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Exercise 5-7 (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Merchandise Inventory .................................. 40,000
Accounts Payable .................................... 40,000
Purchased merchandise on credit.
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable ...................................... 40,000
Sales .......................................................... 40,000
Sold merchandise on account.
11 Cost of Goods Sold ......................................... 30,000
Merchandise Inventory ............................ 30,000
To record cost of sale.
21 Cash .................................................................. 37,442
Sales Discounts ............................................... 1,158
Accounts Receivable ............................... 38,600
Collected account receivable.
Exercise 5-8 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2012 ..............
25,000
Purchase discounts received ................................
1,700
Invoice cost of purchases ........
192,500
Purchase returns and allow. ................................
4,000
Returns by customers ..............
2,100
Cost of sales transactions ................................
196,000
Transportation-in ......................
2,900
Shrinkage ................................................................
800
Balance, Dec. 31, 2013
20,000
Cost of Goods Sold
Cost of sales transactions........
Inventory shrinkage
recorded in December 31,
2013, adjusting entry ..............
196,000
800
Returns by customers and
restored to inventory ................................
2,100
Balance, Dec. 31, 2013
194,700
Exercise 5-9 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense ................................... 1,700
Salaries Payable........................................ 1,700
To record accrued salaries.
Closing entries
Dec. 31 Sales .............................................................. 529,000
Income Summary ................................... 529,000
To close temporary accounts with
credit balances.
Dec. 31 Income Summary .......................................... 444,750
Sales Returns and Allowances ............. 17,500
Sales Discounts ..................................... 5,000
Cost of Goods Sold ($212,000 + $1,550) ..... 213,550
Dec. 31 K. Emiko, Capital ........................................... 33,000
K. Emiko, Withdrawals .......................... 33,000
To close the withdrawals account.
Exercise 5-10 (30 minutes)
Note: The original missing numbers are blocked.
(a)
(b)
(c)
(d)
(e)
Sales ............................
$62,000
$43,500
$46,000
$79,000
$25,600
Cost of goods sold
Merch. inv. (beg.) .......
8,000
17,050
7,500
8,000
4,560
Total cost of merch.
purchases .................
38,000
1,950
43,750
32,000
6,600
Merch. inv. (end.) .......
(11,950)
(3,000)
(9,000)
(6,600)
(4,160)
Cost of goods sold ....
34,050
16,000
42,250
33,400
7,000
Gross profit .................
27,950
27,500
3,750
45,600
18,600
Expenses .....................
10,000
10,650
12,150
3,600
6,000
Net income (loss) ........
$17,950
$16,850
$ (8,400)
$42,000
$12,600
Explanations:
a. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
available for sale. Find gross profit as the difference between the sales and cost of
goods sold. Find net income as the gross profit less the expenses.
Exercise 5-11 (20 minutes)
The employee’s oversight in omitting these goods from the physical count
would cause the cost of the physical count of ending inventory to be
understated. Therefore, the comparison of the perpetual inventory records
As a result of this error:
• Return on assets would be understated (numerator impact outweighs
the denominator impact).
Exercise 5-12 (20 minutes)
See the solution explanation in Exercise 5-11. As a result of this error:
Exercise 5-13 (15 minutes)
Case X
Case Y
Case Z
Current ratio computation
Current assets ........................
$5,200
$3,500
$7,300
Current liabilities ....................
$2,200
$1,200
$3,750
Current ratio ............................
2.36
2.92
1.95
Acid-test ratio computation
Cash .........................................
$2,000
$ 110
$1,000
Short-term investments .........
0
0
600
Current receivables ................
350
590
700
Quick assets ...........................
$2,350
$ 700
$2,300
Current liabilities ....................
$2,200
$1,200
$3,750
Acid-test ratio .........................
1.07
0.58
0.61
Interpretation:
Case X has the highest acid-test ratio and a healthy current ratio. Since Case
X has enough current assets to cover its current liabilities by more than two
times and enough liquid assets to cover its current liabilities by more than one
time, Case X appears to be in the best position to meet its short-term
obligations.
Specifically, Case Y exhibits the superior ability to meet current year
obligations using the current ratio and Case X has the superior ability to meet
Exercise 5-14 (20 minutes)
Perpetual
1)
Nov. 1 Merchandise Inventory ..................................... 1,500
Accounts Payable ...................................... 1,500
To record merchandise purchases on credit.
