3-1
EXERCISE 3-3 (cont.)
b.
Justin Swords Merchandising
Income Statement
For the Year Ended December 31, 2014
Net Sales
$82,000
Cost of Goods Sold
(48,000)
Gross Margin
34,000
Operating Expenses
-0-
Net Income
$34,000
c. Total assets: $104,000 (Cash $92,000 + Inventory $12,000).
3-2
EXERCISE 3-4
a. NC = Net Change in Cash
King Merchandising Company Effect of Events on the Financial Statements
Balance Sheet
Income Statement
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Statement of
Events
Cash
+
A. Rec.
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
Cash Flows
Beg. Bal.
18,000
+
NA
+
NA
=
NA
+
18,000
+
NA
NA
−
NA
=
NA
NA
1. Pur. Inv.
NA
+
NA
+
30,000
=
30,000
+
NA
+
NA
NA
−
NA
=
NA
NA
2a. Sold Inv.
NA
+
31,000
+
NA
=
NA
+
NA
+
31,000
31,000
−
NA
=
31,000
NA
2b. Inv. Cost
NA
+
NA
+
(22,500)
=
NA
+
NA
+
(22,500)
NA
−
22,500
=
(22,500)
NA
3. Pd. AP
(18,000)
+
NA
+
NA
=
(18,000)
+
NA
+
NA
NA
−
NA
=
NA
(18,000) OA
4. Coll. AR
22,000
+
(22,000)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
22,000 OA
5. Pd. Exp.
(4,200)
+
NA
+
NA
=
NA
+
NA
+
(4,200)
NA
−
4,200
=
(4,200)
(4,200) OA
End. Bal.
17,800
+
9,000
+
7,500
=
12,000
+
18,000
+
4,300
31,000
−
26,700
=
4,300
(200) NC
b. $9,000
d. Sales $31,000
Net Income $ 4,300
e. Cash Flows From Operating Activities:
Inflow from Customers $22,000
3-3
EXERCISE 3-4 (cont.)
f. Ending retained earnings and net income are the same in this problem because this is the first year
3-4
EXERCISE 3-5
Hilo Clothing Effect of Events on the Financial Statements
Assets
=
Equity
Rev.
−
Exp.
=
Net. Inc.
Cash Flow
No.
Cash
+
Inv.
=
C. Stock
+
Ret. Earn.
1.
25,000
NA
25,000
NA
NA
NA
NA
25,000 FA
2.
(12,000)
12,000
NA
NA
NA
NA
NA
(12,000) OA
3a.
15,000
NA
NA
15,000
15,000
NA
15,000
15,000 OA
3b.
NA
(8,000)
NA
(8,000)
NA
8,000
(8,000)
NA
4.
(1,200)
NA
NA
(1,200)
NA
1,200
(1,200)
(1,200) OA
Tot.
26,800
+
4,000
=
25,000
+
5,800
15,000
−
9,200
=
5,800
26,800 NC
3-5
EXERCISE 3-6
a. buyer
EXERCISE 3-7
a.
Austin’s Auto Shop Effect of Events on the Financial Statements
Balance Sheet
Assets
=
Liab.
+
Stkholders’ Equity
Acct. Title for RE
Events
Cash
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
Beg. Bal.
14,000
7,000
NA
18,000
3,000
1. Pur. Inv.
NA
12,000
12,000
NA
NA
2. Freight
(800)
800
NA
NA
NA
3. Ret. Inv.
NA
(2,600)
(2,600)
NA
NA
4. Allow.
NA
(1,100)
(1,100)
NA
NA
5a. Sales
21,500
NA
NA
NA
21,500
Sales
5b. Cost
NA
(12,000)
NA
NA
(12,000)
Cost of Sales
6. Tran.
(500)
NA
NA
NA
(500)
Trans. Out Exp.
7. Paid AP
(8,000)
NA
(8,000)
NA
NA
End Bal.
26,200
+
4,100
=
300
+
18,000
+
12,000
3-6
EXERCISE 3-7 (cont.)
b.
Austin’s Auto Shop
Financial Statements
For the Year Ended December 31, 2014
Income Statement
Net Sales
$21,500
Cost of Goods Sold
(12,000)
Gross Margin
9,500
Operating Expenses
Transportation-out
(500)
Net Income
$ 9,000
Statement of Cash Flows
Cash Flows From Operating Activities:
Inflow from Customers
$21,500
Outflow for Inventory
( 8,800)
Outflow for Expenses
(500)
Net Cash Flow from Operating Activities
$12,200
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
12,200
Plus: Beginning Cash Balance
14,000
Ending Cash Balance
$26,200
c. The difference between net income of $9,000 and cash flow from operating activities of $12,200 is
EXERCISE 3-8
Transaction
Added to Inventory
3-7
a. Purchase computer
No
b. Purchase of inventory
Yes
c. Allowance for damaged inventory
No
d. Transportation-out
No
e. Purchase discount
No
f. Transportation–in
Yes
EXERCISE 3-9
a.
