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Ethics Challenge, BTN 5-3 — (Concluded)
2. The merchandising company accounts for sales returns using a contra
revenue account called Sales Returns and Allowances. A dress returned
with a sales bill of $200 would be accounted for as follows:
Communicating in Practice — BTN 5-4
Note: While responses will vary, the essence of its content follows:
TO: Mr. V. Velakturi
FROM:
DATE:
SUBJECT: Reply to inventory shrinkage question
At the end of each accounting period, we take an actual physical inventory
and compare this amount to our inventory records. These accounting
procedures for verifying inventory available have disclosed that the
amount of inventory loss is not abnormally large. Accounting procedures
allow this immaterial shrinkage to be directly charged to cost of goods
more specific information regarding inventory shrinkage, please let me
know. The supporting information is available in the accounting records.
5-1
Taking It to the Net — BTN 5-5
Fiscal Year ($ thousands) 2012 2013 2014
Net sales...........................................$1,721,750 $2,227,717 $2,428,257
Analysis: J. Crew’s gross margin ratio improved from 39.5% in 2012 to
Teamwork in Action — BTN 5-6
1.
a. Net sales computation
33,000
Net sales...................................................................... $567 ,000
b. Total cost of merchandise purchases computation
Invoice cost of merchandise purchases..................... $360,000
Less: Purchase discounts received.......................... (9,000)
d. Gross profit computation
Net sales (from a)......................................................... $567,000
Less: Cost of goods sold (from c)............................ 376 ,000
Gross profit ................................................................. $191 ,000
5-2
Teamwork in Action (Concluded)
e. Net income computation
Gross profit from sales (from d)............................... $191,000
2. Net income is $141,000.
3. The inventory account balance is $84,000. If actual (physical) inventory
is $76,000, an $8,000 loss from inventory shrinkage occurred. This
Entrepreneurial Decision — BTN 5-7
1.
Sseko Designs
Forecasted Income Statement
For Year Ended January 31, 2015
Net sales ($1,000,000 x 1.09).............................................. $1,090,000
Cost of sales* ($1,090,000 x 61%)...................................... 664,900
2. The proposal yields a forecasted net income of $213,100. This compares
5-3
3. There are many issues that should be considered. Among them are:
First, there is the issue of the prediction itself. That is, are estimates
reasonable or could reality be markedly different from these estimates?
Second, and related to the first, there is a need to consider “ranges” of
possible scenarios since the future is unpredictable. This would involve
looking at alternative possibilities and then assessing the range of
outcomes.
In sum, we must consider alternative possibilities, both good and bad,
with these proposed policy changes.
5-4
Hitting the Road — BTN 5-8
There is no formal solution for this field activity. As the discussion
Global Decision — BTN 5-9
1.
(in millions) Samsung* Apple Google
Net sales............................................228,692,667₩$170,910 $59,825
*millions of Korean won
Gross Margin % Rank
Google..................................... 56.8% 1
2. Samsung, Apple and Google each use the multiple-step format for their
income statements. Google’s income statement is a mix between
multiple-step and single-step as it does not report a measure of gross
5-5
