Merchandising Operations and the Accounting Cycle - Pearson

$7,700, $12,160, and $10,180 thousands, respectively. In the annual report Chadwick
Pharmaceuticals Ltd.’s management describes the restructuring charges in 2004,
the costs of down-sizing the company, as a one-time event. How does this additional
information affect your evaluation?
CHADWICK PHARMACEUTICALS LTD.
Consolidated Statements of Operations (Adapted)
For the Years Ended July 31, 2004 and 2003
Amounts in Thousands
2004 2003
Sales........................................................................ $110,000 $82,000
Cost of sales........................................................... 80,000 61,000
Gross margin....................................................
Cost and expenses:
30,000 21,000
Selling, general, and administrative............. 22,000 17,000
Amortization.................................................... 2,000 900
Restructuring charges..................................... 7,000 —
31,000 17,900
Operating income (loss) ................................. (1,000) 3,100
Other items (summarized) .................................. (600) (1,300)
Net income (loss)............................................. $ (1,600) $ 1,800
Ethical Issue
Delta Belting Company Ltd. makes all sales of industrial conveyor belts under terms
of FOB shipping point. The company usually receives orders for sales approximately
one week before shipping inventory to customers. For orders received late in December,
Meg Barnes, the Chief Executive Officer, decides when to ship the goods. If profits are
already at an acceptable level, the company delays shipment until January. If profits
are lagging behind expectations, the company ships the goods during December.
Required
1. Under Delta Belting Company Ltd.’s FOB policy, when should the company
record a sale?
2. Do you approve or disapprove of Delta Belting Company Ltd.’s means of deciding
when to ship goods to customers? If you approve, give your reason. If
you disapprove, identify a better way to decide when to ship goods. (There is no
accounting rule against Delta Belting Company Ltd.’s practice.)
Problems (Group A)
Problem 5-1A Explaining the perpetual inventory system (Obj. 2)
The Bay is one of the largest retailers in Canada. The women’s sportswear department
of The Bay purchases clothing from many well-known manufacturers. The
Bay uses a sophisticated perpetual inventory system.
Required
You are the manager of a Bay store in Calgary. Write a memo to a new employee in
the women’s sportswear department that explains how the company accounts for
the purchase and sale of merchandise inventory.
Use the following heading for your memo:
Chapter Five Merchandising Operations and the Accounting Cycle 263