Chapter 05 – Accounting for Merchandising Operations
Problem 5-3A (Concluded)
4. Single-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Net sales………………………………………………………. $211,350
Expenses
Problem 5-4A (30 minutes)
Part 1
Closing entries
Aug. 31 Sales …………………………………………………… 225,600
Income Summary…………………………… 225,600
Aug. 31 Income Summary………………………………….. 175,750
Sales Discounts …………………………….. 2,250
Sales Returns and Allowances ……….. 12,000
Cost of Goods Sold………………………… 74,500
Aug. 31 Income Summary………………………………….. 49,850
K. Valley, Capital…………………………….. 49,850
To close the Income Summary account.
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-4A (Concluded)
Part 2
The first step is to determine the amount of purchases that are subject to a
discount during the year:
This amount is used to determine the maximum discount, which is then
compared to the actual discount:
As a percent of available discounts ($625/$2,625)…………….. 23.8 %
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.
Part 3
The first step is to compute this year’s sales returns and allowances rate:
This calculation shows that the company’s customers are returning or
requiring allowances on items at a higher rate than the 4% rate observed in
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Chapter 05 – Accounting for Merchandising Operations
prior years. It appears that management should investigate the situation to
see why there are more dissatisfied customers this year than in prior years.
Problem 5-5A (60 minutes)
Part 1
Adjustment (a)
Jan 31 Store Supplies Expense…………………………….. 4,050
Adjustment (b)
Jan 31 Insurance Expense……………………………………. 1,400
Adjustment (c)
Adjustment (d)
Jan 31 Cost of Goods Sold…………………………………… 1,600
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-5A (Continued)
Part 2 Multiple-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2015
Sales……………………………………………………………… $111,950
4,200
Net sales………………………………………………………… 107,750
Cost of goods sold*………………………………………… 40 ,000
Gross profit……………………………………………………. 67,750
**Salaries and rent expenses are equally divided between selling activities
and general and administrative activities.
Problem 5-5A (Concluded)
Part 3 Single-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2015
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Chapter 05 – Accounting for Merchandising Operations
Net sales…………………………………………………….. $107,750
*From Part 2
Part 4
Current assets
Cash………………………………………………………………… $ 1,000
Merchandise inventory………………………………………. 10,900
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-6AB (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
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Chapter 05 – Accounting for Merchandising Operations
PROBLEM SET B
Problem 5-1B (40 minutes)
May 2 Merchandise Inventory………………………………. 10,000
Accounts Payable—Havel…………………… 10,000
Purchased goods on credit, terms 1/15, n/30.
4 Accounts Receivable—Heather………………….. 11,000
Sales…………………………………………………. 11,000
Sold goods on credit, terms 2/10, n/60.
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-1B (Concluded)
May 17 Accounts Payable—Havel…………………………. 10,000
Merchandise Inventory *……………………… 100
Cash………………………………………………….. 9,900
Paid payable in discount period (*10,000 x 1%).
20 Accounts Receivable—Tameron………………… 2,800
Sales…………………………………………………. 2,800
Sold goods on credit, terms 2/15, n/60.
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-2B (40 minutes)
July 3 Merchandise Inventory…………………………….. 15,000
Accounts Payable—OLB……………………. 15,000
Purchased goods on credit, terms 1/10, n/30.
7 Accounts Receivable—Brill………………………. 11,500
Sales………………………………………………… 11,500
Sold goods on credit, terms 2/10, n/60.
7 Cost of Goods Sold………………………………….. 7,750
Merchandise Inventory………………………. 7,750
To record cost of the July 7 sale.
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