PROBLEM 5-4A (Continued)
This plan increased net sales and gross profit but did not change the
gross profit rate. This is not surprising since the proposed change
PROBLEM 5-5A
SIMON COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales
Rent expense ($24,000 – $6,000) ……… 18,000
Advertising expense ………………………. 13,000
Utilities expense …………………………….. 12,000
Depreciation expense …………………….. 10,000
Total operating expenses ………… 222,000
PROBLEM 5-6A
(a) Dec. 31 Depreciation Expense ………………………… 15,000
Accumulated Depreciation—
Buildings ………………………………… 8,000
(b)
Accumulated
Depreciation—Buildings
12/31 Bal. 60,000
12/31 8,000
12/31 Bal. 68,000
12/31 Bal. 40,500
12/31 7,000
12/31 Bal. 47,500
12/31 15,000
12/31 Bal. 15,000
12/31 Bal. 4,500
12/31 24,000
12/31 Bal. 24,000
12/31 24,000
12/31 Bal. 24,000
Interest Expense
12/31 4,500
12/31 Bal. 4,500
Interest Payable
12/31 4,500
PROBLEM 5-6A (Continued)
(c) PEOPLE’S CHOICE WHOLESALE COMPANY
Adjusted Trial Balance
December 31, 2017
Cash ……………………………………………………….
Accounts Receivable ………………………………
Buildings …………………………………………….
Equipment ………………………………………………
Accumulated Depreciation—
Equipment …………………………………………..
Notes Payable …………………………………………
Accounts Payable …………………………………..
Interest Payable ………………………………………
Income Taxes Payable …………………………..
Common Stock ……………………………………….
PROBLEM 5-6A (Continued)
(d) PEOPLE’S CHOICE WHOLESALE COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales
Sales revenue ………………………………………. $922,100
Less: Sales discounts …………………………. 6,000
Operating expenses
Salaries and wages expense …………………. $51,300
Depreciation expense …………………………... 15,000
Utilities expense …………………………..………. 11,400
Maintenance and repairs expense …………. 8,900
Advertising expense …………………………….. 5,200
Insurance expense ……………………………….. 4,800
Total operating expenses ………………. 96,600
PEOPLE’S CHOICE WHOLESALE COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2017
Retained earnings, January 1 ………………………………………… $ 67,200
Add: Net income …………………………………………………………. 81,100
PROBLEM 5-6A (Continued)
PEOPLE’S CHOICE WHOLESALE COMPANY
Balance Sheet
December 31, 2017
Assets
Current assets
Cash ………………………………………… $ 31,400
Accounts receivable …………………. 37,600
Less: Accum. depreciation—
buildings ……………………….. 68,000 132,000
Equipment ……………………………….. 83,500
Less: Accum. depreciation—
equipment ……………………… 47,500 36,000 260,000
Total assets ……………………….. $399,000
Liabilities and Stockholders’ Equity
Current liabilities
Stockholders’ equity
Common stock ………………………………………….. 160,000
Retained earnings …………………………………….. 138,300
PROBLEM 5-7A
OATES DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended November 30, 2017
Sales
Sales revenue …………………….. $902,000
Less: Sales returns and
Less: Purchase discounts ….. $7,000
Purchase returns
and allowances ………… 6,760 13,760
Net purchases …………………….. 599,240
PROBLEM 5-8A
(a)
(a) Cost of goods sold = Sales revenue – Gross profit
= $96,890 – $67,800 = $29,090
(d) Cash payments to suppliers = 2015 Accounts payable + Purchases
– 2016 Accounts payable
= $5,800 + $25,890 – $6,500 = $25,190
(e) Sales revenue = Cost of goods sold + Gross profit
= $28,060 + $59,620 = $87,680
(h) Cash payments to suppliers = 2016 Accounts payable + Purchases –
2017 Accounts Payable
= $6,500 + $32,960 [from (g)] – $4,600
= $34,860
PROBLEM 5-8A (Continued)
(k) 2017 Inventory + Purchases – 2018 Inventory = CGS
Inventory = 2017 Inventory + Purchases – CGS
= $14,700 + $24,050 – $26,490 = $12,260
(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.
However, in this particular case, sales declined with insufficient off-
setting cost savings to improve profitability. Therefore, profitability
declined for Zhou Inc.
*PROBLEM 5-9A
(a)
General Journal
Date
Account Titles and Explanation
Debit
Credit
Apr.
5
Purchases ………………………………………………….
1,500
Accounts Payable …………………………..
