Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 4
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Serial Problem (Continued)
Computer Supplies Expense Acct. No. 652
Date Explanation PR Debit Credit Balance
Miscellaneous Expenses Acct. No. 677
Date Explanation PR Debit Credit Balance
Repairs Expense—Computer Acct. No. 684
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 4
Serial Problem (Continued) Part 3
BUSINESS SOLUTIONS
Partial Work Sheet
March 31, 2022
Acct.
No.
Account Title
Unadjusted
Trial Balance
Adjustments
Adjusted
Trial Balance
101
Cash …………………………..
68,057
68,057
106.1
Alex’s Engineering Co. ………..
0
0
106.2
Wildcat Services ………………..
2,800
2,800
106.3
Easy Leasing ……………………..
9,047
9,047
106.4
5,220
5,220
106.5
Liu Corporation ………………….
0
106.6
Gomez Co. …………………………
0
0
106.7
Delta Co. …………………………..
0
0
106.8
KC, Inc. …………………………..
5,800
5,800
106.9
Dream, Inc. ………………………..
0
0
119
Merchandise inventory …………
846
(g)
142
704
126
Computer supplies …………….
3,310
(a)
1,305
2,005
128
Prepaid insurance ………………
1,665
(b)
555
1,110
131
Prepaid rent ……………………….
3,300
(d)
2,475
825
163
Office equipment………………..
8,000
8,000
164
Accumulated depreciation–
Office equipment ……………..
167
Computer equipment ………….
20,000
168
Accumulated depreciation–
Computer equip. ……………..
201
Accounts payable ………………
210
Wages payable …………………..
(c)
236
Unearned computer
services revenue ……………..
0
307
Common stock …………………..
98,000
318
Retained earnings ………………
7,360
Dividends ………………………….
4,800
4,800
403
25,307
413
Sales …………………………..
19,240
414
Sales returns and allow. …………
500
415
Sales discounts …………………
47
502
Cost of goods sold …………….
(g)
142
14,052
612
Depreciation expense–
Office equipment ……………..
613
Computer equipment ………..
0
(e)
1,250
1,250
623
Wages expense ………………….
2,375
(c)
875
3,250
637
Insurance expense ……………..
0
(b)
555
555
640
Rent expense …………………….
0
(d)
2,475
2,475
652
0
(a)
1,305
1,305
655
Advertising expense …………..
600
676
Mileage expense ………………..
320
677
Miscellaneous expenses ……….
0
0
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Serial Problem (Continued)
Part 4 (a) Single-step income statement
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2022
Revenues
Computer services revenue …………………………..…… $25,307
Net sales* ………………………………………………………….. 18,693
Total revenues …………………………………………………… 44,000
Expenses
Computer supplies expense ………………………………. 1,305
Advertising expense ………………………………………….. 600
Mileage expense ………………………………………………… 320
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Serial Problem (Continued)
Part 4 (b) Multiple-step income statement
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2022
Sales* ……………………………………………………………… $44,547
Less: Sales discounts …………………………………….. $ 47
Sales returns and allowances ………………… 500 547
Net sales …………………………………………………………. 44,000
Cost of goods sold ………………………………………….. 14,052
General and administrative expenses
Insurance expense ………………………………………. 555
Depreciation expense—Office equipment …….. 400
Depreciation expense—Computer equipment . 1,250
Repairs expense—Computer ……………………….. 960
Part 5
BUSINESS SOLUTIONS
Statement of Retained Earnings
For Three Months Ended March 31, 2022
Retained earnings, Dec. 31, 2021………………………… $ 7,360
Add: Net income ……………………………………………… 18,833
26,193
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Serial Problem (Concluded)
Part 6
BUSINESS SOLUTIONS
Balance Sheet
March 31, 2022
Assets
Current assets
Cash ………………………………………………………………….. $ 68,057
Accounts receivable* ………………………………………….. 22,867
Total current assets ……………………………………………. 95,568
Plant assets
Office equipment ………………………………………………… $8,000
Accumulated depreciation—Office equipment …….. (800) 7,200
Liabilities
Current liabilities
Wages payable …………………………………………………… $ 875
Total liabilities ……………………………………………………… 875
Equity
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 4
Company Analysis — AA 4-1
1. First, compute cost of sales for 2019 as follows ($ millions)
September 2018 inventory ……………………………… $ 3,956
Plus cost of goods purchased ……………………….. ?
2.
2019
2018
$ millions
Current
Ratio
Acid-Test
Ratio
Current
Ratio
Acid-Test
Ratio
Current assets
Cash and equivalents ……….
$ 48,844
$ 48,844
$ 25,913
$ 25,913
Marketable securities (current) …
51,713
51,713
40,388
40,388
Accounts receivables, net …..
22,926
22,926
23,186
23,186
Inventories ……………………….
Vendor non–trade receivables …
25,809
$162,819
$131,339
$123,483
$ 89,487
3. Outperformed
Explanation: Apple’s current ratio is higher than the industry average of
1.5. This indicates the company likely has sufficient current assets to
settle current liabilities.
4. Outperformed
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 4
Comparative Analysis — AA 4-2
1.
Apple
Google
$ millions
Current
Prior
Current
Prior
Net sales ………………
$260,174
$265,595
$161,857
$136,819
Gross margin ………..
$101,839
$ 77,270
2. Google Explanation: In the current year, Google’s gross
margin ratio is higher than that for Apple.
3. (a) Outperformed Explanation: Apple’s margin exceeds the average.
Extended Analysis — AA 4-3
1.
In millions
Samsung
Apple
Google
Net sales …………………………..
$197,691
$260,174
$161,857
Gross margin ratio ………………………
2. (a) Worse Explanation: Samsung’s ratio does not exceed Apple’s.
3. (a) Multiple-step (b) Multiple-step (c) Multiple-step
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DISCUSSION QUESTIONS
1. Merchandising companies report Merchandise Inventory on the balance sheet, service
2. Additional accounts of a merchandising company likely include Merchandise Inventory,
3. A company can have a net loss if its expenses (absent cost of goods sold) are greater
than its gross profit from sales of merchandise.
4. A cash discount can be offered to encourage customers to promptly pay. This provides
5. For a perpetual inventory system, inventory shrinkage is determined by taking a
6. Sales discount is a term used by a seller to describe a cash discount granted to a
customer. Purchase discount is a term used by a purchaser to describe a cash discount
received from a seller. (It is a matter of perspective: seller versus buyer.)
7. 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 multiple-
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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:
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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 and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 4
Teamwork in Action — BTN 4-3
1.
a. Net sales computation
Sales …………………………………………………………………. $600,000
Less: Sales discounts ……………………………………… $ 13,000
Sales returns and allowances …………………. 20,000 33,000
Net sales …………………………………………………………… $567,000
b. Total cost of merchandise purchases computation
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
e. Net income computation
Gross profit from sales (from d) …………………………. $191,000
Operating expenses (given) ……………………………….. 50,000
Net income ………………………………………………………… $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
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Entrepreneurial Decision — BTN 4-4
1.
KENDRA SCOTT
Forecasted Income Statement
For Next Year Ended December 31
Net sales ($1,000,000 x 1.09) ………………………………………. $1,090,000
2. The proposal yields a forecasted net income of $213,100. This compares
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?
• Second, and related to the first, there is a need to consider “ranges” of
possible scenarios since the future is unpredictable. This would involve