3-1
EXERCISE 3-12
a. Annual rate = Discount rate x (365 days ÷ Discount term*)
b. Since the annualized discount rate (36.5%) is significantly higher than the cost of borrowing
EXERCISE 3-13
a. The Merchandise Inventory account is analyzed as follows:
Mdse. Inventory
2. Purcashed Inventory $35,000
3. Inventory Sold (21,000)
Book Balance 14,000
4. Less:Actual Count (13,500)
Difference in book and actual inventory $ 500
b. Lost, stolen, or damaged inventory may not have been accounted for. When management
EXERCISE 3-14
a.
Computation of Gross Margin
Sales Revenue
$37,500
Less: Cost of Goods Sold
(20,000)
Gross Margin
$17,500
b.
Computation of Gain on Sale of Land
Selling Price
$40,000
Less: Cost of Land Sold
(25,000)
Gain on Sale of Land
$15,000
3-2
c. Gross Margin is sales less cost of goods sold that is shown on the income statement before
d. Neither gross margin nor gain on sale of land is shown specifically in the Statement of Cash
EXERCISE 3-15
Single-Step Income Statement:
Healthy Eats
Income Statement
For the Year Ended December 31, 2014
Net Sales
$2,000
Expenses
Cost of Goods Sold
$1,200
Advertising Expense
400
Interest Expense
140
Salaries Expense
260
Rent Expense
220
Total Expenses
(2,220)
Loss on Sale of Land
(50)
Net Income (Loss)
$ (270)
Multistep Income Statement:
Healthy Eats
Income Statement
For the Year Ended December 31, 2014
Net Sales
$2,000
Cost of Goods Sold
(1,200)
Gross Margin
800
Operating Expenses
Advertising Expense
$400
Salaries Expense
260
Rentlies Expense
220
Total Operating Expenses
(880)
3-3
Operating Income (Loss)
(80)
Non-Operating Items
Interest Expense
(140)
Loss on Sale of Land
(50)
Net Income (Loss)
$ (270)
3-4
EXERCISE 3-16
a.
Poole Company Effect of Events on the Financial Statements
Assets
=
Equity
Rev.
−
Exp.
=
Net. Inc.
Cash Flow
No.
Cash
+
A. Rec.
+
Inv.
=
C. Stock
+
Ret. Earn.
Bal.
36,000
NA
80,000
70,000
46,000
NA
NA
NA
NA
1a.
NA
92,900
NA
NA
92,900
92,900
NA
92,900
NA
1b.
NA
NA
(51,500)
NA
(51,500)
NA
51,500
(51,500)
NA
2.
(500)
NA
NA
NA
(500)
NA
500
(500)
(500) OA
3a.
NA
(4,700)
NA
NA
(4,700)
(4,700)
NA
(4,700)
NA
3b.
NA
NA
3,200
NA
3,200
NA
(3,200)
3,200
NA
4.
NA
(1,500)
NA
NA
(1,500)
(1,500)
NA
(1,500)
NA
5.
71,000
(71,000)
NA
NA
NA
NA
NA
NA
71,000 OA
Tot.
106,500
+
15,700
+
31,700
=
70,000
+
83,900
86,700
−
48,800
=
37,900
70,500 NC
3-5
EXERCISE 3-16 (cont.)
b.
Poole Company
Financial Statements
Income Statement
For the Year Ended December 31, 2014
Net Sales
$86,700
Cost of Goods Sold
(48,300)
Gross Margin
38,400
Operating Expenses
Transportation-out
(500)
Net Income
$37,900
Balance Sheet
As of December 31, 2014
Assets
Cash
$106,500
Accounts Receivable
15,700
Merchandise Inventory
31,700
Total Assets
$153,900
Liabilities
$ -0-
Stockholders’ Equity
3-6
Common Stock
$70,000
Retained Earnings
83,900
Total Stockholders’ Equity
153,900
Total Liabilities and Stockholders’ Equity
$153,900
EXERCISE 3-16 b. (cont.)
Poole Company
Financial Statements
For the Year Ended December 31, 2014
Statement of Cash Flows
Cash Flows From Operating Activities:
Inflow from Customers
$71,000
Outflow for Expenses
(500)
Net Cash Flow from Operating Activities
$ 70,500
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
70,500
Plus: Beginning Cash Balance
36,000
Ending Cash Balance
$106,500
another shipment. Also, he is getting the goods at a reduced price. This arrangement can benefit both buyer and seller
EXERCISE 3-17
3-7
a.
Clayton Computers Horizontal Statements Model for 2014
Assets
=
Liab.
+
Stkholders’ Equity
Income Statement
Statement of
Cash
+
A. Rec.
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1. Stock
25,000
+
NA
+
NA
=
NA
+
25,000
+
NA
NA
−
NA
=
NA
25,000 FA
2. Pur. Inv.
NA
+
NA
+
23,000
=
23,000
+
NA
+
NA
NA
−
NA
=
NA
NA
3. Pd. AP
(11,270)
+
NA
+
(230)
=
(11,500)
+
NA
+
NA
NA
−
NA
=
NA
(11,270) OA
4a. Sold Inv.