1,500
7
Freight-In ……………………………………………………
Cash …………………………………………………
9
Accounts Payable ………………………………………
200
Purchase Returns and
Allowances ……………………………….
200
10
Accounts Receivable ………………………………….
1,340
Sales Revenue …………………………………..
1,340
12
Purchases ………………………………………………….
830
Accounts Payable …………………………..
830
14
Accounts Payable ($1,500 – $200) ……………….
1,300
Cash ($1,300 – $39) …………………………..
1,261
Purchase Discounts
(1,300 X 3%) …………………………..….
39
17
Accounts Payable ………………………………………
Purchase Returns and
20
Accounts Receivable ………………………………….
810
Sales Revenue …………………………………..
810
21
Accounts Payable ($830 – $30) ……………………
800
Cash ($800 – $8) ………………………………..
792
Purchase Discounts …………………………..
($800 X 1%) ……………………………….
*PROBLEM 5-9A (Continued)
Date
Account Titles and Explanation
Debit
Credit
Apr.
27
Sales Returns and Allowances ……………………
80
Accounts Receivable ………………………..
30
Cash ……………………………………………………….
Accounts Receivable ………………………..
(b)
Cash
4/1 Bal. 2,500
4/30 1,220
4/7 80
4/14 1,261
4/21 792
4/30 Bal. 1,587
4/30 Bal. 850
4/1 Bal. 3,500
4/30 Bal. 3,500
4/21 800
4/30 Bal. 0
4/30 Bal. 2,150
4/27 80
4/30 Bal. 80
4/30 Bal. 2,330
Common Stock
4/1 Bal. 6,000
4/30 Bal. 6,000
Sales Revenue
*PROBLEM 5-9A (Continued)
Purchase
Returns and Allowances
4/9 200
4/17 30
Purchase Discounts
4/14 39
4/21 8
(c)
GRANITE HILLS PRO SHOP
Trial Balance
April 30, 2017
Debit Credit
Cash ………………………………………………………….. $1,587
Accounts Receivable ………………………………….. 850
Inventory ……………………………………………………. 3,500
*PROBLEM 5-9A (Continued)
(d)
GRANITE HILLS PRO SHOP
Income Statement (Partial)
For the Month Ended April 30, 2017
____________________________________________________________
Sales
Sales revenue …………………….. $2,150
Net purchases …………………….. 2,053
Add: Freight-in …………………. 80
Cost of goods purchased ……. 2,133
Cost of goods available for
ACCOUNTING CYCLE REVIEW
(a)
Dec. 6
Salaries and Wages Payable ……………………
Salaries and Wages Expense …………………..
Cash ………………………………………………..
1,000
600
1,600
8
Cash ………………………………………………………
1,900
10
Cash ………………………………………………………
Cost of Goods Sold …………………………………
4,100
13
Inventory ………………………………………………..
9,000
15
Supplies …………………………………………………
Cash ………………………………………………..
2,000
2,000
18
Accounts Receivable ………………………………
Sales Revenue …………………………………
Cost of Goods Sold …………………………………
Inventory …………………………………………
12,000
8,000
12,000
8,000
20
Salaries and Wages Expense …………………..
Cash ………………………………………………..
1,800
1,800
ACCOUNTING CYCLE REVIEW SOLUTION (Continued)
(c)
Dec. 31
Salaries and Wages Expense …………………..
Salaries and Wages Payable ……………..
800
800
Supplies Expense ……………………………………
Supplies ($3,200 – $1,500) …………………
Income Tax Expense ……………………………….
Income Taxes Payable ………………………
200
200
(b) & (c) General Ledger
Cash
12/27 11,640
12/23 8,820
12/31 Bal. 12,820
12/1 Bal. 7,200
12/8 1,900
12/6 1,600
12/15 2,000
Accounts Receivable
12/1 Bal. 4,600
12/18 12,000
12/8 1,900
12/27 12,000
12/31 Bal. 2,700
Inventory
12/1 Bal. 12,000
12/13 9,000
12/31 Bal. 8,720
12/1 Bal. 1,200
12/15 2,000
12/31 Bal. 1,500
12/6 1,000
12/1 Bal. 1,000
12/31 800
12/31 Bal. 800
12/31 200
12/31 Bal. 200
12/10 4,100
12/18 8,000
Equipment
12/1 Bal. 22,000
12/31 Bal. 22,000
12/31 200
12/31 Bal. 2,400
Accounts Payable
12/23 9,000
12/1 Bal. 4,500
12/13 9,000
12/31 Bal. 4,500
Salaries and Wages Payable
ACCOUNTING CYCLE REVIEW SOLUTION (Continued)
Common Stock
12/1 Bal. 15,000
12/31 Bal. 15,000
12/1 Bal. 24,300
12/31 Bal. 24,300
12/31 Bal. 3,200
Sales Revenue
12/10 6,300
12/18 12,000
12/31 Bal. 18,300
12/27 360
12/31 Bal. 360
12/31 Bal. 12,100
12/31 200
12/31 Bal. 200
Depreciation Exp.
