Merchandising Operations and the Accounting Cycle - Pearson

3. Prepare the company’s multi-step income statement, statement of retained earnings,
and balance sheet in account format. Draw arrows connecting the statements,
or state how the statements are linked.
4. Compute the inventory turnover for 2003. Inventory at December 31, 2002, was
$59,500. Turnover for 2002 was 2.1 times. Would you expect Jan King Distributing
Company Ltd. to be more or less profitable in 2003 than in 2002? Give your reason.
Solution to Review Problem
Requirement 1
JAN KING DISTRIBUTING COMPANY LTD.
Work Sheet
For the Year Ended December 31, 2003
Trial Balance Adjustments Income Statement Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit Debit Credit
Cash 5,670 5,670
Accounts receivable 37,100 37,100
Inventory 60,500 (g)5,300 65,800
Supplies 3,930 (a) 2,580 1,350
Prepaid rent 6,000 (b) 5,000 1,000
Furniture 26,500 26,500
Accumulated amortization—furn. 21,200 (d)2,650 23,850
Accounts payable 46,340 46,340
Salary payable (e) 1,300 1,300
Interest payable (f) 600 600
Unearned sales revenue 3,500 (c)1,100 2,400
Note payable, long-term 35,000 35,000
Common stock 10,000 10,000
Retained earnings 13,680 13,680
Dividends 48,000 48,000
Sales revenue 346,700 (c) 1,100 347,800
Sales discounts 10,300 10,300
Sales returns and allowances 8,200 8,200
Cost of goods sold 171,770 (g) 5,300 166,470
Amortization expense—furn. (d)2,650 2,650
Interest expense 2,900 (f) 600 3,500
Rent expense 7,000 (b)5,000 12,000
Salary expense 82,750 (e)1,300 84,050
Supplies expense (a)2,580 2,580
Utilities expense 5,800 5,800
476,420 476,420 18,530 18,530 295,550 347,800 185,420 133,170
Net income 52,250 52,250
347,800 347,800 185,420 185,420
Chapter Five Merchandising Operations and the Accounting Cycle 251