Transaction
Period Costs
Product Costs
Not Applicable
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
3-8
EXERCISE 3-9 (cont.)
b. NC = Net Change in Cash
The Sports Store Horizontal Statements Model for 2014
Balance Sheet
Income Statement
Statement of
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Cash
+
A. Rec.
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
1. Stock
40,000
+
NA
+
NA
=
NA
+
40,000
+
NA
NA
−
NA
=
NA
40,000 FA
2. Pur Inv.
NA
+
NA
+
78,000
78,000
+
NA
+
NA
NA
−
NA
=
NA
NA
3. Freight
(900)
+
NA
+
900
=
NA
+
NA
+
NA
NA
−
NA
=
NA
(900) OA
4a. Sold Inv.
NA
+
72,000
+
NA
=
NA
+
NA
+
72,000
72,000
−
NA
=
72,000
NA
4b. Cost
NA
+
NA
+
(46,000)
=
NA
+
NA
+
(46,000)
NA
−
46,000
=
(46,000)
NA
5. Pd. Frt.
(560)
+
NA
+
NA
=
NA
+
NA
+
(560)
NA
−
560
=
(560)
(560) OA
6a. Ret. Sale
NA
+
(5,100)
+
NA
=
NA
+
NA
+
(5,100)
(5,100)
−
NA
=
(5,100)
NA
6b. Ret. Inv.
NA
+
NA
+
2,950
=
NA
+
NA
+
2,950
NA
−
(2,950)
=
2,950
NA
7. Coll. AR
61,500
+
(61,500)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
61,500 OA
8. Pd. AP
(66,100)
+
NA
+
NA
=
(66,100)
+
NA
+
NA
NA
−
NA
=
NA
(66,100) OA
9. Pd. Exp.
(2,600)
+
NA
+
NA
=
NA
+
NA
+
(2,600)
NA
−
2,600
=
(2,600)
(2,600) OA
10. Pd. Exp.
(3,100)
+
NA
+
NA
=
NA
+
NA
+
(3,100)
NA
−
3,100
=
(3,100)
(3,100) OA
End. Bal.
28,240
+
5,400
+
35,850
=
11,900
+
40,000
+
17,590
66,900
−
49,310
=
17,590
28,240 NC
3-9
EXERCISE 3-10
a. Purchase $24,800
Gross amount due $22,400
Less: discount ( 448)
Net amount due $21,952
b.
Fashion Furnishings Effect of Events on the Financial Statements
Events
Balance Sheet
Income Statement
Cash Flows
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash
+
Mdse. Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
1. Pur. Inv.
NA
+
24,800
=
24,800
+
NA
+
NA
NA
−
NA
=
NA
NA
2. Ret. Inv.
NA
+
(2,400)
=
(2,400)
+
NA
+
NA
NA
−
NA
=
NA
NA
3. Disc.
NA
+
(448)
=
(448)
+
NA
+
NA
NA
−
NA
=
NA
NA
4. Pd. AP
(21,952)
+
NA
=
(21,952)
+
NA
+
NA
NA
–
NA
=
NA
(21,952) OA
3-10
EXERCISE 3-10 (cont.)
c. $22,400; they would not be eligible for the discount.
d.
Fashion Furnishings Effect of Events on the Financial Statements
Events
Balance Sheet
Income Statement
Cash Flows
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash
+
Mdse. Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
3. Pd. AP
(22,400)
+
NA
=
(22,400)
+
NA
+
NA
NA
−
NA
=
NA
(22,400) OA
e. Fashion Furnishings would be willing to pay within the discount period in order to take advantage of the discount. Taking the discount
will reduce the cost of the merchandise by $448. While this does not seem like a large savings, if the rate is annualized the savings is
3-11
EXERCISE 3-11
Event
No.
Event
Type
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
1.
AE
+−
NA
NA
NA
NA
NA
− OA
2a.
AS
+
NA
+
+
NA
+
NA
2b.
AU
−
NA
−
NA
+
−
NA
3.
AU
−
−
NA
NA
NA
NA
NA
4.
AS
+
+
NA
NA
NA
NA
NA
5.
AU
−
−
NA
NA
NA
NA
− OA
6.
AU
−
NA
−
NA
+
−
− OA
7a.
AS
+
NA
+
+
NA
+
+ OA
7b.
AU
−
NA
−
NA
+
−
NA
8.
AU
−
NA
−
NA
+
−
− OA
9.
AE
+−
NA
NA
NA
NA
NA
− OA
10.
AE
+/−
NA
NA
NA
NA
NA
+ OA