CHAPTER 6 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 6 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
7.
Debit Credit
Balances Balances
Customers Refunds Payable 89,270
Lynn Tolley, Capital 685,300
Lynn Tolley, Drawing 135,000
Sales 5,316,205
Cost of Merchandise Sold 2,991,950
May 31, 2016
PALISADE CREEK CO.
Adjusted Trial Balance
CHAPTER 6 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 6 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
Current assets:
Cash $ 84,500
Accounts receivable 245,875
Merchandise inventory 570,000
Current liabilities:
Accounts payable $ 63,150
Salaries payable 13,600
Liabilities
PALISADE CREEK CO.
Balance Sheet
May 31, 2016
Assets
CHAPTER 6 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
9.
Page
23
Post.
Ref. Debit Credit
2016
May 31 Sales 410 5,316,205
Advertising Expense 521 292,000
Depreciation Expense 522 14,000
Store Supplies Expense 523 9,800
Miscellaneous Selling Expense 529 12,600
Office Salaries Expense 530 417,700
Date
JOURNAL
Closing Entries
CHAPTER 6 Accounting for Merchandising Businesses
Comp. Problem 2 (Continued)
10.
Debit Credit
Balances Balances
Cash 84,500
Accounts Receivable 245,875
Merchandise Inventory 570,000
Estimated Returns Inventory 50,200
May 31, 2016
PALISADE CREEK CO.
Post-Closing Trial Balance
CHAPTER 6 Accounting for Merchandising Businesses
Comp. Problem 2 (Concluded)
5. (Optional)*
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
Lynn Tolley, Capital 685,300 685,300 685,300
Lynn Tolley, Drawing 135,000 135,000 135,000
Sales 5,376,205 (f) 60,000 5,316,205 5,316,205
Cost of Merchandise Sold 3,013,000 (a) 13,950 (g) 35,000 2,991,950 2,991,950
Sales Salaries Expense 720,800 (e) 7,000 727,800 727,800
Advertising Expense 292,000 292,000 292,000
*
This solution is applicable only if the end-of-period spreadsheet (work sheet) is used.
PALISADE CREEK CO.
End-of-Period Spreadsheet (Work Sheet)
For the Year Ended May 31, 2016
BalanceUnadjusted Adjusted Income
CHAPTER 6 Accounting for Merchandising Businesses
CP 6–1
Standards of Ethical Conduct for Management Accountants requires management
CP 6–2
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 6 Accounting for Merchandising Businesses
CP 6–3
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
Shipping and handling (not including next-day air)…………………
…
49.99
Total…………………………………………………………………………
…
$1,249.99
Tru-Sound Systems:
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
…
If Mark needs the stereo immediately (the next day), then Tru-Sound Systems has
the best price. This is because a shipping and handling charge of $89.99 would be
added to the Wholesale Stereo, as shown below.
Wholesale Stereo list price………………………………………………
…
$1,200.00
…
89.99
…
…
CHAPTER 6 Accounting for Merchandising Businesses
CP 6–3 (Concluded)
Tru-Sound Systems price (see previous page)………………………………
…
$1,280.75
Less first installment (down payment)………………………………………… 426.92
Remaining balance………………………………………………………………… $ 853.83
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
CP 6–4
1.
Revenues:
Sales (a) $1,485,000
Interest revenue 15,000
Total revenues $1,500,000
Expenses:
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
Add: Increase in store supplies expense
($12,000 × 10%)……………………………………… $1,200
Increase in miscellaneous selling expense
…
WATERCRAFT SUPPLY COMPANY
Projected Income Statement
For the Year Ended October 31, 2017
CHAPTER 6 Accounting for Merchandising Businesses
CP 6–4 (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 6–5
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