Merchandising Operations and the Accounting Cycle - Pearson

260 Part One The Basic Structure of Accounting
Trial Balance Adjustments
Account Title Debit Credit Debit Credit
Cash.................................................... $ 1,000
Accounts receivable ......................... 8,500 (a) 3,100
Inventory ........................................... 37,100 (b) 1,170
Supplies.............................................. 13,000 (c) 9,600
Store fixtures ..................................... 42,470
Accumulated amortization ............. $ 11,250 (d) 2,250
Accounts payable ............................. 8,300
Salary payable................................... (e) 1,200
Note payable, long-term.................. 7,500
Common stock .................................. 20,000
Retained earnings............................. 13,920
Dividends .......................................... 45,000
Sales revenue..................................... 234,000 (a) 3,100
Sales discounts.................................. 2,000
Cost of goods sold ............................ 111,600 (b) 1,170
Selling expense.................................. 21,050 (c) 5,700
(e) 1,200
General expense................................ 10,500 (c) 3,900
(d) 2,250
Interest expense ................................ 2,750
Total .................................................... $294,970 $294,970 $17,320 $17,320
Exercise 5-10 Preparing a multi-step income statement under the perpetual inventory
system (Obj. 4)
Use the data in Exercise 5-9 to prepare the multi-step income statement of First
Choice Paint Centre Ltd. for the year ended March 31, 2003.
Exercise 5-11 Using the gross margin percentage and the rate of inventory turnover to
evaluate profitability (Obj. 5)
Refer to Exercise 5-10. After completing First Choice Paint Centre Ltd.’s income
statement for the year ended March 31, 2003, compute these ratios to evaluate First
Choice Paint Centre Ltd.’s performance:
•Gross margin percentage
• Inventory turnover (Ending inventory one year earlier, at March 31, 2002, was
$30,500.)
Compare your figures with the 2002 gross margin percentage of 49 percent and the
inventory turnover rate of 3.16 times for 2002. Does the two-year trend suggest that
First Choice Paint Centre Ltd.’s profits are increasing or decreasing?
Exercise 5-12 Preparing a merchandiser’s multi-step income statement under the perpetual
inventory system to evaluate the business (Obj. 4, 5)
Selected accounts of Handy Hand Inc., a hardware store, are listed in alphabetical
order.
Accounts receivable ................. $ 8,100 Inventory, Dec. 31, 2004 ........ $ 9,700
Accumulated amortization ..... 9,350 Retained earnings .................. 43,035
Common stock .......................... 20,000 Sales discounts ....................... 4,500
Cost of goods sold .................... 45,650 Sales returns............................ 2,300
General expenses...................... 11,750 Sales revenue .......................... 100,500
Interest revenue ........................ 750 Selling expense....................... 18,900
Inventory, Dec. 31, 2003 ........... 10,500 Unearned sales revenue........ 3,250