ch05 PDF
ch05 PDF
ch05 PDF
Brief A B
Learning Objectives Questions Exercises Do It! Exercises Problems Problems
*7. Explain the recording of 22, 23 11, 12, 13, 17, 18, 19, 6A, 7A, 8A 5B, 6B, 7B
purchases and sales of 14, 15 20, 21, 22
inventory under a periodic
inventory system.
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.
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ASSIGNMENT CHARACTERISTICS TABLE
*6A Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.
*8A Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.
*5B Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.
*7B Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.
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WEYGANDT FINANCIAL ACCOUNTING 9E
CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
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ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)
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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
E5-3 P5-4A
4. Explain the steps in the Q5-1 Q5-13 E5-6 P5-5A P5-3A
accounting cycle for a Q5-12 BE5-5 E5-7 P5-4B P5-3B
merchandising company. Q5-14 BE5-6 E5-8
DI5-3 P5-4A
5. Distinguish between a Q5-18 Q5-19 BE5-7 P5-5A E5-13
multiple-step and a single- BE5-8 BE5-9 P5-6A E5-14
step income statement. Q5-17 DI5-4 P5-2B P5-3A
E5-6 P5-5B P5-7A
E5-9 Q5-15 P5-3B
E5-10 Q5-16 P5-6B
E5-12 Q5-20
P5-2A
*6. Prepare a worksheet for Q5-21 E5-15 P5-5A
a merchandising company. BE5-10 E5-16
5-5
ANSWERS TO QUESTIONS
1. (a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.
2. The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.
Cost of
Sales Gross Operating Net
Less Goods Equals Less Equals
Revenue Profit Expenses Income
Sold
4. Income measurement for a merchandising company differs from a service company as follows:
(a) sales are the primary source of revenue and (b) expenses are divided into two main
categories: cost of goods sold and operating expenses.
5. In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.
6. The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on
board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB
destination means that the goods are placed free on board to the buyer’s place of business.
Thus, the seller pays the freight and debits Freight-out.
7. Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.
9. Agree. In accordance with the revenue recognition principle, sales revenues are generally con-
sidered to be recognized when the goods are transferred from the seller to the buyer; that is,
when the performance obligation is satisfied. The recognition of revenue is not dependent on the
collection of credit sales.
10. (a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales—
sales invoice.
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Questions Chapter 5 (Continued)
12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.
14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.
17. There are three distinguishing features in the income statement of a merchandising company:
(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.
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Questions Chapter 5 (Continued)
*18. (a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
(b) The nonoperating activities part consists of two sections: other revenues and gains, and
other expenses and losses.
*19. The single-step income statement differs from the multiple-step income statement in that: (1) all data
are classified into two categories: revenues and expenses, and (2) only one step, subtracting
total expenses from total revenues, is required in determining net income (or net loss).
20. Apple’s gross profit rate for 2011 was 40.5% [($108,249 – $64,431) ÷ $108,249]. Its gross profit
rate in 2010 was 39.4% [($65,225 – $39,541) ÷ $65,225] so the rate increased from 2010
to 2011.
*22.
Accounts Added/Deducted
Purchase Returns and Allowances Deducted
Purchase Discounts Deducted
Freight-In Added
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SOLUTIONS TO BRIEF EXERCISES
Radomir Company
Inventory............................................................... 780
Accounts Payable ........................................ 780
Lemke Company
Accounts Receivable........................................... 780
Sales Revenue.............................................. 780
Cost of Goods Sold ............................................. 470
Inventory ....................................................... 470
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BRIEF EXERCISE 5-3 (Continued)
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BRIEF EXERCISE 5-7
ARNDT COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2015
Sales
Sales revenue ($280,000 + $100,000) ................ $380,000
Less: Sales returns and allowances ................ $11,000
Sales discounts ....................................... 5,000 16,000
Net sales .............................................................. $364,000
Item Section
a. Gain on sale of equipment Other revenues and gains
b. Interest expense Other expenses and losses
c. Casualty loss from vandalism Other expenses and losses
d. Cost of goods sold Cost of goods sold
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BRIEF EXERCISE 5-9
(a) Net sales = $510,000 – $15,000 = $495,000.
