EXERCISE 5-10
EXERCISE 5-11
(a) $1,420 ($1,500 – $80) (g) $7,700 ($290 + $7,410)
EXERCISE 5-12
(a) Earnings have high quality if they provide a full and transparent depiction
of how a company performed.
EXERCISE 5-12 (Continued)
(c) In order to identify potential aggressive accounting techniques one
should examine the factors that are causing net income to differ from net
*EXERCISE 5-13
(a) (1) April 5 Purchases …………………………………… 27,000
Accounts Payable ……………….. 27,000
(b) May 4 Accounts Payable
($27,000 – $3,600) ……………………… 23,400
Cash …………………………………… 23,400
SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
(a)
General Journal
Date Account Titles Debit Credit
May 1 Inventory …………………………………………………
Accounts Payable …………………………….
8,000
8,000
5 Accounts Payable……………………………………
Inventory ………………………………………….
200
200
PROBLEM 5-1A (Continued)
General Journal
Date Account Titles Debit Credit
May 19 Inventory ………………………………………………….
Cash …………………………………………………
250
250
24 Cash ………………………………………………………..
5,500
29 Sales Returns and Allowances………………….
Cash …………………………………………………
124
124
PROBLEM 5-1A (Continued)
(b)
Cash
5/1 Bal. 8,000
5/9 4,312
5/10 7,722
5/11 900
Accounts Receivable
5/2 4,400
5/31 1,280
5/9 4,400
Inventory
5/1 8,000
5/12 3,100
5/2 3,300
5/5 200
Supplies
5/11 900
5/31 Bal. 900
Accounts Payable
5/5 200
5/1 8,000
Common Stock
5/1 Bal. 8,000
5/31 Bal. 8,000
Sales Returns and Allowances
Sales Discounts
5/9 88
PROBLEM 5-1A (Continued)
(c) WATERS HARDWARE STORE
Income Statement (Partial)
For the Month Ended May 31, 2014
Sales
Sales revenue …………………………………………….. $11,180
PROBLEM 5-2A
June 1 Inventory ……………………………………………………… 1,040
Accounts Payable …………………………………. 1,040
9 Accounts Payable ($1,040 – $40) …………………… 1,000
Cash …………………………………………………….. 980
Inventory ($1,000 X .02) …………………………. 20
15 Cash ……………………………………………………………. 1,200
PROBLEM 5-2A (Continued)
June 26 Accounts Payable…………………………………………. 720
Cash ……………………………………………………… 713
Inventory (720 X .01) ………………………………. 7
PROBLEM 5-3A
(a)
General Journal
Date Account Titles Debit Credit
Apr. 5 Inventory ………………………………………………..
.
Accounts Payable …………………………….
.
1,500
1,500
.
.
12 Inventory ………………………………………………..
.
Accounts Payable …………………………….
.
830
830
14 Accounts Payable ($1,500
–
$200) ……………
.
Cash …………………………………………………..
Inventory ($1,300 X 3%) ……………………..
.
1,300
1,261
39
–
.
PROBLEM 5-3A (Continued)
Date Account Titles Debit Credit
Apr. 27 Sales Returns and Allowances………………..
.
Accounts Receivable ……………………….
.
80
80
.
(b)
Cash
4/1 Bal. 2,500
4/7 80
Inventory
4/1 Bal. 3,500
4/5 1,500
4/9 200
4/10 820
Common Stock
4/1 Bal. 6,000
Sales Revenue
4/10 1,340
Sales Returns and Allowances
4/27 80
4/30 Bal. 80
PROBLEM 5-3A (Continued)
(c) FLINT HILLS PRO SHOP
Trial Balance
April 30, 2014
Debit Credit
Cash ……………………………………………………………….
$1,587
(d) FLINT HILLS PRO SHOP
Income Statement (Partial)
For the Month Ended April 30, 2014
Sales
Sales revenue ……………………………………………………………. $2,150
PROBLEM 5-4A
(a) LAMBERT DEPARTMENT STORE
Income Statement
For the Year Ended November 30, 2014
Sales
Sales revenue ……………………………. $904,000
Less: Sales returns and
Income from operations …………………….. 45,900
Other revenues and gains
Gain on disposal of plant assets … 2,000
PROBLEM 5-4A (Continued)
LAMBERT DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended November 30, 2014
Retained earnings, December 1, 2013 ……………………………….. $14,200
Add: Net income ……………………………………………………………. 32,900
47,100
LAMBERT DEPARTMENT STORE
Balance Sheet
November 30, 2014
Assets
Current assets
Cash ………………………………………………. $ 8,000
Accounts receivable ……………………….. 17,200
PROBLEM 5-4A (Continued)
LAMBERT DEPARTMENT STORE
Balance Sheet (Continued)
November 30, 2014
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ………………………………………. $26,800
Salaries and wages payable ……………………….. 6,000
Total current liabilities …………………………. $ 32,800
Long-term liabilities
(b) Profit margin: $32,900 ÷ $884,000 = 3.7%
(c) Revised net income = Current net income + increase in gross profit –
Revised net sales = Current net sales + .15 (current net sales)
Revised gross profit = Current gross profit + $40,443
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
affects selling expenses rather than cost of goods sold. An increase in
PROBLEM 5-5A
SUNDBERG COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue ………………………………… $911,000
Less: Sales returns and
allowances ………………………….. $28,000
Sales discounts……………………. 18,000 46,000
Net sales ……………………………………….. 865,000
Rent expense ($24,000 – $6,000) ……… 18,000
Advertising expense ………………………. 13,000
Utilities expense …………………………….. 12,000
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
Interest Expense
12/31 4,500
12/31 Bal. 4,500
PROBLEM 5-6A (Continued)
(c) CUSTOMER CHOICE WHOLESALE COMPANY
Adjusted Trial Balance
December 31, 2014
Debit Credit
Cash …………………………………………………….
.
Accounts Receivable ……………………………
.
.
Accumulated Depreciation—
Equipment ………………………………………..
.
Notes Payable ………………………………………
.
Accounts Payable ………………………………..
.
Interest Payable ……………………………………
.
.
.
Sales Discounts ……………………………………
.
Cost of Goods Sold ………………………………
.
Salaries and Wages Expense ………………..
.
.
$ 31,400
37,600
6,000
709,900
51,300
47,500
54,700
17,500
4,500
PROBLEM 5-6A (Continued)
(d) CUSTOMER CHOICE WHOLESALE COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue ………………………………………. $922,100
Less: Sales discounts …………………………. 6,000
Net sales …………………………………………………….. 916,100
Depreciation expense …………………………… 15,000
Utilities expense …………………………………… 11,400
Maintenance and repairs expense …………. 8,900
Advertising expense …………………………….. 5,200
Income tax expense …………………………………….. 24,000
Net income …………………………………………………. $ 81,100
CUSTOMER CHOICE WHOLESALE COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2014
Retained earnings, January 1 ………………………………………… $ 67,200
PROBLEM 5-6A (Continued)
CUSTOMER CHOICE WHOLESALE COMPANY
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ………………………………………… $ 31,400
Accounts receivable …………………. 37,600
Property, plant, and equipment
Land ………………………………………… 92,000
Buildings …………………………………. $200,000
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable …………………………………………… $ 15,000
Long-term liabilities
Notes payable ($54,700 – $15,000) ……………… 39,700
Total liabilities …………………………………….. 100,700