Exercise 4-9 (20 minutes)
PERPETUAL
Nov. 1 Merchandise Inventory ………………………………. 1,500
Accounts Payable ……………………………….. 1,500
Record purchases, terms 2/5, n/30.
Nov. 10 Merchandise Inventory ………………………………. 90
Cash …………………………………………………… 90
Payment of freight charges.
Nov. 13 Accounts Receivable …………………………………. 1,600
Sales …………………………………………………… 1,600
Record sale of goods, terms n/30.
Cost of Goods Sold ……………………………………. 800
Merchandise Inventory ………………………… 800
Record cost of goods sold.
Exercise 4-10 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense …………………………….. 1,700
Salaries Payable…………………………………. 1,700
Record accrued salaries.
Closing entries
Dec. 31 Sales …………………………………………………….. 529,000
Income Summary …………………………….. 529,000
Close temporary accounts with credit
balances.
Dec. 31 Income Summary …………………………………… 84,500
Retained Earnings …………………………... 84,500
Close Income Summary account.
Dec. 31 Retained Earnings ………………………………….. 33,000
Dividends ………………………………………… 33,000
Close dividends account.
Exercise 4-11 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Sales (gross) ……………………………………………………… $200,000
Less: Sales discounts …………………………………….. $ 4,000
Sales returns and allowances ………………… 16,000 20,000
Net sales ……………………………………………………………. 180,000
Exercise 4-12 (20 minutes)
a. $3,000 Understatement
Explanation: The employee oversight in omitting these goods from the
physical count would cause ending inventory to be understated by $3,000.
b. $3,000 Understatement
Explanation: The inventory understatement in part a results in total assets to
be understated by $3,000.
Exercise 4-13 (20 minutes)
a. Understatement.
Gross margin (Gross profit / Sales) would be understated because COGS is
overstated, meaning that gross profit would be understated.
c. No effect.
Acid-test ratio (Quick assets / Current liabilities) would be unaffected because
inventory is not a quick asset.
Exercise 4-14 (15 minutes)
Camaro
GTO
Torino
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:
Camaro has the highest acid-test ratio and a healthy current ratio. Since
Camaro has enough current assets to cover its current liabilities by more than
two times and enough quick assets to cover its current liabilities by more than
one time, Camaro appears to be in the best position to meet its short–term
obligations.
In summary, Torino looks the worst for its ability to pay its immediate and
current year obligations. Camaro looks the strongest. GTO is in between with
a strong current ratio and the lowest acid–test ratio.
Exercise 4-15 (25 minutes)
FIT–FOR-LIFE FOODS
Income Statement
For Year Ended December 31
Sales ……………………………………………………………………. $220,000
Less: Sales discounts ………………………………………….. $16,000
Sales returns and allowances …………………….. 4,000 20,000
Expenses
Selling expenses
Sales staff wages ……………………………………………… 23,000
Rent expense—Selling space ……………………………. 10,000
TV advertising expense …………………………………….. 2,000
Sales commission expense ………………………………. 13,000
Total selling expenses ……………………………………… 48,000
Income from operations ……………………………………….. 27,000
Other revenues, gains, expenses & losses
Gain on sale of equipment ………………………………… 6,250
Interest revenue ……………………………………………….. 750
Total other revenues, gains, expenses & losses ….. 7,000
Net income …………………………………………………………… $ 34,000
Exercise 4-16 (20 minutes)
ADAMS CO.
Balance Sheet
December 31
Assets
Current assets
Cash ………………………………………………………. $16,000
Accounts receivable ………………………………. 4,000
Plant assets
Buildings ……………………………………………….. $55,000
Accumulated depreciation-Buildings ………. (5,000) 50,000
Land ………………………………………………………. 22,000
Total plant assets …………………………………… 72,000
Total assets ……………………………………………… $118,000
Liabilities
Current liabilities
Accounts payable …………………………………… $10,000
Equity
Common stock ………………………………………… 10,000
Retained earnings ……………………………………. 50,000
Total equity ……………………………………………… 60,000
Total liabilities and equity ………………………… $118,000
Exercise 4-17A (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
Cash** ………………………………………………… 3,920
Paid within discount period less returns.
*($4,600 – $600) x 2%
**($4,600 – $600) x (100% – 2%)
18 Purchases …………………………………………………. 8,500
Accounts Payable—Frist …………………….. 8,500
Purchased merchandise on credit.
21 Accounts Payable—Frist ……………………………. 500
Purchases Returns & Allowances ………… 500
Received an allowance on purchase.
