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Exercise 4-7 (30 minutes)
1. BUYER- Santa Fe Company
a) Credit Purchase
Merchandise Inventory .................................... 24,000
2. SELLER – Mesa Company
a) Credit Sale
Accounts Receivable ....................................... 24,000
Sales ........................................................... 24,000
3. Amount borrowed to pay with discount ....................... $ 23,280
Annual rate of interest ................................................... x 8%
Exercise 4-8 (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.
Exercise 4-9 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2014 ..............
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, 2015
20,000
Cost of Goods Sold
Cost of sales transactions........
Inventory shrinkage
recorded in December 31,
2015, adjusting entry ..............
196,000
800
Returns by customers and
restored to inventory ................................
2,100
Balance, Dec. 31, 2015
194,700
Exercise 4-10 (20 minutes)
Perpetual
1)
Nov. 1 Merchandise Inventory ..................................... 1,500
2)
Nov. 5 Accounts Payable ............................................. 1,500
3)
Nov. 7 Cash .................................................................... 196
4)
Nov. 10 Merchandise Inventory ..................................... 90
5)
Nov. 13 Accounts Receivable ........................................ 1,600
Sales ............................................................ 1,600
6)
Nov. 16 Sales Returns and Allowances ........................ 300
Accounts Receivable ................................. 300
To record return of merchandise sold on credit.
Exercise 4-11 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense ................................... 1,700
Salaries Payable........................................ 1,700
To record accrued salaries.
To record inventory shrinkage
($30,000 - $28,450).
Closing entries
Dec. 31 Sales .............................................................. 529,000
Income Summary ................................... 529,000
Cost of Goods Sold ($212,000 + $1,550) ..... 213,550
Sales Salaries Exp. ($48,000 + $1,700) ........ 49,700
Utilities Expense .................................... 15,000
Selling Expenses ($36,000 + $3,000) ........... 39,000
Administrative Expenses ...................... 105,000
Dec. 31 Retained Earnings ......................................... 33,000
Dividends ................................................ 33,000
To close the dividends account.
Exercise 4-12 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Exercise 4-13 (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
Exercise 4-14 (20 minutes)
See the solution explanation in Exercise 4-13. As a result of this error:
Exercise 4-15 (15 minutes)
Case X
Case Y
Case Z
Current ratio computation
Current assets ........................
$5,200
$3,500
$7,410
Current liabilities ....................
$2,000
$1,000
$3,800
Current ratio ............................
2.60
3.50
1.95
Acid-test ratio computation
Cash .........................................
$2,000
$ 110
$1,000
Short-term investments .........
50
0
580
Current receivables ................
350
470
700
Quick assets ...........................
$2,400
$ 580
$2,280
Current liabilities ....................
$2,000
$1,000
$3,800
Acid-test ratio .........................
1.20
0.58
0.60
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.
Exercise 4-16A (30 minutes)
Apr. 2 Purchases .......................................................... 4,600
Accounts Payable—Lyon .......................... 4,600
Purchased merchandise on credit.
3 Transportation-In ............................................... 300
Cash ............................................................ 300
Paid shipping charges on purchased
merchandise.
Exercise 4-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases ......................................................... 24,000
2. SELLER – Mesa Company
Credit Sale
Accounts Receivable ....................................... 24,000
Exercise 4-18A (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Purchases ........................................................ 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
Exercise 4-19A (20 minutes)
Periodic Inventory System
1)
Nov. 1 Purchases .......................................................... 1,500
2)
Nov. 5 Accounts Payable ............................................. 1,500
Purchases Discount* ................................. 30
3)
Nov. 7 Cash .................................................................... 196
Purchases Returns and Allowances* ...... 196
4)
Nov. 10 Transportation-In ............................................... 90
5)
Nov. 13 Accounts Receivable ........................................ 1,600
6)
Nov. 16 Sales Returns and Allowances ........................ 300
Exercise 4-20 (20 minutes)
L´Oréal
Income Statement (€ millions)
For Year Ended December 31, 2013
Net sales ................................................................................... €22,976.6
Cost of sales ............................................................................. 6,601.8
Gross profit.......................................................................... 16,374.8
PROBLEM SET A
Problem 4-1A (40 minutes)
July 1 Merchandise Inventory ..................................... 6,000
Accounts Payable—Boden ....................... 6,000
Purchased goods on credit, terms 1/15, n/30.
2 Accounts Receivable—Creek........................... 900
3 Merchandise Inventory ..................................... 125
Cash ............................................................ 125
Paid freight on incoming goods.
8 Cash .................................................................... 1,700
Sales ............................................................ 1,700
Accounts Payable—Leight ....................... 2,200
Purchased goods on credit, terms 2/15, n/60.
11 Accounts Payable—Leight ............................... 200
Merchandise Inventory .............................. 200
Received credit memo from returning
Problem 4-1A (Concluded)
July 16 Accounts Payable—Boden ............................... 6,000
Merchandise Inventory (1%) ..................... 60
Cash ............................................................ 5,940
Paid payable within discount period.
To record cost of the July 19 sale.
21 Sales Returns and Allowances ........................ 200
Accounts Receivable—Art ........................ 200
Issued credit memo for allowance on
goods sold to customer.
Sales Discounts (2%)* ....................................... 20
Accounts Receivable—Art ........................ 1,000
Collected receivable within discount period.
*([$1,200 - $200] x .02)
31 Accounts Receivable—Creek........................... 7,000
Problem 4-2A (40 minutes)
Aug. 1 Merchandise Inventory ..................................... 7,500
Accounts Payable—Arotek ....................... 7,500
Purchased goods on credit, terms 1/10, n/30.
Cost of Goods Sold ................................... 400
Returned goods to inventory.
12 Accounts Payable—Waters .............................. 700
Merchandise Inventory .............................. 700
