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CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
4. and 6. Page 22
Post.
Ref. Debit Credit
2016
May 31 Cost of Merchandise Sold 510 13,950
Merchandise Inventory 115 13,950
Inventory shrinkage
($583,950 – $570,000).
31 Insurance Expense 532 12,000
Prepaid Insurance 117 12,000
Insurance expired.
Date
JOURNAL
Adjusting Entries
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
7.
Debit Credit
Balances Balances
Customers Refunds Payable 89,270
Common Stock 100,000
Retained Earnings 585,300
Dividends 135,000
Sales 5,316,205
May 31, 2016
PALISADE CREEK CO.
Adjusted Trial Balance
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
8.
Sales $5,316,205
Cost of merchandise sold 2,991,950
Office salaries expense $417,700
Rent expense 88,700
Insurance expense 12,000
Miscellaneous administrative
expense 7,800
PALISADE CREEK CO.
Income Statement
For the Year Ended May 31, 2016
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
Property, plant, and equipment:
Store equipment $569,500
Less accumulated depreciation 70,700
Total property, plant, and equipment 498,800
Total assets $1,458,175
PALISADE CREEK CO.
Balance Sheet
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
9.
Page
23
Post.
Ref. Debit Credit
Sales Salaries Expense 520 727,800
Advertising Expense 521 292,000
Depreciation Expense 522 14,000
Date
JOURNAL
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
10.
Debit Credit
Balances Balances
Estimated Returns Inventory 50,200
Prepaid Insurance 4,800
Store Supplies 4,000
May 31, 2016
PALISADE CREEK CO.
Post-Closing Trial Balance
CHAPTER 5 Accounting for Merchandising Businesses
Comp. Problem 2 (Concluded)
5. (Optional)*
Account Title Debit Credit Debit Credit Debit Credit Debit Credit
Store Supplies 13,800 (c) 9,800 4,000 4,000
Store Equipment 569,500 569,500 569,500
Accum. Depr.—Store Equip. 56,700 (d) 14,000 70,700 70,700
Accounts Payable 63,150 63,150 63,150
Salaries Payable (e) 13,600 13,600 13,600
Customers Refunds Payable 29,270 (f) 60,000 89,270 89,270
Common Stock 100,000 100,000 100,000
Insurance Expense (b) 12,000 12,000 12,000
Miscellaneous Admin. Expense 7,800 7,800 7,800
6,210,625 6,210,625 158,350 158,350 6,238,225 6,238,225 4,574,350 5,316,205 1,663,875 922,020
Net income 741,855 741,855
5,316,205 5,316,205 1,663,875 1,663,875
PALISADE CREEK CO.
End-of-Period Spreadsheet (Work Sheet)
For the Year Ended May 31, 2016
BalanceUnadjusted Adjusted Income
SheetTrial Balance
Debit Credit
Trial Balance StatementAdjustments
CHAPTER 5 Accounting for Merchandising Businesses
CP 5–1
Standards of Ethical Conduct for Management Accountants requires management
CP 5–2
Cam Pfeifer is correct. The accounts payable due to suppliers could be included on
the balance sheet at an amount of $314,500 ($269,500 + $45,000). This is the
amount that will be expected to be paid to satisfy the obligation (liability) to
CASES & PROJECTS
CHAPTER 5 Accounting for Merchandising Businesses
CP 5–3
1. If Mark doesn’t need the stereo immediately (by the next day), Wholesale Stereo
offers the best buy, as shown below.
Wholesale Stereo:
List price……………………………………………………………………
…
$1,200.00
Tru-Sound Systems:
List price……………………………………………………………………
…
$1,175.00
Even if the 2% cash discount offered by Tru-Sound Systems is considered,
Wholesale Stereo still offers the best buy, as shown below.
List price……………………………………………………………………
…
$1,175.00
Less 2% cash discount.…………………………………………………
…
23.50
Subtotal……………………………………………………………………… $1,151.50
…
Next-day freight charge…………………………………………………
…
89.99
Total…………………………………………………………………………
…
$1,289.99
CHAPTER 5 Accounting for Merchandising Businesses
CP 5–3 (Concluded)
Tru-Sound Systems price (see previous page)………………………………
…
$1,280.75
Less first installment (down payment)………………………………………… 426.92
Remaining balance………………………………………………………………… $ 853.83
The total interest savings would be $19.41 ($12.81 + $6.60). This interest
savings would still not be enough to just offset the price advantage of
Wholesale Stereo, as shown below.
Tru-Sound Systems price (see above)……………………………………
…
$1,280.75
2. Other considerations in buying the stereo include the ability to have the stereo
repaired locally. In addition, Tru-Sound Systems’ employees would presumably
CHAPTER 5 Accounting for Merchandising Businesses
CP 5–4
1.
Revenues:
Sales (a) $1,485,000
Interest revenue 15,000
Notes:
a. Projected sales
[$1,350,000 + (10% × $1,350,000)]………………………
…
$1,485,000
b. Projected cost of merchandise sold
($1,485,000 × 60%)…………………………………………
…
$ 891,000
c. Total selling expenses for year ended October 31, 2016
…
$ 140,000
WATERCRAFT SUPPLY COMPANY
Projected Income Statement
For the Year Ended October 31, 2017
CHAPTER 5 Accounting for Merchandising Businesses
CP 5–4 (Concluded)
2. a. Yes. The proposed change will increase net income from $321,000 to
$384,650, a change of $63,650.
b. Possible concerns related to the proposed changes include the following:
The primary concern is with the accuracy of the estimates used for
projecting the effects of the proposed changes. If the increase in sales
CP 5–5
Note to Instructors: The purpose of this activity is to familiarize students with the
variety of possible purchase prices for a fairly common household item. Students
should report several alternative prices when they consider the source of the