Exercise 4-18A (30 minutes)
1. BUYER– Santa Fe (Periodic & Gross Method)
a) Credit Purchase
Purchases ………………………………………………… 24,000
Accounts Payable ………………………………. 24,000
Purchased merchandise on credit.
b) Payment within Discount Period
Accounts Payable …………………………………….. 24,000
Purchases Discounts …………………………. 720
Cash ………………………………………………….. 23,280
Paid account payable within 3% discount period.
2. SELLER – Mesa (Periodic & Gross Method)
a) Credit Sale
Accounts Receivable ………………………………… 24,000
Sales ………………………………………………….. 24,000
Sold merchandise on account.
c) Collection after Discount Period
Cash …………………………………………………………. 24,000
Accounts Receivable ………………………….. 24,000
Collected receivable after discount period.
Exercise 4-19A (25 minutes)
1. Entries for Sydney (BUYER)—Periodic & Gross Method:
May 11 Purchases ……………………………………………….. 40,000
Accounts Payable ……………………………… 40,000
Purchased goods.
11 Transportation–In ……………………………………… 345
Cash …………………………………………………. 345
Paid shipping charges on purchased goods.
12 Accounts Payable ……………………………………. 1,400
Purchases Returns and Allowances …… 1,400
Returned goods.
2. Entries for Troy (SELLER)—Periodic & Gross Method:
May 11 Accounts Receivable ……………………………….. 40,000
Sales …………………………………………………. 40,000
Sold goods.
12 Sales Returns and Allowances …………………. 1,400
Accounts Receivable …………………………. 1,400
Accepted returns.
Exercise 4-20B (15 minutes)
a.
Dec. 31 Sales Discounts …………………………………………………. 20
Allowance for Sales Discounts …………………… 20
Expected sales discounts. $1,000 x 2%
c. Contra asset account (a contra to Accounts Receivable).
Exercise 4-21B (25 minutes)
a.
Dec. 31 Sales Returns and Allowances …………………………... 60,000
Sales Refund Payable ………………………………… 60,000
Expected sales to be refunded.
b.
Dec. 31 Inventory Returns Estimated ……………………………… 22,500
Cost of Goods Sold ……………………………………. 22,500
Expected cost of returns.
c.
Exercise 4-22B (25 minutes)
a. $70,000 ($100,000 sales – $30,000 cost of sales)
b. (1) Sales Returns and Allowances …………………………... 5,000
Sales Refund Payable ………………………………… 5,000
Expected sales to be refunded. $100,000 x 5%
(2) Inventory Returns Estimated ……………………………… 1,500
Cost of Goods Sold ……………………………………. 1,500
Expected cost of returns. $30,000 x 5%
Exercise 4-23C (25 minutes)
1. Entries for Sydney (BUYER)—Perpetual & Net Method
May 11 Merchandise Inventory ……………………………………….. 38,800
Accounts Payable ………………………………………… 38,800
Purchased goods. ($40,000 x [100% – 3%])
11 Merchandise Inventory ……………………………………….. 345
Cash ……………………………………………………….…… 345
Paid shipping charges on purchased goods.
2. Entries for Troy (SELLER)—Perpetual & Net Method
May 11 Accounts Receivable ………………………………………….. 38,800
Sales ……………………………………………………………. 38,800
Sold goods. ($40,000 x [100% – 3%])
11 Cost of Goods Sold …………………………………………….. 30,000
Merchandise Inventory …………………………………. 30,000
Record cost of sale.
12 Sales Returns and Allowances ……………………………. 1,358
Accounts Receivable ……………………………………. 1,358
Accepted returns. ($1,400 x [100% – 3%])
Exercise 4-24C (25 minutes)
BUYER—Perpetual & Gross Method
a.
Recording inventory at gross amounts
Oct. 2
Merchandise Inventory …………………………………………
3,000
Accounts Payable …………………………………………..
3,000
Record merchandise purchases.
10
Accounts Payable ………………………………………………..
500
Merchandise Inventory …………………………………..
500
Record returns.
17
Merchandise Inventory …………………………………………
5,400
Accounts Payable …………………………………………..
5,400
Record merchandise purchases.
Accounts Payable ………………………………………………..
5,400
Merchandise Inventory* ………………………………….
108
Cash ……………………………………………………….……..
5,292
31
Accounts Payable ………………………………………………..
2,500
Cash ……………………………………………………….……..
2,500
Record payment for merchandise less the returns
($3,000 – $500).
Exercise 4-24C (Concluded)
BUYER—Perpetual & Net Method
b.
Recording inventory at net amounts
Oct. 2
Merchandise Inventory …………………………………………
2,940
Accounts Payable …………………………………………..
2,940
Record merchandise purchases less discount.
