Chapter 05 – Accounting for Merchandising Operations
Problem 5-2A (Concluded)
Aug. 15 Cash………………………………………..……….……….. 4,508
Sales Discounts*…………………………………….….. 92
Accounts Receivable—Laird…………..….… 4,600
Collected receivable within 2% discount period.
*[($5,200 – $600) x 2%]
Sold goods on credit, terms 1/10, n/30.
19 Cost of Goods Sold…………..….…………….……… 2,400
Merchandise Inventory…….……….…………. 2,400
To record cost of the August 19 sale.
22 Sales Returns and Allowances……………..…….. 500
Accounts Receivable—Tux….……............. 500
Issued credit memorandum.
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Chapter 05 – Accounting for Merchandising Operations
Problem 5-3A (40 minutes)
1. Net sales
Sales…………………………………………………………………….. $225,600
2. Cost of Merchandise purchased
Invoice cost of merchandise purchased.…….............. $ 92,000
Purchase discounts received……………………….……….. (2,000)
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Problem 5-3A (Continued)
3. Multiple-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Sales
$225,600
Gross profit 136,850
Expenses
Selling expenses
Sales salaries expense 32,000
Rent expense—Selling space 8,000
Store supplies expense 1,500
Total general and administrative expenses
32,500
Total expenses
87,000
Net income $
49,850
*Cost of goods sold (alternative computation):
Merchandise inventory, August 31, 2014..……………....….... $ 25,400
Total cost of merchandise purchased (from part 2)….……. 90 ,100
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Problem 5-3A (Concluded)
4. Single-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2015
Net sales……………………………………….……….………. $211,350
Expenses
Cost of goods sold……………………………….………. $74,500
Problem 5-4A (30 minutes)
Part 1
Closing entries
Aug. 31 Sales …………………………………………………….. 225,600
Income Summary……………………………. 225,600
To close temporary accounts with
credit balances.
Aug. 31 Income Summary……………………………….….. 175,750
Cost of Goods Sold…………………………. 74,500
Sales Salaries Expense..…….……......... 32,000
Rent Expense—Selling Space………….. 8,000
Store Supplies Expense.….………......... 1,500
debit balances.
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
To close the withdrawals account.
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:
Invoice cost of merchandise purchases..…….... $92,000
Purchase returns and allowances……………….... (4 ,500)
Total cost of merchandise payable………………… $87 ,500
This amount is used to determine the maximum discount, which is then
compared to the actual discount:
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:
Sales……………………………………………..………….…. $225,600
This calculation shows that the company’s customers are returning or
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Problem 5-5A (60 minutes)
Part 1
Adjustment (a)
Jan 31 Store Supplies Expense…………………..….……… 4,050
Store Supplies……………….…….………….….. 4,050
To record store supplies expense
($5,800 – $1,750).
Adjustment (b)
Adjustment (d)
($12,500 – $10,900).
Problem 5-5A (Continued)
Part 2 Multiple-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2015
Sales……………………………………………………………….. $111,950
Less: Sales discounts……………………………………… $ 2,000
Sales returns and allowances..……............. 2 ,200
4,200
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Chapter 05 – Accounting for Merchandising Operations
General and administrative expenses
Insurance expense…………………………………….…… 1,400
Office salaries expense**……………………….………. 17,500
* $40,000 = $38,400 + $1,600 (shrinkage)
**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
Net sales…………………………………………………….... $107,750
Expenses
Cost of goods sold…………………………..………. $40,000
*From Part 2
Part 4
Current assets
Cash……………………………………….……….…………….….. $ 1,000
Merchandise inventory…………………………………….…. 10,900
Total current assets………………………..….………….…… $ 14,650
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Current liabilities……………………………………………..……. $ 10,000
Current ratio ($14,650 / $10,000)…………………………….…... 1.47
*$2,400 – $1,400 = $1,000
Cost of Goods Sold……………………………………………….. 40,000
Gross margin………………………………………………….…….. $ 67,750
Gross margin ratio ($67,750 / $107,750)…………………….... 0.63
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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
Accum. depreciation—Store eq. .. 15,250 (c) 1,525 16,775 16,775
Accounts payable……………….. 10,000 10,000 10,000
J. Nelson, Capital….……......... 32,000 32,000 32,000
J. Nelson, Withdrawals........... 2,200 2,200 2,200
Sales………….…………….…….….. 111,950 111,950 111,950
Sales discounts……….…….…… 2,000 2,000 2,000
Sales returns and
2,200 2,200 2,200
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