Chapter 04 – Reporting and Analyzing Merchandising Operations
Exercise 4-13 (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
Exercise 4-14 (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 4-17A (30 minutes)
1. BUYER – Santa Fe Company
Credit Purchase
Purchases ………………………………………………… 24,000
2. SELLER – Mesa Company
Credit Sale
Accounts Receivable ………………………………… 24,000
Exercise 4-19A (20 minutes)
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
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Financial Accounting, 7th Edition
28
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
Sold goods for cash.
8 Cost of Goods Sold ……………………………………. 1,300
Merchandise Inventory ………………………… 1,300
To record cost of the July 8 sale.
9 Merchandise Inventory ………………………………. 2,200
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.
5 Accounts Receivable—Laird ………………………. 5,200