12/31 200
12/31 Bal. 200
Supplies Expense
12/31 1,700
12/31 Bal. 1,700
ACCOUNTING CYCLE REVIEW SOLUTION (Continued)
(d) DEVINE DISTRIBUTING COMPANY
Adjusted Trial Balance
December 31, 2017
DR.
CR.
Cash ……………………………………………………….
$12,820
Accounts Receivable ………………………………….
2,700
Inventory ……………………………………………………
8,720
Supplies …………………………………………………….
Equipment ………………………………………………….
22,000
Accumulated Depreciation—Equipment ………
$ 2,400
Accounts Payable ………………………………………
Salaries and Wages Payable ……………………….
800
Income Taxes Payable ………………………………..
200
Common Stock …………………………………………..
15,000
Retained Earnings ………………………………………
24,300
Sales Revenue ……………………………………………
18,300
Sales Discounts …………………………………………
360
Cost of Goods Sold …………………………………….
12,100
Depreciation Expense …………………………………
Salaries and Wages Expense ………………………
Supplies Expense ………………………………………
1,700
Income Tax Expense …………………………………..
$65,500
(Total of debit account balances = Total of credit account balances)
(e) DEVINE DISTRIBUTING COMPANY
Income Statement
For the Month Ending December 31, 2017
Sales revenue …………………………………………….
$18,300
Less: Sales discounts ……………………………….
360
Net sales ……………………………………………………
17,940
Cost of goods sold ……………………………………..
12,100
Gross profit ………………………………………………..
Operating expenses
Salaries and wages expense ………………..
$3,200
Supplies expense ………………………………..
Depreciation expense ………………………….
5,100
Income before income taxes ……………………….
740
ACCOUNTING CYCLE REVIEW SOLUTION (Continued)
DEVINE DISTRIBUTING COMPANY
Retained Earnings Statement
For the Month Ended December 31, 2017
Retained earnings, Dec. 1 ……………………………………….
$24,300
Add: Net income …………………………………………………..
540
Retained Earnings, Dec. 31 …………………………………….
$24,840
DEVINE DISTRIBUTING COMPANY
Balance Sheet
December 31, 2017
Assets
Current assets
Cash ……………………………………………………
Accounts receivable …………………………….
Inventory ……………………………………………..
Supplies ………………………………………………
Total current assets ………………………..
$25,740
Property, plant, and equipment
Equipment …………………………………………..
Less: Accumulated depreciation ………….
19,600
Total assets ………………………………………………..
$45,340
Liability and Stockholders’ Equity
Current liabilities
Accounts payable ………………………………..
Salaries and wages payable …………………
Income taxes payable …………………………..
Total current liabilities …………………….
$ 5,500
Common stock …………………………………….
Retained earnings ………………………………..
Total stockholders’ equity ……………….
39,840
$45,340
ACR5-2
(b) General Journal
Date
Account Titles
Debit
Credit
Nov. 8
Salaries and Wages Payable
Salaries and Wages Expense
Cash
1,700
1,850
3,550
Inventory
4,000
19
Cash ($5,500 – $110)
Sales Discounts ($5,500 × 2%)
Accounts Receivable
5,390
110
5,500
20
Accounts Payable ($8,000 – $300)
Inventory ($7,700 × 2%)
Cash
7,700
154
7,546
ACR5-2 (Continued)
29
Rent Expense
Cash
375
375
29
Salaries and Wages Expense
Cash
1,300
1,300
29
Accounts Receivable
700
29
Cash
675
ADJUSTING ENTRIES
30
Supplies Expense
Supplies
960
960
30
Salaries and Wages Expense
Salaries and Wages Payable
30
Depreciation Expense
Accum. Depr.—Equipment
30
Unearned Service Revenue
Service Revenue ($4,675 – $650)
CLOSING ENTRIES
30
Service Revenue
Sales Revenue
Income Summary
7,025
5,500
12,525
Sales Discounts
Retained Earnings