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CHAPTER 5

Accounting for Merchandising Operations

ASSIGNMENT CLASSIFICATION TABLE

Brief A B
Learning Objectives Questions Exercises Do It! Exercises Problems Problems

*1. Identify the differences 2, 3, 4 1 1


between service and
merchandising companies.

*2. Explain the recording 5, 6, 7, 8 2, 4 1 2, 3, 4, 11 1A, 2A, 4A 1B, 2B, 4B


of purchases under a
perpetual inventory
system.

*3. Explain the recording 9, 10, 11 2, 3 2 3, 4, 5, 11 1A, 2A, 4A 1B, 2B, 4B


of sales revenues under
a perpetual inventory
system.

*4. Explain the steps in the 1, 12, 5, 6 3 6, 7, 8 3A, 4A, 5A 3B, 4B


accounting cycle for a 13, 14
merchandising company.

*5. Distinguish between a 15, 16, 7, 8, 9 4 6, 9, 10, 2A, 3A, 5A 2B, 3B


multiple-step and a single- 17, 18, 12, 13, 14 6A, 7A 5B, 6B
step income statement. 19, 20

*6. Prepare a worksheet for 21 10 15, 16 5A


a merchandising company

*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.

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-1
ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time


Number Description Level Allotted (min.)

1A Journalize purchase and sales transactions under Simple 20–30


a perpetual inventory system.

2A Journalize, post, and prepare a partial income statement. Simple 30–40

3A Prepare financial statements and adjusting and Moderate 40–50


closing entries.

4A Journalize, post, and prepare a trial balance. Simple 30–40

*5A Complete accounting cycle beginning with a worksheet. Moderate 50–60

*6A Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.

*7A Calculate missing amounts and assess profitability. Moderate 20–30

*8A Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.

1B Journalize purchase and sales transactions under Simple 20–30


a perpetual inventory system.

2B Journalize, post, and prepare a partial income statement. Simple 30–40

3B Prepare financial statements and adjusting and Moderate 40–50


closing entries.

4B Journalize, post, and prepare a trial balance. Simple 30–40

*5B Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.

*6B Calculate missing amounts and assess profitability. Moderate 20–30

*7B Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.

5-2 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
WEYGANDT FINANCIAL ACCOUNTING 9E
CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS

Number LO BT Difficulty Time (min.)


BE1 1 AP Simple 4–6
BE2 2, 3 AP Simple 2–4
BE3 3 AP Simple 6–8
BE4 2 AP Simple 6–8
BE5 4 AP Simple 1–2
BE6 4 AP Simple 2–4
BE7 5 AP Simple 2–4
BE8 5 C Simple 4–6
BE9 5 AP Simple 4–6
BE10 6 K Simple 2–4
BE11 7 AP Simple 4–6
BE12 7 AP Simple 4–6
BE13 7 AP Simple 3–5
BE14 7 AP Simple 6–8
BE15 7 AP Simple 4–6
DI1 2 AP Simple 2–4
DI2 3 AP Simple 4–6
DI3 4 AP Simple 4–6
DI4 5 AP Simple 10–12
EX1 1 C Simple 3–5
EX2 2 AP Simple 8–10
EX3 2, 3 AP Simple 8–10
EX4 2, 3 AP Simple 8–10
EX5 3 AP Simple 8–10
EX6 4, 5 AP Simple 6–8
EX7 4 AP Simple 6–8
EX8 4 AP Simple 8–10
EX9 5 AP Simple 8–10
EX10 5 AP Simple 8–10
EX11 2, 3 AN Moderate 6–8
EX12 5 AP Simple 8–10
EX13 5 AN Simple 6–8

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-3
ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)

Number LO BT Difficulty Time (min.)


EX14 5 AN Moderate 8–10
EX15 6 AP Simple 2–4
EX16 6 AP Simple 8–10
EX17 7 AP Simple 6–8
EX18 7 AP Simple 8–10
EX19 7 AN Moderate 10–12
EX20 7 AP Simple 8–10
EX21 7 AP Simple 8–10
EX22 7 AP Simple 6–8
P1A 2, 3 AP Simple 20–30
P2A 2, 3, 5 AP Simple 30–40
P3A 4, 5 AN Moderate 40–50
P4A 2–4 AP Simple 30–40
P5A 4–6 AP Moderate 50–60
P6A 5, 7 AP Moderate 40–50
P7A 5, 7 AN Moderate 20–30
P8A 7 AP Simple 30–40
P1B 2, 3 AP Simple 20–30
P2B 2, 3, 5 AP Simple 30–40
P3B 4, 5 AN Moderate 40–50
P4B 2–4 AP Simple 30–40
P5B 5, 7 AP Moderate 40–50
P6B 5, 7 AN Moderate 20–30
P7B 7 AP Simple 30–40
BYP1 5 AN, E Simple 10–15
BYP2 5 AN, E Simple 15–20
BYP3 5 AN, E Simple 15–20
BYP4 — AP Simple 10–15
BYP5 5 AN, S, E Moderate 20–30
BYP6 3 C Simple 10–15
BYP7 2 E Simple 10–15
BYP8 — E Simple 5–10
BYP9 — AP Moderate 10–15

5-4 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Identify the differences Q5-2 Q5-3 E5-1 BE5-1


between service and Q5-4
merchandising companies.
2. Explain the recording of Q5-5 Q5-6 Q5-8 E5-3 P5-2B E5-11
purchases under a perpetual Q5-7 BE5-2 E5-4 P5-4A
inventory system. BE5-4 P5-1A P5-4B
DI5-1 P5-2A
E5-2 P5-1B

Copyright © 2014 John Wiley & Sons, Inc.


3. Explain the recording of Q5-10 Q5-11 E5-4 P5-1B Q5-9
sales revenues under a BE5-2 E5-5 P5-2B E5-11
perpetual inventory system. BE5-3 P5-1A P5-4B
DI5-2 P5-2A
BLOOM’S TAXONOMY TABLE

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

Weygandt, Financial Accounting, 9/e, Solutions Manual


*7. Explain the recording of Q5-22 Q5-23 E5-17 P5-6A E5-19
purchases and sales under BE5-11 E5-18 P5-8A P5-7A
a periodic inventory system. BE5-12 E5-20 P5-5B P5-6B
BE5-13 E5-21 P5-7B
BE5-14 E5-22
BE5-15
Broadening Your Perspective Communication Real-World Focus Financial Reporting Decision Making All About You
FASB Codification Comparative Analysis Across the Comparative Analysis
Decision Making Across Organization Financial Reporting

(For Instructor Use Only)


the Organization Decision Making Across
the Organization
Ethics Case

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.

3. (a) The components of revenues and expenses differ as follows:


Merchandising Service
Revenues Sales Revenue Fees, Rents, etc.
Expenses Cost of Goods Sold and Operating Operating (only)

(b) The income measurement process is as follows:

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.

8. July 24 Accounts Payable ($2,000 – $200)................................................. 1,800


Inventory ($1,800 X 2%) ......................................................... 36
Cash ($1,800 – $36) ............................................................... 1,764

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.

5-6 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 5 (Continued)

(b) The entries are:


Debit Credit
Cash sales— Cash ............................................................... XX
Sales Revenue ....................................... XX
Cost of Goods Sold ........................................ XX
Inventory................................................. XX

Credit sales— Accounts Receivable...................................... XX


Sales Revenue ....................................... XX
Cost of Goods Sold ........................................ XX
Inventory................................................. XX

11. July 19 Cash ($800 – $16)................................................................. 784


Sales Discounts ($800 X 2%)................................................ 16
Accounts Receivable ($900 – $100).............................. 800

12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.

13. Two closing entries are required:


(1) Sales Revenue ............................................................................... 200,000
Income Summary ................................................................... 200,000

(2) Income Summary ........................................................................... 145,000


Cost of Goods Sold ................................................................ 145,000

14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.

15. Sales revenues........................................................................................................ $105,000


Cost of goods sold................................................................................................... 70,000
Gross profit.............................................................................................................. $ 35,000

Gross profit rate: $35,000 ÷ $105,000 = 33.3%

16. Gross profit.............................................................................................................. $370,000


Less: Net income.................................................................................................... 240,000
Operating expenses ................................................................................................ $130,000

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.

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-7
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.

*21. The columns are:


(a) Inventory—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Balance
Sheet (Dr.).
(b) Cost of Goods Sold—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).

*22.
Accounts Added/Deducted
Purchase Returns and Allowances Deducted
Purchase Discounts Deducted
Freight-In Added

*23. July 24 Accounts Payable ($3,000 – $200)..................................................... 2,800


Purchase Discounts ($2,800 X 2%) ............................................ 56
Cash ($2,800 – $56) ................................................................... 2,744

5-8 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1

(a) Cost of goods sold = $45,000 ($75,000 – $30,000).


Operating expenses = $19,200 ($30,000 – $10,800).

(b) Gross profit = $38,000 ($108,000 – $70,000).


Operating expenses = $8,500 ($38,000 – $29,500).

(c) Sales Revenue = $163,500 ($83,900 + $79,600).


Net income = $40,100 ($79,600 – $39,500).

BRIEF EXERCISE 5-2

Radomir Company
Inventory............................................................... 780
Accounts Payable ........................................ 780

Lemke Company
Accounts Receivable........................................... 780
Sales Revenue.............................................. 780
Cost of Goods Sold ............................................. 470
Inventory ....................................................... 470

BRIEF EXERCISE 5-3

(a) Accounts Receivable........................................... 900,000


Sales Revenue.............................................. 900,000
Cost of Goods Sold ............................................. 620,000
Inventory ....................................................... 620,000

(b) Sales Returns and Allowances........................... 90,000


Accounts Receivable ................................... 90,000
Inventory............................................................... 62,000
Cost of Goods Sold...................................... 62,000

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-9
BRIEF EXERCISE 5-3 (Continued)

(c) Cash ($810,000 – $16,200) .................................. 793,800


Sales Discounts ($810,000 X 2%)....................... 16,200
Accounts Receivable .................................. 810,000
($900,000 – $90,000)

BRIEF EXERCISE 5-4

(a) Inventory .............................................................. 900,000


Accounts Payable........................................ 900,000

(b) Accounts Payable ............................................... 90,000


Inventory ...................................................... 90,000

(c) Accounts Payable ($900,000 – $90,000) ............ 810,000


Inventory
($810,000 X 2%)........................................ 16,200
Cash ($810,000 – $16,200) .......................... 793,800

BRIEF EXERCISE 5-5

Cost of Goods Sold .................................................... 2,300


Inventory .............................................................. 2,300

BRIEF EXERCISE 5-6

Sales Revenue............................................................. 195,000


Income Summary ................................................ 195,000

Income Summary ........................................................ 119,000


Cost of Goods Sold............................................. 117,000
Sales Discounts .................................................. 2,000

5-10 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

BRIEF EXERCISE 5-8

As the name suggests, numerous steps are required in determining net


income in a multiple-step income statement. In contrast, only one step is
required to compute net income in a single-step income statement. A multiple-
step statement has five sections whereas a single-step statement has only
two sections. The multiple-step statement provides more detail than a single-
step statement, but net income is the same under both statements.
Some of the differences in presentation can be seen from the comparative
information presented below.

(1) Multiple-Step Income Statement

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

(2) Single-Step Income Statement


Item Section
a. Gain on sale of equipment Revenues
b. Interest expense Expenses
c. Casualty loss from vandalism Expenses
d. Cost of goods sold Expenses

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-11
BRIEF EXERCISE 5-9
(a) Net sales = $510,000 – $15,000 = $495,000.
(b) Gross profit = $495,000 – $330,000 = $165,000.

(c) Income from operations = $165,000 – $110,000 = $55,000.

(d) Gross profit rate = $165,000 ÷ $495,000 = 33.3%.

*BRIEF EXERCISE 5-10

(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.

*BRIEF EXERCISE 5-11

Purchases....................................................................... $450,000
Less: Purchase returns and allowances .................... $13,000
Purchase discounts ........................................... 8,000 21,000
Net purchases ................................................................ $429,000

Net purchases ................................................................ $429,000


Add: Freight-in .............................................................. 16,000
Cost of goods purchased.............................................. $445,000

5-12 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*BRIEF EXERCISE 5-12

Net sales.......................................................................... $730,000


Beginning inventory....................................................... $ 60,000
Add: Cost of goods purchased* .................................. 445,000
Cost of goods available for sale ................................... 505,000
Ending inventory ............................................................ 90,000
Cost of goods sold ......................................................... 415,000
Gross profit ..................................................................... $315,000

*Information taken from Brief Exercise 5-11.

*BRIEF EXERCISE 5-13

(a) Purchases .............................................................. 900,000


Accounts Payable .......................................... 900,000

(b) Accounts Payable ................................................. 130,000


Purchase Returns and Allowances .............. 130,000

(c) Accounts Payable ($900,000 – $130,000) ............ 770,000


Purchase Discounts ($770,000 X 2%)........... 15,400
Cash ($770,000 – $15,400) ............................. 754,600

*BRIEF EXERCISE 5-14

Inventory (ending) .......................................................... 30,000


Sales Revenue ................................................................ 180,000
Purchase Returns and Allowances............................... 30,000
Income Summary .................................................. 240,000

Income Summary ........................................................... 162,000


Purchases .............................................................. 120,000
Sales Discounts .................................................... 2,000
Inventory (beginning)............................................ 40,000

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-13
*BRIEF EXERCISE 5-15

(a) Cash: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.

(b) Beginning inventory: Trial balance debit column; Adjusted trial


balance debit column; Income statement debit column.

(c) Accounts payable: Trial balance credit column; Adjusted trial balance
credit column; Balance sheet credit column.

(d) Ending inventory: Income statement credit column; Balance sheet


debit column.

5-14 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 5-1

Oct. 5 Inventory ................................................................. 5,000


Accounts Payable ............................................ 5,000
(To record goods purchased on account)

Oct. 8 Accounts Payable................................................... 650


Inventory ........................................................... 650
(To record return of defective goods)

DO IT! 5-2

Oct. 5 Accounts Receivable ............................................. 5,000


Sales Revenue .................................................. 5,000
(To record credit sales)

Cost of Goods Sold ................................................ 3,100


Inventory .......................................................... 3,100
(To record cost of goods sold on account)

Oct. 8 Sales Returns and Allowances ............................ 650


Accounts Receivable ...................................... 650
(To record credit granted for receipt
of returned goods)

Inventory ................................................................. 100


Cost of Goods Sold ......................................... 100
(To record fair value of goods returned)

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-15
DO IT! 5-3

Dec. 31 Sales Revenue........................................................ 156,000


Interest Revenue ................................................... 5,000
Income Summary ............................................. 161,000
(To close accounts with credit balances)

Income Summary ................................................... 127,800


Cost of Goods Sold ......................................... 92,400
Sales Returns and Allowances....................... 4,000
Sales Discounts ............................................... 3,000
Freight-Out ....................................................... 1,500
Utilities Expense .............................................. 7,400
Salaries and Wages Expense ......................... 19,500
(To close accounts with debit balances)

5-16 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
DO IT! 5-4

Account Financial Statement Classification


Accounts Payable Balance sheet Current liabilities
Accounts Receivable Balance sheet Current assets
Accumulated Depreciation— Balance sheet Property, plant, and
Buildings equipment
Cash Balance sheet Current assets
Casualty Loss from Income statement Other expenses and
Vandalism losses
Common Stock Balance sheet Stockholders’ equity
Cost of Goods Sold Income statement Cost of goods sold
Depreciation Expense Income statement Operating expenses
Dividends Retained earnings Deduction section
statement
Equipment Balance sheet Property, plant, and
equipment
Freight-Out Income statement Operating expenses
Insurance Expense Income statement Operating expenses
Interest Payable Balance sheet Current liabilities
Inventory Balance sheet Current assets
Land Balance sheet Property, plant, and
equipment
Notes Payable Balance sheet Long-term liabilities
(due in 5 years)
Property Taxes Payable Balance sheet Current liabilities
Salaries and Wages
Expense Income statement Operating expenses
Salaries and Wages Payable Balance sheet Current liabilities
Sales Returns and Income statement Sales
Allowances
Sales Revenue Income statement Sales
Unearned Rent Revenue Balance sheet Current liability
Utilities Expense Income statement Operating expenses

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-17
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

(a) (1) April 5 Inventory ........................................... 23,000


Accounts Payable..................... 23,000

(2) April 6 Inventory ........................................... 900


Cash........................................... 900

(3) April 7 Equipment......................................... 26,000


Accounts Payable..................... 26,000

(4) April 8 Accounts Payable ............................ 3,000


Inventory ................................... 3,000

(5) April 15 Accounts Payable ............................ 20,000


($23,000 – $3,000)
Inventory
[($23,000 – $3,000) X 2%] ..... 400
Cash ($20,000 – $400)............... 19,600

(b) May 4 Accounts Payable ..................................... 20,000


Cash.................................................... 20,000

5-18 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-3

Sept. 6 Inventory (80 X $20)........................................ 1,600


Cash ......................................................... 1,600

9 Inventory.......................................................... 80
Cash ......................................................... 80

10 Accounts Payable........................................... 63
Inventory .................................................. 63

12 Accounts Receivable (26 X $31).................... 806


Sales Revenue......................................... 806
Cost of Goods Sold (26 X $21) ...................... 546
Inventory .................................................. 546

14 Sales Returns and Allowances...................... 31


Accounts Receivable .............................. 31
Inventory.......................................................... 21
Cost of Goods Sold................................. 21

20 Accounts Receivable (30 X $32).................... 960


Sales Revenue......................................... 960
Cost of Goods Sold (30 X $21) ...................... 630
Inventory .................................................. 630

EXERCISE 5-4

(a) June 10 Inventory .................................................. 8,000


Accounts Payable............................ 8,000

11 Inventory .................................................. 400


Cash.................................................. 400

12 Accounts Payable ................................... 300


Inventory .......................................... 300

19 Accounts Payable ($8,000 – $300) ......... 7,700


Inventory
($7,700 X 2%)................................ 154
Cash ($7,700 – $154) ....................... 7,546

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-19
EXERCISE 5-4 (Continued)

(b) June 10 Accounts Receivable............................. 8,000


Sales Revenue................................ 8,000
Cost of Goods Sold ............................... 4,800
Inventory ......................................... 4,800

12 Sales Returns and Allowances............. 300


Accounts Receivable ..................... 300
Inventory................................................. 70
Cost of Goods Sold........................ 70

19 Cash ($7,700 – $154).............................. 7,546


Sales Discounts ($7,700 X 2%) ............. 154
Accounts Receivable
($8,000 – $300)............................ 7,700

EXERCISE 5-5

(a) 1. Dec. 3 Accounts Receivable ...................... 570,000


Sales Revenue ......................... 570,000
Cost of Goods Sold......................... 350,000
Inventory .................................. 350,000

2. Dec. 8 Sales Returns and Allowances ...... 20,000


Accounts Receivable .............. 20,000

3. Dec. 13 Cash ($550,000 – $11,000) .............. 539,000


Sales Discounts
[($570,000 – $20,000) X 2%]........ 11,000
Accounts Receivable
($570,000 – $20,000) ............ 550,000

(b) Cash .......................................................................... 550,000


Accounts Receivable
($570,000 – $20,000) ..................................... 550,000

5-20 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-6

(a) TSAI COMPANY


Income Statement (Partial)
For the Year Ended October 31, 2015

Sales
Sales revenue .................................................. $820,000
Less: Sales returns and allowances ........... $25,000
Sales discounts .................................. 13,000 38,000
Net sales ......................................................... $782,000

Note: Freight-out is a selling expense.

(b) (1) Oct. 31 Sales Revenue .............................. 820,000


Income Summary .................. 820,000

(2) 31 Income Summary.......................... 38,000


Sales Returns and
Allowances ........................ 25,000
Sales Discounts .................... 13,000

EXERCISE 5-7

(a) Cost of Goods Sold ............................................... 1,100


Inventory ......................................................... 1,100

(b) Sales Revenue ....................................................... 115,000


Income Summary ........................................... 115,000

Income Summary................................................... 93,000


Cost of Goods Sold ($60,000 + $1,100) ........ 61,100
Operating Expenses ...................................... 29,000
Sales Returns and Allowances ..................... 1,700
Sales Discounts ............................................. 1,200

Income Summary ($115,000 – $93,000) ............... 22,000


Retained Earnings.......................................... 22,000

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-21
EXERCISE 5-8

(a) Cost of Goods Sold............................................... 600


Inventory ........................................................ 600

(b) Sales Revenue ....................................................... 380,000


Income Summary........................................... 380,000

Income Summary .................................................. 335,600


Cost of Goods Sold ($218,000 + $600)......... 218,600
Freight-Out ..................................................... 7,000
Insurance Expense........................................ 12,000
Rent Expense................................................. 20,000
Salaries and Wages Expense ....................... 55,000
Sales Discounts............................................. 10,000
Sales Returns and Allowances .................... 13,000

Income Summary ($380,000 – $335,600) ............. 44,400


Retained Earnings ......................................... 44,400

EXERCISE 5-9

(a) FURLOW COMPANY


Income Statement
For the Month Ended March 31, 2015

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

(b) Gross profit rate = $147,000 ÷ $359,000 = 40.95%.

5-22 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-10

(a) LEMERE COMPANY


Income Statement
For the Year Ended December 31, 2015

Net sales .............................................. $2,200,000


Cost of goods sold ............................. 1,289,000
Gross profit ......................................... 911,000
Operating expenses ........................... 725,000
Income from operations ..................... 186,000
Other revenues and gains
Interest revenue .......................... $28,000
Other expenses and losses
Interest expense.......................... $70,000
Loss on disposal of plant
assets ........................................ 17,000 87,000 59,000
Net income .......................................... $ 127,000

(b) LEMERE COMPANY


Income Statement
For the Year Ended December 31, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-23
EXERCISE 5-11

1. Sales Returns and Allowances ......................................... 195


Sales Revenue ............................................................ 195

2. Supplies .............................................................................. 180


Cash .................................................................................... 180
Accounts Payable....................................................... 180
Inventory ..................................................................... 180

3. Sales Discounts ................................................................. 215


Sales Revenue ............................................................ 215

4. Inventory ............................................................................. 20
Cash .................................................................................... 180
Freight-Out .................................................................. 200

EXERCISE 5-12

(a) $900,000 – $522,000 = $378,000.


(b) $378,000/$900,000 = 42%. The gross profit rate is generally considered to
be more useful than the gross profit amount. The rate expresses a more
meaningful (qualitative) relationship between net sales and gross profit.
The gross profit rate tells how many cents of each sales dollar go to
gross profit. The trend of the gross profit rate is closely watched by
financial statement users, and is compared with rates of competitors
and with industry averages. Such comparisons provide information about
the effectiveness of a company’s purchasing function and the soundness
of its pricing policies.
(c) Income from operations is $153,000 ($378,000 – $225,000), and net income
is $142,000 ($153,000 – $11,000).
(d) The amount shown for net income is the same in a multiple-step income
statement and a single-step income statement. Both income statements
report the same revenues and expenses, but in different order. Therefore,
net income in Cruz’s single-step income statement is also $142,000.
(e) Inventory is reported as a current asset immediately below accounts
receivable.

5-24 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-13

(a) (*missing amount)

a. Sales revenue ............................................................... $ 90,000)


*Sales returns ................................................................ (3,000)
Net sales........................................................................ $ 87,000)

b. Net sales........................................................................ $ 87,000)


Cost of goods sold....................................................... (56,000)
*Gross profit .................................................................. $ 31,000)

c. Gross profit................................................................... $ 31,000)


Operating expenses ..................................................... (15,000)
*Net income.................................................................... $ 16,000)

d. *Sales revenue ............................................................... $107,000)


Sales returns................................................................. (5,000)
Net sales........................................................................ $102,000)

e. Net sales........................................................................ $102,000)


*Cost of goods sold....................................................... 60,500)
Gross profit................................................................... $ 41,500)

f. Gross profit................................................................... $ 41,500)


*Operating expenses..................................................... 26,500)
Net income .................................................................... $ 15,000)
)
(b) May Company
Gross profit ÷ Net sales = $31,000 ÷ $87,000 = 35.6%

Reed Company
Gross profit ÷ Net sales = $41,500 ÷ $102,000 = 40.7%

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-25
EXERCISE 5-14

(*Missing amount)

(a) Sales revenue ......................................................... $ 90,000


Sales returns and allowances ............................... 4,000*
Net sales.................................................................. $ 86,000

(b) Net sales.................................................................. $ 86,000


Cost of goods sold ................................................. 56,000
Gross profit ............................................................. $ 30,000*

(c) and (d)


Gross profit ............................................................. $ 30,000
Operating expenses ............................................... 15,000
Income from operations (c) ................................... 15,000*
Other expenses and losses ................................... 4,000
Net income (d)......................................................... $ 11,000*

(e) Sales revenue ......................................................... $100,000*


Sales returns and allowances ............................... 5,000
Net sales.................................................................. $ 95,000

(f) Net sales.................................................................. $ 95,000


Cost of goods sold ................................................. 57,000*
Gross profit ............................................................. $ 38,000

(g) and (h)


Gross profit ............................................................. $ 38,000
Operating expenses (g).......................................... 20,000*
Income from operations (h) ................................... 18,000*
Other expenses and losses ................................... 7,000
Net income .............................................................. $ 11,000

(i) Sales revenue ......................................................... $122,000


Sales returns and allowances ............................... 12,000
Net sales.................................................................. $110,000*

(j) Net sales.................................................................. $110,000


Cost of goods sold ................................................. 86,000*
Gross profit ............................................................. $ 24,000

5-26 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-14 (Continued)

(k) and (l)


Gross profit ............................................................ $24,000
Operating expenses............................................... 18,000
Income from operations (k)................................... 6,000*
Other expenses and losses (l) .............................. 1,000*
Net income.............................................................. $ 5,000

*EXERCISE 5-15

Adjusted Income Balance


Accounts Trial Balance Statement Sheet
Debit Credit Debit Credit Debit Credit
Cash 11,000 11,000
Inventory 76,000 76,000
Sales Revenue 480,000 480,000
Sales Returns and Allowances 10,000 10,000
Sales Discounts 9,000 9,000
Cost of Goods Sold 300,000 300,000

*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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-27
*EXERCISE 5-17

Inventory, September 1, 2014 ....................................... $17,200


Purchases....................................................................... $149,000
Less: Purchase returns and allowances .................... 2,000
Net Purchases ................................................................ 147,000
Add: Freight-in .............................................................. 5,000
Cost of goods purchased.............................................. 152,000
Cost of goods available for sale................................... 169,200
Inventory, August 31, 2015 ........................................... 23,000
Cost of goods sold ................................................ $146,200

*EXERCISE 5-18

(a) Sales revenue........................................ $840,000


Less: Sales returns and allowances .... $ 10,000
Sales discounts ......................... 5,000 15,000
Net sales ................................................ 825,000
Cost of goods sold
Inventory, January 1 ....................... 50,000
Purchases........................................ $509,000
Less: Purch. rets. and alls. ........... 2,000
Purch. discounts ................. 6,000
Net purchases ................................. 501,000
Add: Freight-in ................................ 4,000
Cost of goods available for sale.... 555,000
Inventory, December 31 ................. 60,000
Cost of goods sold .................. 495,000
Gross profit ..................................... $330,000

(b) Gross profit $330,000 – Operating expenses = Net income $130,000.


Operating expenses = $200,000.

5-28 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*EXERCISE 5-19

(a) $1,580 ($1,620 – $40) (g) $6,500 ($290 + $6,210)


(b) $1,690 ($1,580 + $110) (h) $1,730 ($7,940 – $6,210)
(c) $1,530 ($1,840 – $310) (i) $8,940 ($1,000 + $7,940)
(d) $30 ($1,060 – $1,030) (j) $6,200 ($49,530 – $43,330 from (I))
(e) $250 ($1,280 – $1,030) (k) $2,500 ($43,590 – $41,090)
(f) $120 ($1,350 – $1,230) (l) $43,330 ($41,090 + $2,240)

*EXERCISE 5-20

(a) 1. April 5 Purchases........................................ 25,000


Accounts Payable ..................... 25,000

2. April 6 Freight-In ......................................... 900


Cash ........................................... 900

3. April 7 Equipment ....................................... 30,000


Accounts Payable ..................... 30,000

4. April 8 Accounts Payable ........................... 2,800


Purchase Returns and
Allowances ............................. 2,800

5. April 15 Accounts Payable


($25,000 – $2,800) ........................ 22,200
Purchase Discounts
[($25,000 – $2,800) X 2%)] ..... 444
Cash ($22,200 – $444) ............... 21,756

(b) May 4 Accounts Payable


($25,000 – $2,800) ........................ 22,200
Cash ........................................... 22,200

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-29
*EXERCISE 5-21

(a) 1. April 5 Purchases ....................................... 19,000


Accounts Payable..................... 19,000

2. April 6 Freight-In ......................................... 800


Cash ........................................... 800

3. April 7 Equipment ....................................... 23,000


Accounts Payable..................... 23,000

4. April 8 Accounts Payable........................... 4,000


Purchase Returns and
Allowances ............................ 4,000

5. April 15 Accounts Payable........................... 15,000


($19,000 – $4,000)
Purchase Discounts
[($19,000 – $4,000) X 2%)]..... 300
Cash ($15,000 – $300)............... 14,700

(b) May 4 Accounts Payable


($19,000 – $4,000)........................ 15,000
Cash ........................................... 15,000

*EXERCISE 5-22

Adjusted Income Balance


Accounts Trial Balance Statement Sheet
Debit Credit Debit Credit Debit Credit
Cash 9,000 9,000
Inventory 80,000 80,000 75,000 75,000
Purchases 240,000 240,000
Purchase Returns and
Allowances 30,000 30,000
Sales Revenue 450,000 450,000
Sales Returns and
Allowances 10,000 10,000
Sales Discounts 5,000 5,000
Rent Expense 42,000 42,000

5-30 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-1A

(a) June 1 Inventory....................................................... 1,600


Accounts Payable ................................ 1,600

3 Accounts Receivable................................... 2,500


Sales Revenue...................................... 2,500

Cost of Goods Sold ..................................... 1,440


Inventory ............................................... 1,440

6 Accounts Payable........................................ 100


Inventory ............................................... 100

9 Accounts Payable ($1,600 – $100).............. 1,500


Inventory
($1,500 X .02) .................................... 30
Cash ...................................................... 1,470

15 Cash .............................................................. 2,500


Accounts Receivable ........................... 2,500

17 Accounts Receivable................................... 1,800


Sales Revenue...................................... 1,800

Cost of Goods Sold ..................................... 1,080


Inventory ............................................... 1,080

20 Inventory....................................................... 1,500
Accounts Payable ................................ 1,500

24 Cash .............................................................. 1,764


Sales Discounts ($1,800 X .02) ................... 36
Accounts Receivable ........................... 1,800

26 Accounts Payable........................................ 1,500


Inventory
($1,500 X .02) .................................... 30
Cash ...................................................... 1,470

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-31
PROBLEM 5-1A (Continued)

June 28 Accounts Receivable ................................... 1,400


Sales Revenue ...................................... 1,400

Cost of Goods Sold...................................... 850


Inventory ............................................... 850

30 Sales Returns and Allowances ................... 120


Accounts Receivable ........................... 120

Inventory ....................................................... 72
Cost of Goods Sold .............................. 72

5-32 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

2 Accounts Receivable........................ 112 2,100


Sales Revenue........................... 401 2,100

Cost of Goods Sold .......................... 505 1,300


Inventory .................................... 120 1,300

5 Accounts Payable............................. 201 300


Inventory .................................... 120 300

9 Cash ($2,100 – $21)........................... 101 2,079


Sales Discounts ($2,100 X 1%) ........ 414 21
Accounts Receivable ................ 112 2,100

10 Accounts Payable ($4,200 – $300) ...... 201 3,900


Inventory ($3,900 X 2%) ............ 120 78
Cash ........................................... 101 3,822

11 Supplies............................................. 126 400


Cash ........................................... 101 400

12 Inventory............................................ 120 1,400


Cash ........................................... 101 1,400

15 Cash ................................................... 101 150


Inventory .................................... 120 150

17 Inventory............................................ 120 1,300


Accounts Payable ..................... 201 1,300

19 Inventory............................................ 120 130


Cash ........................................... 101 130

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-33
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

Cost of Goods Sold ............................ 505 2,000


Inventory...................................... 120 2,000

25 Inventory ............................................. 120 620


Accounts Payable....................... 201 620

27 Accounts Payable............................... 201 1,300


Inventory
($1,300 X 2%)........................... 120 26
Cash ............................................. 101 1,274

29 Sales Returns and Allowances ......... 412 70


Cash ............................................. 101 70

Inventory ............................................. 120 30


Cost of Goods Sold .................... 505 30

31 Accounts Receivable ......................... 112 1,000


Sales Revenue ............................ 401 1,000

Cost of Goods Sold ............................ 505 560


Inventory...................................... 120 560

5-34 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-2A (Continued)

(b)

Cash No. 101


Date Explanation Ref. Debit Credit Balance
May 1 Balance 5,000
9 J1 2,079 7,079
10 J1 3,822 3,257
11 J1 400 2,857
12 J1 1,400 1,457
15 J1 150 1,607
19 J1 130 1,477
24 J1 3,200 4,677
27 J1 1,274 3,403
29 J1 70 3,333

Accounts Receivable No. 112


Date Explanation Ref. Debit Credit Balance
May 2 J1 2,100 2,100
9 J1 2,100 0
31 J1 1,000 1,000

Inventory No. 120


Date Explanation Ref. Debit Credit Balance
May 1 J1 4,200 4,200
2 J1 1,300 2,900
5 J1 300 2,600
10 J1 78 2,522
12 J1 1,400 3,922
15 J1 150 3,772
17 J1 1,300 5,072
19 J1 130 5,202
24 J1 2,000 3,202
25 J1 620 3,822
27 J1 26 3,796
29 J1 30 3,826
31 J1 560 3,266

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-35
PROBLEM 5-2A (Continued)

Supplies No. 126


Date Explanation Ref. Debit Credit Balance
May 11 J1 400 400

Accounts Payable No. 201


Date Explanation Ref. Debit Credit Balance
May 1 J1 4,200 4,200
5 J1 300 3,900
10 J1 3,900 0
17 J1 1,300 1,300
25 J1 620 1,920
27 J1 1,300 620

Common Stock No. 311


Date Explanation Ref. Debit Credit Balance
May 1 Balance 5,000

Sales Revenue No. 401


Date Explanation Ref. Debit Credit Balance
May 2 J1 2,100 2,100
24 J1 3,200 5,300
31 J1 1,000 6,300

Sales Returns and Allowances No. 412


Date Explanation Ref. Debit Credit Balance
May 29 J1 70 70

Sales Discounts No. 414


Date Explanation Ref. Debit Credit Balance
May 9 J1 21 21

5-36 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-2A (Continued)

Cost of Goods Sold No. 505


Date Explanation Ref. Debit Credit Balance
May 2 J1 1,300 1,300
24 J1 2,000 3,300
29 J1 30 3,270
31 J1 560 3,830

(c) LATONA HARDWARE STORE


Income Statement (Partial)
For the Month Ended May 31, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-37
PROBLEM 5-3A

(a) THE DELUXE STORE


Income Statement
For the Year Ended November 30, 2015

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

5-38 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3A (Continued)

THE DELUXE STORE


Retained Earnings Statement
For the Year Ended November 30, 2015

Retained Earnings, December 1, 2014............................................ $61,700


Add: Net income ............................................................................. 29,100
90,800
Less: Dividends ............................................................................... 10,000
Retained Earnings, November 30, 2015 ......................................... $80,800

THE DELUXE STORE


Balance Sheet
November 30, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-39
PROBLEM 5-3A (Continued)

THE DELUXE STORE


Balance Sheet (Continued)
November 30, 2015

Liabilities and Stockholders’ Equity


Current liabilities
Accounts payable ....................................................... $25,200
Sales commissions payable....................................... 4,500
Property taxes payable ............................................... 2,500
Total current liabilities ........................................ $ 32,200
Long-term liabilities
Notes payable .............................................................. 37,000
Total liabilities...................................................... 69,200
Stockholders’ equity
Common stock ............................................................ 40,000
Retained earnings ....................................................... 80,800 120,800
Total liabilities and stockholders’ equity .......... $190,000

(b) Nov. 30 Depreciation Expense ............................... 11,000


Accumulated Depreciation—
Equipment ...................................... 11,000

Insurance Expense.................................... 7,000


Prepaid Insurance.............................. 7,000

Property Tax Expense............................... 2,500


Property Taxes Payable .................... 2,500

Sales Commissions Expense................... 4,500


Sales Commissions Payable ............ 4,500

5-40 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3A (Continued)

(c) Nov. 30 Sales Revenue......................................... 700,000


Interest Revenue ..................................... 8,000
Income Summary ............................ 708,000

30 Income Summary .................................... 678,900


Sales Returns and
Allowances................................... 8,000
Cost of Goods Sold ......................... 507,000
Salaries and Wages Expense ......... 96,000
Depreciation Expense..................... 11,000
Freight-Out....................................... 6,500
Sales Commissions Expense......... 11,000
Insurance Expense.......................... 7,000
Rent Expense................................... 15,000
Property Tax Expense..................... 2,500
Utilities Expense.............................. 8,500
Interest Expense.............................. 6,400

30 Income Summary .................................... 29,100


Retained Earnings........................... 29,100

30 Retained Earnings................................... 10,000


Dividends ......................................... 10,000

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-41
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

7 Inventory ............................................. 120 50


Cash ............................................. 101 50

9 Accounts Payable............................... 201 100


Inventory...................................... 120 100

10 Accounts Receivable ......................... 112 900


Sales Revenue ............................ 401 900

Cost of Goods Sold ............................ 505 540


Inventory...................................... 120 540

12 Inventory ............................................. 120 670


Accounts Payable....................... 201 670

14 Accounts Payable ($1,200 – $100) .... 201 1,100


Inventory
($1,100 X 2%)........................... 120 22
Cash ............................................. 101 1,078

17 Accounts Payable............................... 201 70


Inventory...................................... 120 70

20 Accounts Receivable ......................... 112 610


Sales Revenue ............................ 401 610

Cost of Goods Sold ............................ 505 370


Inventory...................................... 120 370

21 Accounts Payable ($670 – $70) ......... 201 600


Inventory
($600 X 1%).............................. 120 6
Cash ............................................. 101 594

5-42 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

30 Cash................................................. 101 900


Accounts Receivable.............. 112 900

(b)

Cash No. 101


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 1,800
7 J1 50 1,750
14 J1 1,078 672
21 J1 594 78
30 J1 900 978

Accounts Receivable No. 112


Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 900 900
20 J1 610 1,510
27 J1 20 1,490
30 J1 900 590

Inventory No. 120


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 2,500
5 J1 1,200 3,700
7 J1 50 3,750
9 J1 100 3,650
10 J1 540 3,110
12 J1 670 3,780
14 J1 22 3,758
17 J1 70 3,688
20 J1 370 3,318
21 J1 6 3,312

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-43
PROBLEM 5-4A (Continued)

Accounts Payable No. 201


Date Explanation Ref. Debit Credit Balance
Apr. 5 J1 1,200 1,200
9 J1 100 1,100
12 J1 670 1,770
14 J1 1,100 670
17 J1 70 600
21 J1 600 0

Common Stock No. 311


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 4,300

Sales Revenue No. 401


Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 900 900
20 J1 610 1,510

Sales Returns and Allowances No. 412


Date Explanation Ref. Debit Credit Balance
Apr. 27 J1 20 20

Cost of Goods Sold No. 505


Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 540 540
20 J1 370 910

5-44 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-4A (Continued)

(c) ADAM’S DISCORAMA


Trial Balance
April 30, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-45
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—

Copyright © 2014 John Wiley & Sons, Inc.


Equipment 28,000 (b) 11,500 39,500 39,500
Notes Payable 51,000 51,000 51,000
Accounts Payable 48,500 48,500 48,500
Common Stock 50,000 50,000 50,000
Retained Earnings 40,000 40,000 40,000
Dividends 12,000 12,000 12,000
Sales Revenue 755,200 755,200 755,200
Sales Returns and
Allowances 8,800 8,800 8,800
Cost of Goods Sold 497,400 (d) 300 497,700 497,700
Salaries and Wages
*PROBLEM 5-5A

Expense 140,000 140,000 140,000


Advertising Expense 24,400 24,400 24,400
Utilities Expense 14,000 14,000 14,000
Maintenance and Repairs
Expense 12,100 12,100 12,100
Freight-Out 16,700 16,700 16,700
Rent Expense 24,000 24,000 24,000
Totals 972,700 972,700

Weygandt, Financial Accounting, 9/e, Solutions Manual


Supplies Expense (a) 4,200 4,200 4,200
Depreciation Expense (b) 11,500 11,500 11,500
Interest Expense (c) 4,000 4,000 4,000
Interest Payable (c) 4,000 4,000 4,000
Totals 20,000 20,000 988,200 988,200 757,400 755,200 230,800 233,000
Net Loss 2,200 2,200
Totals 757,400 757,400 233,000 233,000

Key: (a) Store supplies used, (b) Depreciation expense—equipment, (c) Accrued interest payable, (d) Adjustment of inventory.

(For Instructor Use Only)


Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-47
*PROBLEM 5-5A (Continued)

(b) VALDEZ FASHION CENTER


Income Statement
For the Year Ended November 30, 2015

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)

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-47
*PROBLEM 5-5A (Continued)

VALDEZ FASHION CENTER


Retained Earnings Statement
For the Year Ended November 30, 2015

Retained Earnings, December 1, 2014 ...................... $40,000


Less: Net loss............................................................. $ 2,200
Dividends ......................................................... 12,000 14,200
Retained Earnings, November 30, 2015.................... $ 25,800

VALDEZ FASHION CENTER


Balance Sheet
November 30, 2015

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

5-48 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-5A (Continued)

VALDEZ FASHION CENTER


Balance Sheet (Continued)
November 30, 2015

Liabilities and Stockholders’ Equity


Current liabilities
Notes payable (due next year) .................................. $20,000
Accounts payable ...................................................... 48,500
Interest payable ......................................................... 4,000
Total current liabilities....................................... $ 72,500
Long-term liabilities
Notes payable ............................................................ 31,000
Total liabilities .................................................... 103,500
Stockholders’ equity
Common stock........................................................... 50,000
Retained earnings...................................................... 25,800 75,800
Total liabilities and stockholders’ equity......... $179,300

(c) Nov. 30 Supplies Expense .................................... 4,200


Supplies ............................................ 4,200

30 Depreciation Expense.............................. 11,500


Accumulated Depreciation—
Equipment..................................... 11,500

30 Interest Expense ...................................... 4,000


Interest Payable................................ 4,000

30 Cost of Goods Sold.................................. 300


Inventory ........................................... 300

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-49
*PROBLEM 5-5A (Continued)

(d) Nov. 30 Sales Revenue ....................................... 755,200


Income Summary ........................... 755,200

30 Income Summary................................... 757,400


Sales Returns and
Allowances ................................. 8,800
Cost of Goods Sold ....................... 497,700
Salaries and Wages Expense ....... 140,000
Advertising Expense ..................... 24,400
Utilities Expense ............................ 14,000
Maintenance and Repairs
Expense ...................................... 12,100
Freight-Out ..................................... 16,700
Rent Expense ................................. 24,000
Supplies Expense .......................... 4,200
Depreciation Expense ................... 11,500
Interest Expense ............................ 4,000

30 Retained Earnings ................................. 2,200


Income Summary ........................... 2,200

30 Retained Earnings ................................. 12,000


Dividends........................................ 12,000

5-50 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-5A (Continued)

(e) VALDEZ FASHION CENTER


Post-Closing Trial Balance
November 30, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-51
*PROBLEM 5-6A

DAYTON DEPARTMENT STORE


Income Statement (Partial)
For the Year Ended November 30, 2015

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

5-52 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-7A

(1) (a) Cost of goods sold = Sales revenue – Gross profit


= $55,000 – $38,300 = $16,700
(b) Net income = Gross profit – Operating expenses
= $38,300 – $34,900 = $3,400
(c) Inventory = 2012 Inventory + Purchases – CGS
= $7,200 + $14,200 – $16,700 = $4,700
(d) Cash payments to suppliers = 2012 Accounts payable +
Purchases – 2013 Accounts payable
= $3,200 + $14,200 – $3,600 = $13,800

(e) Sales revenue = Cost of goods sold + Gross profit


= $13,800 + $35,200 = $49,000

(f) Operating expenses = Gross profit – Net income


= $35,200 – $2,500 = $32,700

(g) 2013 Inventory + Purchases – 2014 Inventory = CGS


Purchases = CGS – 2013 Inventory + 2014 Inventory
= $13,800 – $4,700 [from (c)] + $8,100
= $17,200

(h) Cash payments to suppliers = 2013 Accounts payable +


Purchases – 2014 Accounts Payable
= $3,600 + $17,200 [from (g)] – $2,500
= $18,300

(i) Gross profit = Sales revenue – CGS


= $47,000 – $14,300 = $32,700

(j) Net income = Gross profit – Operating expenses


= $32,700 [from (i)] – $28,600 = $4,100

(k) 2014 Inventory + Purchases – 2015 Inventory = CGS


Inventory = 2014 Inventory + Purchases – CGS
= $8,100 + $13,200 – $14,300 = $7,000

(I) Accounts payable = 2014 Accounts payable +


Purchases – Cash payments
= $2,500 + $13,200 – $13,600 = $2,100

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-53
*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.

2013 2014 2015


Gross profit rate $38,300 ÷ $55,000 $35,200 ÷ $49,000 $32,700 ÷ $47,000
= 69.6% = 71.8% = 69.6%

Profit margin $3,400 ÷ $55,000 $2,500 ÷ $49,000 $4,100 ÷ $47,000


= 6.2% = 5.1% = 8.7%

5-54 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*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

9 Accounts Payable ......................................... 100


Purchase Returns and Allowances ..... 100

10 Accounts Receivable .................................... 600


Sales Revenue ....................................... 600

12 Purchases...................................................... 450
Accounts Payable ................................. 450

14 Accounts Payable ($1,200 – $100) ............... 1,100


Purchase Discounts ($1,100 X 2%) ....... 22
Cash ($1,100 – $22) ............................... 1,078

17 Accounts Payable ......................................... 50


Purchase Returns and Allowances ....... 50

20 Accounts Receivable .................................... 600


Sales Revenue ....................................... 600

21 Accounts Payable ($450 – $50).................... 400


Purchase Discounts
($400 X 1%) ....................................... 4
Cash ($400 – $4) .................................... 396

27 Sales Returns and Allowances .................... 35


Accounts Receivable ............................ 35

30 Cash ............................................................... 600


Accounts Receivable ............................ 600

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-55
*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

5-56 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-8A (Continued)

(c) KOKOTT PRO SHOP


Trial Balance
April 30, 2015

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

(d) KOKOTT PRO SHOP


Income Statement (Partial)
For the Month Ended April 30, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-57
SOLUTIONS TO PROBLEMS

PROBLEM 5-1B

(a) July 1 Inventory......................................................... 1,800


Accounts Payable .................................. 1,800

3 Accounts Receivable..................................... 2,000


Sales Revenue........................................ 2,000

Cost of Goods Sold ....................................... 1,200


Inventory ................................................. 1,200

9 Accounts Payable.......................................... 1,800


Inventory
($1,800 X .02) ...................................... 36
Cash ........................................................ 1,764

12 Cash ................................................................ 1,980


Sales Discounts ............................................. 20
Accounts Receivable ............................. 2,000

17 Accounts Receivable..................................... 1,800


Sales Revenue........................................ 1,800

Cost of Goods Sold ....................................... 1,080


Inventory ................................................. 1,080

18 Inventory......................................................... 1,900
Accounts Payable .................................. 1,900

Inventory......................................................... 125
Cash ........................................................ 125

20 Accounts Payable.......................................... 300


Inventory ................................................. 300

21 Cash ................................................................ 1,782


Sales Discounts ............................................. 18
Accounts Receivable ............................. 1,800

5-58 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-1B (Continued)

July 22 Accounts Receivable .................................... 2,250


Sales Revenue ....................................... 2,250

Cost of Goods Sold....................................... 1,350


Inventory ................................................ 1,350

30 Accounts Payable ......................................... 1,600


Cash........................................................ 1,600

31 Sales Returns and Allowances...................... 200


Accounts Receivable............................. 200

Inventory ........................................................ 120


Cost of Goods Sold ............................... 120

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-59
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

4 Accounts Receivable ......................... 112 6,500


Sales Revenue ............................ 401 6,500
Cost of Goods Sold ............................ 505 3,900
Inventory...................................... 120 3,900

5 Freight-Out .......................................... 644 240


Cash ............................................. 101 240

6 Accounts Payable............................... 201 500


Inventory...................................... 120 500

11 Accounts Payable ($6,900 – $500) ...... 201 6,400


Inventory...................................... 120 64
($6,400 X 1%)
Cash ............................................. 101 6,336

13 Cash..................................................... 101 6,435


Sales Discounts ($6,500 X 1%).......... 414 65
Accounts Receivable.................. 112 6,500

14 Inventory ............................................. 120 3,800


Cash ............................................. 101 3,800

16 Cash..................................................... 101 500


Inventory...................................... 120 500

18 Inventory ............................................. 120 4,500


Accounts Payable....................... 201 4,500

20 Inventory ............................................. 120 100


Cash ............................................. 101 100

5-60 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

26 Inventory............................................. 120 2,300


Cash............................................. 101 2,300

27 Accounts Payable .............................. 201 4,500


Inventory ..................................... 120 90
($4,500 X 2%)
Cash............................................. 101 4,410

29 Sales Returns and Allowances ......... 412 90


Cash............................................. 101 90
Inventory............................................. 120 30
Cost of Goods Sold.................... 505 30

30 Accounts Receivable ......................... 112 3,700


Sales Revenue ............................ 401 3,700
Cost of Goods Sold............................ 505 2,800
Inventory ..................................... 120 2,800

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-61
PROBLEM 5-2B (Continued)

(b)

Cash No. 101


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 9,000
5 J1 240 8,760
11 J1 6,336 2,424
13 J1 6,435 8,859
14 J1 3,800 5,059
16 J1 500 5,559
20 J1 100 5,459
23 J1 7,400 12,859
26 J1 2,300 10,559
27 J1 4,410 6,149
29 J1 90 6,059

Accounts Receivable No. 112


Date Explanation Ref. Debit Credit Balance
Apr. 4 J1 6,500 6,500
13 J1 6,500 0
30 J1 3,700 3,700

Inventory No. 120


Date Explanation Ref. Debit Credit Balance
Apr. 2 J1 6,900 6,900
4 J1 3,900 3,000
6 J1 500 2,500
11 J1 64 2,436
14 J1 3,800 6,236
16 J1 500 5,736
18 J1 4,500 10,236
20 J1 100 10,336
23 J1 4,120 6,216
26 J1 2,300 8,516
27 J1 90 8,426
29 J1 30 8,456
30 J1 2,800 5,656

5-62 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-2B (Continued)

Accounts Payable No. 201


Date Explanation Ref. Debit Credit Balance
Apr. 2 J1 6,900 6,900
6 J1 500 6,400
11 J1 6,400 0
18 J1 4,500 4,500
27 J1 4,500 0

Common Stock No. 311


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 9,000

Sales Revenue No. 401


Date Explanation Ref. Debit Credit Balance
Apr. 4 J1 6,500 6,500
23 J1 7,400 13,900
30 J1 3,700 17,600

Sales Returns and Allowances No. 412


Date Explanation Ref. Debit Credit Balance
Apr. 29 J1 90 90

Sales Discounts No. 414


Date Explanation Ref. Debit Credit Balance
Apr. 13 J1 65 65

Cost of Goods Sold No. 505


Date Explanation Ref. Debit Credit Balance
Apr. 4 J1 3,900 3,900
23 J1 4,120 8,020
29 J1 30 7,990
30 J1 2,800 10,790

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-63
PROBLEM 5-2B (Continued)

Freight-Out No. 644


Date Explanation Ref. Debit Credit Balance
Apr. 5 J1 240 240

(c) ROSE DISTRIBUTING COMPANY


Income Statement (Partial)
For the Month Ended April 30, 2015

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

5-64 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3B

(a) MACKEY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-65
PROBLEM 5-3B (Continued)

MACKEY DEPARTMENT STORE


Retained Earnings Statement
For the Year Ended December 31, 2015

Retained Earnings, January 1....................................................... $ 64,600


Add: Net income .......................................................................... 129,100
193,700
Less: Dividends ............................................................................ 28,000
Retained Earnings, December 31 ................................................. $165,700

MACKEY DEPARTMENT STORE


Balance Sheet
December 31, 2015

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

5-66 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3B (Continued)

MACKEY DEPARTMENT STORE


Balance Sheet (Continued)
December 31, 2015

Liabilities and Stockholders’ Equity


Current liabilities
Accounts payable ..................................................... $ 80,300
Mortgage payable (due next year)........................... 25,000
Interest payable ........................................................ 9,000
Property taxes payable ............................................ 4,800
Sales commissions payable .................................... 4,300
Total current liabilities...................................... $123,400
Long-term liabilities
Mortgage payable ..................................................... 55,000
Total liabilities ................................................... 178,400
Stockholders’ equity
Common Stock ......................................................... 112,000
Retained Earnings .................................................... 165,700 277,700
Total liabilities and stockholders’ equity........ $456,100

(b) Dec. 31 Depreciation Expense.............................. 23,700


Accumulated Depreciation—
Buildings ....................................... 10,400
Accumulated Depreciation—
Equipment ..................................... 13,300

31 Insurance Expense................................... 7,200


Prepaid Insurance ............................ 7,200

31 Interest Expense....................................... 9,000


Interest Payable ................................ 9,000

31 Property Tax Expense.............................. 4,800


Property Taxes Payable ................... 4,800

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-67
PROBLEM 5-3B (Continued)

31 Sales Commissions Expense ............... 4,300


Sales Commissions Payable......... 4,300

31 Utilities Expense .................................... 1,000


Accounts Payable .......................... 1,000

(c) Dec. 31 Sales Revenue ....................................... 728,000


Interest Revenue.................................... 4,000
Income Summary ........................... 732,000

31 Income Summary................................... 602,900


Sales Returns and Allowances ...... 8,000
Cost of Goods Sold........................ 412,700
Salaries and Wages Expense........ 108,000
Sales Commissions Expense ....... 14,500
Property Tax Expense ................... 4,800
Utilities Expense ............................ 12,000
Depreciation Expense.................... 23,700
Insurance Expense ........................ 7,200
Interest Expense ............................ 12,000

31 Income Summary................................... 129,100


Retained Earnings.......................... 129,100

31 Retained Earnings ................................. 28,000


Dividends ........................................ 28,000

5-68 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

8 Accounts Receivable........................... 112 1,150


Sales Revenue .............................. 401 1,150

Cost of Goods Sold ............................. 505 790


Inventory ....................................... 120 790

10 Accounts Payable ................................ 201 40


Inventory ....................................... 120 40

11 Inventory............................................... 120 420


Cash .............................................. 101 420

13 Accounts Payable ($840 – $40)........... 201 800


Inventory ....................................... 120 16
($800 X 2%)
Cash .............................................. 101 784

14 Inventory............................................... 120 900


Accounts Payable ........................ 201 900

15 Cash ...................................................... 101 50


Inventory ....................................... 120 50

17 Inventory............................................... 120 30
Cash .............................................. 101 30

18 Accounts Receivable........................... 112 900


Sales Revenue .............................. 401 900

Cost of Goods Sold ............................. 505 540


Inventory ....................................... 120 540

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-69
PROBLEM 5-4B (Continued)

General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 20 Cash...................................................... 101 600
Accounts Receivable................... 112 600

21 Accounts Payable................................ 201 900


Inventory ($900 X 3%).................. 120 27
Cash .............................................. 101 873

27 Sales Returns and Allowances........... 412 40


Accounts Receivable................... 112 40

30 Cash...................................................... 101 710


Accounts Receivable................... 112 710

(b)

Cash No. 101


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 2,500
6 J1 40 2,460
11 J1 420 2,040
13 J1 784 1,256
15 J1 50 1,306
17 J1 30 1,276
20 J1 600 1,876
21 J1 873 1,003
30 J1 710 1,713

Accounts Receivable No. 112


Date Explanation Ref. Debit Credit Balance
Apr. 8 J1 1,150 1,150
18 J1 900 2,050
20 J1 600 1,450
27 J1 40 1,410
30 J1 710 700

5-70 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-4B (Continued)

Inventory No. 120


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 1,700
4 J1 840 2,540
6 J1 40 2,580
8 J1 790 1,790
10 J1 40 1,750
11 J1 420 2,170
13 J1 16 2,154
14 J1 900 3,054
15 J1 50 3,004
17 J1 30 3,034
18 J1 540 2,494
21 J1 27 2,467

Accounts Payable No. 201


Date Explanation Ref. Debit Credit Balance
Apr. 4 J1 840 840
10 J1 40 800
13 J1 800 0
14 J1 900 900
21 J1 900 0

Common Stock No. 311


Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance 4,200

Sales Revenue No. 401


Date Explanation Ref. Debit Credit Balance
Apr. 8 J1 1,150 1,150
18 J1 900 2,050

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-71
PROBLEM 5-4B (Continued)

Sales Returns and Allowances No. 412


Date Explanation Ref. Debit Credit Balance
Apr. 27 J1 40 40

Cost of Goods Sold No. 505


Date Explanation Ref. Debit Credit Balance
Apr. 8 J1 790 790
18 J1 540 1,330

(c) DIAZ TENNIS SHOP


Trial Balance
April 30, 2015

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

5-72 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-5B

ROSHEK DEPARTMENT STORE


Income Statement (Partial)
For the Year Ended December 31, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-73
*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

8 Accounts Receivable ....................................... 900


Sales Revenue .......................................... 900

10 Accounts Payable ............................................ 40


Purchase Returns and Allowances......... 40

11 Purchases ......................................................... 300


Cash........................................................... 300

13 Accounts Payable ($740 – $40) ....................... 700


Purchase Discounts ($700 X 3%) ............ 21
Cash........................................................... 679

14 Purchases ......................................................... 700


Accounts Payable..................................... 700

15 Cash................................................................... 50
Purchase Returns and Allowances......... 50

17 Freight-In........................................................... 30
Cash........................................................... 30

18 Accounts Receivable ....................................... 1,000


Sales Revenue .......................................... 1,000

20 Cash................................................................... 500
Accounts Receivable................................ 500

21 Accounts Payable ............................................ 700


Purchase Discounts ($700 X 2%) ............ 14
Cash........................................................... 686

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-75
*PROBLEM 5-7B (Continued)

Date Account Titles and Explanation Debit Credit


Apr. 27 Sales Returns and Allowances ................... 25
Accounts Receivable............................ 25

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

5-76 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-7B (Continued)

(c) EVERETT TENNIS SHOP


Trial Balance
April 30, 2015

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

EVERETT TENNIS SHOP


Income Statement (Partial)
For the Month Ended April 30, 2015

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-77
COMPREHENSIVE PROBLEM SOLUTION

(a) Dec. 6 Salaries and Wages Payable ..................... 1,000


Salaries and Wages Expense.................... 600
Cash..................................................... 1,600

8 Cash ............................................................ 1,900


Accounts Receivable ......................... 1,900

10 Cash ............................................................ 6,300


Sales Revenue .................................... 6,300

Cost of Goods Sold.................................... 4,100


Inventory ............................................. 4,100

13 Inventory ..................................................... 9,000


Accounts Payable............................... 9,000

15 Supplies ...................................................... 2,000


Cash..................................................... 2,000

18 Accounts Receivable ................................. 12,000


Sales Revenue .................................... 12,000

Cost of Goods Sold.................................... 8,000


Inventory ............................................. 8,000

20 Salaries and Wages Expense.................... 1,800


Cash..................................................... 1,800

23 Accounts Payable ...................................... 9,000


Cash..................................................... 8,820
Inventory ($9,000 X .02)...................... 180

27 Cash ............................................................ 11,640


Sales Discounts ($12,000 X .03)................ 360
Accounts Receivable ......................... 12,000

5-78 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(c) Dec. 31 Salaries and Wages Expense .................... 800


Salaries and Wages Payable.............. 800

Depreciation Expense ................................ 200


Accumulated Depreciation—
Equipment......................................... 200

Supplies Expense ....................................... 1,700


Supplies ($3,200 – $1,500).................. 1,700

(b) & (c) General Ledger

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

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-79
COMPREHENSIVE PROBLEM SOLUTION (Continued)

Common Stock Cost of Goods Sold


12/1 Bal. 30,000 12/10 4,100
12/31 Bal. 30,000 12/18 8,000
12/31 Bal. 12,100
Retained Earnings
12/1 Bal. 9,300 Depreciation Expense
12/31 Bal. 9,300 12/31 200
12/31 Bal. 200
Sales Revenue
12/10 6,300 Salaries and Wages Expense
12/18 12,000 12/6 600
12/31 Bal. 18,300 12/20 1,800
12/31 800
12/31 Bal. 3,200
Sales Discounts
12/27 360
Supplies Expense
12/31 Bal. 360
12/31 1,700
12/31 Bal. 1,700

5-80 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(d) PROSEN DISTRIBUTING COMPANY


Adjusted Trial Balance
December 31, 2015

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

(e) PROSEN DISTRIBUTING COMPANY


Income Statement
For the Month Ending December 31, 2015

Sales revenue................................................. $18,300


Less: Sales discounts .................................. 360
Net sales ......................................................... 17,940
Cost of goods sold ........................................ 12,100
Gross profit .................................................... 5,840
Operating expenses
Salaries and wages expense ................. $3,200
Supplies expense ................................... 1,700
Depreciation expense ............................ 200 5,100
Net income...................................................... $ 740

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-81
COMPREHENSIVE PROBLEM SOLUTION (Continued)

PROSEN DISTRIBUTING COMPANY


Retained Earnings Statement
For the Month Ended December 31, 2015

Retained Earnings, Dec. 1 ............................................. $ 9,300


Add: Net income ........................................................... 740
Retained Earnings, Dec. 31 ........................................... $10,040

PROSEN DISTRIBUTING COMPANY


Balance Sheet
December 31, 2015

Assets
Current assets
Cash ........................................................... $12,820
Accounts receivable ................................. 2,700
Inventory.................................................... 8,720
Supplies ..................................................... 1,500
Total current assets ............................ $25,740

Property, plant, and equipment


Equipment ................................................. 22,000
Less: Accumulated depreciation............ 2,400 19,600
Total assets....................................................... $45,340
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ..................................... $4,500
Salaries and wages payable .................... 800
Total current liabilities........................ $ 5,300

Stockholders’ equity
Common stock .......................................... 30,000
Retained earnings..................................... 10,040 40,040
Total liabilities and stockholders’ equity ....... $45,340

5-82 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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

(2) Percentage change in net income:


($14,013 – $8,235) ÷ $8,235 70.2% increase
($25,922 – $14,013) ÷ $14,013 85.0% increase

(b) Gross profit rate:


2009 ($42,905 – $25,683) ÷ $42,905 40.1%
2010 ($65,225 – $39,541) ÷ $65,225 39.4%
2011 ($108,249 – $64,431) ÷ $108,249 40.5%

(c) Percentage of net income to sales:


2009 ($8,235 ÷ $42,905) 19.2%
2010 ($14,013 ÷ $65,225) 21.5%
2011 ($25,922 ÷ $108,249) 23.9%

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.

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-83
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%

(3) 2011 Operating income $9,633 $10,154


5 6
(4) Percent change in operating 15.6% 20.2%
income, 2010 to 2011 increase increase
1 2 3
$66,504 – $31,593 ($46,542 – $18,216) $34,911 ÷ $66,504
4 5
$28,326 ÷ $46,542 ($9,633 – $8,332) ÷ $8,332
6
($10,154 – $8,449) ÷ $8,449

(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.

Coca-Cola had a larger operating income because its selling, general,


and administrative expenses were much smaller than PepsiCo’s.

5-84 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
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%

(3) 2011 Operating income $862 $26,558


5 6
(4) Percent change in operating 38.7% 4.0%
income, 2010 to 2011 decrease increase
1 2 3
$42,000 – $37,288 ($443,854 – $335,127) $4,712 ÷ $42,000
4 5
$108,727 ÷ $443,854 ($862 – $1,406) ÷ $1,406
6
($26,558 – $25,542) ÷ $25,542

(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.

Wal-Mart’s operating income increased 4.0% while Amazon’s


decreased by almost 39%. Amazon’s operating expenses increased
44% during 2011 causing its operating income to decline significantly.

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-85
BYP 5-4 REAL-WORLD FOCUS

The answers to this assignment will be dependent upon the articles


selected from the Internet by the student.

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BYP 5-5 DECISION MAKING ACROSS THE ORGANIZATION

(a) (1) FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2015

Net sales [$700,000 + ($700,000 X 6%)] ...... $742,000


Cost of goods sold ($742,000 X 76%)* ....... 563,920
Gross profit ($742,000 X 24%)..................... 178,080
Operating expenses
Selling expenses .................................. $100,000
Administrative expenses ..................... 20,000
Total operating expenses ............ 120,000
Net income.................................................... $ 58,080

**Alternatively: Net sales, $742,000 – gross profit, $178,080.

(2) FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2015

Net sales ....................................................... $700,000


Cost of goods sold....................................... 553,000
Gross profit................................................... 147,000
Operating expenses
Selling expenses .................................. $72,000*
Administrative expenses ..................... 20,000* 92,000
Net income.................................................... $ 55,000

*$100,000 – $30,000 + ($700,000 X 2%) – ($30,000 X 40%) = $72,000.

(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)].

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-87
BYP 5-5 (Continued)

(c) FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2015

Net sales ............................................................. $742,000


Cost of goods sold............................................. 563,920
Gross profit......................................................... 178,080
Operating expenses
Selling expenses ........................................ $72,840*
Administrative expenses ........................... 20,000*
Total operating expenses................... 92,840
Net income .......................................................... $ 85,240

*$72,000 + [2% X ($742,000 – $700,000)] = $72,840.

If both plans are implemented, net income will be $58,240 ($85,240 –


$27,000) higher than the 2014 results. This is an increase of over 200%.
Given the size of the increase, Eric’s plan to compensate sales person-
nel might be modified so that they would not have to take a pay cut.
For example, if sales commissions were 3%, the compensation cut would
be reduced to $8,580 [$16,000 (from (b)) – $742,000 X (3% – 2%)].

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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.

The circumstances pertaining to this sale may seem to you to be atypical


because Connor has ordered a specific kind of surfboard. From an
accounting standpoint, this would be true only if you could not reasonably
expect to sell this surfboard to another customer. In such case, it would be
proper under generally accepted accounting principles to recognize sales
revenue when you have completed the surfboard for Connor.

Whether Connor makes a down payment with the purchase order is


irrelevant in recognizing sales revenue because at this time, you have not
done anything to earn the revenue. A down payment may be an indication
of Connor’s “good faith.” However, its effect on your financial statements is
limited entirely to recognizing the down payment as unearned revenue.

If you have further questions about the accounting for this sale, please let
me know.

Sincerely,

Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 5-89
BYP 5-7 ETHICS CASE

(a) Jacquie Boynton, as a new employee, is placed in a position of res-


ponsibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
undeserved cash discounts. Her dilemma is either follow her boss’s
unethical instructions or offend her boss and maybe lose the job she
just assumed.

(b) The stakeholders (affected parties) are:


• Jacquie Boynton, the assistant treasurer.
• Phelan Carter, the treasurer.
• Key West, the company.
• Creditors of Key West Stores (suppliers).
• Mail room employees (those assigned the blame).

(c) Jacquie’s alternatives:

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.

5-90 Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only)
BYP 5-8 ALL ABOUT YOU

In order for revenue to be recognized the performance obligation must be


satisfied. In this case Impact has an obligation to provide goods with a
value equal to the gift card. That obligation is not fulfilled until one of two
things happens: Either the customer redeems the card for goods, or the card
expires. Until either of those events occurs Impact cannot record revenue.

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BYP 5-9 FASB CODIFICATION ACTIVITY

(a) (1) Inventory is the aggregate of those items of tangible personal


property that have any of the following characteristics:
a. Held for sale in the ordinary course of business
b. In process of production for such sale
c. To be currently consumed in the production of goods or services
to be available for sale.

The term inventory embraces goods awaiting sale (the merchandise of


a trading concern and the finished goods of a manufacturer), goods
in the course of production (work in process), and goods to be
consumed directly or indirectly in production (raw materials and
supplies). This definition of inventories excludes long-term assets
subject to depreciation accounting, or goods which, when put into
use, will be so classified. The fact that a depreciable asset is retired
from regular use and held for sale does not indicate that the item
should be classified as part of the inventory. Raw materials and
supplies purchased for production may be used or consumed for
the construction of long-term assets or other purposes not related
to production, but the fact that inventory items representing a small
portion of the total may not be absorbed ultimately in the production
process does not require separate classification. By trade practice,
operating materials and supplies of certain types of entities such as
oil producers are usually treated as inventory.

(2) A customer is a reseller or a consumer, either an individual or a


business that purchases a vendor’s products or services for end use
rather than for resale. This definition is consistent with paragraph
280-10-50-42, which states that a group of entities known to a
reporting entity to be under common control shall be considered as
a single customer, and the federal government, a state government,
a local government (for example, a county or municipality), or a
foreign government each shall be considered as a single customer.
Customer includes any purchaser of the vendor’s products at any
point along the distribution chain, regardless of whether the
purchaser acquires the vendor’s products directly or indirectly (for
example, from a distributor) from the vendor. For example, a vendor
may sell its products to a distributor who in turn resells the products
to a retailer. The retailer in that example is a customer of the vendor.

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BYP 5-9 (Continued)

(b) 330-10-35-15 Only in exceptional cases may inventories properly be


stated above cost. For example, precious metals having a fixed monetary
value with no substantial cost of marketing may be stated at such
monetary value; any other exceptions must be justifiable by inability to
determine appropriate approximate costs, immediate marketability at
quoted market price, and the characteristic of unit interchangeability.

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IFRS EXERCISES

IFRS5-1

Expenses may be classified by “nature” or by “function”. The “nature-of-


expense” classification organizes expenses by type of expense, such as
salaries, depreciation, rent, or supplies. The “function-of-expense” classifica-
tion presents expenses by type of business activity. Examples would include
cost of goods sold, selling, administrative, operating, and non-operating.

IFRS5-2

By function Cost of goods sold


By nature Depreciation expense
By nature Salaries and wages expense
By function Selling expenses
By nature Utilities expense
By nature Delivery expense
By function General and administrative expenses

IFRS5-3

MATILDA COMPANY
Comprehensive Income Statement
For the Year Ended 2015

(in thousands of euros)


Net income ............................................................................... €150
Unrealized gain related to revaluation of buildings.............. € 10
Unrealized loss related to investment securities.................. (35)
Items not recognized on the income statement.................... (25)
Total comprehensive income ........................................ €125

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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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