5)
Nov. 13 Accounts Receivable ........................................ 1,600
Sales ............................................................ 1,600
To record sale of merchandise on credit. ..........
Cost of Goods Sold ........................................... 800
Merchandise Inventory .............................. 800
To record cost of merchandise sold.
Exercise 5-15 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Sales (gross) ............................................................... $200,000
Exercise 5-16A (30 minutes)
Apr. 2 Purchases .......................................................... 4,600
Accounts Payable—Lyon .......................... 4,600
Purchased merchandise on credit.
17 Accounts Payable—Lyon ................................. 4,000
Purchases Discounts ................................ 80
Cash ............................................................ 3,920
Paid balance (less 2%) within discount period.
Received an allowance on purchase.
28 Accounts Payable—Frist .................................. 7,400
Purchases Discounts ................................ 148
Cash ............................................................ 7,252
Paid balance (less 2%) within discount period.
Exercise 5-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases ......................................................... 24,000
Accounts Payable ..................................... 24,000
Purchased merchandise on credit.
Cash Payment
2. SELLER – Mesa Company
Credit Sale
Accounts Receivable ....................................... 24,000
Sales ........................................................... 24,000
Sold merchandise on account.
Cash Collection
Exercise 5-18A (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Purchases ........................................................ 40,000
Accounts Payable .................................... 40,000
Purchased merchandise on credit.
20 Accounts Payable ........................................... 38,600
Purchases Discounts .............................. 1,158
Cash .......................................................... 37,442
Paid balance within the 3% discount period.
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable ...................................... 40,000
Sales .......................................................... 40,000
Sold merchandise on account.
Exercise 5-19A (20 minutes)
Periodic Inventory System
1)
Nov. 1 Purchases .......................................................... 1,500
Accounts Payable ...................................... 1,500
To record purchases on credit.
2)
Nov. 5 Accounts Payable ............................................. 1,500
Purchases Discount* ................................. 30
4)
Nov. 10 Transportation-In ............................................... 90
Cash ............................................................ 90
To record payment of freight charges.
Exercise 5-20 (20 minutes)
L´Oréal
Income Statement (€ millions)
For Year Ended December 31, 2011
Net sales ................................................................................... €20,343.1
Cost of sales ............................................................................. 5,851.5
Gross profit.......................................................................... 14,491.6
Research and development expense .................................... (720.5)
Advertising and promotion expense...................................... (6,291.6)
PROBLEM SET A
Problem 5-1A (40 minutes)
July 1 Merchandise Inventory ..................................... 6,000
Accounts Payable—Boden ....................... 6,000
Purchased goods on credit, terms 1/15, n/30.
8 Cash .................................................................... 1,700
Sales ............................................................ 1,700
Sold goods for cash.
8 Cost of Goods Sold ........................................... 1,300
Merchandise Inventory .............................. 1,300
To record cost of the July 8 sale.
12 Cash .................................................................... 882
Sales Discounts (2%) ........................................ 18
Accounts Receivable—Creek ................... 900
Collected receivable within the discount period.
Problem 5-1A (Concluded)
July 16 Accounts Payable—Boden ............................... 6,000
Merchandise Inventory (1%) ..................... 60
Cash ............................................................ 5,940
Paid payable within discount period.
21 Sales Returns and Allowances ........................ 200
Accounts Receivable—Art ........................ 200
Issued credit memo for allowance on
goods sold to customer.
24 Accounts Payable—Leight ............................... 2,000
Merchandise Inventory * ........................... 40
Cash ............................................................ 1,960
Paid payable in discount period (*2% x $2,000).
31 Cost of Goods Sold ........................................... 4,800
Merchandise Inventory .............................. 4,800
To record cost of the July 31 sale.
Problem 5-2A (40 minutes)
Aug. 1 Merchandise Inventory ..................................... 7,500
Accounts Payable—Arotek ....................... 7,500
Purchased goods on credit, terms 1/10, n/30.
8 Merchandise Inventory ..................................... 5,540
Accounts Payable—Waters ...................... 5,540
Purchased goods on credit, terms 1/10, n/45.
9 Delivery Expense ............................................... 125
Cash ............................................................ 125
Paid shipping charges on August 5 sale.
12 Accounts Payable—Waters .............................. 700
Merchandise Inventory .............................. 700
Received a credit memorandum for August 8
purchase.
