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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 Trico's relative liquidity position.
154. The following information refers to Annie's Attic and its competitors in the antiques
business.
Current Ratio Quick ratio
Annie's Attic………………... 2.0 0.95
Bart's Basement……... 1.5 1.00
Chisolm's Collectibles…... 1.8 1.20
Martin's Marbles…………. 1.9 0.80
Industry Average………… 2.0 1.00
Required:
Comment on the relative liquidity positions of these companies.
155. 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?
156. Calculate the gross margin ratio for each of the following separate cases A through D:
A B C D
Net sales…………… $135,000 $623,500 $37,800 $259,600
Cost of goods sold… 83,600 249,200 3,230 127,204
157. A company reported the following information for the month of November:
Sales…………………………………. $50,475
Sales discounts………………………. 235
Sales returns and allowances………… 2,840
Cost of goods sold…………………… 33,975
Required: Calculate this company's gross margin ratio.
158. The following information is for Trico and its competitor Unico.
Trico Unico
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?
159. A company that uses the perpetual inventory system purchased $8,500 on September 25.
Terms of the purchase were 2/10, n/30. The invoice was paid in full on October 4. Prepare the
journal entries to record these merchandise transactions.
5-67
160. Roller Blade Company uses the perpetual inventory system and had the following
transactions during October:
October 6: Purchased $4,000 of inventory. The seller's credit terms are 2/10, n/30.
October 8: Returned $200 worth of defective units and received full credit.
October 15: Paid the amount due, less the returned items.
Prepare journal entries to record each of the preceding transactions.
161. Ceres Computer Sales uses the perpetual inventory system and had the following
transactions during December.
Dec 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, $720.
4 Purchased merchandise on credit for $2,600, terms 1/20, n/30.
5 Issued a credit memorandum for $300 to a customer who returned
merchandise purchased November 29. The returned items had a cost of $210.
11 Received payment for merchandise sold December 1.
15 Received a credit memorandum for the return of faulty merchandise purchased
on December 4 for $600.
18 Paid freight charges of $200 for merchandise ordered last month. (FOB
shipping point)
23 Paid for the merchandise purchased December 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 December 24.
Required:
Prepare the general journal entries to record these transactions.
162. Steve's Skateboards uses the perpetual inventory system and had the following sales
transactions during April:
April Sold merchandise to Happy Hobby Shop on credit for $4,800, terms 1/15,
n/60. The items sold had a cost of $2,700.
April 4 Happy Hobby Shop returned merchandise that had a selling price of $200.
The cost of the merchandise returned was $110.
April 13 Happy Hobby Shop paid for the merchandise sold on April 2, taking any
appropriate discount earned.
Prepare the journal entries that Steve's Skateboards must make to record these transactions.
163. Maia's Bike Shop uses the perpetual inventory system and had the following transactions
during the month of May:
May 3 Sold merchandise to a customer on credit for $600, terms 2/10, n130. The
cost of the merchandise sold was $350.
May 4 Sold merchandise to a customer for cash of $425. The cost of the
merchandise was $250.
May 6 Sold merchandise to a customer on credit for $1,300, terms 2/10, n/30. The
cost of the merchandise sold was $750.
May 8 The customer from May 3 returned merchandise with a selling price of $100.
The cost of the merchandise returned was $55.
May 15 The customer from May 6 paid the full amount due, less any appropriate
discounts earned.
May 31 The customer from May 3 paid the full amount due, less any appropriate
discounts earned.
Prepare the required journal entries that Maia's Bike Shop must make to record these
transactions.
164. Following is the year-end adjusted trial balance for Yakima's Sporting Goods for the
current year:
Yakima's Sporting Goods Adjusted Trial Balance December 31
Dr. Cr.
Cash…………………………………………………….. $ 47,500
Accounts receivable…………………………………… 46,000
Merchandise inventory………………………………… 50,000
Office supplies…………………………………………. 800
Accounts payable……………………………………… 16,000
Salaries payable……………………………………….. 850
P. Yakima, Capital…………………………………….. 125,630
P. Yakima, Withdrawals………………………………. 25,000
Sales…………………………………………………….. 500,000
Sales returns & allowances…………………………… 4,500
Sales discounts………………………………………… 4,250
Cost of goods sold..……………………………………. 382,450
Sales salaries expense………………………………… 44,000
Advertising expense……………………………………. 8,150
Office salaries expense………………………………... 24,325
Office supplies expense……………………………….. 450
Interest expense………………………………………... 5,055
Totals…………………………………………………….. $642,480 $642,480
Prepare the closing entries at December 31 for the current year.
165. The year-end adjusted trial balance of ABC Supply for the current year, is shown below:
ABC SUPPLY
Adjusted Trial Balance
December 31
Debit Credit
Cash $ 1,500
Office supplies 500
Merchandise inventory 11,000
Store equipment 18,000
Accum. depr.–store equipment $ 3,000
Accounts payable 6,000
A. B. Carson, Capital 50,000
A. B. Carson, Withdrawals 22,000
Sales 60,500
Cost of goods sold 48,000
Depreciation expense–Store equipment 1,000
Office 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.
166. From the adjusted trial balance for Worker Products Company given below, prepare a
multiple-step income statement in good form.
Worker Products Company
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
F. Worker, Capital 110,700
F. Worker, Withdrawals 48,000
Sales 325,000
Sales discounts 6,000
Sales returns and allowances 16,500
Cost of goods sold 195,000
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 $524,700 $524,700
5-77
167. From the adjusted trial balance for Worker Products Company given below, prepare the
necessary closing entries.
Worker Products Company
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
F. Worker, Capital 110,700
F. Worker, Withdrawals 48,000
Sales 325,000
Sales discounts 6,000
Sales returns and allowances 16,500
Cost of goods sold 195,000
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 $524,700 $524,700
