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4-61
EXERCISE 4-22A (cont.) (Appendix)
b.
Bob’s Bike Shop
T-Accounts for 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
1. 35,000
4. 2,800
7. 65,000
3. 85,000
1. 35,000
5. 165,000
6. 28,000
Bal. 20,000
2. 9,600
7. 65,000
Bal. 44,600
Bal. 104,200
Sales Revenue
Merchandise Inventory
5. 165,000
2. 9,600
8. 9,600
Bal. 165,000
8. 28,500
Bal. 28,500
Cost of Goods Sold
8. 66,100
Bal. 66,100
Purchases
3. 85,000
8. 85,000
Bal. -0-
Advertising Expense
4. 2,800
Bal. 2,800
Salaries Expense
6. 28,000
Bal. 28,000
4-62
EXERCISE 4-22A (cont.) (Appendix)
c.
Bob’s Bike Shop
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Net Sales
$165,000
Cost of Goods Sold
(66,100)
Gross Margin
98,900
Operating Expenses
Advertising Expense
$ 2,800
Salaries Expense
28,000
Total Operating Expenses
(30,800)
Net Income
$ 68,100
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
Plus: Stock Issued
44,600
Ending Common Stock
$ 44,600
Beginning Retained Earnings
$ -0-
Plus: Net Income
68,100
Ending Retained Earnings
68,100
Total Stockholders’ Equity
$112,700
4-63
EXERCISE 4-22A c. (cont.) (Appendix)
Bob’s Bike Shop
Financial Statements
Balance Sheet
As of December 31, 2016
Assets
Cash
$104,200
Merchandise Inventory
28,500
Total Assets
$132,700
Liabilities
Accounts Payable
$20,000
Stockholders’ Equity
Common Stock
$ 44,600
Retained Earnings
68,100
Total Stockholders’ Equity
112,700
Total Liabilities and Stockholders’
Equity
$132,700
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Inflow from Customers
$165,000
Cash Outflow for Inventory
(65,000)
Cash Outflow for Expenses
(30,800)
Net Cash Flow from Operating Activities
$ 69,200
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
Cash Inflow from Stock Issue
35,000
Net Change in Cash
104,200
Plus: Beginning Cash Balance
-0-
4-64
Ending Cash Balance
$104,200
4-65
EXERCISE 4-22A (cont.) (Appendix)
d.
Bob’s Bike Shop
General Journal
Date
Account Titles
Debit
Credit
Closing Entries
cl
Sales Revenue
165,000
Retained Earnings
165,000
cl
Retained Earnings
96,900
Cost of Goods Sold
66,100
Advertising Expense
2,800
Salaries Expense
28,000
4-66
EXERCISE 4-22A d. (cont.) (Appendix)
Bob’s Bike Shop
T-Accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
Bal. 104,200
Bal. 20,000
Bal. 44,600
Retained Earnings
Merchandise Inventory
cl 96,900
cl 165,000
Bal. 28,500
Bal. 68,100
Sales Revenue
Bal. 165,000
cl 165,000
Bal. -0-
Cost of Goods Sold
Bal. 66,100
cl 66,100
Bal. -0-
Advertising Expense
Bal. 2,800
cl 2,800
Bal. -0-
Salaries Expense
Bal. 28,000
cl 28,000
Bal. -0-
4-67
EXERCISE 4-22A (cont.) (Appendix)
e.
Bob’s Bike Shop
Post-Closing Trial Balance
As of December 31, 2016
Account Titles
Debit
Credit
Cash
$104,200
Merchandise Inventory
28,500
Accounts Payable
$ 20,000
Common Stock
44,600
Retained Earnings
68,100
Totals
$132,700
$132,700
f. A business that may use the periodic method would be a small retailer
that does not have the necessary computer equipment to be able to
record the cost of goods as they are sold. Also, it may be more cost
effective for a business with small amounts of inventory to use the
periodic method. Most large retailers now use the perpetual inventory
system. The use of computer systems that track inventory make the
use of the perpetual method possible. Inventory items are scanned
into inventory when received and scanned out of inventory when sold.
For example, most large grocery stores use the perpetual system of
recording inventory.
g. Owners may contribute many types of assets to a business in exchange
for stock in the business. For instance, an owner may contribute
automobiles, office equipment, land, building, or other similar assets
that are personally owned in exchange for stock in a corporation.
4-68
PROBLEM 4-23A
T-accounts are provided for the instructor’s use:
Blooming Flower Company
T-Accounts 2016, 2017, and 2018
Assets
=
Stockholders’ Equity
Cash
Common Stock
Retained Earnings
2016 60,000
50,000
2016 60,000
cl 63,000
2016 cl 68,000
68,000
29,000
Bal. 5,000
Bal. 49,000
cl 78,000
2017 cl 85,000
2017 85,000
60,000
Bal. 12,000
35,000
cl 113,000
2018 cl 130,000
Bal. 39,000
Bal. 29,000
2018 130,000
85,000
42,000
Sales Revenue
Bal. 42,000
cl 68,000
2016 68,000
Bal. -0-
Merchandise Inv.
cl 85,000
2017 85,000
2016 50,000
34,000
Bal. -0-
Bal. 16,000
cl 130,000
2018 130,000
2017 60,000
43,000
Bal. -0-
Bal. 33,000
2018 85,000
71,000
Bal. 47,000
Cost of Goods Sold
2016 34,000
cl 34,000
Bal. -0-
2017 43,000
cl 43,000
Bal. -0-
2018 71,000
cl 71,000
Bal. -0-
Selling and Adm. Exp.
