SOLUTION
Requirements 1, 2, and 3
Date
Accounts and Explanation
Debit
Credit
Sep. 23
Merchandise Inventory
929.60
Accounts Payable
929.60
Accounts Payable
152.48
Merchandise Inventory
152.48
Accounts Payable ($929.60 − $152.48)
777.12
Cash ($777.12 − $7.77)
769.35
Merchandise Inventory ($777.12 × 0.01)
E5-17 Journalizing purchase transactions
Learning Objective 2
July 24 Merch. Inv. $90
Hartford Jewelers had the following purchase transactions. Journalize all necessary transactions.
Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Credit
Jun. 20
Merchandise Inventory
Accounts Payable
5,400
Merchandise Inventory
Cash
Accounts Payable
Merchandise Inventory
Accounts Payable ($5,400 − $900)
Cash
4,500
Merchandise Inventory
Accounts Payable
3,800
Accounts Payable
Merchandise Inventory
Accounts Payable ($3,800 − $800)
Cash ($3,000 − $90)
2,910
Merchandise Inventory ($3,000 × 0.03)
E5-18 Computing missing amounts
Learning Objective 3
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to
complete the table.
SOLUTION
a.
$26,750 ($86,950 − $60,200)
b.
$3,560 ($102,500 − $98,120 − $820)
c.
$66,400 ($98,120 – $31,720)
d.
$63,030 ($65,100 – $1,630 – $440)
e.
$21,830 ($63,030 – $41,200)
$115,000 ($112,150 + $2,000 + $850)
g.
$112,150 ($76,200 + $35,950)
E5-19 Journalizing sales transactions
Learning Objective 3
Jan. 13 Sales Discounts $97
Journalize the following sales transactions for Austin Mall. Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Jan. 4
Accounts Receivable
10,000
Sales Revenue
10,000
Cost of Goods Sold
5,000
Merchandise Inventory
5,000
Sales Returns and Allowances
300
Accounts Receivable
300
Merchandise Inventory
150
Cost of Goods Sold
150
13
Cash ($9,700 − $97)
9,603
Sales Discounts ($9,700 × 0.01)
97
Accounts Receivable ($10,000 − $300)
9,700
20
Accounts Receivable
5,200
Sales Revenue
5,200
Cost of Goods Sold
2,600
Merchandise Inventory
2,600
20
Delivery Expense
120
Cash
120
25
Sales Returns and Allowances
500
Accounts Receivable
500
29
Cash ($4,700 − $47)
4,653
Sales Discounts ($4,700 × 0.01)
47
Accounts Receivable ($5,200 − $500)
4,700
E5-20 Journalizing purchase and sales transactions
Learning Objectives 2, 3
Feb. 23 Cash $4,653
Journalize the following transactions for Santa Fe Art Gift Shop. Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Feb. 3
Merchandise Inventory
2,800
Accounts Payable
2,800
Accounts Payable
700
Merchandise Inventory
700
Merchandise Inventory
400
Cash
400
10
Accounts Receivable
4,800
Sales Revenue
4,800
Cost of Goods Sold
2,400
2,400
12
Accounts Payable ($2,800 – $700)
2,100
Cash ($2,100 – $63)
2,037
Merchandise Inventory ($2,100 × 0.03)
63
16
Sales Returns and Allowances
100
Accounts Receivable
100
23
Cash ($4,700 – $47)
4,653
Sales Discounts ($4,700 × 0.01)
Accounts Receivable ($4,800 − $100)
4,700
E5-21 Journalizing adjusting entries and computing gross profit
Learning Objectives 3, 4
2. Net Sales $71,400
Dog-eared Book Shop’s accounts at June 30, 2016, included the following unadjusted balances:
The cost associated with the physical count of inventory on hand on June 30, 2016, was $5,300.
Requirements
1. Journalize the adjustment for inventory shrinkage.
2. Compute the gross profit.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Use the following information to answer Exercises E5-22 through E5-24.
The adjusted trial balance of Business Reduction Systems at March 31, 2016, follows:
E5-22 Journalizing closing entries
Learning Objective 4
2. Ending Retained Earnings Balance $52,900
Requirements
1. Journalize the required closing entries at March 31, 2016.
2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the
closing entries to the T-accounts, and calculate their ending balances.
3. How much was Business Reduction’s net income or net loss?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Mar. 31
Sales Revenue
234,000
Income Summary
234,000
Income Summary
141,200
Income Summary
Retained Earnings
Requirement 2
92,800 Bal.
Clos. 4 40,000
92,800 Clos. 3
52,900 Bal.
40,000 Clos. 4
Requirement 3
Income Summary
Retained Earnings
Clos. 2 141,200
234,000 Clos. 1
100 Adj. Bal.
Dividends
E5-23 Preparing a single-step income statement
Learning Objective 5
Net Income $92,800
Prepare Business Reduction’s single-step income statement for the year ended March 31, 2016.
