4-21
EXERCISE 4-1Aa. (cont.)
Sports Clothing
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Inflow from Customers
50,000
Cash Outflow for Inventory
(50,000)
Cash Outflow for Expenses
(8,000)
Net Cash Flow from Operating Activities
($8,000)
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash Inflow from Loan
$90,000
Net Cash Flow from Financing Activities
90,000
Net Increase in Cash
82,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$82,000
EXERCISE 4-2A
a.
Dan Watson Merchandising
General Journal, 2016
Date
Account Titles
Debit
Credit
1.
Cash
30,000
Common Stock
30,000
2.
Merchandise Inventory
18,000
Cash
18,000
3a.
Cash
32,000
Sales Revenue
32,000
3b.
Cost of Goods Sold
15,000
Merchandise Inventory
15,000
4-23
EXERCISE 4-2A (cont.)
c.
Don Watson Merchandising
Income Statement
For the Year Ended December 31, 2016
Net Sales
$32,000
Cost of Goods Sold
(15,000)
Gross Margin
17,000
Operating Expenses
-0-
Net Income
$17,000
Cash Flows From Operating Activities:
Cash Inflow from Customers
$32,000
Cash Outflow for Inventory
(18,000)
Net Cash Flow from Operating Act.
$14,000
4-24
EXERCISE 4-3A
a. NC = Net Change in Cash
Hardy Merchandising Company Effect of Events on the Financial Statements
Balance Sheet
Income Statement
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Statement of
Events
Cash
+
A. Rec.
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
Cash Flows
Beg. Bal.
20,000
+
NA
+
NA
=
NA
+
20,000
+
NA
NA
−
NA
=
NA
NA
1. Pur. Inv.
NA
+
NA
+
40,000
=
40,000
+
NA
+
NA
NA
−
NA
=
NA
NA
2a. Sold Inv.
NA
+
38,000
+
NA
=
NA
+
NA
+
38,000
38,000
−
NA
=
38,000
NA
2b. Inv. Cost
NA
+
NA
+
(24,500)
=
NA
+
NA
+
(24,500)
NA
−
24,500
=
(24,500)
NA
3. Pd. AP
(22,000)
+
NA
+
NA
=
(22,000)
+
NA
+
NA
NA
−
NA
=
NA
(22,000) OA
4. Coll. AR
26,000
+
(26,000)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
26,000 OA
5. Pd. Exp.
(5,100)
+
NA
+
NA
=
NA
+
NA
+
(5,100)
NA
−
5,100
=
(5,100)
(5,100) OA
End. Bal.
18,900
+
12,000
+
15,500
=
18,000
+
20,000
+
8,400
38,000
−
29,600
=
8,400
(1,100) NC
b. $12,000
4-25
EXERCISE 4-3A (cont.)
f. Ending retained earnings and net income are the same in this problem
4-26
EXERCISE 4-4A
a.
Milo Clothing
General Journal for 2016
Date
Account Titles
Debit
Credit
1.
Cash
30,000
Common Stock
30,000
2.
Merchandise Inventory
15,000
Cash
15,000
3a.
Cash
20,000
Sales Revenue
20,000
3b.
Cost of Goods Sold
9,000
Merchandise Inventory
9,000
4.
Advertising Expense
1,500
Cash
1,500
b.
T-Accounts
Assets
=
Stockholders’ Equity
Cash
Common Stock
Sales Revenue
1. 30,000
2. 15,000
1. 30,000
3a. 20,000
3a. 20,000
4. 1,500
Bal. 30,000
Bal. 20,000
Bal. 33,500
Cost of Goods Sold
Mdse. Inventory
3b. 9,000
2. 15,000
3b. 9,000
Bal. 9,000
Bal. 6,000
Advertising Expense
4. 1,500
Bal. 1,500
4-27
EXERCISE 4-4A (cont.)
c.
Milo Clothing
Trial Balance
December 31, 2016
Account Titles
Debit
Credit
Cash
$33,500
Merchandise Inventory
6,000
Common Stock
$30,000
Sales Revenue
20,000
Cost of Goods Sold
9,000
Advertising Expense
1,500
Totals
$50,000
$50,000
4-28
EXERCISE 4-5A
a. FOB shipping point
4-29
EXERCISE 4-6A
a. & b.