(b) Gross profit = $495,000 – $330,000 = $165,000.
(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Balance sheet debit column.
(b) Inventory: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.
(c) Sales revenue: Trial balance credit column; Adjusted trial balance
credit column, Income statement credit column.
(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.
Purchases....................................................................... $450,000
Less: Purchase returns and allowances .................... $13,000
Purchase discounts ........................................... 8,000 21,000
Net purchases ................................................................ $429,000
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*BRIEF EXERCISE 5-12
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*BRIEF EXERCISE 5-15
(a) Cash: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.
(c) Accounts payable: Trial balance credit column; Adjusted trial balance
credit column; Balance sheet credit column.
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SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 5-1
DO IT! 5-2
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DO IT! 5-3
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DO IT! 5-4
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SOLUTIONS TO EXERCISES
EXERCISE 5-1
1. True.
2. False. For a merchandiser, sales less cost of goods sold is called
gross profit.
3. True.
4. True.
5. False. The operating cycle of a merchandiser differs from that of a
service company. The operating cycle of a merchandiser is ordinarily
longer.
6. False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
7. True.
8. False. A perpetual inventory system provides better control over inven-
tories than a periodic system.
EXERCISE 5-2
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EXERCISE 5-3
9 Inventory.......................................................... 80
Cash ......................................................... 80
10 Accounts Payable........................................... 63
Inventory .................................................. 63
EXERCISE 5-4
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EXERCISE 5-4 (Continued)
EXERCISE 5-5
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EXERCISE 5-6
Sales
Sales revenue .................................................. $820,000
Less: Sales returns and allowances ........... $25,000
Sales discounts .................................. 13,000 38,000
Net sales ......................................................... $782,000
EXERCISE 5-7
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EXERCISE 5-8
EXERCISE 5-9
Sales
Sales revenue ................................................... $380,000
Less: Sales returns and allowances.............. $13,000
Sales discounts .................................... 8,000 21,000
Net sales............................................................ 359,000
Cost of goods sold................................................ 212,000
Gross profit............................................................ 147,000
Operating expenses
Salaries and wages expense ........................... 58,000
Rent expense .................................................... 32,000
Freight-out ........................................................ 7,000
Insurance expense ........................................... 6,000
Total operating expenses .................... 103,000
Net income ........................................................ $ 44,000
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EXERCISE 5-10
Revenues
Net sales .............................................. $2,200,000
Interest revenue .................................. 28,000
Total revenues ............................. 2,228,000
Expenses
Cost of goods sold.............................. $1,289,000
Operating expenses............................ 725,000
Interest expense.................................. 70,000
Loss on disposal of plant assets....... 17,000
Total expenses ............................ 2,101,000
Net income .................................................. $ 127,000
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EXERCISE 5-11
4. Inventory ............................................................................. 20
Cash .................................................................................... 180
Freight-Out .................................................................. 200
EXERCISE 5-12
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EXERCISE 5-13
Reed Company
Gross profit ÷ Net sales = $41,500 ÷ $102,000 = 40.7%
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EXERCISE 5-14
(*Missing amount)
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EXERCISE 5-14 (Continued)
*EXERCISE 5-15
*EXERCISE 5-16
MARQUEZ COMPANY
Worksheet
For the Month Ended June 30, 2015
Adj. Trial Income
Account Titles Trial Balance Adjustments Balance Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 1,920 1,920 1,920
Accounts Receivable 2,440 2,440 2,440
Inventory 11,640 11,640 11,640
Accounts Payable 1,120 1,500 2,620 2,620
Common Stock 3,500 3,500 3,500
Sales Revenue 42,500 42,500 42,500
Cost of Goods Sold 20,560 20,560 20,560
Operating Expenses 10,560 1,500 12,060 12,060
Totals 47,120 47,120 1,500 1,500 48,620 48,620 32,620 42,500 16,000 6,120
Net Income 9,880 9,880
Totals 42,500 42,500 16,000 16,000
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*EXERCISE 5-17
*EXERCISE 5-18
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*EXERCISE 5-19
*EXERCISE 5-20
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*EXERCISE 5-21
*EXERCISE 5-22
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PROBLEM 5-1A
20 Inventory....................................................... 1,500
Accounts Payable ................................ 1,500
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PROBLEM 5-1A (Continued)
Inventory ....................................................... 72
Cost of Goods Sold .............................. 72
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PROBLEM 5-2A
(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
May 1 Inventory............................................ 120 4,200
Accounts Payable ..................... 201 4,200
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PROBLEM 5-2A (Continued)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
May 24 Cash..................................................... 101 3,200
Sales Revenue ............................ 401 3,200
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PROBLEM 5-2A (Continued)
(b)
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PROBLEM 5-2A (Continued)
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PROBLEM 5-2A (Continued)
Sales
Sales revenue ..................................................... $6,300
Less: Sales returns and allowances ............... $70
Sales discounts ...................................... 21 91
Net sales ............................................................. 6,209
Cost of goods sold .................................................... 3,830
Gross profit ................................................................ $2,379
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PROBLEM 5-3A
Sales
Sales revenue..................................... $700,000
Less: Sales returns & allowances ... 8,000
Net sales ............................................. 692,000
Cost of goods sold ................................... 507,000
Gross profit ............................................... 185,000
Operating expenses
Salaries and wages expense...... $96,000
Rent expense............................... 15,000
Sales commissions expense ..... 11,000
Depreciation expense ................. 11,000
Utilities expense.......................... 8,500
Insurance expense...................... 7,000
Freight-out ................................... 6,500
Property tax expense.................. 2,500
Total oper. expenses ........... 157,500
Income from operations ........................... 27,500
Other revenues and gains
Interest revenue ................................. 8,000
Other expenses and losses
Interest expense................................. 6,400 1,600
Net income................................................. $ 29,100
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PROBLEM 5-3A (Continued)
Assets
Current assets
Cash .................................................... $ 26,000
Accounts receivable.......................... 30,500
Inventory............................................. 29,000
Prepaid insurance.............................. 3,500
Total current assets ................... $ 89,000
Property, plant, and equipment
Equipment .......................................... 146,000
Less: Accumulated depreciation—
equipment ............................... 45,000
101,000
Total assets ................................ $190,000
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PROBLEM 5-3A (Continued)
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PROBLEM 5-3A (Continued)
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PROBLEM 5-4A
(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 5 Inventory ............................................. 120 1,200
Accounts Payable....................... 201 1,200
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PROBLEM 5-4A (Continued)
J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 27 Sales Returns and Allowances...... 412 20
Accounts Receivable.............. 112 20
(b)
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PROBLEM 5-4A (Continued)
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PROBLEM 5-4A (Continued)
Debit Credit
Cash......................................................................... $ 978
Accounts Receivable.............................................. 590
Inventory ................................................................. 3,312
Common Stock ....................................................... $4,300
Sales Revenue ........................................................ 1,510
Sales Returns and Allowances.............................. 20
Cost of Goods Sold ................................................ 910
$5,810 $5,810
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5-46
(a) VALDEZ FASHION CENTER
Worksheet
For the Year Ended November 30, 2015
Adjusted Income
Account Titles Trial Balance Adjustments Trial Balance Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 8,700 8,700 8,700
Accounts Receivable 30,700 30,700 30,700
Inventory 44,700 (d) 300 44,400 44,400
Supplies 6,200 (a) 4,200 2,000 2,000
Equipment 133,000 133,000 133,000
Accum. Depreciation—
Key: (a) Store supplies used, (b) Depreciation expense—equipment, (c) Accrued interest payable, (d) Adjustment of inventory.
