Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Serial Problem — SP 4 (Continued)
Part 4 (a) Single-step income statement
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Revenues
Computer services revenue ……………………………….. $25,307
Net sales* ………………………………………………………….. 18,693
Total revenues …………………………………………………… 44,000
Expenses
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Serial Problem — SP 4 (Continued)
Part 4 (b) Multiple-step income statement
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Sales* ……………………………………………………………… $44,547
Less: Sales discounts …………………………………….. $ 47
Sales returns and allowances ………………… 500 547
Net sales …………………………………………………………. 44,000
Cost of goods sold ………………………………………….. 14,052
Gross profit …………………………………………………….. 29,948
Expenses
Part 5
BUSINESS SOLUTIONS
Statement of Retained Earnings
For Three Months Ended March 31, 2020
Retained earnings, Dec. 31, 2019………………………… $ 7,360
Plus: Net income ……………………………………………….. 18,833
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
314
Serial Problem — SP 4 (Concluded)
Part 6
BUSINESS SOLUTIONS
Balance Sheet
March 31, 2020
Assets
Current assets
Cash ………………………………………………………………….. $ 68,057
Accounts receivable* ………………………………………….. 22,867
Merchandise inventory ……………………………………….. 704
Computer supplies ……………………………………………… 2,005
Liabilities
Current liabilities
Wages payable …………………………………………………… $ 875
Equity
Common stock …………………………………………………….. 98,000
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Company Analysis — AA 4-1
1. First, compute cost of sales for 2017 as follows ($ millions)
September 2016 inventory ……………………………… $ 2,132
Plus cost of goods purchased ……………………….. ?
2.
2017
2016
$ millions
Current
Ratio
Acid-Test
Ratio
Current
Ratio
Current assets
Cash and equivalents ……….
$ 20,289
$ 20,289
$ 20,484
Short–term marketable sec ……
53,892
53,892
46,671
Accounts receivables, net …..
17,874
17,874
15,754
Inventories, net …………………
Vendor non–trade receivables …
$128,645
$106,869
$ 92,055
3. Underperformed
Explanation: Apple’s current ratio is less than the industry average of
4. Underperformed
Explanation: Apple’s acid-test ratio is less than the industry average of
1.0. Although Apple is below the industry average, it is unlikely that it
will not be able pay its current liabilities.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Comparative Analysis — AA 4-2
1.
Apple
Google
($ millions)
Current
Prior
Current
Prior
Net sales ………………
$229,234
$215,639
$110,855
$90,272
Gross margin ………..
$ 84,263
$ 65,272
$55,134
3. (a) Outperformed Explanation: Apple’s margin exceeds the average.
(b) Outperformed Explanation: Google’s margin exceeds the average.
Global Analysis — AA 4-3
1.
In millions
Samsung*
Apple
Google
Net sales …………………………..
₩ 239,575,376
$229,234
$110,855
45,583
Gross margin ratio ………………………
2. (a) Better Explanation: Samsung’s ratio exceeds Apple’s.
(b) Worse Explanation: Samsung’s ratio does not exceed Google’s.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Ethics Challenge — BTN 4-1
1. A few students sometimes feel that Amy has devised a clever way to
beat the system. She appears to be succeeding in getting something for
free. However, most students fortunately feel that Amy is abusing the
2. The merchandising company accounts for sales returns using a contra
revenue account called Sales Returns and Allowances. A dress
returned with a sales bill of $200 would be accounted for as follows:
Sales Returns and Allowances …………… 200
Accounts Receivable ………………… 200
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
318
Communicating in Practice — BTN 4-2
Note: While responses will vary, the essence of its content follows.
TO: Mr. V. Velakturi
FROM:
DATE:
SUBJECT: Reply to inventory shrinkage question
You are correct in noting that Music Plus has lost inventory as a result of
shoplifting and other forms of shrinkage. However, you will be pleased to
know your investment in security has paid off. Let me explain.
I hope this addresses your concern and that you are now confident that net
income is not overstated. If you have any additional questions or require
more specific information regarding inventory shrinkage, please let me
know. The supporting information is available in the accounting records.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
319
Taking It to the Net — BTN 4-3
Fiscal Year ($ thousands)
2015
2016
2017
Net sales …………………………..
$2,579,695
$2,505,827
$2,425,462
Cost of goods sold ……………………..
1,608,777
1,610,256
1,550,185
Gross margin …………………………..
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Teamwork in Action — BTN 4-4
1.
a. Net sales computation
Sales ……………………………………………………….………… $600,000
Less: Sales discounts ……………………………………… $ 13,000
Sales returns and allowances …………………. 20,000 33,000
c. Cost of goods sold computation
Merchandise inventory, Beginning ……………………… $ 98,000
Total cost of merchandise purchased (from b) …….. 362,000
Merchandise available for sale ……………………………. $460,000
Merchandise inventory, Ending …………………………... (84,000)
Cost of goods sold ……………………………………………… $376,000
2. Net income is $141,000.
3. The inventory account balance is $84,000. If actual (physical) inventory
is $76,000, an $8,000 loss from inventory shrinkage occurred. This
would result in an adjustment necessitating a reduction (credit) to the
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Entrepreneurial Decision — BTN 4-5
1.
Build-A-Bear Workshop
Forecasted Income Statement
For Year Ended January 31, 2019
Net sales ($1,000,000 x 1.09) ………………………………………. $1,090,000
2. The proposal yields a forecasted net income of $213,100. This compares
favorably to the prior year’s net income of $190,000. Accordingly, based
on these facts alone, the company should implement the proposal.
3. There are many issues that should be considered. Among them are:
• First, there is the issue of the prediction itself. That is, are estimates
reasonable or could reality be markedly different from these estimates?
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
322
Hitting the Road — BTN 4-6
There is no formal solution for this field activity. As the discussion