Problem 5-3B (Continued)
Part 2 Multiple-step income statement
FOSTER PRODUCTS COMPANY
Income Statement
For Year Ended October 31, 2013
Sales ………………………………………………………………. $227,100
Less: Sales discounts …………………………………….. $ 1,000
Sales returns and allowances ………………… 5,000 6,000
Expenses
Selling expenses
Depreciation expense—Store equipment ……… 3,000
Sales salaries expense** ……………………………… 31,500
Rent expense—Selling space**…………………….. 13,000
General and administrative expenses
Insurance expense ………………………………………. 2,800
Office salaries expense** ……………………………… 31,500
Rent expense—Office space** ……………………… 13,000
Total general and administrative expenses …… 47,300
Part 3 Single–step income statement
FOSTER PRODUCTS COMPANY
Income Statement
For Year Ended October 31, 2013
Net sales …………………………………………………………. $221,100
Expenses
Cost of goods sold ……………………………………… $78,500
Problem 5-3B (Concluded)
Part 4
Current assets
Cash ……………………………………………………….……….. $ 7,400
Merchandise inventory …………………………………….. 21,300
Store supplies ………………………………………………….. 3,700
*$6,600 – $2,800 = $3,800
Quick assets (Cash in this case) …………………………. $ 7,400
Current liabilities ………………………………………………… $ 18,000
Acid-test ratio ($7,400 / $18,000) ……………………………… 0.41
Problem 5-4B (40 minutes)
1.
Net sales
Sales ………………………………………………………………………
$332,650
Less: Sales discounts ………………………………………….…
(5,875)
Sales returns and allowances ……………………..…
(20,000)
Net sales ……………………………………………………………..…
$306,775
2.
Cost of merchandise purchased
Invoice cost of merchandise purchases ………………..…
$138,500
Purchase discounts received ……………………………….…
(2,950)
Purchase returns and allowances …………………………..
(6,700)
Costs of transportation–in …………………………..………..…
5,750
Total cost of merchandise purchases …………………..…
$134,600
Problem 5-4B (Continued)
3. Multiple-step income statement
BARKLEY COMPANY
Income Statement
For Year Ended March 31, 2013
Sales ………………………………………………………….. $332,650
Less: Sales discounts ……………………………….. $ 5,875
Sales returns and allowances …………… 20,000 25,875
Expenses
Selling expenses
Sales salaries expense ……………………………. 44,500
Rent expense—Selling space ………………….. 16,000
Total general and administrative expenses 45,650
Total expenses …………………………………………… 136,000
Net income …………………………………………………. $ 55,175
*Cost of goods sold (alternative computation):
Problem 5-4B (Concluded)
4. Single-step income statement
BARKLEY COMPANY
Income Statement
For Year Ended March 31, 2013
Net sales ………………………………………………………. $306,775
Expenses
Cost of goods sold ……………………………………. $115,600
*From Part 3.
Problem 5-5B (30 minutes)
Part 1
Closing entries
March 31 Sales ………………………………………………………… 332,650
Income Summary …………………………………… 332,650
To close temporary accounts with credit balances.
March 31 Income Summary …………………………..…………… 277,475
Sales Discounts ……………………………………. 5,875
Sales Returns and Allowances ………………. 20,000
Cost of Goods Sold ……………………………….. 115,600
Office Supplies Expense ………………………… 1,100
To close temporary accounts with debit balances.
March 31 Income Summary …………………………..…………… 55,175
C. Barkley, Capital …………………………………. 55,175
To close the Income Summary account.
Problem 5-5B (Concluded)
Part 2
The first step is to determine the amount of purchases that were subject to
a discount during the year:
Invoice cost of merchandise purchases ……………………… $138,500
This amount is used to determine the maximum discount, which is then
compared to the actual discount:
Maximum discount available (3% x $131,800) ……………… $ 3,954
As a percent of available discounts ($1,004/$3,954) ………….. 25.4%
This analysis suggests that about 25% of available discounts have been
missed. As a result, it would appear that cash is not being well managed.
Management should try to identify a better system for ensuring that all
Part 3
First, we compute this year’s sales returns and allowances rate:
Sales …………………………………………………………………………. $332,650
This calculation shows that the company’s customers are returning or
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Solutions Manual, Chapter 5
337
Problem 5-6BB (50 minutes)
FOSTER PRODUCTS COMPANY
Work Sheet
For Year Ended October 31, 2013
Unadjusted
Trial Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Balance Sheet
Account Title
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash ………………………………………………………
7,400
7,400
7,400
Merchandise inventory ……………….……
24,000
(d)
2,700
21,300
21,300
Store supplies ………………………………..……
9,700
(a)
6,000
3,700
3,700
Prepaid insurance ………………………..…
6,600
(b)
2,800
3,800
3,800
Store equipment …………………………...……
81,800
81,800
81,800
Accum. depreciation—Store eq ………….
32,000
(c)
3,000
35,000
35,000
Accounts payable ………………………..…
18,000
18,000
18,000
D. Foster, Capital …………………………..
43,000
43,000
43,000
D. Foster, Withdrawals ………………..……
2,000
2,000
2,000
Sales ………………………………………………..……
227,100
227,100
227,100
Sales discounts …………………………….……
1,000
1,000
1,000
Sales returns and allowances …………
5,000
5,000
5,000
Cost of goods sold ……………………….….
75,800
(d)
2,700
78,500
78,500
Depreciation expense—Store eq ……….
0
(c)
3,000
3,000
3,000
Salaries expense …………………………..
63,000
63,000
63,000
Insurance expense ……………………….….
