
25,000
Merchandise inventory
26,000
Office supplies
1,900
Store equipment
84,000
Accumulated depreciation–store equipment
$22,000
Office equipment
40,000
Accumulated depreciation–office equipment
15,000
Accounts payable
12,000
Notes payable
40,000
Common stock
20,000
Retained earnings
90,700
Dividends
28,000
Sales
245,000
Sales discounts
6,000
Sales returns and allowances
16,500
Cost of goods sold
145,000
Sales salaries expense
32,500
Depreciation expense–store equipment
11,000
Depreciation expense–office equipment
7,500
Office supplies expense
1,300
Interest expense
600
Totals
$444,700
$444,700