Sales
Sales revenue ............................................. $755,200
Less: Sales returns and
allowances....................................... 8,800
Net sales...................................................... 746,400
Cost of goods sold ............................................ 497,700
Gross profit ........................................................ 248,700
Operating expenses
Salaries and wages expense .............. $140,000
Advertising expense ........................... 24,400
Rent expense ....................................... 24,000
Freight-out............................................ 16,700
Utilities expense .................................. 14,000
Maintenance and repairs expense ..... 12,100
Depreciation expense ......................... 11,500
Supplies expense ................................ 4,200
Total operating expenses ............ 246,900
Income from operations.................................... 1,800
Other expenses and losses
Interest expense ......................................... 4,000
Net loss .............................................................. $ (2,200)
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*PROBLEM 5-5A (Continued)
Assets
Current assets
Cash .................................................. $ 8,700
Accounts receivable ........................ 30,700
Inventory ........................................... 44,400
Supplies ............................................ 2,000
Total current assets ................. $ 85,800
Property, plant, and equipment
Equipment......................................... 133,000
Accumulated depreciation—
equipment ..................................... 39,500 93,500
Total assets............................... $179,300
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*PROBLEM 5-5A (Continued)
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*PROBLEM 5-5A (Continued)
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*PROBLEM 5-5A (Continued)
Debit Credit
Cash................................................................. $ 8,700
Accounts Receivable...................................... 30,700
Inventory ......................................................... 44,400
Supplies........................................................... 2,000
Equipment ....................................................... 133,000
Accumulated Depreciation—Equipment ...... $ 39,500
Notes Payable ................................................. 51,000
Accounts Payable........................................... 48,500
Interest Payable .............................................. 4,000
Common Stock ............................................... 50,000
Retained Earnings .......................................... 25,800
$218,800 $218,800
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*PROBLEM 5-6A
Sales
Sales revenue............................ $1,000,000
Less: Sales returns and
allowances...................... 20,000
Net sales .................................... 980,000
Cost of goods sold
Inventory, Dec. 1, 2014.............. $ 40,000
Purchases.................................. $585,000
Less: Purchase returns
and allowances.............. $2,700
Purchase discounts ...... 6,300 9,000
Net purchases ........................... 576,000
Add: Freight-in ......................... 7,500
Cost of goods purchased......... 583,500
Cost of goods available
for sale ........................... 623,500
Inventory, Nov. 30, 2015 ........... 52,600
Cost of goods sold........ 570,900
Gross profit ...................................... $ 409,100
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*PROBLEM 5-7A
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*PROBLEM 5-7A (Continued)
(2) A decline in sales does not necessarily mean that profitability declined.
Profitability is affected by sales revenue, cost of goods sold, and
operating expenses. If cost of goods sold or operating expenses
decline more than sales revenue, profitability can increase even when
sales decline. In this particular case, the sales revenue decline was
offset by cost savings to improve profitability. Therefore, profitability
increased for Alana, Inc. from 2013 to 2015.
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*PROBLEM 5-8A
(a)
General Journal
Date Account Titles and Explanation Debit Credit
Apr. 5 Purchases...................................................... 1,200
Accounts Payable ................................. 1,200
7 Freight-In ....................................................... 50
Cash........................................................ 50
12 Purchases...................................................... 450
Accounts Payable ................................. 450
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*PROBLEM 5-8A (Continued)
(b)
Cash Common Stock
4/1 Bal. 3,000 4/7 50 4/1 Bal. 7,000
4/30 600 4/14 1,078 4/30 Bal. 7,000
4/21 396
4/30 Bal. 2,076 Sales Revenue
4/10 600
Accounts Receivable 4/20 600
4/10 600 4/27 35 4/30 Bal. 1,200
4/20 600 4/30 600
4/30 Bal. 565 Sales Returns and Allowances
4/27 35
Inventory 4/30 Bal. 35
4/1 Bal. 4,000
4/30 Bal. 4,000 Purchases