2016 29,000
cl 29,000
Bal. -0-
2017 35,000
cl 35,000
Bal. -0-
2018 42,000
cl 42,000
Bal. -0-
4-69
4-70
PROBLEM 4-23A (cont.)
Blooming Flower Company
Financial Statements
Income Statements for the Year Ended December 31
2016
2017
2018
Net Sales
$68,000
$85,000
$130,000
Cost of Goods Sold
(34,000)
(43,000)
(71,000)
Gross Margin
34,000
42,000
59,000
Operating Expenses
Selling and Admin. Expense
(29,000)
(35,000)
(42,000)
Net Income
$ 5,000
$ 7,000
$17,000
Balance Sheets at December 31
Assets
Cash
$49,000
$39,000
$ 42,000
Merchandise Inventory
16,000
33,000
47,000
Total Assets
$65,000
$72,000
$89,000
Liabilities
$ -0-
$ -0-
$ -0-
Stockholders’ Equity
Common Stock
60,000
60,000
60,000
Retained Earnings
5,000
12,000
29,000
Total Stockholders’ Equity
65,000
72,000
89,000
Total Liab. and Stkholders’ Equity
$65,000
$72,000
$89,000
4-71
PROBLEM 4-24A
Event
Freight Costs Paid
Period/Product
a.
$650
Product
b.
$-0-
NA
c.
$-0-
NA
d.
$520
Period
4-72
PROBLEM 4-25A
Event
Product Costs
Period Costs
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
4-73
PROBLEM 4-26A
a.
Redd Company
Effect of Events on the Financial Statements for 2016
Event
Event
Balance Sheet
Income Statement
Statement of
No.
Type
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1a.
AS
+
+
NA
NA
NA
NA
NA
1b.
AE
+−
NA
NA
NA
NA
NA
− OA
2.
AU
−
−
NA
NA
NA
NA
NA
3a. Disc.
AU
−
−
NA
NA
NA
NA
NA
3b. Pay.
AU
−
−
NA
NA
NA
NA
− OA
4a. Sale
AS
+
NA
+
+
NA
+
NA
4b. Cost
AU
−
NA
−
NA
+
−
NA
5a. Ret
AU
−
NA
−
−
NA
−
− OA
5b. Ret.
AS
+
NA
+
NA
−
+
NA
6. Frt.
AU
−
NA
−
NA
+
−
− OA
7a. Disc.
AU
−
NA
−
−
NA
−
NA
7b. Coll.
AE
+−
NA
NA
NA
NA
NA
+ OA
8. Land
AE
+−
NA
NA
+
NA
+
+ IA
9. Int.
AS
+
NA
+
+
NA
+
NA
10. Adj.
AU
−
NA
−
NA
+
−
NA
4-74
PROBLEM 4-26A (cont.)
b.
Redd Company General Journal
Date
Account Titles
Debit
Credit
1a.
Merchandise Inventory
5,200
Accounts Payable
5,200
1b.
Merchandise Inventory
190
Cash
190
2.
Accounts Payable
400
Merchandise Inventory
400
3a.
Accounts Payable [($5,200 – $400) x .01]
48
Merchandise Inventory
48
3b.
Accounts Payable ($5,200 – $400 – $48)
4,752
Cash
4,752
4a.
Accounts Receivable
12,100
Sales Revenue
12,100
4b.
Cost of Goods Sold
6,800
Merchandise Inventory
6,800
5a.
Sales Revenue
1,680
Cash
1,680
5b.
Merchandise Inventory
900
Cost of Goods Sold
900
6.
Transportation-out
140
Cash
140
7a.
Sales Revenue
242
Accounts Receivable ($12,100 x .02)
242
7b.
Cash
11,858
Accounts Receivable ($12,100 – $242)
11,858
4-75
PROBLEM 4-26A b. (cont.)
Redd Company General Journal
Date
Account Titles
Debit
Credit
8.
Cash
8,500
Land
7,000
Gain on the Sale of Land
1,500
9.
Interest Receivable
600
Interest Revenue
600
10.
Cost of Goods Sold (Inventory Loss)
642
Merchandise Inventory
642
4-76
PROBLEM 4-26A (cont.) c.
Redd Company
T-Accounts for 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
Bal.
6,900
1b.
190
2.
400
1a.
5,200
Bal.
15,000
7b.
11,858
3b.
4,752
3a.
48
8.
8,500
5a.
1,680
3b.
4,752
Retained Earnings
6.
140
Bal.
-0-
Bal.
13,900
Bal.
20,496
cl.
2,100
cl
6,682
cl
10,178
Bal.
19,496
Mdse. Inventory
Bal.
15,000
Sales Revenue
1a.
5,200
2.
400
5a.
1,680
4a.
12,100
1b.
190
3a.
48
7a.
242
5b.
900
4b.
6,800
Bal.
10,178
Bal.
14,042
cl
10,178
10.
642
Bal.
-0-
Bal.
13,400
Cost of Goods Sold
4b.
6,800
Accounts Receivable
10.
642
5b.
900
4a.
12,100
7a.
242
Bal.
6,542
7b.
11,858
cl
6,542
Bal.
-0-
Bal.
-0-
Interest Receivable
Transportation-out
9.
600
6.
140
Bal.
600
Bal.
140
cl
140
Land
Bal.
-0-
Bal.
7,000
8.
7,000
Bal.
-0-
Interest Revenue
9.
600
cl.
600
Bal.
-0-
Gain on Sale of Land
8.
1,500
cl.
1,500
