Merchandising Operations and the Accounting Cycle - Pearson

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