4-155
PROBLEM 4-28B (cont.) (Appendix)
b. Multistep income statement
Hogan Sales Co.
Income Statement
For the Year Ended December 31, 2016
Sales
Sales Revenue
$640,000
Sales Returns and Allowances
(16,000)
Net Sales
$624,000
Cost of Goods Sold
(302,800)
Gross Margin
321,200
Operating Expenses
Miscellaneous Expense
$ 1,600
Transportation-out
21,600
Advertising Expense
20,800
Salaries Expense
106,000
Rent Expense
36,000
Utilities Expense
22,400
Total Operating Expenses
(208,400)
Operating Income
112,800
Non-Operating Items
Interest Expense
(10,000)
Gain on Sale of Land
8,000
Net Income
$110,800
4-156
PROBLEM 4-28B (cont.) (Appendix)
c. Single-step income statement
Hogan Sales Co.
Income Statement
For the Year Ended December 31, 2016
Sales
Sales Revenue
$640,000
Sales Returns and Allowances
(16,000)
Net Sales
Operating Expenses
Cost of Goods Sold
$302,800
Miscellaneous Expense
1,600
Transportation-out
21,600
Advertising Expense
20,800
Salaries Expense
106,000
Rent Expense
36,000
Utilities Expense
22,400
Total Cost and Expenses
(511,200)
Nonoperating Items
Interest Expense
$(10,000)
Gain on Sale of Land
8,000
Net Income
4-157
PROBLEM 4-29B (Appendix)
a.
Simmons Hardware
General Journal, 2016
Event
Account Titles
Debit
Credit
1.
Land
16,000
Cash
16,000
2.
Purchases
46,000
Accounts Payable
46,000
3.
Transportation-in
460
Cash
460
4.
Accounts Payable
4,000
Purchase Returns and Allow.
4,000
5.
Cash
54,000
Sales Revenue
54,000
6.
Accounts Receivable
100,000
Sales Revenue
100,000
7a.
Accounts Payable [$46,000 – $4,000) x .02]
840
Purchase Discounts
840
7b.
Accounts Payable ($46,000 – $4,000 – $840)
41,160
Cash
41,160
8.
Selling Expenses
2,400
Cash
2,400
9a.
Sales Discounts ($70,000 x .01)
700
Accounts Receivable
700
9b.
Cash ($70,000 − $700)
69,300
Accounts Receivable
69,300
4-158
PROBLEM 4-29B a. (cont.)
Simmons Hardware
General Journal, 2016
Event
Account Titles
Debit
Credit
10.
Cash
24,000
Accounts Receivable
24,000
11.
Operating Expenses
6,400
Cash
6,400
12.
Cost of Goods Sold1
101,620
Merchandise Inventory (Ending)
60,000
Purchase Discounts
840
Purchase Returns and Allowances
4,000
Purchases
46,000
Transportation-in
460
Merchandise Inventory (Beginning)
120,000
4-159
PROBLEM 4-29B (cont.) b.
Simmons Hardware
Cash
Accounts Payable
Common Stock
Bal.
28,000
1.
16,000
4.
4,000
Bal.
10,000
Bal.
140,000
5.
54,000
7a.
840
2.
46,000
9b.
69,300
3.
460
7b.
41,160
Retained Earnings
10.
24,000
7b.
41,160
Bal.
10,000
Bal.
16,000
8.
2,400
11.
6,400
Sales Revenue
Bal.
108,880
5.
54,000
6.
100,000
Bal.
154,000
Accounts Receivable
Bal.
18,000
9a.
700
Sales Discounts
6.
100,000
9b.
69,300
9a.
700
10.
24,000
Bal.
700
Bal.
24,000
Purchases
Merchandise Inventory
2.
46,000
12.
46,000
Bal.
120,000
Bal.
-0-
12.
60,000
12.
120,000
Bal.
60,000
Purchase Returns & Allow.
12.
4,000
4.
4,000
Land
Bal.
-0-
1.
16,000
Bal.
16,000
Purchase Discounts
12.
840
7a.
840
Bal.
-0-
Transportation-in
3.
460
12.
460
Bal.
-0-
Cost of Goods Sold
12.
101,620
Bal.
101,620
Selling Expenses
8.
2,400
Bal.
2,400
Other Operating Expense
11.
6,400
4-160
Bal.
6,400
4-7
PROBLEM 4-29B (cont.)
c.
Simmons Hardware
Schedule of Cost of Goods Sold
For the Year Ended December 31, 2016
Beginning Mdse. Inventory
1/1/2016
$120,000
Purchases
46,000
Purchase Discounts
(840)
Purchase Returns and Allow.
(4,000)
Transportation-in
460
Cost of Goods Available for Sale
$161,620
Ending Merchandise Inventory
(60,000)
Cost of Goods Sold
$101,620
4-8
PROBLEM 4-29B c. (cont.)
Simmons Hardware
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Revenue
Sales Revenue
$154,000
Sales Discounts
(700)
Net Sales
$153,300
Cost of Goods Sold
(101,620)
Gross Margin
51,680
Operating Expenses
Selling Expenses
$ 2,400
Other Operating Expense
6,400
Total Operating Expense
(8,800)
Net Income
$42,880
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$140,000
Plus: Stock Issued
-0-
Ending Common Stock
$140,000
Beginning Retained Earnings
$ 16,000
Plus: Net Income
42,880
Ending Retained Earnings
58,880
Total Stockholders’ Equity
$198,880
4-9
PROBLEM 4-29B c. (cont.)
