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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
In summary, Case Z looks the worst for its ability to pay its immediate and
current year obligations. Case X looks the strongest. Case Y is in between
with a strong current ratio and the lowest acid-test ratio.
5-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Exercise 5-16A (30 minutes)
Apr. 2 Purchases......................................................... 4,600
Accounts Payable—Lyon.......................... 4,600
Purchased merchandise on credit.
5-2
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Exercise 5-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases........................................................ 24,000
Accounts Payable.................................... 24,000
2. SELLER – Mesa Company
Credit Sale
1. Entries for Sydney Company (BUYER):
May 11 Purchases....................................................... 40,000
Accounts Payable................................... 40,000
Purchased merchandise on credit.
5-3
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable..................................... 40,000
Sales........................................................ 40,000
Sold merchandise on account.
Exercise 5-19A (20 minutes)
Periodic Inventory System
1)
Nov. 1 Purchases......................................................... 1,500
Accounts Payable..................................... 1,500
To record purchases on credit.
2)
5-4
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
To record sale of merchandise on credit............
6)
Exercise 5-20 (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
5-5
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
PROBLEM SET A
Problem 5-1A (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.
Problem 5-1A (Concluded)
July 16 Accounts Payable—Boden.............................. 6,000
5-6
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Education.
Merchandise Inventory (1%)..................... 60
Cash........................................................... 5,940
Paid payable within discount period.
Problem 5-2A (40 minutes)
Aug. 1 Merchandise Inventory..................................... 7,500
Accounts Payable—Arotek....................... 7,500
Purchased goods on credit, terms 1/10, n/30.
5-7
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Education.
Paid freight for Arotek.
Problem 5-2A (Concluded)
Aug. 15 Cash.................................................................. 4,508
Sales Discounts*.............................................. 92
Accounts Receivable—Laird.................... 4,600
Collected receivable within 2% discount period.
5-8
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Problem 5-3A (40 minutes)
1. Net sales
Sales.............................................................................. $225,600
2. Cost of Merchandise purchased
Invoice cost of merchandise purchased..................... $ 92,000
5-9
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Education.
Problem 5-3A (Continued)
3. Multiple-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Sales $225,60
0
Less: Sales discounts $ 2,250
Sales returns and allowances 12 ,000
14,250
*Cost of goods sold (alternative computation):
Merchandise inventory, August 31, 2014............................ $ 25,400
5-10
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
5-11
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
