Exercise 4-17 (15 minutes)
Case X
Case Y
Case Z
Current ratio computation
Current assets ……………………
$5,200
$3,500
$7,410
Current liabilities ………………..
$2,000
$1,000
$3,800
Current ratio ……………………….
2.60
3.50
1.95
Acid-test ratio computation
$1,000
Current receivables …………….
$2,280
Current liabilities ………………..
$1,000
$3,800
1.20
0.58
0.60
Interpretation:
Case X has the highest acid-test ratio and a healthy current ratio. Since Case
X has enough current assets to cover its current liabilities by more than two
times and enough liquid assets to cover its current liabilities by more than one
Exercise 4-18A (30 minutes)
PERIODIC—Buyer (Gross Method)
Apr. 2 Purchases …………………………………………………. 4,600
Accounts Payable—Lyon …………………….. 4,600
Purchased merchandise on credit.
17 Accounts Payable—Lyon …………………………... 4,000
Purchase Discounts* …………………………... 80
Exercise 4-19A (30 minutes)
1. BUYER– Santa Fe (Periodic & Gross Method)
a) Credit Purchase
Purchases ………………………………………………… 24,000
Accounts Payable ………………………………. 24,000
Purchased merchandise on credit.
2. SELLER – Mesa (Periodic & Gross Method)
a) Credit Sale
Accounts Receivable ………………………………… 24,000
1. Entries for Sydney (BUYER)—Periodic & Gross Method:
May 11 Purchases ……………………………………………….. 40,000
Accounts Payable ……………………………… 40,000
Purchased goods.
2. Entries for Troy (SELLER)—Periodic & Gross Method:
May 11 Accounts Receivable ……………………………….. 40,000
Sales …………………………………………………. 40,000
Sold goods.
Exercise 4-21 (20 minutes)
L´Oréal
Income Statement (€ millions)
For Year Ended December 31, 2014
Net sales ……………………………………………………………………….. €22,532.0
Cost of sales ………………………………………………………………….. 6,500.7
Exercise 4-22C (25 minutes)
1. Entries for Sydney (BUYER)—Perpetual & Net Method
May 11 Merchandise Inventory ……………………………………….. 38,800
2. Entries for Troy (SELLER)—Perpetual & Net Method
May 11 Accounts Receivable ………………………………………….. 38,800
Sales ……………………………………………………………. 38,800
Exercise 4-23C (25 minutes)
BUYER—Perpetual & Gross Method
a.
Recording inventory at gross amounts
Oct. 2
Merchandise Inventory …………………………………………
Accounts Payable …………………………………………..
3,000
Record merchandise purchases.
Accounts Payable ………………………………………………..
Merchandise Inventory …………………………………..
500
Record credit memo for returns.
Merchandise Inventory …………………………………………
Accounts Payable …………………………………………..
5,400
Record merchandise purchases.
27
Accounts Payable ………………………………………………..
Merchandise Inventory* ………………………………….
108
Cash ………………………………………………………………
5,292
Record payment for merchandise less the discount.
*($5,400 x .02)
Cash ………………………………………………………………
2,500
($3,000 – $500).
Exercise 4-23C (Concluded)
BUYER—Perpetual & Net Method
b.
Recording inventory at net amounts
Oct. 2
Merchandise Inventory …………………………………………
Accounts Payable ………………………………………………..
Merchandise Inventory …………………………………………
Accounts Payable ………………………………………………..
PROBLEM SET A
Problem 4-1A (40 minutes)—Perpetual & Gross Method
July 1 Merchandise Inventory ………………………………. 6,000
8 Cash ………………………………………………………….. 1,700
Sales …………………………………………………… 1,700
Sold goods for cash.
Problem 4-1A (Concluded)
July 16 Accounts Payable—Boden …………………………. 6,000
Merchandise Inventory* ………………………. 60
24 Accounts Payable—Leight …………………………. 2,000
Merchandise Inventory* ………………………. 40
Problem 4-2A (40 minutes)—Perpetual and Gross Method
Aug. 1 Merchandise Inventory ………………………………. 7,500
Accounts Payable—Aron …………………….. 7,500
Purchased goods, terms 1/10, n/30.
9 Delivery Expense ……………………………………….. 125
Cash …………………………..………………………. 125
Paid shipping charges on August 5 sale.
Problem 4-2A (Concluded)
Aug. 15 Cash ………………………………………………………….. 4,508
Sales Discounts* ……………………………………….. 92
19 Accounts Receivable—Tux ………………………… 4,800
Problem 4-3A (40 minutes)
1. Net sales
Sales …………………………..…………………………………………
$225,600
Sales returns and allowances ……………………..
12,000
2. Cost of Merchandise purchased
Invoice cost of merchandise purchased …………………
$ 92,000
Purchase returns and allowances …………………………..
(4,500)
Problem 4-3A (Continued)
3. Multiple-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2016
Sales ………………………………………………………….. $225,600
Less: Sales discounts ………………………………… $ 2,250
Expenses
Selling expenses
Sales salaries expense ……………………………. 32,000
*Cost of goods sold (alternative computation):
Merchandise inventory, August 31, 2015 ………………………. $ 25,400
Problem 4-3A (Concluded)
4. Single-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2016
Net sales …………………………..……………………………. $211,350
Expenses
Problem 4-4A (30 minutes)
Part 1
Closing entries
Aug. 31 Sales ……………………………………………………………. 225,600
Income Summary …………………………………… 225,600
Close temporary accounts with credit balances.
Part 2
This year’s sales returns and allowances ratio:
Problem 4-5A (60 minutes)
Part 1
Adjustment (a)
Jan 31 Store Supplies Expense …………………………….. 4,050
Adjustment (c)
Jan 31 Depreciation Expense—Store Equip …………… 1,525
Problem 4-5A (Continued)
Part 2 Multiple-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2016
Sales ………………………………………………………………. $111,950
Less: Sales discounts …………………………………….. $ 2,000
Problem 4-5A (Concluded)
Part 3 Single–step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2016
Net sales ………………………………………………………. $107,750
Expenses
Part 4
Current assets
Cash …………………………………………………………………..
$ 1,000
Merchandise inventory ………………………………………..
10,900
Store supplies …………………………………………………….
Prepaid insurance …………………………..…………………..
$ 1,000
Problem 4-6AB (50 minutes)
NELSON COMPANY
Work Sheet
For Year Ended January 31, 2016
Unadjusted
Trial Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Balance Sheet
Account Title
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash ……………………………………
1,000
1,000
1,000
Merchandise inventory ………..
12,500
(d)
1,600
10,900
10,900
Store supplies……………………..
(a)
4,050
Prepaid insurance ……………….
(b)
1,400
Store equipment ………………….
42,900
42,900
42,900
15,250
(c)
1,525
16,775
Accounts payable ……………….
10,000
10,000
Common stock ……………………
Dividends …………………………...
Sales discounts …………………..
Sales returns & allowances …
Cost of goods sold ………………
38,400
(d)
1,600
40,000
(c)
1,525
Salaries expense …………………
35,000
35,000
Insurance expense ………………
(b)
1,400
Rent expense ………………………
15,000
15,000
Store supplies expense ……….
(a)
4,050
Totals ………………………………….
8,575
8,575
110,975
59,750
Totals ………………………………….