Exercise 4-12 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Sales (gross)………………..……………………………….……. $200,000
Less: Sales discounts…………….……………..………… $ 4,000
Exercise 4-13 (20 minutes)
The employee’s oversight in omitting these goods from the physical count
would cause the cost of the physical count of ending inventory to be
As a result of this error:
Return on assets would be understated (numerator impact outweighs
the denominator impact).
Debt ratio would be overstated because its denominator would be
understated.
Exercise 4-14 (20 minutes)
See the solution explanation in Exercise 4-13. As a result of this error:
Gross margin (gross profit/sales) would be understated because the
gross profit would be understated.
Exercise 4-15 (15 minutes)
Case X Case Y Case Z
Current ratio computation
Current assets….…….……….... $5,200 $3,500 $7,410
Current liabilities…………….…. $2,000 $1,000 $3,800
Current ratio…………………….... 2.60 3.50 1.95
Acid-test ratio computation
Cash………………………………….. $2,000 $ 110 $1,000
Short-term investments…...... 50 0 580
Current receivables……….…... 350 470 700
Interpretation:
Case X has the highest acid-test ratio and a healthy current ratio. Since Case
More specifically, Case Y exhibits superior ability to meet current year
obligations using the current ratio and Case X has the superior ability to meet
near-term obligations using the acid-test ratio. The three companies’ current
ratios range from marginally adequate (such as Case Z’s 1.95) to strong (such
as Case Y’s 3.50). Further, Case X is the only company whose acid-test ratio
Exercise 4-16A (30 minutes)
Apr. 2 Purchases……………….……………..…………….….… 4,600
Accounts Payable—Lyon….……….………... 4,600
Purchased merchandise on credit.
17 Accounts Payable—Lyon………………………….… 4,000
Purchases Discounts………………….….……. 80
Cash………………………………..…………..……… 3,920
Paid balance (less 2%) within discount period.
28 Accounts Payable—Frist….……….…….…………. 7,400
Purchases Discounts………………….….……. 148
Cash………………………………..…………..……… 7,252
Paid balance (less 2%) within discount period.
Exercise 4-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases…………………….…….…………..……….. 24,000
Cash Payment
Accounts Payable…………….……………….…..….. 24,000
2. SELLER – Mesa Company
Credit Sale
Accounts Receivable..………………………………. 24,000
Sales……………..…………………..………….…… 24,000
Sold merchandise on account.
Cash Collection
Cash………………………………..………………..……… 23,280
Exercise 4-18A (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Purchases…………………………….….…….……….. 40,000
Accounts Payable…………….………….……. 40,000
Purchased merchandise on credit.
Returned unacceptable merchandise.
20 Accounts Payable…………….……….….…………. 38,600
Purchases Discounts…..……….…………... 1,158
Cash……………………………………….….…….. 37,442
Paid balance within the 3% discount period.
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable……………….….…….…….. 40,000
Sales……………..…………………..…………..…. 40,000
Sold merchandise on account.
Exercise 4-19A (20 minutes)
Periodic Inventory System
1)
Nov. 1 Purchases………………………………………..…….….. 1,500
Accounts Payable..……………………………… 1,500
To record purchases on credit.
4)
Nov. 10 Transportation-In……..…………..…….…….……….. 90
Cash………………………………..…………..……… 90
To record payment of freight charges.
5)
Nov. 13 Accounts Receivable……………..…………………… 1,600
Sales……………..………………………………….… 1,600
To record sale of merchandise on credit.………..
Exercise 4-20 (20 minutes)
L´Oréal
Income Statement (€ millions)
For Year Ended December 31, 2013
Net sales………………………………..…………….………………………… €22,976.6
Cost of sales………….…………………..…………….……………………. 6 ,601.8
Gross profit………………………………..……………………….…….. 16,374.8
Research and development expense…………..……….……….. (857.0)
Advertising and promotion expense………………………….….… (6,886.2)
PROBLEM SET A
Problem 4-1A (40 minutes)
July 1 Merchandise Inventory…………………………….…. 6,000
Accounts Payable—Boden…………………… 6,000
Purchased goods on credit, terms 1/15, n/30.
2 Accounts Receivable—Creek………..…….……... 900
Sales……………..………………………………….… 900
Sold goods on credit, terms 2/10, n/60.
Sold goods for cash.
8 Cost of Goods Sold……………….…..………….…… 1,300
Merchandise Inventory……….….………….… 1,300
To record cost of the July 8 sale.
9 Merchandise Inventory……………….………………. 2,200
Accounts Payable—Leight………….……….. 2,200
Purchased goods on credit, terms 2/15, n/60.
Problem 4-1A (Concluded)
July 16 Accounts Payable—Boden……………….…….….. 6,000
Merchandise Inventory (1%)…………………. 60
Cash………………………………..…………..……… 5,940
Paid payable within discount period.
21 Sales Returns and Allowances………………….… 200
Accounts Receivable—Art….…….……....... 200
Issued credit memo for allowance on
goods sold to customer.
24 Accounts Payable—Leight….….………….…….... 2,000
Merchandise Inventory *……………..…..…… 40
Cash………………………………..…………..……… 1,960
Paid payable in discount period (*2% x $2,000).
31 Cost of Goods Sold………………..….……….……… 4,800
Merchandise Inventory……….….………….… 4,800
To record cost of the July 31 sale.
Problem 4-2A (40 minutes)
Aug. 1 Merchandise Inventory……………….………………. 7,500
Accounts Payable—Arotek….….……......... 7,500
Purchased goods on credit, terms 1/10, n/30.
8 Merchandise Inventory…………………………….…. 5,540
Accounts Payable—Waters…………..……... 5,540
Purchased goods on credit, terms 1/10, n/45.
9 Delivery Expense………………..…….……….………. 125
Cash………………………………..…………..……… 125
Paid shipping charges on August 5 sale.
12 Accounts Payable—Waters….………….…….…... 700
Merchandise Inventory……….….………….… 700
Received a credit memorandum for August 8
purchase.
14 Accounts Payable—Arotek…………………….…… 200
Cash………………………………..…………..……… 200
Paid freight for Arotek.