NA
+
24,000
+
NA
=
NA
+
NA
+
24,000
24,000
−
NA
=
24,000
NA
4b. Cost
NA
+
NA
+
(14,000)
=
NA
+
NA
+
(14,000)
NA
−
14,000
=
(14,000)
NA
5. Coll. AR
23,760
+
(24,000)
+
NA
=
NA
+
NA
+
(240)
(240)
−
NA
=
(240)
23,760 OA
6. Pd. Exp.
(1,700)
+
NA
+
NA
=
NA
+
NA
+
(1,700)
NA
−
1,700
=
(1,700)
(1,700) OA
7. Pd. AP
(11,500)
+
NA
+
NA
=
(11,500)
+
NA
+
NA
NA
−
NA
=
NA
(11,500) OA
End. Bal.
24,290
+
-0-
+
8,770
=
-0-
+
25,000
+
8,060
23,760
−
15,700
=
8,060
24,290 NC
7
b. Gross Margin:
Net Sales $23,760
Cost of Goods Sold (14,000)
Gross Margin $ 9,760
3-8
EXERCISE 3-17 (cont.)
c. Cash discounts are given to encourage prompt payment by the customers (accounts receivable).
of the invoice is due in 30 days.EXERCISE 3-18
a.
Common Size Income Statements
Fargo
%
Huston
%
Sales
$2,000,000
100.0
$2,000,000
100.0
Cost of Goods Sold
(1,600,000)
(80.0)
(1,200,000)
(60.0)
Gross Margin
400,000
20.0
800,000
40.0
Operating Expenses
(300,000)
(15.0)
(640,000)
(32.0)
Net Income
$ 100,000
5.0
$ 160,000
8.0
b. Huston Co. appears to be the high-end retailer because it has the higher gross margin
EXERCISE 3-19 (Appendix)
Beginning Mdse. Inventory
$16,000
Plus: Merchandise Purchased
65,000
Total Available for Sale
81,000
Less: Ending Mdse. Inventory
(26,300)
Cost of Goods Sold
$54,700
a. Goods Available for Sale $81,000
3-9
EXERCISE 3-20 (appendix)
a.
Belk Antiques
Schedule of Cost of Goods Sold
For the Year Ended December 31, 2014
Beginning Merchandise Inventory
$ 42,000
Plus: Purchases
128,000
Plus: Transportation-in
1,000
Less: Purchase Returns and Allowances
(12,000)
Cost of Goods Available for Sale
159,000
Less: Ending Merchandise Inventory
(26,000)
Cost of Goods Sold
$133,000
b.
Belk Antiques
Income Statement
For the Year Ended December 31, 2014
Net Sales Revenue*
$516,100
Cost of Goods Sold
(133,000)
Gross Margin
383,100
Operating Expenses
(130,000)
Net Income
$253,100
*Sales, $520,000 − Sales Returns and Allow., $3,900 = Net Sales, $516,100
PROBLEM 3-21
Event
Product Costs
Period Costs
a.
b.
c.
d.
3-10
e.
f.
g.
h.
i.
j.
PROBLEM 3-22
Event
Freight Costs Paid
Period/Product Cost
a.
$500
Product
b.
$-0-
NA
c.
$-0-
NA
d.
$300
Period
3-11
PROBLEM 3-23
a.
Yang’s Imports
Effect of Transactions on Financial Statements Using Horizontal Statements Model
Balance Sheet
Income Statement
Date
Assets
=
Liab.
+
Stockholders’ Equity
Rev.
−
Exp.
=
Cash
+
Acc. Rec.
+
Inv.
=
Acct. Pay.
+
C. Stk.
+
Ret. Earn.
9/1
30,000
+
NA
+
NA
=
NA
+
30,000
+
NA
NA
−
NA
=
9/1
NA
+
NA
+
18,000
=
18,000
+
NA
+
NA
NA
−
NA
=
9/5
(400)
+
NA
+
400
=
NA
+
NA
+
NA
NA
−
NA
=
9/8a.
NA
+
19,000
+
NA
=
NA
+
NA
+
19,000
19,000
−
NA
=
9/8b.
NA
+
NA
+
(10,000)
=
NA
+
NA
+
(10,000)
NA
−
10,000
=
9/8
NA
+
NA
+
(750)
=
(750)
+
NA
+
NA
NA
−
NA
=
9/101
(16,905)
+
NA
+
(345)
=
(17,250)
+
NA
+
NA
NA
−
NA
=
9/20
19,000
+
(19,000)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
9/30
(2,450)
+
NA
+
NA
=
NA
+
NA
+
(2,450)
NA
−
2,450
=
Tot.
29,245
+
-0-
+
7,305
=
-0-
+
30,000
+
6,550
19,000
−
12,450
=
1($18,000 − $750) = $17,250; $17,250 x .98 = $16,905 cash paid for inventory. Discount taken
$17,250 x 2% = $345.