5-1
EXERCISE 5-11
Balance Sheet
Income Statement
Date
Assets
=
Equity
Rev.
−
Exp.
=
Net Inc.
Cash
+
Note Rec.
+
Int. Rec.
=
Ret. Ear.
1. 9/1/14
(30,000)
30,000
NA
NA
NA
NA
NA
2. 12/31/141
NA
NA
600
600
600
NA
600
3. 9/1/152
NA
NA
1,200
1,200
1,200
NA
1,200
9/1/15
31,800
(30,000)
(1,800)
NA
NA
NA
NA
1$30,000 x 6% x 4/12 = $600
2$30,000 x 6% x 8/12 = $1,200
5-2
EXERCISE 5-12
a. $18,000 x 5% x 10/12 = $750
b. Total Receivables at December 31, 2014:
Notes Receivable $18,000
Interest Receivable 750
Total Receivables $18,750
e. Total Cash to be collected:
5-3
EXERCISE 5-13
a.
Hardwood Timber Company – Accounting Equation
Assets
=
Liab.
+
Equity
Acct.
Title/Re
Event
Cash
+
A. Rec.
−
Allow.
+
Mdse Inv.
+
Notes
Rec.
+
Int.
Rec.
=
Accts.
Pay.
+
Com.
Stock
=
Ret.
Earn.
Bal.
16,000
18,000
2,000
25,000
NA
NA
9,200
30,000
17,800
1.
20,000
NA
NA
NA
NA
NA
NA
20,000
NA
2.
NA
NA
NA
80,000
NA
NA
80,000
NA
NA
3a.
NA
98,000
NA
NA
NA
NA
NA
NA
98,000
Rev.
3b.
NA
NA
NA
(61,000)
NA
NA
NA
NA
(61,000)
COGS
4.
NA
(1,500)
(1,500)
NA
NA
NA
NA
NA
NA
5.
(10,000)
NA
NA
NA
10,000
NA
NA
NA
NA
6.
(24,500)
NA
NA
NA
NA
NA
NA
NA
(24,500)
Sal. Exp.
7.
99,000
(99,000)
NA
NA
NA
NA
NA
NA
NA
8.
(78,000)
NA
NA
NA
NA
NA
(78,000)
NA
NA
9.
(5,000)
NA
NA
NA
NA
NA
NA
NA
(5,000)
Div.
10.1
NA
NA
980
NA
NA
NA
NA
NA
(980)
Uncoll.
Exp
11.2
NA
NA
NA
NA
NA
200
NA
NA
200
Int. Rev.
Bal.
17,500
+
15,500
−
1,480
+
44,000
+
10,000
+
200
=
11,200
+
50,000
+
24,520
1$98,000 x 1% = $980
2$10,000 x 6% x 4/12 = $200
Assets
EXERCISE 5-13
b.
Hardwood Timber Co.
Financial Statements
For the Year Ended December 31, 2014
Income Statement
Sales Revenue
$98,000
Cost of Goods Sold
(61,000)
Gross Margin
37,000
Operating Expenses
Salaries Expense
$24,500
Uncollectible Accounts Exp.
980
Total Operating Expenses
(25,480)
Operating Income
11,520
Interest Revenue
200
Net Income
$11,720
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$30,000
Plus: Stock Issued
20,000
Ending Common Stock
$50,000
Beginning Retained Earnings
$17,800
Plus: Net Income
11,720
Less: Dividends
(5,000)
Ending Retained Earnings
24,520
Total Stockholders’ Equity
$74,520
5-5
Cash
$17,500
Accounts Receivable
$15,500
Less: Allowance for Doubtful Accounts
(1,480)
14,020
Interest Receivable
200
Notes Receivable
10,000
Merchandise Inventory
44,000
Total Assets
$85,720
Liabilities
Accounts Payable
$11,200
Total Liabilities
11,200
Stockholders’ Equity
Common Stock
$50,000
Retained Earnings
24,520
Total Stockholders’ Equity
74,520
Total Liabilities and Stockholders’ Equity
$85,720
EXERCISE 5-13 B. (cont.)
Hardwood Timber Co.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows From Operating Activities:
Inflow from Customers
$99,000
Outflow for Inventory
(78,000)
Outflow for Expenses
(24,500)
Net Cash Flow from Operating Activities
$ (3,500)
Cash Flows From Investing Activities:
Outflow for Notes Receivable
$(10,000)
Net Cash Flow from Investing Activities
(10,000)
Cash Flows From Financing Activities:
Inflow from Stock Issue
$20,000
Outflow for Dividend
(5,000)
Net Cash Flow from Financing Activities
15,000
Net Change in Cash
1,500
Plus: Beginning Cash Balance
16,000
Ending Cash Balance
$17,500
5-6
EXERCISE 5-14
a.
Superior Carpet Cleaning
Horizontal Statements Model
Balance Sheet
Income Statement
Statement of
Assets
=
Liab
.
+
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Acc. Rec.
=
+
Ret. Ear
1.
NA
+
73,720
=
NA
+
73,720
76,000
−
2,280*
=
73,720
NA
2.
73,720
+
(73,720)
=
NA
+
NA
NA
−
NA
=
NA
73,720 OA
*$76,000 x 3% = $2,280
b. (1) Total assets: Cash $73,720
(3) Cash Flow from Operating Activities: $73,720
5-7
EXERCISE 5-15
Credit card expense: Sales $8,650 x 4% = $346
Net Income:
Service Revenue $8,650
EXERCISE 5-16
a. FIFO
b. FIFO
c. FIFO
EXERCISE 5-17
Adams Co.
