Chapter 4
Reporting and Analyzing
Merchandising Operations
QUESTIONS
1. Merchandising companies report Merchandise Inventory on the balance sheet,
service companies do not. Also, merchandising companies report both Sales (of
2. Additional accounts of a merchandising company likely include Merchandise
4. A cash discount can be offered to encourage customers to promptly pay. This
7. Sales discount is a term used by a seller to describe a cash discount granted to a
8. A manager is concerned about the quantity of its purchase returns because the
10. The single-step income statement format presents cost of goods sold and expenses
in one list, totals the list, and subtracts the total from net sales in one step. The
QUICK STUDIES
Quick Study 4-1 (10 minutes)
Quick Study 4-2 (5 minutes)
Quick Study 4-3 (15 minutes)
Computation of net income:
Krug Service Co.
Revenues ……………………………………………
$14,000
Less: Expenses …………………………………..
$ 5,500
Kleiner Merchandising Co.
Sales …………………………………………………..
$ 9,500
Less: Cost of goods sold (see below*) …
Gross profit ………………………………………..
Less: Operating expenses …………………..
Quick Study 4-4 (15 minutes)
Payment Computations
a. $ 4,900 $ 5,000 – ($ 5,000 x 2%) = $ 5,000 x 98%
Quick Study 4-5 (15 minutes)
Nov. 5 Merchandise Inventory ………………………………………. 6,000
Quick Study 4-6 (10 minutes)
a)
Quick Study 4-7 (10 minutes)
a)
Sep. 15 Merchandise Inventory ………………………………………. 35,000
Accounts Payable ………………………………………. 35,000
Record credit purchase.
Quick Study 4-8 (15 minutes)
Apr. 1 Accounts Receivable ………………………………………… 3,000
Quick Study 4-8 (concluded)
Quick Study 4-9 (10 minutes)
a.
June 30 Sales Discounts …………………………………………………. 60
Quick Study 4-10 (10 minutes)
a.
June 30 Sales Returns and Allowances …………………………... 1,000
Quick Study 4-11 (10 minutes)
Quick Study 4-12 (10 minutes)
July 31 Sales ……………………………………………………………………. 149,000
Quick Study 4-13 (10 minutes)
Quick Study 4-14 (10 minutes)
Quick Study 4-15 (10 minutes)
Similarities: Both the acid-test ratio and current ratio are used to assess liquidity.
Both ratios are computed with current liabilities as the denominator.
Quick Study 4-16 (10 minutes)
(a)
(b)
(d)
Net sales ………………………………..
$125,000
$526,500
$250,000
Cost of goods sold …………………
(79,750)
(329,589)
(126,500)
Quick Study 4-17 (20 minutes)
1. Multiple-step income statement
adidas Group
Income Statement (€ millions)
For Year Ended December 31, 2014
Net sales ……………………………………………………………. €14,534
2. Single-step income statement
adidas Group
Income Statement (€ millions)
For Year Ended December 31, 2014
Revenues
Net sales ………………………………………………………… €14,534
Royalty and commission income ……………………. 102
Quick Study 4-18A (5 minutes)
Quick Study 4-19A (10 minutes) PERIODIC & GROSS
Nov. 5 Purchases ………………………………………………………….. 6,000
Accounts Payable ……………………………………….. 6,000
Quick Study 4-20A (10 minutes) PERIODIC & GROSS
Apr. 1 Accounts Receivable …………………………………………. 3,000
Sales ………………………………………………………….. 3,000
Quick Study 4-21C (10 minutes) NET & PERPETUAL
Nov. 5 Merchandise Inventory ………………………………………. 5,880
Quick Study 4-21C (concluded)
Nov. 15 Accounts Payable …………………………………………….. 5,635
Quick Study 4-22C (10 minutes) NET & PERPETUAL
Apr. 1 Accounts Receivable ………………………………. 3,000
Sales ……………………………………………….. 3,000
Quick Study 4-23 (10 minutes)
a. Both U.S. GAAP and IFRS include broad and similar guidance for the
EXERCISES
Exercise 4-1 (30 minutes)
Note: The original missing numbers are blocked.
(b)
(c)
(d)
(e)
Sales ……………………….
$43,500
$46,000
$79,000
$25,600
Cost of goods sold
Merch. inv. (beg.) …….
Total cost of merch.
Explanations:
a. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
Exercise 4-2 (10 minutes)
Operating cycle of a merchandiser with credit sales follows (chronological):
Exercise 4-3 (30 minutes)
Apr. 2 Merchandise Inventory ………………………………. 4,600
Exercise 4-4 (30 minutes)
SELLER—Allied
May 3 Merchandise Inventory ………………………………. 20,000
May 7 Sales Returns and Allowances …………………… 1,750
Exercise 4-5 (15 minutes)
BUYER—Macy
Exercise 4-6 (30 minutes)
1. BUYER– Santa Fe
a) Credit Purchase
b) Payment within Discount Period
2. SELLER – Mesa
a) Credit Sale
b) Collection within Discount Period
Exercise 4-7 (25 minutes)
1. Entries for Sydney (BUYER):
2. Entries for Troy (SELLER):
May 11 Accounts Receivable ……………………………….. 40,000
Exercise 4-8 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2015 …………..
25,000
Purchase discounts received …………………………..
1,700
Invoice cost of purchases ……..
Purchase returns and allow. …………………………..
4,000
Shrinkage ……………………………………………………….
Cost of Goods Sold
Cost of sales transactions……..
196,000
Returns by customers and
Exercise 4-9 (20 minutes)
PERPETUAL
Nov. 10 Merchandise Inventory ………………………………. 90
Exercise 4-10 (15 minutes)
a.
Dec. 31 Sales Discounts …………………………..…………………….. 20
Exercise 4-11 (25 minutes)
a.
Dec. 31 Sales Returns and Allowances …………………………... 60,000
Exercise 4-12 (25 minutes)
Exercise 4-13 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense …………………………….. 1,700
Closing entries
Dec. 31 Sales …………………………………………………….. 529,000
Income Summary …………………………..… 529,000
Dec. 31 Income Summary …………………………..………. 85,000
Retained Earnings …………………………... 85,000
Close Income Summary account.
Exercise 4-14 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Sales (gross) ……………………………………………………… $200,000
Exercise 4-15 (20 minutes)
a. The employee oversight in omitting these goods from the physical count
would cause the cost of the physical count of ending inventory to be
b. As a result of this error the following ratios are impacted:
• Return on assets would be understated (numerator impact outweighs
the denominator impact).
Exercise 4-16 (20 minutes)
See related explanations in Exercise 4-15. As a result of this error: