Exercise 5-12 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
20,000
Net sales…………………………………………………………….. 180,000
Exercise 5-13 (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
understated by $3,000.
As a result of this error:
Return on assets would be understated (numerator impact outweighs
the denominator impact).
Exercise 5-14 (20 minutes)
See the solution explanation in Exercise 5-13. As a result of this error:
Gross margin (gross profit/sales) would be understated because the
gross profit would be understated.
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Exercise 5-15 (15 minutes)
Case X Case Y Case Z
Current ratio computation
Current ratio…………………….… 2.60 3.50 1.95
Acid-test ratio computation
Cash………………………………..… $2,000 $ 110 $1,000
Short-term investments......... 50 0 580
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
most liquid assets, demonstrated by a higher acid-test ratio.
In summary, Case Z looks the worst for its ability to pay its immediate and
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Exercise 5-16A (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.
18 Purchases………………………………………………….. 8,500
Accounts Payable—Frist………….………….. 8,500
Purchased merchandise on credit
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Exercise 5-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases………………………………………………… 24,000
Accounts Payable…………….………………… 24,000
Purchased merchandise on credit.
2. SELLER – Mesa Company
Credit Sale
Accounts Receivable………………………………… 24,000
Sales………………………………………………….. 24,000
Sold merchandise on account.
Collected account receivable.
Exercise 5-18A (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Purchases…………………………..…………………… 40,000
Accounts Payable……………………………… 40,000
Purchased merchandise on credit.
20 Accounts Payable……………………………………. 38,600
Purchases Discounts………………………… 1,158
Cash……………………………….………………… 37,442
Paid balance within the 3% discount period.
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2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable…………….…………………. 40,000
Sales…………………………………………………. 40,000
Sold merchandise on account.
Collected account receivable.
Exercise 5-19A (20 minutes)
Periodic Inventory System
1)
Nov. 1 Purchases……………………………………………..…… 1,500
Accounts Payable……………………………….. 1,500
To record purchases on credit.
3)
Nov. 7 Cash………………………………………..………………… 196
4)
Nov. 10 Transportation-In………………..……………………… 90
Cash………………………………………………….… 90
To record payment of freight charges.
5)
6)
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Nov. 16 Sales Returns and Allowances…………….……… 300
Accounts Receivable………..…………………. 300
To record return of merchandise sold on credit.
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
Profit before tax expense…………………………………………… 4,024.4
Income tax expense……………………………………………………….. 1 ,063.0
Net profit……………………………………………..………………………… € 2 ,961.4
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.
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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.
11 Accounts Payable—Leight….…………………...... 200
Merchandise Inventory…….………………….. 200
Received credit memo from returning
goods to supplier.
Collected receivable within the discount period.
Problem 5-1A (Concluded)
July 16 Accounts Payable—Boden…………………………. 6,000
Merchandise Inventory (1%)…………………. 60
Cash………………………………………………….… 5,940
Paid payable within discount period.
19 Accounts Receivable—Art…………………..……… 1,200
Sales…………………………………….…………….. 1,200
Sold goods on credit, terms 2/15, n/60.
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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 5-2A (40 minutes)
Aug. 1 Merchandise Inventory…………………………….…. 7,500
Accounts Payable—Arotek……………........ 7,500
Purchased goods on credit, terms 1/10, n/30.
9 Delivery Expense………………………..……………… 125
Cash………………………………………………….… 125
Paid shipping charges on August 5 sale.
10 Sales Returns and Allowances……………..…….. 600
Accounts Receivable—Laird…………..……. 600
Customer returned merchandise.
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14 Accounts Payable—Arotek………………….……… 200
Cash………………………………………………….… 200
Paid freight for Arotek.
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