[$3,000 – ($3,000 x 0.02) = $2,940]
10
Accounts Payable ………………………………………………..
490
Merchandise Inventory ……………………………………
490
Record return of purchased inventory.
[$500 – ($500 x 0.02)]
17
Merchandise Inventory …………………………………………
5,292
Accounts Payable …………………………………………..
5,292
Record merchandise purchases less discount.
[$5,400 – ($5,400 x 0.02) = $5,292]
Accounts Payable ………………………………………………..
5,292
Cash ……………………………………………………….……..
5,292
Paid for merchandise.
Cash ……………………………………………………….……..
2,500
($2,940 – $490 + $50)
Exercise 4-25 (30 minutes)
Mar. 3 Merchandise Inventory ………………………………. 1,150
Accounts Payable—GreenWorld ………….. 1,150
Purchased merchandise on credit.
4 Merchandise Inventory ………………………………. 75
Cash …………………………………………………… 75
Paid shipping on merchandise.
19 Merchandise Inventory ……………………………… 425
Accounts Payable—PeopleFirst …………… 425
Purchased merchandise on credit.
21 Accounts Payable—PeopleFirst …………………. 25
Merchandise Inventory ……………………….. 25
Received an allowance on purchase.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
PROBLEM SET A
Problem 4-1A (40 minutes)—Perpetual & Gross Method
July 1 Merchandise Inventory ………………………………. 6,000
Accounts Payable—Boden ………………….. 6,000
Purchased goods, terms 1/15, n/30.
2 Accounts Receivable—Creek……………………… 900
Sales …………………………………………………… 900
Sold goods, terms 2/10, n/60.
8 Cash ………………………………………………………….. 1,700
Sales …………………………………………………… 1,700
Sold goods for cash.
8 Cost of Goods Sold ……………………………………. 1,300
Merchandise Inventory ………………………… 1,300
Record cost of the July 8 sale.
9 Merchandise Inventory ………………………………. 2,200
Accounts Payable—Leight ………………….. 2,200
Purchased goods, terms 2/15, n/60.
Problem 4-1A (Concluded)
July 16 Accounts Payable—Boden …………………………. 6,000
Merchandise Inventory* ………………………. 60
Cash …………………………………………………… 5,940
Paid for goods within discount period.
*$6,000 x 1%
19 Accounts Receivable—Art …………………………. 1,200
Sales …………………………………………………… 1,200
Sold goods, terms 2/15, n/60.
24 Accounts Payable—Leight …………………………. 2,000
Merchandise Inventory* ………………………. 40
Cash …………………………………………………… 1,960
Paid for goods within discount period.
*$2,000 x 2%
30 Cash ………………………………………………………….. 1,078
Sales Discounts* ……………………………………….. 22
Accounts Receivable—Art …………………… 1,100
Received payment within discount period.
*($1,200 – $100) x 2%
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.
5 Accounts Receivable—Baird ……………………… 5,200
Sales …………………………………………………… 5,200
Sold goods, terms 2/10, n/60.
9 Delivery Expense ……………………………………….. 125
Cash …………………………………………………… 125
Paid shipping charges on August 5 sale.
10 Sales Returns and Allowances …………………… 600
Accounts Receivable—Baird ……………….. 600
Customer returned merchandise.
10 Merchandise Inventory ………………………………. 400
Cost of Goods Sold …………………………….. 400
Returned goods to inventory.
Problem 4-2A (Concluded)
Aug. 15 Cash ………………………………………………………….. 4,508
Sales Discounts* ……………………………………….. 92
Accounts Receivable—Baird ……………….. 4,600
Received payment within discount period.
*($5,200 – $600) x 2%
18 Accounts Payable—Waters ………………………… 5,000
Merchandise Inventory* ………………………. 50
Cash** ………………………………………………… 4,950
Paid for goods within discount period
*($5,400 – $400) x 1%
**($5,400 – $400) x (100% – 1%)
19 Cost of Goods Sold ……………………………………. 2,400
Merchandise Inventory ………………………… 2,400
Record cost of August 19 sale.
30 Accounts Payable—Aron …………………………... 7,300
Cash …………………………………………………… 7,300
Paid $7,500 less $200 freight paid by Lowe’s.
(Discount period lapsed.)
Problem 4-3A (40 minutes)
1. Net sales
Sales ……………………………………………………………………..
$225,600
Less: Sales discounts…………………………………………..
2,250
Sales returns and allowances ……………………..
12,000
Net sales ……………………………………………………………….
$211,350
2. Cost of Merchandise purchased
$ 92,000
Purchases returns and allowances …………………………
(4,500)