First Purchase
$ 950
Second Purchase
1,250
Total
$2,200
(a)
(b)
(c)
FIFO
LIFO
W. AVG.
Cost of Goods Sold
$ 950
$1,250
$1,100*
Ending Inventory
1,250
950
1,100*
*Average Cost per Unit: $2,200 2 = $1,100EXERCISE 5-18
Suggs Company
Inventory Purchases
5-8
Beginning Inventory
400
@
$50
=
$20,000
First Purchase
500
@
55
=
27,500
Second Purchase
600
@
58
=
34,800
Goods Available for Sale
1,500
$82,300
a. Cost of Goods Sold:
FIFO
Units
Cost per
Unit
Cost of Goods
Sold
From Beginning Inventory
400
@
$50
=
$20,000
From First Purchase
500
@
55
=
27,500
From Second Purchase
300
@
58
=
17,400
Total
1,200
$64,900
Ending Inventory: 300 units from Second Purchase @ $58 = $17,400
b. Cost of Goods Sold:
LIFO
Units
Cost per
Unit
Cost of Goods
Sold
From Second Purchase
600
@
$58
=
$34,800
From First Purchase
500
@
55
=
27,500
From Beginning Inventory
100
@
50
=
5,000
Total
1,200
$67,300
Ending Inventory: 300 units from Beginning Inventory @ $50 = $15,000
c.
Weighted Average:
Total Cost
Total Units
=
Cost per Unit
$82,300
1,500
=
$54.8667
Cost of Goods Sold
1,200 units
@
$54.8667
=
$65,840
Ending Inventory
300 units
@
$54.8667
=
$16,460
EXERCISE 5-19
a. (1) Baxter Company
FIFO
Sales (370 @ $30)
$11,100
5-9
Cost of Goods Sold:
From Beginning Inv.
90 units @ $15
=
$ 1,350
From Purchases
280 units @ $19
=
5,320
(6,670)
Gross Margin
$4,430
a. (2)
LIFO
Sales (370 @ $30)
$11,100
Cost of Goods Sold:
From Purchases
320 units @ $19
=
$6,080
From Beg. Inv.
50 units @ $15
=
750
(6,830)
Gross Margin
$4,270
a. (3)
Weighted Average
Sales (370 @ $30)
$11,100
Cost of Goods Sold:
Average Cost per Unit
370 @ $18.122*
=
$6,705
(6,705)
Gross Margin
$4,395
b. $160 ($4,430 − $4,270). The difference in net income would be the same as the
difference in gross margin, assuming there are no income tax
considerations.EXERCISE 5-19 (cont.)
c.
FIFO
LIFO
W. Avg.
Cash Flows From Operating Activities:
Cash Inflow from Customers
$11,100
$11,100
$11,100
Cash Outflow for Inventory
(6,080)
(6,080)
(6,080)
Net Cash Flow from Operating Act.
$5,020
$5,020
$5,020
5-10
Net cash flow from operating activities will be the same for all three methods because the
amount of cash from sales and the amount of cash paid for inventory is the same regardless
of the method of cost flow assumed. If the company were subject to income tax, the
amount of cash paid for tax expense would be different because the amount of taxable
income would be different.
EXERCISE 5-20
a.
Dugan Sales
Summary of Purchase Transactions
1/20
Purchased Units
80
@
$15
=
$ 1,200
4/21
Purchased Units
420
@
16
=
6,720
7/25
Purchased Units
250
@
20
=
5,000
9/19
Purchased Units
150
@
22
=
3,300
Available for Sale
900
$16,220
a. (1)
FIFO
Units
Cost
per Unit
Ending Inventory
From 9/19 Purchase
70
@
$22
=
$1,540
Total Ending Inventory
70
$1,540
a. (2)
LIFO
Units
Cost
per Unit
Ending Inventory
From 1/20 Purchase
70
@
$15
=
$1,050
Total Ending Inventory
70
$1,050
a. (3)
Weighted Average
Total Cost
Total Units
=
Cost per Unit
$16,220
900
=
$18*
Ending Inventory
70 units @ $18 =
$1,260
*roundedEXERCISE 5-20 (cont.)
B.
FIFO
Sales (830 units @ $40)
$33,200
Cost of Goods Sold
Cost of Goods Avail. for Sale*
$16,220
Less: Ending Inventory
(1,540)
Cost of Goods Sold
(14,680)
Gross Margin
$18,520
LIFO
Sales (830 units @ $40)
$33,200
Cost of Goods Sold
Cost of Goods Avail. for Sale*
$16,220
Less: Ending Inventory
(1,050)
Cost of Goods Sold
(15,170)
Gross Margin
$18,030
*This amount is computed in the Summary of Purchase Transactions at the beginning of the
problem.
Difference in Gross Margin: $18,520 − $18,030 = $490
Note to Instructor: Cost of goods sold can be computed on a units-sold basis rather than
5-12
FIFO
Sales (3,500 @ $50)
$175,000
Cost of Goods Sold:
From Beginning Inv.
300 units @ $25
=
$ 7,500
From 4/1 Purchase
2,800 units @ $30
=
84,000
From 10/1 Purchase
400 units @ $32
=
12,800
Cost of Goods Sold
(104,300)
Gross Margin
70,700
Operating Expenses
(21,000)
Income Before Tax
49,700
Income Tax Expense
($49,700 x 30%)
(14,910)