Merchandising Operations and the Accounting Cycle - Pearson
Merchandising Operations and the Accounting Cycle - Pearson
Merchandising Operations and the Accounting Cycle - Pearson
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266 Part One The Basic Structure of <strong>Accounting</strong><br />
Problem 5-6A Preparing a multi-step income statement <strong>and</strong> a classified balance sheet<br />
under <strong>the</strong> perpetual inventory system (Obj. 4)<br />
Link Back to Chapter 4 (Classified Balance Sheet). Items from <strong>the</strong> accounts of Ste. Rose<br />
Dairy Ltd. at May 31, 2004, follow, listed in alphabetical order. The General Expenses<br />
account summarizes all operating expenses.<br />
Accounts payable.................... $ 20,000<br />
Accounts receivable................ 50,000<br />
Accumulated amortization<br />
—equipment........................ 38,000<br />
Cash .......................................... 7,800<br />
Common stock ........................ 30,000<br />
Cost of goods sold .................. 387,000<br />
Dividends................................. 9,000<br />
Equipment ............................... 146,000<br />
General expenses .................... 120,000<br />
Interest expense....................... 400<br />
Interest payable....................... 1,100<br />
Inventory: May 31, 2004...... $ 65,500<br />
Note payable, long-term ...... 45,000<br />
Retained earnings ................. 27,500<br />
Salary payable ....................... 2,800<br />
Sales discounts ...................... 10,400<br />
Sales returns <strong>and</strong><br />
allowances.......................... 18,000<br />
Sales revenue ......................... 781,000<br />
Selling expenses .................... 140,000<br />
Supplies .................................. 5,100<br />
Unearned sales revenue....... 13,800<br />
Required<br />
1. Prepare <strong>the</strong> business’s multi-step income statement for <strong>the</strong> month ended May 31,<br />
2004.<br />
2. Prepare Ste. Rose Dairy Ltd.’s classified balance sheet in report format at May 31,<br />
2004. Show your computation of <strong>the</strong> May 31, 2004, balance of retained earnings<br />
in a separate schedule. A formal statement of retained earnings is not required.<br />
Problem 5-7A Preparing a single-step income statement <strong>and</strong> a balance sheet under <strong>the</strong><br />
perpetual inventory system (Obj. 4)<br />
Link Back to Chapter 4 (Classified Balance Sheet).<br />
1. Use <strong>the</strong> data of Problem 5-6A to prepare Ste. Rose Dairy Ltd.’s single-step<br />
income statement for <strong>the</strong> month ended May 31, 2004. In addition to <strong>the</strong> data in<br />
Problem 5-6A, Ste. Rose Dairy Ltd. had interest revenue of $200.<br />
2. Prepare Ste. Rose Dairy Ltd.’s classified balance sheet in report format at May<br />
31, 2004. Show your computation of <strong>the</strong> May 31 balance of Retained Earnings. For<br />
this problem, dividends totalled $9,200.<br />
Problem 5-8A Using work sheet data to prepare financial statements <strong>and</strong> evaluate <strong>the</strong><br />
business under <strong>the</strong> perpetual inventory system; multi-step income statement<br />
(Obj. 4, 5)<br />
The trial balance <strong>and</strong> adjustments columns of <strong>the</strong> work sheet of Br<strong>and</strong>on Products<br />
Ltd. include <strong>the</strong> accounts <strong>and</strong> balances at November 30, 2003 shown on <strong>the</strong> following<br />
page.<br />
Required<br />
1. Inventory on h<strong>and</strong> at November 30, 2002, is $32,000. Without entering <strong>the</strong> preceding<br />
data on a formal work sheet, prepare <strong>the</strong> company’s multi-step income<br />
statement for <strong>the</strong> year ended November 30, 2003.<br />
2. Compute <strong>the</strong> gross margin percentage <strong>and</strong> <strong>the</strong> rate of inventory turnover for<br />
2003. For 2002, Br<strong>and</strong>on Product Ltd.’s gross margin percentage was 58 percent,<br />
<strong>and</strong> inventory turnover was 1.8 times during <strong>the</strong> year. Does <strong>the</strong> two-year trend<br />
in <strong>the</strong>se ratios suggest improvement or deterioration in profitability?