PROBLEM 5-7A
ERMLER DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended November 30, 2014
Sales
Sales revenue …………………….. $902,000
Less: Sales returns and
allowances ……………….. 20,000
Net sales …………………………………… 882,000
Cost of goods sold
Inventory, Dec. 1, 2013 ………… $ 41,300
PROBLEM 5-8A
(a)
(a) Cost of goods sold = Sales revenue – Gross profit
(c) Merchandise inventory = 2012 Inventory + Purchases – CGS
= $13,000 + $25,890 – $29,090 = $9,800
(d) Cash payments to suppliers = 2012 Accounts payable + Purchases
(f) Operating expenses = Gross profit – Net income
= $59,620 – $3,510 = $56,110
(g) 2013 Inventory + Purchases – 2014 Inventory = CGS
Purchases = CGS – 2013 Inventory + 2014 Inventory
(h) Cash payments to suppliers = 2013 Accounts payable + Purchases –
2014 Accounts Payable
(i) Gross profit = Sales revenue – CGS
PROBLEM 5-8A (Continued)
(k) 2014 Inventory + Purchases – 2015 Inventory = CGS
Inventory = 2014 Inventory + Purchases – CGS
(b) No. A decline in sales does not necessarily mean that profitability
declined. Profitability is affected by sales, cost of goods sold and
operating expenses. If cost of goods sold or operating expenses decline
more than sales, profitability can increase even when sales decline.
*PROBLEM 5-9A
(a)
General Journal
Date Account Titles and Explanation Debit Credit
Apr. 5 Purchases ………………………………………………. 1,500
Accounts Payable ………………………….. 1,500
10 Accounts Receivable ………………………………. 1,340
Sales Revenue ……………………………….. 1,340
12 Purchases ………………………………………………. 830
Accounts Payable ………………………….. 830
17 Accounts Payable …………………………………… 30
Purchase Returns and
Allowances …………………………….
30
20 Accounts Receivable ………………………………. 810
Sales Revenue ……………………………….. 810
*PROBLEM 5-9A (Continued)
Date
A
ccount Titles and Explanation Debit Credit
Apr. 27 Sales Returns and Allowances……………….. 80
(b)
Cash
4/1 Bal. 2,500
4/7 80
Inventory
4/1 Bal. 3,500
Common Stock
4/1 Bal. 6,000
4/27 80
4/30 Bal. 80
*PROBLEM 5-9A (Continued)
Purchase
Returns and Allowances
4/9 200
Purchase Discounts
4/14 39
(c)
FLINT HILLS PRO SHOP
Trial Balance
April 30, 2014
Debit Credit
Cash ………………………………………………………….. $1,587
Accounts Receivable ………………………………….. 850
Inventory ……………………………………………………. 3,500
*PROBLEM 5-9A (Continued)
(d)
FLINT HILLS PRO SHOP
Income Statement (Partial)
For the Month Ended April 30, 2014
____________________________________________________________
Sales
Sales revenue …………………….. $2,150
Less: Sales returns and
allowances ……………….. 80
Net sales …………………………….. 2,070
Cost of goods sold
Inventory, April 1 ………………… $3,500
Purchases ………………………….. $2,330
Less: Purchase returns
and allowances ………… $230
Purchase discounts. …. 47 277
PROBLEM 5-1B
(a)
General Journal
Date Account Titles Debit Credit
Apr. 2 Inventory ………………………………………………….
Accounts Payable ……………………………..
8,700
8,700
4 Accounts Receivable ………………………………..
6,000
13 Cash ………………………………………………………..
Sales Discounts ($6,000 X 2%) ………………….
Accounts Receivable …………………………
5,880
120
6,000
14 Inventory ………………………………………………….
Cash …………………………………………………
4,700
4,700
PROBLEM 5-1B (Continued)
General Journal
Date Account Titles Debit Credit
Apr. 23 Cash ……………………………………………………….
Sales Revenue …………………………………
8,300
8,300
27 Accounts Payable……………………………………
Cash ………………………………………………..
Inventory ($5,500 X 2%) …………………….
