Merchandising Operations and the Accounting Cycle - Pearson

Required
1. Inventory on hand at September 30, 2002, was $11,000. Without completing a
formal accounting work sheet, prepare the company’s multi-step income statement
for the year ended September 30, 2003.
2. Compute the gross margin percentage and the inventory turnover for 2003. For
2002, Yellowknife Trading Company Ltd.’s gross margin percentage was 60 percent
and the inventory turnover rate was 9.8 times. Does the two-year trend in
these ratios suggest improvement or deterioration in profitability?
Problem 5-9B Computing cost of goods sold and gross margin in a periodic system; evaluating
the business (Obj. 5, 6)
Selected accounts from the accounting records of PEI Products Ltd. at June 30, 2004,
are shown below.
Cash..................................................................................... $ 6,800
Purchases of inventory ..................................................... 49,050
Freight in............................................................................. 2,150
Sales revenue...................................................................... 89,550
Purchases returns and allowances.................................. 700
Salary payable.................................................................... 900
Common stock................................................................... 5,000
Retained earnings.............................................................. 13,000
Sales returns and allowances........................................... 6,050
Inventory: June 30, 2003 .................................................. 11,900
June 30, 2004 .................................................. 14,250
Selling expenses................................................................. 14,900
Equipment.......................................................................... 22,350
Purchase discounts............................................................ 650
Accumulated amortization—equipment....................... 3,450
Sales discounts................................................................... 1,700
General expenses............................................................... 8,150
Accounts payable .............................................................. 11,900
Required
1. Show the computation of PEI Products Ltd.’s net sales, cost of goods sold, and
gross margin for the year ended June 30, 2004.
2. Jake Bradshaw, manager of PEI Products Ltd. strives to earn a gross margin percentage
of 40 percent. Did he achieve this goal?
3. Did the rate of inventory turnover reach the industry average of 3.4 times per year?
Problem 5-10B Under the perpetual inventory system, accounting for the purchase and
sale of inventory, computing cost of goods sold and gross margin, using
the gross margin percentage to evaluate a business (Obj. 2, 5, 6)
Century Life Products Ltd. uses the perpetual inventory method in tracking its inventory
purchases and sales. All sales that result in a return, allowance, or discount
are tracked in separate accounts in order to give management the proper information
to control operations. The following information is available for the month of
April 2004:
April 1 The balance of inventory on hand at the beginning of the month was $53,250.
2 Purchased $6,000 of merchandise from Muzac Corp., terms 2/10 n/30. The goods
were expected to be resold for $13,500.
4 Sold merchandise for $9,000 to Delta Fitness Club Ltd., terms 2/10 n/60. The
goods had a cost of $4,500 to Century.
Chapter Five Merchandising Operations and the Accounting Cycle 273