Simmons Hardware
Balance Sheet
As of December 31, 2016
Assets
Cash
$108,880
Accounts Receivable
24,000
Merchandise Inventory
60,000
Land
16,000
Total Assets
$208,880
Liabilities
Accounts Payable
$ 10,000
Total Liabilities
$ 10,000
Stockholders’ Equity
Common Stock
140,000
Retained Earnings
58,880
Total Stockholders’ Equity
198,880
Total Liab. and Stk. Equity
$208,880
4-10
PROBLEM 4-29B c. (cont.)
Simmons Hardware
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Inflow from Customers1
$147,300
Outflow for Inventory2
(41,620)
Outflow for Expenses3
(8,800)
Net Cash Flow from Operating Activities
$ 96,880
Cash Flows From Investing Activities:
Outflow for Purchase of Land
(16,000)
Net Cash Flow from Investing Activities
(16,000)
Cash Flows From Financing Activities:
Net Cash Flow from Financing Activities
-0-
Net Change in Cash
80,880
Plus: Beginning Cash Balance
28,000
Ending Cash Balance
$108,880
1(5) $54,000 + (9b) $69,300 + (10) $24,000 = $147,300
2(3) $460 + (7b) $41,160 = $41,620
3(8) $2,400 + (11) $6,400 = $8,800
4-11
ANSWERS TO QUESTIONS – CHAPTER 4
1. Merchandise inventory is finished goods that are held for sale to
2. Product costs are costs associated with goods for resale, usually
3. Cost of goods available for sale is the total of inventory on hand at the
4. The cost of the items that have not been sold are allocated to
5. Period costs are expensed in the period they are incurred or used.
sold.
6. Net Sales $600,000
Cost of Goods Sold (375,000)
7. Under a perpetual inventory system, the balance in the inventory
4-12
continual basis. Another advantage of the perpetual method is that it
allows for better internal control of inventory.
8. a. Assets increase, stockholders’ equity increases – The balance sheet,
statement of cash flows, and statement of changes in stockholders’
equity are affected.
b. Assets increase, stockholders’ equity increases – This is similar to
9. Assets would both increase and decrease (cash increases by $20,000
affected.
10. Shipping cost of goods shipped FOB shipping point will be paid by the
4-13
11. Transportation-in is the cost of freight and shipping charges on goods
12. The $80 transportation-in is a product cost and is debited to the
13. When allowances are granted it is usually because the customer
received inferior or damaged merchandise. When granting an
14. 2/10 n/30 means that a 2% discount may be taken off the selling price if
15. If the $5,000 is for the purchase of inventory, this is an asset exchange
in that inventory is increased and cash is decreased. A $5,000
16. Credit terms are offered to customers to encourage prompt payment.
17. Transportation-out is the freight or shipping cost on goods sold. It is a
18. The inventory account will be debited by the gross amount of $4,000.
.02).
19. Gains are increases in assets or decreases in liabilities which result
4-14
20. Losses are decreases in assets or increases in liabilities which result
business.
21. The only amount that would be shown on the Statement of Cash Flows
22. Purchase returns refer to the situation where the buyer of the goods
returns them. Sales returns refer to the situation where goods sold by
the seller are returned to the seller. Generally a sales return on the
seller’s books is a purchase return on the buyer’s books. Sales returns
23. Net sales is gross sales less sales returns and allowances and less
24. The multistep income statement provides more information on the
results of various business activities. A gross margin is shown and
25. Common size income statements covering several accounting periods
4-15
percentage of sales. Comparison of common size income statements
action.
26. The net income percentage, (return on sales ratio) is the amount of net
27. When using the periodic method of accounting for inventory, the
28. When using the periodic inventory system, a temporary account,
Purchases, is used to accumulate the purchases transactions for the
year. Inventory is not adjusted until the end of the accounting period.
At the end of the accounting period, inventory is physically counted
and cost of goods sold is determined by adding beginning inventory
4-16
29. The periodic inventory system does not separate the cost of lost,
4-17
Note to Instructors: In this chapter the term “net sales” is used in the
income statement for all exercises and problems using the perpetual
EXERCISE 4-1A
a.
Hopkins CPAs
Income Statement
For the Year Ended December 31, 2016
Revenue
Service Revenue
$50,000
Expenses
Salaries Expense
(32,000)
Net Income
$18,000
Hopkins CPAs
Balance Sheet
As of December 31, 2016
Assets
Cash*
$108,000
Total Assets
$108,000
Liabilities
Notes Payable
$90,000
Total Liabilities
$90,000
Stockholders’ Equity
Retained Earnings
$18,000
Total Stockholders’ Equity
18,000
4-18
Total Liab. and Stockholders’ Equity
$108,000
4-19
EXERCISE 4-1A a. (cont.)
Hopkins CPAs
Statement of Cash Flows
For Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Inflow from Clients
$50,000
Cash Outflow for Salaries
(32,000)
Net Cash Flow from Operating Activ.
$18,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash Inflow from Loan
$90,000
Net Cash Flow from Financing Activ.
90,000
Net Increase in Cash
108,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$108,000
EXERCISE 4-1A a. (cont.)
Sports Clothing
Income Statement
For the Year Ended December 31, 2016
Net Sales Revenue
$50,000
Cost of Goods Sold
(26,000)
Gross Margin
24,000
Expenses
Operating Expenses
(8,000)
Net Income
$16,000
Assets
Cash*
$82,000
Merchandise Inventory**
Total Assets
Liabilities
Notes Payable
$90,000
Retained Earnings
$16,000
Total Liab. and Stockholders’ Equity