Problem 4-2A (Concluded)
Aug. 15 Cash………………………………………….….…….…….. 4,508
Sales Discounts*…………….………………………..… 92
Accounts Receivable—Laird………………… 4,600
Collected receivable within 2% discount period.
*[($5,200 – $600) x 2%]
22 Sales Returns and Allowances……………..….…. 500
Accounts Receivable—Tux….……............. 500
Issued credit memorandum.
29 Cash…………..……………………………..….…….….…. 4,257
Sales Discounts*…………….………………………..… 43
Accounts Receivable—Tux….……............. 4,300
Collected receivable within discount period.
*[($4,800 – $500) x 1%]
Problem 4-3A (40 minutes)
1. Net sales
Sales……………..…………………………..…………………..…….. $225,600
Less: Sales discounts…………….……………………………. (2,250)
Sales returns and allowances…..…….……........ (12 ,000 )
Net sales……………………………………….…….…….….……... $211 ,350
Problem 4-3A (Continued)
3. Multiple-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Sales
$225,600
Less: Sales discounts $ 2,250
Sales returns and allowances 12 ,000
14,250
Net sales 211,350
Cost of goods sold * 74 ,500
Gross profit 136,850
Expenses
General and administrative expenses
Office salaries expense 28,500
Rent expense—Office space 3,600
Office supplies expense 400
Total general and administrative expenses
*Cost of goods sold (alternative computation):
Merchandise inventory, August 31, 2014………………...….... $ 25,400
Problem 4-3A (Concluded)
4. Single-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Net sales……………………………………………….….……. $211,350
Expenses
Cost of goods sold………….………………………….… $74,500
Selling expenses……………………..….….….….…….. 54,500
Problem 4-4A (30 minutes)
Part 1
Closing entries
Aug. 31 Sales …………….………………………………………. 225,600
Income Summary……………………………. 225,600
To close temporary accounts with
credit balances.
Aug. 31 Income Summary……………..………….….….…. 175,750
Sales Discounts ………………..………….... 2,250
Sales Returns and Allowances …........ 12,000
Aug. 31 Income Summary……………..………….….….…. 49,850
Retained Earnings………………....….….… 49,850
To close the Income Summary account.
Aug. 31 Retained Earnings……………….….……..……... 8,000
Dividends…………………….….….…….….... 8,000
To close the dividends account.
Problem 4-4A (Concluded)
Part 2
The first step is to determine the amount of purchases that are subject to a
discount during the year:
Invoice cost of merchandise purchases…..……. $92,000
Purchase returns and allowances…..….…….…... (4 ,500 )
Total cost of merchandise payable………………… $87 ,500
This amount is used to determine the maximum discount, which is then
compared to the actual discount:
This analysis suggests that nearly 24% of available discounts have been
missed. As a result, it would appear that cash is not being well managed.
Management should try to identify a better system for ensuring that all
Part 3
The first step is to compute this year’s sales returns and allowances rate:
Sales……………..…………………………...….…….….….. $225,600
Sales returns and allowances……………….…..….. $ 12,000
Percent of returns and allowances to sales...... 5.3%
Problem 4-5A (60 minutes)
Part 1
Adjustment (a)
Jan 31 Store Supplies Expense………………………..….… 4,050
Store Supplies…………………..….…….…..….. 4,050
To record store supplies expense
($5,800 – $1,750).
Adjustment (b)
Jan 31 Insurance Expense………………………..….…….…. 1,400
Prepaid Insurance……………..….….…….…... 1,400
To record expired insurance.
Problem 4-5A (Continued)
Part 2 Multiple-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2015
Sales……………..…………………………..…………….….….. $111,950
Less: Sales discounts…………….……………………….. $ 2,000
Sales returns and allowances…..…............. 2 ,200
4,200
Net sales………………………………..……..….…….…….… 107,750
Cost of goods sold*……………..………….….….….……. 40 ,000
Gross profit……………………………………………………... 67,750
Expenses
Selling expenses
Depreciation expense—Store equipment…..……. 1,525
Sales salaries expense**…………………..….….…….. 17,500
Rent expense—Selling space**….….….…….….….. 7,500
Problem 4-5A (Concluded)
Part 3 Single-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2015
Net sales………………………………………….………..…. $107,750
Expenses
Cost of goods sold………….………………….……. $40,000
*From Part 2
Part 4
Current assets
Cash…………………………………………….….…….…….……. $ 1,000
Merchandise inventory…………………………….….….….. 10,900
Store supplies………….……………….…..….…….…….…... 1,750
Prepaid insurance………………..…………………..…….….. 1,000*
Total current assets…………..…………….…….…….….…. $ 14,650
Current liabilities…………………………………………...….….. $ 10,000
Current ratio ($14,650 / $10,000)……………….…………….….. 1.47
*$2,400 – $1,400 = $1,000
Problem 4-6AB (50 minutes)
NELSON COMPANY
Work Sheet
For Year Ended January 31, 2015
Unadjusted
Trial Balance Adjustments
Adjusted
Trial Balance
Income
Statement Balance Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash……….…………………...….…. 1,000 1,000 1,000
Merchandise inventory........... 12,500 (d) 1,600 10,900 10,900
Store supplies…………………….. 5,800 (a) 4,050 1,750 1,750
Prepaid insurance………….…... 2,400 (b) 1,400 1,000 1,000
Store equipment………..….……. 42,900 42,900 42,900
Accum. depreciation—Store eq. .. 15,250 (c) 1,525 16,775 16,775
Accounts payable……….…….... 10,000 10,000 10,000
Advertising expense…..…....... 9,800
______ ____ ____ 9,800
______ 9,800
______ ______ ______
Totals……………...….….….….…... 169,200
169,200
8,575
8,575
170,725
170,725
110,975 111,950 59,750 58,775
Net income…………..….….….….. 975
______ ______ 975
Totals……………...….….….….…... 111,950
111,950
59,750
59,750
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