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EXERCISE 5-7 (Continued)
(b)
Yoste
Noone
Profit margin
$11,620 ÷ $84,000 = 14%
$17,000 ÷ $100,000 = 17%
(c) Noone has a higher profit margin than Yoste. Each dollar of net sales by
Noone results in 17 cents of net income compared to only 14 cents for
Yoste. Noone also has a higher gross profit rate. For each dollar of
EXERCISE 5-8
(a) DARREN COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales
Sales revenue .............................. $2,210,000
EXERCISE 5-8 (Continued)
Other revenues and gains
Interest revenue ........................... 65,000
Other expenses and losses
Loss on disposal of
(b) Profit margin: $63,500 ÷ $2,050,000 = 3%
(c) During the current year Darren had a loss on the sale of property,
plant, and equipment of $83,500. This loss is not part of operating
EXERCISE 5-9
(a) THE CLOROX COMPANY
Income Statement
For the Year Ended June 30, 2017
(amounts in millions)
Sales
Sales revenue ............................................... $5,730
EXERCISE 5-9 (Continued)
Operating expenses
Advertising expense ................................... 499
Salaries and wages expense ...................... 460
Research and development expense ........ 114
(b) Gross profit rate: $2,346 ÷ $5,450 = 43.0%
EXERCISE 5-9 (Continued)
(c) THE CLOROX COMPANY
Income Statement
For the Year Ended June 30, 2017
(amounts in millions)
Sales
Net sales* ............................................................ $6,813
Operating expenses
Advertising expense*** .............................. $839
Salaries and wages expense ..................... 460
Research and development expense ....... 114
Gross profit rate: $2,933 ÷ $6,813 = 43.1%
Profit margin: $698 ÷ $6,813 = 10.2%
EXERCISE 5-10
(a) LAINE INC.
Income Statement
For the Year Ended December 31, 2017
Net sales ............................................................... $ 2,200,000
Cost of goods sold ............................................... 1,256,000
Gross profit ........................................................... 944,000
(b) LAINE INC.
Comprehensive Income Statement
For the Year Ended December 31, 2017
Net income ........................................................................ $ 118,000
EXERCISE 5-11
BLUE DOOR CORPORATION
Income Statement
For the Year Ended December 31, 2017
Sales .......................................................................... $2,400,000
Less: Sales returns and allowances ....................... $41,000
Sales discounts .............................................. 8,500 49,500
Operating expenses:
Salaries and wages expense .......................... 675,000
Depreciation expense ..................................... 125,000
Advertising expense ....................................... 55,000
LO 4 BT: AP Difficulty: Medium TOT: 15 min. AACSB: Analytic AICPA FC: Reporting
EXERCISE 5-12
Inventory, September 1, 2016 .................................... $ 18,700
Purchases ................................................................... $154,000
EXERCISE 5-13
(a) $1,420 ($1,500 – $80) (g) $7,700 ($290 + $7,410)
EXERCISE 5-14
(a) Earnings have high quality if they provide a full and transparent depiction
of how a company performed.
EXERCISE 5-14 (Continued)
(c) In order to identify potential aggressive accounting techniques one
should examine the factors that are causing net income to differ from net
cash provided by operating activities. Many of these differences would
*EXERCISE 5-15
(a) (1) April 5 Purchases .......................................... 27,000
Accounts Payable .................... 27,000
(3) April 7 Equipment .......................................... 30,000
Accounts Payable .................... 30,000
(4) April 8 Accounts Payable .............................. 3,600
(5) April 15 Accounts Payable
($27,000 – $3,600) ........................... 23,400
(b) May 4 Accounts Payable
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
11
Supplies ..............................................................
Cash ............................................................
900
900
12
Inventory .............................................................
Cash ............................................................
3,100
3,100
PROBLEM 5-1A (Continued)
General Journal
Date
Account Titles
Debit
Credit
May 19
Inventory .............................................................
Cash ............................................................
250
250
25
Inventory .............................................................
Accounts Payable ......................................
800
800
27
Accounts Payable ..............................................
Cash ............................................................
Inventory ($2,500 X 2%) .............................
2,500
2,450
50
31
Accounts Receivable .........................................
Sales Revenue ............................................
1,280
1,280
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
5/31 Bal. 1,280
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
5/29 124
5/31 Bal. 124
Sales Discounts
5/9 88
PROBLEM 5-1A (Continued)
(c) WINTERS HARDWARE STORE
Income Statement (Partial)
For the Month Ended May 31, 2017
Sales
Sales revenue ..................................................... $11,180
Less: Sales returns and allowances ................ $124
(d) Profit margin: ($2,828 – $1,400) ÷ $10,968 = 13.0%
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
Accounts Receivable ................................... 1,200
17 Accounts Receivable ........................................... 1,200
Sales Revenue .............................................. 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
7
Inventory ............................................................
Cash ............................................................
80
80
12
Inventory ............................................................
Accounts Payable ......................................
830
830
14
Accounts Payable ($1,500 – $200) ...................
Cash ...............................................................
Inventory ($1,300 X 3%) ..............................
1,300
1,261
39
17
Accounts Payable .............................................
Inventory .....................................................
30
30
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
4/30 1,220
4/7 80
4/14 1,261
Accounts Receivable
4/10 1,340
4/20 810
4/27 80
4/30 1,220
4/30 Bal. 850
Accounts Payable
4/9 200
4/5 1,500
Common Stock
4/1 Bal. 6,000
4/30 Bal. 6,000
4/10 1,340
4/20 810
4/30 Bal. 2,150
Sales Returns and Allowances
PROBLEM 5-3A (Continued)
(c) GRANITE HILLS PRO SHOP
Trial Balance
April 30, 2017
Debit
Credit
Cash .........................................................................
Accounts Receivable ..............................................
$1,587
850
(d) GRANITE HILLS PRO SHOP
Income Statement (Partial)
For the Month Ended April 30, 2017
Sales
Sales revenue ...................................................................... $2,150
PROBLEM 5-4A
(a) WOLFORD DEPARTMENT STORE
Income Statement
For the Year Ended November 30, 2017
Sales
Sales revenue .................................. $904,000
Less: Sales returns and
Operating expenses
Salaries and wages expense .......... $117,000
Rent expense ................................... 34,000
Advertising expense ....................... 33,500
Total operating expenses ....... 223,800
Income from operations .......................... 45,900
Other revenues and gains
Gain on disposal of plant assets ... 2,000
Other expenses and losses
PROBLEM 5-4A (Continued)
WOLFLORD DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended November 30, 2017
Retained earnings, December 1, 2016 ...................................... $14,200
WOLFORD DEPARTMENT STORE
Balance Sheet
November 30, 2017
Assets
Current assets
Cash ....................................................... $ 8,000
Accounts receivable ............................. 17,200
PROBLEM 5-4A (Continued)
WOLFORD DEPARTMENT STORE
Balance Sheet (Continued)
November 30, 2017
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable .............................................. $26,800
Salaries and wages payable ............................. 6,000
Total current liabilities ............................... $ 32,800
(b) Profit margin: $32,900 ÷ $884,000 = 3.7%
(c) Revised net income = Current net income + increase in gross profit –
increase in operating expenses
$14,743 = $32,900 + $40,443 – $58,600
