Merchandising Operations and the Accounting Cycle - Pearson

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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
Required 1. Prepare the business’s multi-step income statement for the year ended December 31, 2004. 2. Compute the rate of inventory turnover for the year. Last year the turnover was 3.8 times. Does this two-year trend suggest improvement or deterioration in profitability? Exercise 5-13 Preparing a single-step income statement for a merchandising business under the perpetual inventory system (Obj. 4, 5) Prepare Handy Hand Inc.’s single-step income statement for 2004, using the data from Exercise 5-12. Compute the gross margin percentage, and compare it to last year’s value of 58 percent for Handy Hand Inc. Does this two-year trend suggest better or worse profitability during the current year? Exercise 5-14 Computing cost of goods sold in a periodic inventory system (Obj. 6) The periodic inventory records of Handy Hand Inc. include these accounts at December 31, 2004: Purchases of inventory............................................. $45,300 Purchase discounts ................................................... 1,500 Purchase returns and allowances........................... 1,000 Freight in.................................................................... 2,050 Inventory.................................................................... 9,700 One year ago, at December 31, 2003, Handy Hand Inc.’s inventory balance stood at $10,500. Required Compute Handy Hand Inc.’s cost of goods sold for 2004. (Note: Your answer should be the same as the amount given in Exercise 5-12.) Exercise 5-15 Computing inventory and cost of goods sold under the periodic inventory system (Obj. 6) Supply the missing income statement amounts in each of the following situations: Cost of Sales Net Beginning Net Ending Goods Gross Sales Discounts Sales Inventory Purchases Inventory Sold Margin $96,300 (a)b $93,500 $35,500 $66,700 $39,400 (b) b $30,700 82,400 $2,100 (c) b 25,750 43,000 (d) b $44,100 (e)b 93,500 1,800 91,700 (f) b 44,900 22,600 59,400 (g)b (h) b 3,000 (i) b 40,700 (j) b 48,230 72,500 38,600 Exercise 5-16 Computing cost of goods sold under the periodic inventory system (Obj. 6) For the year ended December 31, 2003, House of Fabrics Ltd., a retailer of homerelated products, reported net sales of $338,000 and cost of goods sold of $154,000. The company’s balance sheet at December 31, 2002 and 2003, reported inventories of $133,000 and $129,000, respectively. What were House of Fabric Ltd.’s net purchases during 2003? Exercise 5-17 Computing inventory purchases (Obj. 6) The Gap, Inc. reported Cost of Goods Sold totalling $3,285 million. Ending inventory Chapter Five Merchandising Operations and the Accounting Cycle 261
Page 1 and 2: C H 5A P T E R Merchandising Operat
Page 3 and 4: Before launching into merchandising
Page 5 and 6: Suppose FGL’s Sports Experts stor
Page 7 and 8: debiting the Inventory account. A $
Page 9 and 10: Austin paid within the discount per
Page 11 and 12: STOP & THINK Refer to the Accounts
Page 13 and 14: STOP & THINK Why is there no Januar
Page 15 and 16: sales. Therefore the GST paid on pu
Page 17 and 18: Requirement 2 Inventory Cost of Goo
Page 19 and 20: Exhibit 5-5. All the new accounts
Page 21 and 22: EXHIBIT 5-7 Financial Statements of
Page 23 and 24: Journal Adjusting Entries a. Dec. 3
Page 25 and 26: Two Key Ratios for Decision Making
Page 27 and 28: Wal-Mart 1 2 3 4 5 6 Austin Sound C
Page 29 and 30: Decision Guidelines How do merchand
Page 31 and 32: 3. Prepare the company’s multi-st
Page 33 and 34: Requirement 3 JAN KING DISTRIBUTING
Page 35 and 36: c. Buying a large enough quantity o
Page 37 and 38: Date: ___________________________ T
Page 39: 2. The R39 truck tires were ordered
Page 43 and 44: $7,700, $12,160, and $10,180 thousa
Page 45 and 46: 2. The note payable signed on May 2
Page 47 and 48: Trial Balance Adjustments Account T
Page 49 and 50: Sales discounts....................
Page 51 and 52: e. Store supplies on hand at Decemb
Page 53 and 54: Required 1. Inventory on hand at Se
Page 55 and 56: c. The equipment is expected to las
Page 57 and 58: HEIGHTS PHARMACY LTD. Balance Sheet
Page 59 and 60: Supplement to Chapter 5 Accounting
Page 61 and 62: Panel A Panel B Beginning inventory
Page 63 and 64: AUSTIN SOUND CENTRE INC. Trial Bala
Page 65 and 66: Assets Current assets: Cash .......
Page 67 and 68: Journal Adjusting Entries a. Dec. 3
Page 69 and 70: Summary Problem for Your Review The
Page 71 and 72: Requirement 2 Adjusting Entries 200
Page 73 and 74: Requirement 4 Inventory Cost of goo
Page 75 and 76: Required Journalize these transacti
Page 77: BLISS SALES COMPANY LTD. Trial Bala

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