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Exercise 5-11 (10 minutes)
Multiple-Step Income Statement — Sales Related Information Only
Exercise 5-12 (20 minutes)
a. The employee oversight in omitting these goods from the physical count
would cause the cost of the physical count of ending inventory to be
understated. Thus, comparison of the perpetual inventory records with
the physical count would incorrectly indicate an additional shrinkage of
b. As a result of this error the following ratios are impacted:
• Return on assets would be understated (numerator impact outweighs
the denominator impact).
Exercise 5-13 (20 minutes)
See related explanations above in Exercise 12. As a result of this error:
Exercise 5-14 (15 minutes)
Case X
Case Y
Case Z
Current ratio computation
Current assets ........................
$5,200
$3,500
$7,410
Current liabilities ....................
$2,000
$1,000
$3,800
Interpretation:
Case X has the highest acid-test ratio and a healthy current ratio. Since Case
X has enough current assets to cover its current liabilities by more than two
times and enough liquid assets to cover its current liabilities by more than one
time, Case X appears to be in the best position to meet its short-term
obligations.
More specifically, Case Y exhibits superior ability to meet current year
Exercise 5-15A (30 minutes)
PERIODIC—Buyer (Gross Method)
Apr. 2 Purchases .......................................................... 4,600
Accounts Payable—Lyon .......................... 4,600
Purchased merchandise on credit.
Exercise 5-16A (30 minutes)
1. BUYER- Santa Fe (Periodic & Gross Method)
a) Credit Purchase
Purchases ......................................................... 24,000
Accounts Payable ..................................... 24,000
2. SELLER – Mesa (Periodic & Gross Method)
a) Credit Sale
Accounts Receivable ....................................... 24,000
Sales ........................................................... 24,000
1. Entries for Sydney (BUYER)—Periodic & Gross Method:
May 11 Purchases ........................................................ 40,000
Accounts Payable .................................... 40,000
Purchased goods.
2. Entries for Troy (SELLER)—Periodic & Gross Method:
May 11 Accounts Receivable ...................................... 40,000
Sales .......................................................... 40,000
Sold goods.
316
Exercise 5-18 (20 minutes)
L´Oréal
Income Statement (€ millions)
For Year Ended December 31, 2014
Net sales ................................................................................... €22,532.0
Exercise 5-19C (15 minutes)
a.
317
Exercise 5-20C (25 minutes)
a.
Dec. 31 Sales Returns and Allowances ................................. 60,000
Sales Refund Payable ....................................... 60,000
Exercise 5-21C (25 minutes)
Exercise 5-22D (25 minutes)
1. Entries for Sydney (BUYER)—Perpetual & Net Method
May 11 Merchandise Inventory ............................................... 38,800
Accounts Payable ................................................ 38,800
Purchased goods. ($40,000 x [100%-3%])
2. Entries for Troy (SELLER)—Perpetual & Net Method
May 11 Accounts Receivable .................................................. 38,800
Sales ...................................................................... 38,800
Sold goods. ($40,000 x [100%-3%])
Exercise 5-23D (25 minutes)
BUYER—Perpetual & Gross Method
a.
Recording inventory at gross amounts
Oct. 2
Merchandise Inventory ................................................
3,000
Accounts Payable ..................................................
3,000
Exercise 5-23D (Concluded)
BUYER—Perpetual & Net Method
b.
Recording inventory at net amounts
Oct. 2
Merchandise Inventory ................................................
2,940
Accounts Payable ..................................................
2,940
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 5
PROBLEM SET A
Problem 5-1A (40 minutes)—Perpetual & Gross Method
July 1 Merchandise Inventory ..................................... 6,000
Accounts Payable—Boden ....................... 6,000
Purchased goods, terms 1/15, n/30.
8 Cost of Goods Sold ........................................... 1,300
Merchandise Inventory .............................. 1,300
Record cost of the July 8 sale.
9 Merchandise Inventory ..................................... 2,200
Problem 5-1A (Concluded)
July 16 Accounts Payable—Boden ............................... 6,000
Merchandise Inventory* ............................ 60
Cash ............................................................ 5,940
Paid for goods within discount period.
24 Accounts Payable—Leight ............................... 2,000
Merchandise Inventory* ............................ 40
Cash ............................................................ 1,960
Paid for goods within discount period.
*$2,000 x 2%
Problem 5-2A (40 minutes)—Perpetual and Gross Method
Aug. 1 Merchandise Inventory ..................................... 7,500
Accounts Payable—Aron .......................... 7,500
Purchased goods, terms 1/10, n/30.
5 Accounts Receivable—Baird ........................... 5,200
Problem 5-2A (Concluded)
Aug. 15 Cash .................................................................... 4,508
Sales Discounts* ............................................... 92
Accounts Receivable—Baird .................... 4,600
Received payment within discount period.
19 Cost of Goods Sold ........................................... 2,400
Merchandise Inventory .............................. 2,400
Record cost of August 19 sale.
22 Sales Returns and Allowances ........................ 500
Accounts Receivable—Tux ....................... 500
Problem 5-3A (40 minutes)
1. Net sales
2. Cost of Merchandise purchased
Invoice cost of merchandise purchased .....................
$ 92,000
326
Problem 5-3A (Continued)
3. Multiple-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2017
Sales .................................................................... $225,600
Advertising expense ...................................... 13,000
Total selling expenses .................................. 54,500
General and administrative expenses
327
4. Single-step income statement
VALLEY COMPANY
Income Statement
For Year Ended August 31, 2017
Net sales .................................................................. $211,350
Problem 5-4A (30 minutes)
Part 1
Closing entries
Aug. 31 Sales ...................................................................... 225,600
Income Summary .......................................... 225,600
Aug. 31 Income Summary ................................................. 49,850
K.Valley, Capital ............................................ 49,850
329
Problem 5-5A (60 minutes)
Part 1
Adjustment (a)
Jan 31 Store Supplies Expense ................................... 4,050
330
Problem 5-5A (Continued)
Part 2 Multiple-step income statement
NELSON COMPANY
Income Statement
For Year Ended January 31, 2017
Rent expense—Selling space**............................ 7,500
Store supplies expense ........................................ 4,050
