CHAPTER 5 Accounting for Retail Businesses
5–72
Comp. Prob. 2 (Continued)
9.
JOURNAL
Page
23
Date
Post.
Ref.
Credit
20Y6
Closing Entries
May
31
Sales
410
Cost of Goods Sold
510
2,991,950
Sales Salaries Expense
520
727,800
Advertising Expense
521
292,000
Depreciation Expense
522
14,000
Store Supplies Expense
523
9,800
Miscellaneous Selling Expense
529
12,600
Office Salaries Expense
530
417,700
Rent Expense
531
88,700
Insurance Expense
532
12,000
Miscellaneous Administrative Exp.
539
7,800
Retained Earnings
311
741,855
31
Retained Earnings
311
Dividends
312
135,000
10.
Palisade Creek Co.
Post-Closing Trial Balance
May 31, 20Y6
Account
Debit
Credit
No.
Balances
Balances
Cash
110
84,500
Accounts Receivable
112
245,875
Inventory
115
570,000
Estimated Returns Inventory
116
50,200
Prepaid Insurance
117
4,800
Store Supplies
118
4,000
Store Equipment
123
569,500
Accum. Depreciation—Store Equipment
124
70,700
Accounts Payable
210
63,150
Salaries Payable
211
13,600
Customers Refunds Payable
212
89,270
Common Stock
310
100,000
Retained Earnings
311
1,192,155
1,528,875
1,528,875
CHAPTER 5 Accounting for Retail Businesses
5–73
Comp. Prob. 2 (Concluded)
5. (Optional)*
Palisade Creek Co.
End-of-Period Spreadsheet (Work Sheet)
For the Year Ended May 31, 20Y6
Unadjusted
Adjusted
Income
Balance
Trial Balance
Adjustments
Trial Balance
Statement
Sheet
Account Title
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
84,500
84,500
84,500
Accounts Receivable
245,875
245,875
245,875
Inventory
583,950
(a) 13,950
570,000
570,000
Estimated Returns Inventory
15,200
(g) 35,000
50,200
50,200
Prepaid Insurance
16,800
(b) 12,000
4,800
4,800
Store Supplies
13,800
(c) 9,800
4,000
4,000
Store Equipment
569,500
569,500
569,500
Accum. Depr.—Store Equip.
56,700
(d) 14,000
70,700
70,700
Accounts Payable
63,150
63,150
63,150
Salaries Payable
(e) 13,600
13,600
13,600
Customers Refunds Payable
29,270
(f) 60,000
89,270
89,270
Common Stock
100,000
100,000
100,000
Retained Earnings
585,300
585,300
585,300
Dividends
135,000
135,000
135,000
Sales
5,376,205
(f) 60,000
5,316,205
5,316,205
Cost of Goods Sold
3,013,000
(a) 13,950
(g) 35,000
2,991,950
2,991,950
Sales Salaries Expense
720,800
(e) 7,000
727,800
727,800
Advertising Expense
292,000
292,000
292,000
Depreciation Expense
(d) 14,000
14,000
14,000
Store Supplies Expense
(c) 9,800
9,800
9,800
Miscellaneous Selling Expense
12,600
12,600
12,600
Office Salaries Expense
411,100
(e) 6,600
417,700
417,700
Rent Expense
88,700
88,700
88,700
Insurance Expense
(b) 12,000
12,000
12,000
Miscellaneous Admin. Expense
7,800
7,800
7,800
6,210,625
6,210,625
158,350
158,350
6,238,225
6,238,225
4,574,350
5,316,205
1,663,875
922,020
Net income
741,855
741,855
5,316,205
5,316,205
1,663,875
1,663,875
CHAPTER 5 Accounting for Retail Businesses
MAKE A DECISION
MAD 5–1
a. Student answers should include at least three items from each of the following lists.
Amazon.com
2. Product and media inventory
4. Office space
Netflix, Inc.
2. DVD content library
4. Office space
5. Streaming content library (This library is either developed for Netflix or licensed for a
fixed fee over a period of time and, thus, is an asset over that time period.)
b.