Computation of Ending Inventory
Jill’s Dress
Shop
Ken’s Bait
Shop
Beginning balance in inventory
$40,000
$ 8,000
Plus: Purchases
75,000
36,900
Less: Purchase Returns and Allow.
(5,000)
(1,200)
Less: Purchases Discounts
(750)
(360)
Plus: Transportation-In Costs
1,000
900
Cost of Goods Available for Sale
110,250
44,240
Less: Cost of Goods Sold
(82,300)
(33,900)
Ending Inventory
$27,950
$10,340
4-30
EXERCISE 4-7A
a.
Terry’s Auto Shop
General Journal for 2016
Date
Account Titles
Debit
Credit
1.
Merchandise Inventory
15,000
Accounts Payable
15,000
2.
Merchandise Inventory
800
Cash
800
3.
Accounts Payable
2,600
Merchandise Inventory
2,600
4.
Accounts Payable
1,100
Merchandise Inventory
1,100
5a.
Cash
31,000
Sales Revenue
31,000
5b.
Cost of Goods Sold
15,000
Merchandise Inventory
15,000
6.
Transportation-out
500
Cash
500
7.
Accounts Payable
8,000
Cash
8,000
4-31
EXERCISE 4-7A (cont.)
b.
Terry’s Auto Shop
T-Accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
Bal. 16,000
3. 2,600
1. 15,000
Bal. 20,000
5a. 31,000
2. 800
4. 1,100
6. 500
7. 8,000
Retained Earnings
7. 8,000
Bal. 3,300
Bal. 4,000
Bal. 37,700
Sales Revenue
Mdse. Inventory
5a. 31,000
Bal. 8,000
Bal. 31,000
1. 15,000
3. 2,600
2. 800
4. 1,100
Cost of Goods Sold
5b. 15,000
5b. 15,000
Bal. 5,100
Bal. 15,000
Transportation-out
6. 500
Bal. 500
4-32
EXERCISE 4-7A (cont.)
c.
Terry’s Auto Shop
Financial Statements
Income Statement
For the Year Ended December 31, 2016
Net Sales
$31,000
Cost of Goods Sold
(15,000)
Gross Margin
16,000
Operating Expenses
Transportation-out
(500)
Net Income
$15,500
Balance Sheet
As of December 31, 2016
Assets
Cash
$37,700
Merchandise Inventory
5,100
Total Assets
$42,800
Liabilities
Accounts Payable
$ 3,300
Stockholders’ Equity
Common Stock
$20,000
Retained Earnings
19,500
Total Stockholders’ Equity
39,500
Total Liab. and Stockholders’ Equity
$42,800
4-33
EXERCISE 4-7A c. (cont.)
Terry’s Auto Shop
Financial Statements
For the Year Ended December 31, 2016
Statement of Cash Flows
Cash Flows From Operating Activities:
Cash inflow from Customers
$31,000
Cash Outflow for Inventory
( 8,800)
Cash Outflow for Expenses
(500)
Net Cash Flow from Operating Activities
$21,700
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
21,700
Plus: Beginning Cash Balance
16,000
Ending Cash Balance
$37,700
4-34
EXERCISE 4-8A
Transaction
Debited to Inventory
a. Transportation-out
No
b. Purchase discount
No
c. Transportation-in
Yes
d. Purchase computer
No
e. Purchase of inventory
Yes
f. Allowance for damaged inventory
No
4-35
EXERCISE 4-9A
a.
Transaction
Period Costs
Product Costs
Not
Applicable
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
4-36
EXERCISE 4-9A (cont.)
b. NC = Net Change in Cash
The Pet Store Horizontal Statements Model for 2016
Balance Sheet
Income Statement
Statement
of
Assets
=
Liab.
+
Stkholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Cash
+
A. Rec.
+
Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
1. Stock
60,000
+
NA
+
NA
=
NA
+
60,000
+
NA
NA
−
NA
=
NA
60,000 FA
2. Pur Inv.
NA
+
NA
+
65,000
65,000
+
NA
+
NA
NA
−
NA
=
NA
NA
3. Freight
(900)
+
NA
+
900
=
NA
+
NA
+
NA
NA
−
NA
=
NA
(900) OA
4a. Sold Inv.