5,500
5,390
110
PROBLEM 5-1B (Continued)
(b)
Cash
4/1 Bal. 10,000
4/5 200
Accounts Receivable
4/4 6,000
4/30 3,980
4/13 6,000
4/30 Bal. 3,980
Inventory
4/2 8,700
4/4 3,700
Accounts Payable
4/6 400
4/2 8,700
Sales Revenue
4
/
4 6,000
Sales Discounts
4/13 120
4/30 Bal. 120
Freight-Out
4/5 200
4/30 Bal. 200
PROBLEM 5-1B (Continued)
(c) KREY DISTRIBUTING COMPANY
Income Statement (Partial)
For the Month Ended April 30, 2014
Sales
Sales revenue …………………………………………….. $18,280
Less: Sales returns and allowances …………… $180
Sales discounts ……………………………….. 120 300
PROBLEM 5-2B
April 1 Inventory (190 X $6) ………………………………………. 1,140
Accounts Payable ………………………………….. 1,140
3 Accounts Receivable (40 X $10) …………………….. 400
13 Accounts Receivable (25 X $12) …………………….. 300
Sales Revenue ………………………………………. 300
Cost of Goods Sold (25 X $6) ………………………… 150
Inventory ……………………………………………….. 150
20 Inventory (200 X $6) ………………………………………. 1,200
Accounts Payable ………………………………….. 1,200
24 Cash …………………………………………………………….. 300
PROBLEM 5-3B
(a)
General Journal
Date Account Titles Debit Credit
Apr. 4 Inventory ………………………………………………….
.
Accounts Payable ……………………………..
.
980
980
6 Inventory ………………………………………………….
.
.
.
.
60
13 Accounts Payable ($980
–
$130) ……………….
.
Cash …………………………………………………
.
Inventory ($850 X 2%) ………………………..
.
850
833
17
14 Inventory ………………………………………………….
.
Accounts Payable ……………………………..
.
1,300
1,300
15 Cash ………………………………………………………..
.
.
.
50
PROBLEM 5-3B (Continued)
Date Account Titles Debit Credit
Apr. 20 Cash ……………………………………………………….
Accounts Receivable ………………………..
500
500
(b)
Cash
4/1 Bal. 3,500
4/6 60
4/18 660
4/27 30
4/30 550
4/30 Bal. 330
Inventory
A
ccounts Payable
4/10 130
4/4 980
Sales Revenue
4/8 750
4/18 660
4/30 Bal. 1,410
PROBLEM 5-3B (Continued)
Cost of Goods Sold
(c) CONNORS’ TENNIS SHOP
Trial Balance
April 30, 2014
Debit Credit
Cash ……………………………………………………………….
$2,086
(d) CONNORS’ TENNIS SHOP
Income Statement (Partial)
For the Month Ended April 30, 2014
PROBLEM 5-4B
(a) PARKER DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue ………………………………… $626,000
Less: Sales returns and
Operating expenses
Salaries and wages expense …………… $111,000
Depreciation expense …………………….. 23,400
Utilities expense …………………………….. 11,000
Insurance expense …………………………. 8,400
Maintenance and repairs expense …… 6,200
Total operating expenses ………… 160,000
PARKER DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended December 31, 2014
Retained earnings, January 1 …………………………………………………. $19,200
Add: Net income ………………………………………………………………….. 28,300
PROBLEM 5-4B (Continued)
PARKER DEPARTMENT STORE
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………. $ 30,000
Accounts receivable …………………….. 43,500
Inventory ……………………………………… 43,000
Less: Accumulated depreciation—
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable …………………………………………. $ 73,300
Total current liabilities ……………………………. $98,800
Long-term liabilities
Mortgage payable ($62,500 – $20,000) ……………. 42,500
PROBLEM 5-4B (Continued)
(b) Profit margin: $28,300 ÷ $618,000 = 4.6%
(c) Revised net income = Current net income + increase in gross profit –
increase in operating expenses
Revised gross profit rate: $256,500 ÷ $772,500 = 33.2%
This plan increases net sales and gross profit but barely changes the
gross profit rate. This is not surprising since the proposed change
affects selling expenses rather than cost of goods sold. An increase in
PROBLEM 5-5B
WRIGHT COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue …………………………………. $972,000
Less: Sales returns and
Gross profit …………………………………………… 366,000
Operating expenses
Salaries and wages expense …………… 152,000
Freight-out ……………………………………… 20,000
Rent expense ($20,000 – $2,000) ……… 18,000
Utilities expense …………………………….. 16,000*
PROBLEM 5-6B
(a) Nov. 30 Supplies Expense ………………………………. 4,800
Supplies ($8,800 – $4,000) …………… 4,800
30 Depreciation Expense ………………………… 20,000
(b)
Supplies
11/30 Bal. 8,800 11/30 4,800
11/30 Bal. 4,000
Supplies Expense
Accumulated Depreciation
—
Equipment
11/30 Bal. 41,000
Interest Expense
11/30 4,400
11/30 Bal. 4,400
Interest Payable
Income Tax Expense
11/30 3,000