Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 4 Solution Manual Part 1

March 26, 2020
Chapter 4
Accounting for Merchandising
Operations
QUESTIONS
1. Merchandising companies report Merchandise Inventory on the balance sheet,
2. Additional accounts of a merchandising company likely include Merchandise
3. A company can have a net loss if its expenses (absent cost of goods sold) are
greater than its gross profit from sales of merchandise.
4. A cash discount can be offered to encourage customers to promptly pay. This
5. For a perpetual inventory system, inventory shrinkage is determined by taking a
6. Cash discounts are granted in return for early payment and reduce the amount paid
below the negotiated price. Cash discounts are recorded in the accounting records
7. Sales discount is a term used by a seller to describe a cash discount granted to a
8. A manager is concerned about the quantity of its purchase returns because the
9. The sender (maker) of a debit memorandum records a debit in an account of the
recipient; and the recipient records a credit in an account maintained for the sender.
10. The single-step income statement format presents cost of goods sold and expenses
in one list, totals the list, and subtracts the total from net sales in one step. The
11. Apple calls its inventory account “Inventories.” A detailed calculation of cost of
goods sold is not presented by Apple.
12. Google titles its cost of sales accounts as “Cost of revenues” Google presents
13. Samsung titles its cost of goods sold account “Cost of sales.”
14. Samsung reports a separate gross margin figure on its consolidated income
QUICK STUDIES
Quick Study 4-1 (10 minutes)
1. G. 6. H.
Quick Study 4-2 (5 minutes)
Answer: d
Quick Study 4-3 (15 minutes)
Computation of net income:
Krug Service Co.
Revenues ...................................................
$14,000
Quick Study 4-4 (15 minutes)
Nov. 5 Merchandise Inventory ..................................... 6,000
Accounts Payable ..................................... 6,000
Quick Study 4-5 (10 minutes)
a)
Aug. 1 Merchandise Inventory ...................................... 60,000
Accounts Payable ...................................... 60,000
Quick Study 4-6 (10 minutes)
a)
Sept. 15 Merchandise Inventory ...................................... 35,000
Quick Study 4-7 (10 minutes)
Apr. 1 Accounts Receivable ..................................... 3,000
Sales ....................................................... 3,000
To record credit sale.
Quick Study 4-8 (10 minutes)
July 31 Cost of Goods Sold .................................... 1,900
Quick Study 4-9 (10 minutes)
July 31 Sales .............................................................. 160,200
Income Summary ................................. 160,200
To close temporary accounts with credit balances.
Quick Study 4-10 (10 minutes)
1. a
Quick Study 4-11 (10 minutes)
Acid-test ratio = ($1,490 + $2,800) / ($5,750 + $850) = 0.65
Quick Study 4-12 (10 minutes)
Similarities: Both the acid-test ratio and current ratio are used to assess
liquidity. Both ratios are computed with current liabilities as the denominator.
Differences: The current ratio includes all current assets in the numerator.
Quick Study 4-13 (10 minutes)
(a)
(b)
(d)
Sales ............................................
$150,000
$550,000
$255,700
Sales discounts ..........................
(5,000)
(17,500)
(4,800)
Quick Study 4-14 (20 minutes)
1. Multiple-step income statement
adidas Group
Income Statement (€ millions)
For Year Ended December 31, 2013
2. Single-step income statement
adidas Group
Income Statement (€ millions)
For Year Ended December 31, 2013
Revenues
Quick Study 4-15A (5 minutes)
a. Periodic inventory system
Quick Study 4-16A (10 minutes)
Nov. 5 Purchases ........................................................... 6,000
Accounts Payable ...................................... 6,000
Quick Study 4-17A (10 minutes)
Apr. 1 Accounts Receivable ........................................ 3,000
Sales .......................................................... 3,000
To record credit sale.
Quick Study 4-18 (10 minutes)
a. Both U.S. GAAP and IFRS include broad and similar guidance for the
accounting of merchandise purchases and sales.
EXERCISES
Exercise 4-1 (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
purchases .................
38,000
1,950
43,750
32,000
6,600
Merch. inv. (end.) .......
(11,950)
(3,000)
(9,000)
(6,600)
(4,160)
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.
b. Find total cost of merchandise purchases by finding the number that makes the total
equal the cost of goods sold. Find gross profit from sales less cost of goods sold.
Exercise 4-2 (10 minutes)
Operating cycle of a merchandiser with credit sales follows (chronological):
Exercise 4-3 (20 minutes)
In today’s competitive world, organizations must concentrate on meeting their
customers’ needs and avoiding dissatisfaction. If these needs are not met
and dissatisfaction grows, the customers will deal with other companies or
entities. One measure of dissatisfaction of customers is the amount of sold
goods that are later returned. Customer dissatisfaction needs to be
understood and then dealt with promptly to encourage them to remain loyal.
The reasons for the return also need to be determined to allow the problem to
be avoided in the future. For example, the returns might arise from product
defects, shipping damage, misleading information provided at the time of sale,
or fickle customers.
Exercise 4-4 (30 minutes)
Apr. 2 Merchandise Inventory ..................................... 4,600
Accounts PayableLyon .......................... 4,600
Purchased merchandise on credit.
Merchandise Inventory ............................. 1,100
Received an allowance on purchase.
Exercise 4-5 (30 minutes)
May 5 Accounts Receivable ....................................... 21,000
Sales ........................................................... 21,000
Sold merchandise on credit (1,500 x $14).
mis-colored merchandise [$120 + (40 x $14)].
Exercise 4-6 (15 minutes)
May 5 Merchandise Inventory .................................... 21,000
Accounts Payable ..................................... 21,000
Purchased merchandise on credit (1,500 x $14).
a.

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