Merchandising Operations and the Accounting Cycle - Pearson

Date: ___________________________
To: The President
From: Student Name
Subject: Trend of sales, gross margin, and net income for The Toy Store
THE TOY STORE INC.
Income Statements
(Dollars in thousands)
Fiscal Year Ended
January 31, January 31,
2004 2003
Net sales.............................................................................
Costs and expenses:
$10,000 $9,500
Cost of sales...................................................................
Selling, advertising, general,
7,000 6,700
and administrative ................................................... 2,030 1,900
Amortization................................................................. 206 192
Other charges ................................................................ 60 397
Interest expense ............................................................ 99 103
Interest and other income............................................ (17) (17)
9,378 9,275
Earnings before taxes on income.................................... 622 225
Taxes on income................................................................ 249 90
Net earnings ...................................................................... $ 373 $ 135
THE TOY STORE INC.
Balance Sheets (partial)
(Dollars in thousands)
January 31, January 31,
2004 2003
Assets
Current assets:
Cash................................................................................ $765 $205
Accounts and other receivables.................................. 145 130
Merchandise inventories ............................................. 2,215 2,000
Prepaid expenses and other current assets............... 42 88
Total current assets........................................................... $3,167 $2,423
Exercise 5-2 Recording purchase transactions under the perpetual inventory system
(Obj. 2)
Suppose The Bay purchases $50,000 of women’s sportswear on account from Liz
Claiborne, Inc. Credit terms are 2/10 net 30. The Bay pays electronically, and Liz
Claiborne receives the money on the tenth day.
Journalize The Bay’s (a) purchase and (b) cash payment transactions. What was
The Bay’s net cost of this inventory?
Note: Exercise 5-3 covers this same situation for the seller.
Exercise 5-3 Recording sales, cost of goods sold, and cash collections under the perpetual
inventory system (Obj. 2)
Liz Claiborne, Inc. sells $50,000 of women’s sportswear to The Bay under credit
terms of 2/10 net 30. Liz Claiborne’s cost of the goods is $32,000, and it receives
the appropriate amount of cash from The Bay on the tenth day.
Chapter Five Merchandising Operations and the Accounting Cycle 257