Merchandising Operations and the Accounting Cycle - Pearson

262 Part One The Basic Structure of Accounting
was $578 million, and beginning inventory was $483 million. How much inventory
did The Gap purchase during the year?
Serial Exercise
This exercise completes the Anya Perreault Architects Ltd. situation begun in Exercise
2-15 of Chapter 2 and extended to Exercise 3-17 of Chapter 3 and Exercise 4-14 of Chapter 4.
Exercise 5-18 Accounting for both merchandising and service transactions under the perpetual
inventory system (Obj. 2, 3, 4)
The architecture practice of Anya Perreault Architects Ltd. now includes a great
deal of systems consulting business. In conjunction with the consulting, the business
has begun selling design software. During January the business completed
these transactions:
Jan. 2 Completed a consulting engagement and received cash of $8,700.
2 Prepaid three months’ office rent, $2,250.
7 Purchased design software on account for merchandise inventory, $6,000.
16 Paid employee salary, $2,100.
18 Sold design software on account, $1,650 (cost $1,050).
19 Consulted with a client for a fee of $1,350 on account.
21 Paid on account, $3,000.
24 Paid utilities, $450.
28 Sold design software for cash, $900 (cost $600).
31 Recorded these adjusting entries:
Accrued salary expense, $2,100.
Accounted for expiration of prepaid rent.
Amortization of office furniture, $300.
Required
1. Open the following T-accounts in the ledger: Cash, Accounts Receivable, Design
Software Inventory, Prepaid Rent, Accumulated Amortization—Office Furniture,
Accounts Payable, Salary Payable, Retained Earnings, Income Summary, Design
Revenue, Sales Revenue, Cost of Goods Sold, Salary Expense, Rent Expense,
Utilities Expense, and Amortization Expense—Office Furniture.
2. Journalize and post the January transactions. Key all items by date. Compute
each account balance, and denote the balance as Bal. Journalize and post the
closing entries. Denote each closing amount as Clo. After posting, prove the
equality of debits and credits in the ledger.
3. Prepare the January 2003 income statement of Anya Perreault Architects Ltd.
Use the single-step format.
Beyond the Numbers
Beyond the Numbers 5-1 Evaluating a company’s profitability (Obj. 1, 5)
Chadwick Pharmaceuticals Ltd. is a leading provider of pharmaceutical products.
The company recently reported the figures on the following page.
Required
Evaluate Chadwick Pharmaceuticals Ltd.’s operations during 2004 in comparison
with 2003. Consider sales, gross margin, operating income, and net income. Track
the gross margin percentage and inventory turnover in both years. Chadwick
Pharmaceuticals Ltd.’s inventories at December 31, 2004, 2003, and 2002, were