4/5 1,200
Accounts Payable 4/12 450
4/9 100 4/5 1,200 4/30 Bal. 1,650
4/14 1,100 4/12 450
4/17 50 Freight-In
4/21 400 4/7 50
4/30 Bal. 0 4/30 Bal. 50
Purchase
Returns and Allowances
4/9 100
4/17 50
4/30 Bal. 150
Purchase Discounts
4/14 22
4/21 4
4/30 Bal. 26
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*PROBLEM 5-8A (Continued)
Debit Credit
Cash....................................................................... $2,076
Accounts Receivable ........................................... 565
Inventory ............................................................... 4,000
Common Stock ..................................................... $7,000
Sales Revenue ...................................................... 1,200
Sales Returns and Allowances ........................... 35
Purchases ............................................................. 1,650
Purchase Returns and Allowances..................... 150
Purchase Discounts ............................................. 26
Freight-In............................................................... 50
$8,376 $8,376
Sales
Sales revenue ................................ $1,200
Less: Sales returns and
allowances.......................... 35
Net sales......................................... 1,165
Cost of goods sold
Inventory, April 1 ........................... $4,000
Purchases ...................................... $1,650
Less: Purchase returns
and allowances .................. $150
Purchase discounts........... 26 176
Net purchases................................ 1,474
Add: Freight-in.............................. 50
Cost of goods purchased ............... 1,524
Cost of goods available
for sale ........................................ 5,524
Inventory, April 30 ......................... 4,824
Cost of goods sold ................. 700
Gross profit ........................................... $ 465
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SOLUTIONS TO PROBLEMS
PROBLEM 5-1B
18 Inventory......................................................... 1,900
Accounts Payable .................................. 1,900
Inventory......................................................... 125
Cash ........................................................ 125
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PROBLEM 5-1B (Continued)
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PROBLEM 5-2B
(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 2 Inventory ............................................. 120 6,900
Accounts Payable....................... 201 6,900
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PROBLEM 5-2B (Continued)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 23 Cash .................................................... 101 7,400
Sales Revenue ............................ 401 7,400
Cost of Goods Sold............................ 505 4,120
Inventory ..................................... 120 4,120
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PROBLEM 5-2B (Continued)
(b)
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PROBLEM 5-2B (Continued)
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PROBLEM 5-2B (Continued)
Sales
Sales revenue ..................................................... $17,600
Less: Sales returns and allowances................ $90
Sales discounts....................................... 65 155
Net sales.............................................................. 17,445
Cost of goods sold..................................................... 10,790
Gross profit................................................................. $ 6,655
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PROBLEM 5-3B
Sales
Sales revenue ..................................... $728,000
Less: Sales returns and
allowances............................... 8,000
Net sales.............................................. 720,000
Cost of goods sold .................................... 412,700
Gross profit ................................................ 307,300
Operating expenses
Salaries and wages expense ..... $108,000
Depreciation expense ................. 23,700
Sales commissions expense ...... 14,500
Utilities expense .......................... 12,000
Insurance expense ...................... 7,200
Property tax expense .................. 4,800
Total operating expenses .... 170,200
Income from operations............................ 137,100
Other revenues and gains
Interest revenue.................................. 4,000
Other expenses and losses
Interest expense ................................. 12,000 8,000
Net income ................................................. $ 129,100
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PROBLEM 5-3B (Continued)
Assets
Current assets
Cash ..................................................... $ 23,800
Accounts receivable ........................... 50,300
Inventory .............................................. 75,000
Prepaid insurance ............................... 2,400
Total current assets .................... $151,500
Property, plant, and equipment
Buildings.............................................. $290,000
