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
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Education.
Exercise 5-16A (30 minutes)
Apr. 2 Purchases………………………………………………… 4,600
Accounts Payable—Lyon…………………….. 4,600
Purchased merchandise on credit.
5-2
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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.
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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
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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
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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
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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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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
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Problem 5-3A (40 minutes)
1. Net sales
Sales…………………………………………………………………… $225,600
2. Cost of Merchandise purchased
Invoice cost of merchandise purchased………………… $ 92,000
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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
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5-11
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