NA
+
71,000
+
NA
=
NA
+
NA
+
71,000
71,000
−
NA
=
71,000
NA
4b. Cost
NA
+
NA
+
(38,000)
=
NA
+
NA
+
(38,000)
NA
−
38,000
=
(38,000)
NA
5. Pd. Frt.
(620)
+
NA
+
NA
=
NA
+
NA
+
(620)
NA
−
620
=
(620)
(620) OA
6a. Ret. Sale
NA
+
(4,200)
+
NA
=
NA
+
NA
+
(4,200)
(4,200)
−
NA
=
(4,200)
NA
6b. Ret. Inv.
NA
+
NA
+
2,150
=
NA
+
NA
+
2,150
NA
−
(2,150)
=
2,150
NA
7. Coll. AR
58,300
+
(58,300)
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
58,300 OA
8. Pd. AP
(59,200)
+
NA
+
NA
=
(59,200)
+
NA
+
NA
NA
−
NA
=
NA
(59,200) OA
9. Pd. Exp.
(2,600)
+
NA
+
NA
=
NA
+
NA
+
(2,600)
NA
−
2,600
=
(2,600)
(2,600) OA
10. Pd. Exp.
(3,100)
+
NA
+
NA
=
NA
+
NA
+
(3,100)
NA
−
3,100
=
(3,100)
(3,100) OA
End. Bal.
51,880
+
8,500
+
30,050
=
5,800
+
60,000
+
24,630
66,800
−
42,170
=
24,630
51,880 NC
EXERCISE 4-10A
b. Purchase $25,200
Less: return (2,400)
Gross due (subject to discount) 22,800
4-38
EXERCISE 4-10A (cont.)
d. $22,800; they would not be eligible for the discount.
d.
Home Furnishings Effect of Events on the Financial Statements
Events
Balance Sheet
Income Statement
Cash Flows
Assets
=
Liab.
+
Stkholders’
Equity
Rev.
−
Exp.
=
Net Inc.
Cash
+
Mdse. Inv.
=
A. Pay.
+
C. Stk.
+
Ret. Ear.
3. Pd. AP
(22,800)
+
NA
=
(22,800)
+
NA
+
NA
NA
−
NA
=
NA
(22,800) OA
e. Home Furnishings would be willing to pay within the discount period in order to take advantage
of the discount. Taking the discount will reduce the cost of the merchandise by $456. While this
does not seem like a large savings, if the rate is annualized the savings is considerable. A 2%
discount for paying within 10 days, or 35 days before the total amount would be due, amounts to
a savings of $13.03 per day ($456 35 days). Even if Home Furnishings borrowed the $22,344 at
an 8% interest rate, the cost of borrowing would only be $171.41 ($22,344 x 8% x 35/365) or $4.90
per day. Home Furnishings would still save $8.13 per day, even if the company had to borrow the
funds to pay early.
4-39
EXERCISE 4-11A
Event
No.
Event
Type
Assets
=
Liab.
+
S.
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1.
AE
+−
NA
NA
NA
NA
NA
− OA
2.
AS
+
+
NA
NA
NA
NA
NA
3.
AU
−
−
NA
NA
NA
NA
NA
4a.
AS
+
NA
+
+
NA
+
+ OA
4b.
AU
−
NA
−
NA
+
−
NA
5.
AU
−
−
NA
NA
NA
NA
− OA
6a.
AS
+
NA
+
+
NA
+
NA
6b.
AU
−
NA
−
NA
+
−
NA
7.
AU
−
NA
−
NA
+
−
− OA
8.
AE
+−
NA
NA
NA
NA
NA
− OA
9.
AE
+−
NA
NA
NA
NA
NA
+ OA
10.
AU
−
NA
−
NA
+
−
− OA
4-40
EXERCISE 4-12A
a.
Ho Designs
T-Accounts for 2016
Assets
=
Stockholders’ Equity
Cash
Common Stock
Sales Revenue
1. 70,000
2. 41,000
1. 70,000
3a. 56,200
3a. 56,200
Bal. 70,000
Bal. 56,200
Bal. 85,200
Cost of Goods Sold
Mdse. Inventory
3b. 37,500
2. 41,000
3b. 37,500
4. 300
Bal. 3,500
Bal. 37,800
4. 300
Bal. 3,200
b.
Ho Designs
Income Statement
For the Year Ended December 31, 2016
Net Sales
$56,200
Cost of Goods Sold
(37,800)
Gross Margin
18,400
Operating Expense
-0-
Net Income
$18,400