Merchandising Operations and the Accounting Cycle - Pearson

Trial Balance Adjustments
Account Title Debit Credit Debit Credit
Cash.................................................... $ 24,000
Accounts receivable ......................... 14,500 (a) 6,000
Inventory ........................................... 35,000 (b) 1,000
Supplies.............................................. 2,800 (c) 2,000
Furniture............................................ 39,600
Accumulated amortization ............. $ 4,900 (d) 2,450
Accounts payable ............................. 12,600
Salary payable................................... (f) 1,000
Unearned sales revenue .................. 13,570 (e) 7,000
Note payable, long-term.................. 15,000
Common stock .................................. 15,000
Retained earnings............................. 40,130
Dividends .......................................... 42,000
Sales revenue..................................... 180,000 (a) 6,000
(e) 7,000
Sales returns ...................................... 6,800
Cost of goods sold ............................ 73,000 (b) 1,000
Selling expense.................................. 29,000 (f) 1,000
General expense................................ 13,000 (c) 2,000
(d) 2,450
Interest expense ................................ 1,500
Total .................................................... $281,200 $281,200 $19,450 $19,450
Problem 5-9A Computing cost of goods sold and gross margin in a periodic inventory system;
evaluating the business (Obj. 5, 6)
Selected accounts from the accounting records of Smith Security Ltd. had the balances
shown below at November 30, 2003.
Purchases of inventory ............................................................... $66,000
Selling expenses ........................................................................... 4,400
Furniture ....................................................................................... 18,600
Purchase returns and allowances.............................................. 450
Salary payable .............................................................................. 150
Retained earnings ........................................................................ 26,400
Sales revenue................................................................................ 97,300
Sales returns and allowances ..................................................... 1,600
Inventory: November 30, 2002................................................... 20,850
November 30, 2003................................................... 20,750
Accounts payable......................................................................... 4,750
Cash ............................................................................................... 1,850
Freight in....................................................................................... 800
Accumulated amortization—furniture..................................... 6,800
Purchase discounts...................................................................... 300
Sales discounts ............................................................................. 1,050
General expenses ......................................................................... 9,650
Required
1. Show the computation of Smith Security Ltd.’s net sales, cost of goods sold, and
gross margin for the year ended November 30, 2003.
2. Sandra Smith, the manager of Smith Security Ltd., strives to earn a gross margin
percentage of 25 percent. Did she achieve this goal?
3. Did the rate of inventory turnover reach the industry average of 3.4 times per year?
Chapter Five Merchandising Operations and the Accounting Cycle 267