0
(b)
2,800
2,800
2,800
Rent expense ………………………………………
26,000
26,000
26,000
Store supplies expense ……………………
0
(a)
6,000
6,000
6,000
Advertising expense …………………………
17,800
______
_____
_____
17,800
______
17,800
______
______
______
Totals …………………………..…………………..……
320,100
320,100
14,500
14,500
323,100
323,100
203,100
227,100
120,000
96,000
Net income ……………………………………..……
24,000
______
______
24,000
Totals …………………………..…………………..……
227,100
227,100
120,000
120,000
SERIAL PROBLEM — SP 5
Serial Problem — SP 5, Success Systems (150 minutes) Part 1
Journal entries
Jan. 4 Wages Expense ……………………………………….623 125
Wages Payable ………………………………………..210 500
Cash …………………………………………………101 625
Paid employee.
Collected accounts receivable.
11 Accounts Receivable—Alex’s Eng. Co …………106.1 5,500
Unearned Computer Services Revenue ……….236 1,500
Computer Services Revenue ……………..403 7,000
Completed work on project.
13 Accounts Receivable—Liu Corp. ……………….106.5 5,200
Sales …………………………………………………413 5,200
Sold merchandise on credit.
Serial Problem — SP 5 (Continued)
Jan. 17 Accounts Payable ……………………………………201 5,800
20* Sales Returns and Allowances …………………414 500
Accounts Receivable—Liu Corp. ………..106.5 500
22 Cash ………………………………………………………..101 4,653
Sales Discounts ……………………………………….415 47
Accounts Receivable—Liu Corp …………106.5 4,700
24 Accounts Payable ……………………………………201 496
26 Merchandise Inventory …………………………….119 9,000
26 Accounts Receivable—KC, Inc ………………….106.8 5,800
26 Cost of Goods Sold ………………………………….502 4,640
29 No entry recorded in the journal.
31 Wages Expense ……………………………………….623 1,250
Cash …………………………………………………101 1,250
Paid employee wages.
Serial Problem — SP 5 (Continued)
3 Accounts Payable ……………………………………201 8,504
Merchandise Inventory ………………………119 90
Cash …………………………………………………101 8,414
5 Advertising Expense ………………………………..655 600
11 Cash ………………………………………………………..101 5,500
15 A. Lopez, Withdrawals ………………………………302 4,800
23 Accounts Receivable—Delta Co. ……………….106.7 3,220
23 Cost of Goods Sold ………………………………….502 2,660
26 Wages Expense ……………………………………….623 1,000
27 Mileage Expense ……………………………………..676 192
Cash …………………………………………………101 192
Serial Problem — SP 5 (Continued)
9 Cash ………………………………………………………..101 3,220
11 Repairs Expense–Computer …………………….684 960
Cash …………………………………………………101 960
Paid for computer repairs.
25 Accounts Receivable—Wildcat Services ……….. 106.2 2,800
Sales …………………………………………………413 2,800
Sold merchandise on credit.
25 Cost of Goods Sold ………………………………….502 2,002
30 Accounts Receivable—IFM Co. …………………106.4 2,220
30 Cost of Goods Sold ………………………………….502 1,100
31 Mileage Expense ……………………………………..676 128
Cash …………………………………………………101 128
Reimbursed Lopez for business mileage.
Fundamental Accounting Principles, 21st Edition
342
Serial Problem — SP 5 (Continued)
Part 2
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 58,160
Jan. 4 625 57,535
5 25,000 82,535
9 2,668 85,203
15 600 84,603
16 4,000 88,603
16 5,260 81,803
19 3,830 77,973
31 128 77,845
Accounts Receivable—Alex’s Engineering Co. Acct. No. 106.1
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 0
Feb. 11 5,500 0
Accounts Receivable—Wildcat Services Acct. No. 106.2
Date Explanation PR Debit Credit Balance
Serial Problem — SP 5 (Continued)
Accounts Receivable—Easy Leasing Acct. No. 106.3
Date Explanation PR Debit Credit Balance
Accounts Receivable—IFM Co. Acct. No. 106.4
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 3,000
Mar. 30 2,220 5,220
Accounts Receivable—Liu Corporation Acct. No. 106.5
Date Explanation PR Debit Credit Balance
Accounts Receivable—Gomez Co. Acct. No. 106.6
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 2,668
Jan. 9 2,668 0
Accounts Receivable—Delta Co. Acct. No. 106.7
Date Explanation PR Debit Credit Balance
Mar. 9 3,220 0
Accounts Receivable—KC, Inc. Acct. No. 106.8
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 0
Jan. 26 5,800 5,800
Serial Problem — SP 5 (Continued)
Accounts Receivable—Dream, Inc. Acct. No. 106.9
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 0
Merchandise Inventory Acct. No. 119
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 0
Jan. 7 5,800 5,800
13 3,560 2,240
15 600 2,840
17 58 2,782
Computer Supplies Acct. No. 126
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 580
Mar. 8 2,730 3,310
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 1,665
Prepaid Rent Acct. No. 131
Office Equipment Acct. No. 163
Date Explanation PR Debit Credit Balance
Serial Problem — SP 5 (Continued)
Accumulated Depreciation—Office Equipment Acct. No. 164
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 400
Computer Equipment Acct. No. 167
Accounts Payable Acct. No. 201
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 1,100
Jan. 7 5,800 6,900
17 5,800 1,100
Wages Payable Acct. No. 210
Date Explanation PR Debit Credit Balance
Dec. 31 Balance 500
Jan. 4 500 0
Unearned Computer Services Revenue Acct. No. 236
Date Explanation PR Debit Credit Balance