Less: Accumulated depreciation—
buildings................................... 52,500 237,500
Equipment............................................ 110,000
Less: Accumulated depreciation—
equipment................................. 42,900 67,100 304,600
Total assets.................................. $456,100
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PROBLEM 5-3B (Continued)
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PROBLEM 5-3B (Continued)
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PROBLEM 5-4B
(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 4 Inventory............................................... 120 840
Accounts Payable ........................ 201 840
6 Inventory............................................... 120 40
Cash .............................................. 101 40
17 Inventory............................................... 120 30
Cash .............................................. 101 30
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PROBLEM 5-4B (Continued)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 20 Cash...................................................... 101 600
Accounts Receivable................... 112 600
(b)
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PROBLEM 5-4B (Continued)
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PROBLEM 5-4B (Continued)
Debit Credit
Cash ......................................................................... $1,713
Accounts Receivable.............................................. 700
Inventory.................................................................. 2,467
Common Stock........................................................ $4,200
Sales Revenue......................................................... 2,050
Sales Returns and Allowances.............................. 40
Cost of Goods Sold ................................................ 1,330
$6,250 $6,250
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*PROBLEM 5-5B
Sales
Sales revenue .......................... $725,000
Less: Sales returns and
allowances.................... 11,000
Net sales................................... 714,000
Cost of goods sold
Inventory, January 1................ $ 40,500
Purchases ................................ $447,000
Less: Purchase returns
and allowances ............ $ 6,400
Purchase discounts..... 12,000 18,400
Net purchases.......................... 428,600
Add: Freight-in........................ 5,600
Cost of goods purchased ........ 434,200
Cost of goods available
for sale............................... 474,700
Inventory, December 31 .......... 65,000
Cost of goods sold ........... 409,700
Gross profit ..................................... $304,300
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*PROBLEM 5-6B
(a)
2013 2014 2015
Cost of goods sold:
Beginning inventory $ 13,000 $ 11,300 $ 14,700
Plus: Purchases 146,000 145,000 129,000
Cost of goods available 159,000 156,300 143,700
Less: Ending inventory (11,300) (14,700) (12,200)
Cost of goods sold $147,700 $141,600 $131,500
(b)
2013 2014 2015
Sales revenue $239,000 $237,000 $235,000
Less: CGS 147,700 141,600 131,500
Gross profit $ 91,300 $ 95,400 $103,500
(c)
2013 2014 2015
Beginning accounts payable $ 20,000 $ 31,000 $ 15,000
Plus: Purchases 146,000 145,000 129,000
Less: Payments to suppliers 135,000 161,000 127,000
Ending accounts payable $ 31,000 $ 15,000 $ 17,000
1 2 3
(d) Gross profit rate 38.2% 40.3% 44.0%
1 2 3
$91,300 ÷ $95,400 ÷ $103,500 ÷
$239,000 $237,000 $235,000
No. Even though sales declined in 2015 from each of the two prior years,
the gross profit rate increased. This means that cost of goods sold
declined more than sales did, reflecting better purchasing power or control
of costs. Therefore, in spite of declining sales, profitability, as measured by
the gross profit rate, actually improved.
5-74 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-7B
(a)
General Journal
Date Account Titles and Explanation Debit Credit
Apr. 4 Purchases ......................................................... 740
Accounts Payable..................................... 740
6 Freight-in........................................................... 60
Cash........................................................... 60
15 Cash................................................................... 50
Purchase Returns and Allowances......... 50
17 Freight-In........................................................... 30
Cash........................................................... 30
20 Cash................................................................... 500
Accounts Receivable................................ 500
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*PROBLEM 5-7B (Continued)
30 Cash............................................................... 550
Accounts Receivable............................ 550
(b)
Cash Accounts Payable
4/1 Bal. 2,500 4/6 60 4/10 40 4/4 740
4/15 50 4/11 300 4/13 700 4/14 700
4/20 500 4/13 679 4/21 700
4/30 550 4/17 30 4/30 Bal. 0
4/21 686
4/30 Bal. 1,845 Common Stock
4/1 Bal. 4,200
Accounts Receivable 4/30 Bal. 4,200
4/8 900 4/20 500
4/18 1,000 4/27 25 Sales Revenue
4/30 550 4/8 900
4/30 Bal. 825 4/18 1,000
4/30 Bal. 1,900
Inventory
4/1 Bal. 1,700 Purchase Discounts
4/30 Bal. 1,700 4/13 21
4/21 14
Sales Returns and Allowances 4/30 Bal. 35
4/27 25
4/30 Bal. 25 Freight-In
4/6 60
Purchases 4/17 30
4/4 740 4/30 Bal. 90
4/11 300
4/14 700
4/30 Bal. 1,740
Purchase
Returns and Allowances
4/10 40
4/15 50
4/30 Bal. 90
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*PROBLEM 5-7B (Continued)
Debit Credit
Cash........................................................................ $1,845
Accounts Receivable............................................. 825
Inventory ................................................................ 1,700
Common Stock ...................................................... $4,200
Sales Revenue ....................................................... 1,900
Sales Returns and Allowances............................. 25
Purchases .............................................................. 1,740
Purchase Returns and Allowances...................... 90
Purchase Discounts .............................................. 35
Freight-In ................................................................ 90
$6,225 $6,225
Sales
Sales revenue .............................. $1,900
Less: Sales returns and
allowances........................ 25
Net sales....................................... 1,875
Cost of goods sold
Inventory, April 1 ......................... $1,700
Purchases .................................... $1,740
Less: Purchase returns
and allowances ................ $90
Purchase discounts......... 35 125
Net purchases.............................. 1,615
Add: Freight-in............................ 90
Cost of goods purchased ........... 1,705
Cost of goods available
for sale................................... 3,405
Inventory, April 30 ....................... 2,296
Cost of goods sold ............... 1,109
Gross profit ......................................... $ 766
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COMPREHENSIVE PROBLEM SOLUTION
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COMPREHENSIVE PROBLEM SOLUTION (Continued)
Cash
Equipment
12/1 Bal. 7,200 12/6 1,600
12/8 1,900 12/15 2,000 12/1 Bal. 22,000
12/10 6,300 12/20 1,800 12/31 Bal. 22,000
12/27 11,640 12/23 8,820
12/31 Bal. 12,820 Accumulated Depr.—Equipment
12/1 Bal. 2,200
Accounts Receivable 12/31 200
12/1 Bal. 4,600 12/8 1,900 12/31 Bal. 2,400
12/18 12,000 12/27 12,000
12/31 Bal. 2,700 Accounts Payable
12/23 9,000 12/1 Bal. 4,500
Inventory 12/13 9,000
12/1 Bal. 12,000 12/10 4,100 12/31 Bal. 4,500
12/13 9,000 12/18 8,000
12/23 180 Salaries and Wages Payable
12/31 Bal. 8,720 12/6 1,000 12/1 Bal. 1,000
12/31 800
Supplies 12/31 Bal. 800
12/1 Bal. 1,200 12/31 1,700
12/15 2,000
12/31 Bal. 1,500
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COMPREHENSIVE PROBLEM SOLUTION (Continued)
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COMPREHENSIVE PROBLEM SOLUTION (Continued)
DR. CR.
Cash ................................................................ $12,820
Accounts Receivable ..................................... 2,700
Inventory ......................................................... 8,720
Supplies .......................................................... 1,500
Equipment....................................................... 22,000
Accumulated Depreciation—Equipment...... $ 2,400
Accounts Payable .......................................... 4,500
Salaries and Wages Payable......................... 800
Common Stock............................................... 30,000
Retained Earnings.......................................... 9,300
Sales Revenue................................................ 18,300
Sales Discounts ............................................. 360
Cost of Goods Sold........................................ 12,100
Depreciation Expense.................................... 200
Salaries and Wages Expense........................ 3,200
Supplies Expense .......................................... 1,700
$65,300 $65,300
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COMPREHENSIVE PROBLEM SOLUTION (Continued)
Assets
Current assets
Cash ........................................................... $12,820
Accounts receivable ................................. 2,700
Inventory.................................................... 8,720
Supplies ..................................................... 1,500
Total current assets ............................ $25,740
Stockholders’ equity
Common stock .......................................... 30,000
Retained earnings..................................... 10,040 40,040
Total liabilities and stockholders’ equity ....... $45,340
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BYP 5-1 FINANCIAL REPORTING PROBLEM
2010 2011
(a) (1) Percentage change in sales:
($65,225 – $42,905) ÷ $42,905 52.0% increase
($108,249 – $65,225) ÷ $65,225 66.0% increase
Comment
The percentage of net income to sales increased 12% from 2009 to 2010
(19.2% to 21.5%) and increased 11.2% from 2010 to 2011 (21.5% to 23.9%).
The gross profit rate has remained relatively steady during this time.
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BYP 5-2 COMPARATIVE ANALYSIS PROBLEM
PepsiCo Coca-Cola
1 2
(a) (1) 2011 Gross profit $34,911 $28,326
3 4
(2) 2011 Gross profit rate 52.5% 60.9%
(b) PepsiCo has a higher gross profit but a lower gross profit rate than
Coca-Cola. This can be explained by PepsiCo’s higher sales.
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BYP 5-3 COMPARATIVE ANALYSIS PROBLEM
Amazon Wal-Mart
1 2
(a) (1) 2011 Gross profit $4,712 $108,727
3 4
(2) 2011 Gross profit rate 11.2% 24.5%
(b) Wal-Mart has a much higher gross profit and gross profit rate than
Amazon. This can be explained by Wal-Mart’s higher markup.
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BYP 5-4 REAL-WORLD FOCUS
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BYP 5-5 DECISION MAKING ACROSS THE ORGANIZATION
(b) Dana’s proposed changes will increase net income by $31,080. Eric’s
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Dana’s plan and Eric’s plan, Dana’s plan should be adopted.
While Eric’s plan will increase net income, it may also have an adverse
effect on sales personnel. Under Eric’s plan, sales personnel will be
taking a cut of $16,000 in compensation [$60,000 – ($30,000 + $14,000)].
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BYP 5-5 (Continued)
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BYP 5-6 COMMUNICATION ACTIVITY
(a), (b)
President
Surfing USA Co.
Dear Sir:
As you know, the financial statements for Surfing USA Co. are prepared in
accordance with generally accepted accounting principles. One of these
principles is the revenue recognition principle, which provides that revenues
should be recognized when they are earned.
Typically, sales revenues are earned when the goods are transferred to the
buyer from the seller. At this point, the sales transaction is completed and
the sales price is established. Thus, in the typical situation, revenue on the
surfboard ordered by Connor is earned at event No. 8, when Connor picks
up the surfboard.
If you have further questions about the accounting for this sale, please let
me know.
Sincerely,
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BYP 5-7 ETHICS CASE
1. Tell the treasurer (her boss) that she will attempt to take every allow-
able cash discount by preparing and mailing checks within the
discount period—the ethical thing to do. This will offend her boss
and may jeopardize her continued employment.
2. Join the team and continue the unethical practice of taking undeserved
cash discounts.
3. Go over her boss’s head and take the chance of receiving just and
reasonable treatment from an officer superior to Phelan. The
company may not condone this practice. Jacquie definitely has a
choice, but probably not without consequence. To continue the
practice is definitely unethical. If Jacquie submits to this request,
she may be asked to perform other unethical tasks. If Jacquie
stands her ground and refuses to participate in this unethical
practice, she probably won’t be asked to do other unethical
things—if she isn’t fired. Maybe nobody has ever challenged
Phelan’s unethical behavior and his reaction may be one of respect
rather than anger and retribution. Being ethically compromised is
no way to start a new job.
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BYP 5-8 ALL ABOUT YOU
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BYP 5-9 FASB CODIFICATION ACTIVITY
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BYP 5-9 (Continued)
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IFRS EXERCISES
IFRS5-1
IFRS5-2
IFRS5-3
MATILDA COMPANY
Comprehensive Income Statement
For the Year Ended 2015
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INTERNATIONAL FINANCIAL REPORTING PROBLEM
IFRS5-4
(a) Zetar uses a multiple step format. The income statement isolates gross
profit, operating profit, and profit from continuing operations before
taxation rather than simply showing total revenues less total expenses to
arrive at net income.
(b) Zetar uses Finance Costs rather than Interest Expense on its income
statement.
(c) Zetar’s income statement shows Adjusted results, Adjusting items, and
Total amounts for revenue and expense items. Note 13 indicates that
Zetar considers the adjusted results and adjusted EPS to provide
additional useful information on its performance. It goes on to list a
number of unusual items that it has adjusted for on its income statement.
One-off items are listed as part of the adjustments group. One-off items
are non-recurring material costs or revenues of an unusual nature that
have been excluded from the Adjusted results on the income statement
in order to provide a more consistent measure of underlying performance.
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