2]} $13,587) [($10,203
{$8,831
0.74
Netflix
2]} $83,402) [($64,747
{$135,987
1.84
Amazon
ratio turnoverAsset
+
+
MAD 5–2
a.
2]} $11,258) [($11,209
{$20,369
1.81
1 Year
2]} $11,672) [($11,258
{$21,987
1.92
2 Year
ratio turnoverAsset
+
+
5–77
MAD 5–7 (Concluded)
c. The asset turnover ratio has increased over the four-year period, from 1.10 to 1.34. The
ratio was flat at 1.10 for the earliest two years, but has increased in Years 3 and 4. This
CHAPTER 5 Accounting for Retail Businesses
5–78
TAKE IT FURTHER
TIF 5–1
Margie has been placed in a very difficult position. Someone whom she trusts and respects
has asked her to do something that is clearly unethical. If Margie makes the adjusting entry,
her boss could very well be terminated. Yet, Margie’s primary responsibility has to be
TIF 5–2
Standards of Ethical Conduct for Management Accountants requires management
TIF 5–3
1. a. $6,394.7 million in 2017; $4,656.7 million in 2016; $3,034.0 million in 2015
b. 30.9% ($6,394.7 million $20,719.2 million) in 2017; 30.0% ($4,656.7 million $15,498.4
f. 217.4% increase in 2017 ($613.8 million $282.4 million)
2. The company’s financial performance has changed significantly over the past three years.
CHAPTER 5 Accounting for Retail Businesses
TIF 5–4
Note to Instructors: The purpose of this activity is to familiarize students with the variety of
possible purchase prices for a fairly common household item. Students should report several
TIF 5–5
To: Suzi Nomro
President, Watercraft Supply Company
From: A+ student
Re: Proposal to Increase Net Income
5–80
TIF 5–5 (Concluded)
While the anticipated outcomes indicate that the company should pursue the proposal,
Supporting projections are provided below.
Watercraft Supply Company
Projected Income Statement
For the Year Ended October 31, 20Y4
Revenues:
Sales
$ 1,485,000
Interest revenue
15,000
Total revenues
$ 1,500,000
Expenses:
Cost of goods sold
$891,000
Selling expenses
129,800
Administrative expenses
90,000
Interest expense
4,000
Total expenses
(1,114,800)
Net income
$ 385,200
Notes:
a. Projected sales
[$1,350,000 + (10% $1,350,000)] ………………………….. $1,485,000
CHAPTER 5 Accounting for Retail Businesses
5–81
TIF 5–6
Cam Pfeifer is correct. The accounts payable due to suppliers could be included on the
balance sheet at an amount of $314,500 ($269,500 + $45,000). This is the amount that will be
TIF 5–7
1. If Mark doesn’t need the stereo immediately (by the next day), Wholesale Stereo offers
the best buy, as shown below.
Wholesale Stereo:
List price ……………………………………………………………………………
$1,200.00
Shipping and handling (not including next-day air) ……………….
49.99
Total …………………………………………………………………………………..
$1,249.99
List price ……………………………………………………………………………
$1,175.00
Sales tax (9%) …………………………………………………………………….
105.75
Total …………………………………………………………………………………..
$1,280.75
List price ……………………………………………………………………………
$1,175.00
Less 2% cash discount ……………………………………………………….
(23.50)
Subtotal ……………………………………………………………………………..
$1,151.50
Sales tax (9%) …………………………………………………………………….
103.64
Total …………………………………………………………………………………..
$1,255.14
Wholesale Stereo list price ………………………………………………….
$1,200.00
Next-day freight charge ……………………………………………………….
89.99
Total …………………………………………………………………………………..
$1,289.99
CHAPTER 5 Accounting for Retail Businesses
TIF 5–7 (Concluded)
Because both Wholesale Stereo and Tru-Sound Systems will accept Mark’s VISA, the
ability to use a credit card would not affect the buying decision. Tru-Sound Systems will,
however, allow Mark to pay his bill in three installments (the first due immediately). This
would allow Mark to save some interest charges on his VISA for two months. If we