PROBLEM SET B
Problem 4-1B (40 minutes)
May 2 Merchandise Inventory……………………………….. 10,000
Accounts Payable—Havel……………….…… 10,000
Purchased goods on credit, terms 1/15, n/30.
5 Merchandise Inventory……………………………….. 250
Cash………………………………………………….… 250
Paid freight on incoming goods.
9 Cash…………….……………….………….…….…………. 2,500
Sales……………..……………………………………. 2,500
Sold goods for cash.
12 Accounts Payable—Duke…..…………….….…….. 400
Merchandise Inventory……….….………….… 400
Received credit memo from returning
goods to supplier.
14 Cash……………………………………………….…………. 10,780
Problem 4-1B (Concluded)
May 17 Accounts Payable—Havel………………………….. 10,000
Merchandise Inventory *……………..…..…… 100
Cash………………………………………………….… 9,900
Paid payable in discount period (*10,000 x 1%).
22 Sales Returns and Allowances………………..…. 400
Accounts Receivable—Tameron…..………. 400
Issued credit memo for allowances on
goods sold to customers.
([$2,800 – $400] x 2%)
31 Accounts Receivable—Heather………………….. 7,200
Sales……………..……………………………………. 7,200
Sold goods on credit with terms 2/10, n/60.
31 Cost of Goods Sold……………..….…….………….. 3,600
Merchandise Inventory……….….………….… 3,600
To record cost of the May 31 sale.
Problem 4-2B (40 minutes)
July 3 Merchandise Inventory…….…….……….………... 15,000
Accounts Payable—OLB……………….……. 15,000
Purchased goods on credit, terms 1/10, n/30.
10 Merchandise Inventory…….…….…….…………... 14,700
Accounts Payable—Rupert…………….…… 14,700
Purchased goods on credit, terms 1/10, n/45.
11 Delivery Expense…………….………………………… 300
Cash………………………………….……….….….. 300
Paid shipping charges on July 7 sale.
14 Accounts Payable—Rupert…..………….……..... 2,000
Merchandise Inventory………………..……… 2,000
Received a credit memorandum for
July 10 purchase.
Problem 4-2B (Concluded)
July 17 Cash……………………………………………………….… 9,457
Sales Discounts*……………..…….………….….….. 193
Accounts Receivable—Brill….….….......... 9,650
Collected receivable within discount period.
*($11,500 – $1,850) x 2%
20 Accounts Payable—Rupert*…………..….…….… 12,700
Merchandise Inventory**…….…….………… 122
Cash………………………………….……….….….. 12,578
Paid payable within discount period.
*$14,200 + $500 – $2,000 = $12,700
**($14,200 – $2,000) x 1% = $122
30 Cash……………………………….………………..….…… 9,603
Sales Discounts*……………..…….………….….….. 97
Accounts Receivable—Brown….……....... 9,700
Collected receivable within discount period.
*($11,000 – $1,300) x 1%
31 Accounts Payable—OLB….……….……….……... 14,850
Problem 4-3B (40 minutes)
1. Net sales
Sales……………..………………………………………………………. $332,650
Less: Sales discounts…………….……………………………… (5,875)
Sales returns and allowances…………………..…... (20 ,000 )
Net sales……………………………………………….……………….. $306 ,775
2. Cost of merchandise purchased
Invoice cost of merchandise purchases……………….…. $138,500
Problem 4-3B (Continued)
3. Multiple-step income statement
BARKLEY COMPANY
Income Statement
For Year Ended March 31, 2015
Sales $332,650
Less: Sales discounts $ 5,875
Sales returns and allowances 20 ,000
25,875
Net sales 306,775
Cost of goods sold * 115 ,600
Gross profit 191,175
Expenses
Selling expenses
Total general and administrative expenses 45 ,650
Total expenses 136 ,000
Net income $ 55 ,175
*Cost of goods sold (alternative computation):
Merchandise inventory, March 31, 2014 $ 37,500
Total cost of merchandise purchases (from part 2) 134 ,600
Problem 4-3B (Concluded)
4. Single-step income statement
BARKLEY COMPANY
Income Statement
For Year Ended March 31, 2015
Net sales $306,775
Expenses
Cost of goods sold $115,600
Selling expenses* 90,350
Problem 4-4B (30 minutes)
Part 1
Closing entries
March 31 Sales ……………..…………………..………….…………. 332,650
Income Summary……………..………………….… 332,650
To close temporary accounts with credit balances.
March 31 Income Summary……………………………….….…… 277,475
Sales Discounts ………………..….………….…... 5,875
Sales Returns and Allowances ………………. 20,000
Cost of Goods Sold…………..…….…………..… 115,600
Sales Salaries Expense……………………..…... 44,500
Rent Expense, Selling Space………………….. 16,000
Problem 4-4B (Concluded)
Part 2
The first step is to determine the amount of purchases that were subject to
a discount during the year:
Invoice cost of merchandise purchases………………..……. $138,500
Total cost of merchandise purchases payable…………….. $131 ,800
This amount is used to determine the maximum discount, which is then
compared to the actual discount:
Maximum discount available (3% x $131,800) ….………..... $ 3,954
Purchase discounts received…………………..………………….. (2 ,950 )
This analysis suggests that about 25% 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
First, we compute this year’s sales returns and allowances rate:
Sales……………..…………………………………………….………….… $ 332,650
This calculation shows that the company’s customers are returning or
requiring allowances on items at a higher rate than the 5% rate observed in
Problem 4-5B (60 Minutes)
Part 1
Adjustment (a)
Oct. 31 Store Supplies Expense…………………..……….… 6,000
Store Supplies…………………..…….……….…. 6,000
To record store supplies expense
($9,700 – $3,700).
Adjustment (d)
Oct. 31 Cost of Goods Sold……………..……….….………… 2,700
Merchandise Inventory……….….………….… 2,700
To adjust inventory for shrinkage
($24,000 – $21,300).
Problem 4-5B (Continued)
Part 2 Multiple-step income statement
FOSTER PRODUCTS COMPANY
Income Statement
For Year Ended October 31, 2015
Sales……………..………………………………………….….…. $227,100
Less: Sales discounts…………….……………………….. $ 1,000
Sales returns and allowances…..…............. 5 ,000
6,000
Net sales………………………………….….….…………….… 221,100
Cost of goods sold *…………….………….….……….….. 78 ,500
Gross profit……………………………………………………… 142,600
Expenses
Selling expenses
Total expenses………………………..……….….…………. 118 ,600
Net income……………..……………………………………….. $ 24 ,000
* $78,500 = $75,800 + $2,700 (shrinkage)
** Salaries and rent expenses are equally divided between selling and general and administrative.
Part 3 Single-step income statement
FOSTER PRODUCTS COMPANY
Income Statement
For Year Ended October 31, 2015
Net sales………………………………….….….…………….… $221,100
Expenses
Cost of goods sold………….………………..…………. $78,500
Selling expenses…………………………………………. 71,300*