SOLUTION
BUSINESS REDUCTION SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$ 230,600
Expenses:
Cost of Goods Sold
$ 93,600
Selling Expense
Administrative Expense
Interest Expense
E5-24 Preparing a multi-step income statement
Learning Objective 5
Gross Profit $137,000
Prepare Business Reduction’s multi-step income statement for the year ended March 31, 2016.
SOLUTION
BUSINESS REDUCTION SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$ 234,000
Less: Sales Discounts
Net Sales Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses:
Operating Income
Other Revenues and (Expenses):
Net Income
E5-25 Computing the gross profit percentage
Learning Objective 6
Gross Profit Percentage 39%
Cupcake Queen earned net sales revenue of $67,000,000 in 2016. Cost of goods sold was $40,870,000,
and net income reached $8,000,000, the company’s highest ever. Compute the company’s gross profit
percentage for 2016.
SOLUTION
Net Sales Revenue
$ 67,000,000
Less: Cost of Goods Sold
40,870,000
Gross Profit
$ 26,130,000
E5A-26 Journalizing purchase transactions—periodic inventory system
Learning Objective 7
Appendix 5A
Sep. 17 Cash $5,626
Landry Appliances had the following purchase transactions. Journalize all necessary transactions using
the periodic inventory system. Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Sept. 4
Purchases
6,200
Accounts Payable
6,200
Cash
Accounts Payable
Purchase Returns and Allowances
Accounts Payable ($6,200 – $400)
5,800
Cash ($5,800 – $174)
5,626
Purchase Discounts ($5,800 × 0.03)
Purchases
4,600
Accounts Payable
4,600
Accounts Payable
Purchase Returns and Allowances
Accounts Payable ($4,600 – $900)
3,700
Cash ($3,700 – $111)
3,589
Purchase Discounts ($3,700 × 0.03)
E5A-27 Journalizing sales transactions—periodic inventory system
Learning Objective 7
Appendix 5A
Aug. 24 Sales Discounts $50
Journalize the following sales transactions for Double Z Archery using the periodic inventory system.
Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Aug. 1
Accounts Receivable
7,800
Sales Revenue
7,800
Sales Returns and Allowances
Accounts Receivable
Cash ($7,500 – $150)
7,350
Sales Discounts ($7,500 × 0.02)
Accounts Receivable ($7,800 – $300)
7,500
Accounts Receivable
3,200
Sales Revenue
3,200
Delivery Expense
Cash
Sales Returns and Allowances
Accounts Receivable
Cash ($2,500 – $50)
2,450
Sales Discounts ($2,500 × 0.02)
Accounts Receivable ($3,200 – $700)
2,500
E5A-28 Journalizing purchase and sales transactions—periodic inventory system
Learning Objective 7
Appendix 5A
Nov. 22 Accounts Receivable $5,800
Journalize the following transactions for Moody Bicycles using the periodic inventory system.
Explanations are not required.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Nov. 2
Purchases
3,700
Accounts Payable
3,700
Accounts Payable
Purchase Returns and Allowances
Cash
Accounts Receivable
6,200
Sales Revenue
6,200
Accounts Payable ($3,700 – $600)
3,100
Cash ($3,100 – $93)
3,007
Purchase Discounts ($3,100 × 0.03)
93
Sales Returns and Allowances
Accounts Receivable
Cash ($5,800 – $58)
5,742
Sales Discounts ($5,800 × 0.01)
Accounts Receivable ($6,200 – $400)
5,800
E5A-29 Journalizing closing entries—periodic inventory system
Learning Objective 7
Appendix 5A
2. Ending Retained Earnings Balance $72,600
Nautical Dream Boat Supply uses the periodic inventory method. The adjusted trial balance of Nautical
Dream Boat Supply at December 31, 2016, follows:
Requirements
1. Journalize the required closing entries at December 31, 2016. Assume ending Merchandise
Inventory is $53,300.
2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries
to the T-accounts, and calculate their ending balances.
3. How much was Nautical Dream’s net income or net loss?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Sales Revenue
330,000
Interest Revenue
3,200
Purchase Returns and Allowances
94,200
Purchase Discounts
8,000
Merchandise Inventory (ending)
53,300
Income Summary
488,700
Income Summary
382,900
274,600
Income Summary
105,800
105,800
Retained Earnings
60,700
Requirement 2
105,800 Bal.
105,800 Clos. 3
72,600 Bal.
Adj. Bal. 60,700
60,700 Clos. 4
Income Summary
Retained Earnings
Clos. 2 382,900
488,700 Clos. 1
27,500 Adj. Bal.
Requirement 3
E5A-30 Computing cost of goods sold in a periodic inventory system
Learning Objective 7
Appendix 5A
Zeta Electric uses the periodic inventory system. Zeta reported the following selected amounts at May
31, 2016: