Assignment questions with answers

1. In 2003 Best Buy Co. reported net sales of $20,946 million. Its gross profit was $5236
million. What was the amount of best buy`s cost of merchandise sold?

Gross Profit = Net Sales – Cost Of Merchandise Sold

Therefore: - Cost of Merchandise Sold = Net Sales – Gross Profit

= $20,946 mill – $5,236 mill
:- Cost of Merchandise Sold = $15,710 million.

2. Fore (a) through (d) identify the items designated by “X” and “Y”?
a) Purchases – (X+Y) = net purchase
b) Net purchases + X = Cost Of Merchandise purchased
c) Merchandise inventory (beginning ) + Cost Of Merchandise purchased = X
d) Merchandise available for sale – X = Cost Of Merchandise Sold .

a) X= Purchase Discount. Y = Purchase return and allowances

b) X = Transportation-In
c) X = Cost Of goods sold
d) X = Gross Profit

3. The flowing data where extracted from the accounting records of meniscus company
for the year ended April,30,2006
 Merchandise inventory ,May,01,2005…………………………………. $121,200.
 Merchandise inventory ,April,30,2006………………………………… $142,000.
 Purchases…………………………………………………………………………... $985,000.
 Purchases returns and allowances………………………………………. $23,500.
 Purchases Discounts………………………………………..…………………. $21,000.
 Sales …………………………………………………………………………………. $1,420,000.
 Transportation-In………………………………………………………………. $11,300.
a. Prepare the cost of merchandise sold section of the income statement for the year
ended, April.30.2006, using the periodic inventory method?
b. Determine the gross profit to be reported on the income statement for the year
ended April.30.2016?

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 a. Cost of Merchandise Sold = Beg Inventory +Total Cost Of Purchase - Ending Inventory.

Meniscus Company
Income Statement
For The Year Ended April-30-2006

Merchandise inventory ,May,01,2005---------------------------------------------- $121,200

Purchases -----------------------------------------------------$985.000
Less: Purchases discount --------------------------------- ($21,000)
Purchases returns & allowances ----------------- ($23,500) .

Net Purchases--------------------------------$940,500
Add: Transportation—In-------------------------- $11,300
Total cost of purchase ----------------------------------------------------------- $951,800
Total cost of goods available for sale ---------------------------------------------- $1,073,000
Less: Merchandise inventory ,April,30,2006--------------------------------------- $142,000
Cost Of Merchandise sold------------------------------------------------------- $931,000

b. Gross Profit = Net Sales – Cost of Merchandise Sold.

= $1,420,000 – 931,000
:- Gross Profit = $489,000

4. For the fiscal year, sales were $3,570,000, sales discounts were $320.000, sales returns &
allowances were $240,000, and the Cost of Merchandise Sold was $2,142,000. What was the
amount of net sales and gross profit?

Net Sales = Gross Sells – (Sales Discounts + Sales Return & Allowances).
= $3,570,000 – ($320.000 + $240,000)
:-Net Sales = $3,010,000

Gross Profit = Net Sales – Cost of Merchandise Sold.

= $3,010,000 – $2,142,000
:-Gross Profit = $868,000

5. Summary operating data for the Meriden company during the current year ended June-
30-2006 are as flows: cost of merchandise sold, $3,240,000; administrative expenses,
$300,000, interest expenses, $47,500, rent revenue, $30,000, net sales, $5400,000, and
selling expenses, $480,000. Prepare single-step income statement?

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 Net Income = Revenue – Expenses

Meriden Company
Income Statement
For The Year Ended June-30-2006
Revenues :-
Net Sales ---------------------------------------------- $5,400,000
Rent Revenue ---------------------------------------- $ 30,000
Total Revenue-----------------------------------------------------------------------$5,430,000
Expenses :-
Cost Of Merchandise Sold ----------------------------------$3,240,000
Administrative Expenses ----------------------------------$ 300,000
Selling Expenses----------------------------------------------$ 480,000
Interest Expenses-------------------------------------------- $ 47,500
Total expenses ---------------------------------------------------------------------$4,067,500
Net Income --------------------------------------------------------------------- $1,362,500

6. Two items are omitted in each of the following four lists of income statement data.
Determine the amounts of the missing items indentifying them by letter?
Sales $393,000 $500,000 $930,000 g.
Sells Return And Allowances a. $15,000 e. $30,500
Sells Discounts $18,000 $8,000 $30,000 $37,000
Net Sells $350,000 c. $860,000 h.
Cost Of Merchandise Sold b. $285,000 f. $540,000
Gross Profit $140,000 d. $340,000 $150,000

The amount of missing items in shell:-

a) Net Sales = G.S – (S.D- S.R.Allowance) e) Net Sales Gross Sales – Sales discount –
350,000 = 393,000 – 18,000 – A Sales Returns and Allowance.
350,000 = 375,000 – A 860,000 = 930,000 – 30,000 – E
350,000 – 375,000 = - A 860,000 = 900,000 – E. :. E = $40,000
-25,000 = - A :. A = $25,000 f) Gross Profit = Net sale – Cost of
b) Gross profit = Net sales – Cost of Merchandise goods sold.
Merchandise sold 340,000 = 860,000 – F :. F = $520,000
140,000 – 350,000 – B :. B = $210,000 g) Net sale = Gross sales – sales discounts
c) Net sales = Gross sale – sales discounts – Sales Returns and Allowance
– sales Returns and Allowance 690,000 = G – 37000 – 30500
C = 500,000 – 8,000 – 15,000 :. 690,000 = G – 67500
C = $477,000. G = 690,000 + 67500 :. G = $757,500
d) Gross Profit = Net sales – Cost of goods h) Gross Profit = Net sales – cost of
Merchandise sold. Merchandise goods sold
D = 477,000 – 285,000, D = $192,000 150,000 = H – 540,000
H = 150,000 + 540,000 :. H = $690,000

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 7. On January-31-2006, the balances of the accounts appearing in the ledger of Calloway
Company, a furniture wholesaler, are as follows:-

Administrative Expenses ----- $80,000 Notes Payable --------------------$25,000

Building ------------------------- $512,500 Office Supplies -------------------$10,600
Cash ------------------------------- $48,500 Salary Payable ---------------------$3,220
Cost Of Merchandise Sold ----$560,000 Sales ----------------------------- $925,000
Interest Expense------------------ $7,500 Sales Discount ------------------- $20,000
Mark Donovan, Capital------- $628,580 Sales Return & Allowances ----$60,000
Mark Donovan, Drawing -------$25,000 Selling Expense ---------------- $120,000
Merchandise Inventory ------ $130,000 Store Supplies --------------------- $7,700

a. Prepare a multiple-step income statement for the year ended January-31-2006?

b. Compare the major advantages and disadvantages of the multiple-step and single-step
forms of income statement?

a. Calloway Company
Income Statement
For The Year Ended January-31-2006
Revenues :-
Sales ----------------------------------------------- $925,000
Less:- Sales Discount --------------------------- $ 20,000
Sales Return & Allowances ------------$ 60,000 .
Net Sales ----------------------------------------------------------- $845,000
Less:- Cost Of Merchandise Sold ----------------------------- $560,000
Gross Profit ------------------------------------------------------------------- $285,000
Expenses :-
Administrative Expenses ---------------------------------- $80,000
Interest Expenses--------------------------------------------$ 7,500
Selling Expenses----------------------------------------------$120,000
Total expenses ---------------------------------------------------------------------------------$207,500
Net Income --------------------------------------------------------------------------- $ 77,500
b.

Single-Step Income Statement

Advantages Disadvantages
The single-step income statement offers One disadvantage of the single-step income
several advantages to preparers and statement is the lack of relevant information
users. For the preparer, it requires fewer communicated. Savvy financial statement
details and fewer calculations. The users want to understand the various
preparer adds up all the revenues, adds business activities that occur during the
up all the expenses and subtracts the total period. The single-step income statement
expenses from the total revenues to does not segregate activities or provide

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 arrive at net income. For the user, only details in its reporting.
one level of income appears on the
statement. With one income figure
reported, the user is less likely to be
confused by the numbers.
Multi-Step Income Statement

Advantages Disadvantages
The multi-step income statement offers A disadvantage of the multi-step income
several advantages to users. These include statement is its preparation, which requires
the higher level of detail and the multiple the accountant to classify each expense into
levels of income reported. The higher level of the appropriate categories. The accountant
detail included on the multi-step income also needs to perform multiple calculations
statement comes from separating the to determine each type of income. Another
company's expenses into several different disadvantage is that the financial statement
categories, including the cost of goods sold, user can potentially be confused about the
operating expenses and non-operating
meaning of each level of income.
expenses. Each level of income comes from
subtracting each category of expense. Income
levels include gross profit, operating income
and net income.

8. Journalize the enters of the following transactions:

a) Sold merchandise for cash $6,900. The cost of merchandise sold was $4,830.
b) Sold merchandise on account $7,500. The cost of merchandise sold was $5,625.
c) Sold merchandise to customers who used master card & visa, $10,200. The cost of
Merchandise sold was $6,630.
d) Sold merchandise to customers who used the American express, $7,200. The cost
of Merchandise sold was, $5,040.
e) Paid invoice from city national bank for $675, representing a serves fee for
Processing MasterCard and Visa sales.
f) Received $6,875 from American express company after $325 collection fee hard
been Deducted .

The transactions are journalized as follows:-

Date Description Debit Credit

Cash $6,900
Sales $6,900
a) To Record Cash Sales
Cost Of Sales $4,830 .
Inventory $4,830
To Record Cost Of Sales

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 Date Description Debit Credit
Accounts Receivable $7,500
Sales $7,500
b) To Record A/R Sales
Cost Of Sales $5,625 .
Inventory  $5,625
To Record Cost Of Sales

Date Description Debit Credit

Cash $10,200
Sales $10,200
To Record Credit Card Sales MC & Visa
c) Credit Card Sales Are Considered Cash
Cost Of Sales $6,630 .
Inventory $6,630
To Record Cost Of Sales

Date Description Debit Credit

Cash $7,200
Sales $7,200
d) To Record Credit Card Sales
AM . EX
Cost Of Sales $5,040 .
Inventory $5,040
To Record Cost Of Sales

Date Description Debit Credit

Credit card expense $675
e) Cash $675
To record cost from AM/EX

Date Description Debit Credit

Cash $6,875
Credit card American express $ 325
f) Account receivable $7,200
To record cost from AM/EX

9. Merchandise is sold on account to customer for $18,000, terms FOB shipping point, 3/10,
n/30. The seller paid the transportation cost of $375. Determine the following:- (a)Amount
of the sale. (b)Amount debited to account receivable. (c)Amount of the discount for early
payment. (d)Amount due within the discount period.

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 a. Amount of the sale = $18,000
b. Amount debited to account receivable = $18,000
3
c. Amount of the discount for early payment = $18,000 * = $540
100
d. Amount due within the discount period = sales — sales discount + transportation
cost
= $18,000 — $540 + $375
= $17835

10. Cheddar Company purchased merchandise on account from a supplier for $8,500 terms
2/10, n/30. Cheddar Company returned $800 of the merchandise and received full credit.
a. If Cheddar Company pays the invoice whiting the discount period, what is the
amount of cash required for the payment?
b. Ander a perpetual inventory system, what account is credited by cheddar
Company to record the return?

a. $8,500 – $800 = $7,700

2
:. = * $7,700 = $154 .
100
b. Purchase return and allowances account is credited by cheddar Company to
record the return

11. Enid Co., a women`s clothing store, purchased $7,500 of merchandise from a supplier on
account, terms FOB destination, 2/10, n/30. Enid Co. returned $1200 of the merchandise,
receiving a credit memorandum, and then paid the amount due within the discount
period. Journalize Enid Co`s entries to record (a) the purchase (b) the merchandise
return, and (c) the payment?

Date Description Debit Credit

(A) Purchase 7,500
Account Payable 7,500
(B) Account Payable 1,200
Purchase Return 1,200
(C) Account Payable 6,174
Cash 6,174

 Payments is Calculated: $7,500 – $1,200 = $6,300

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 2
Deducted 2% cash discount = * $6,300 = (126)
100

:. Payments = $6,300 – $126 = $6,174.

Eid Mubarak

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