Merchandising Operations and the Accounting Cycle - Pearson

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Requirement 3 292 Part One The Basic Structure of Accounting JAN KING DISTRIBUTING COMPANY LTD. Income Statement For the Year Ended December 31, 2003 Sales revenue............................................................. $347,800 Less: Sales discounts........................................... $ 10,300 Sales returns and allowances................... 8,200 18,500 Net sales revenue ................................................ $329,300 Cost of goods sold: Beginning inventory ........................................... 60,500 Purchases.............................................................. 175,900 Less: Purchase discounts................................... $6,000 Purchase returns and allowances........... 7,430 13,430 Net purchases ...................................................... 162,470 Freight in .............................................................. 9,300 Cost of goods available for sale ........................ 232,270 Less: Ending inventory...................................... 65,800 Cost of goods sold............................................... 166,470 Gross margin............................................................. 162,830 Operating expenses: Salary expense ..................................................... 84,050 Rent expense ........................................................ 12,000 Utilities expense .................................................. 5,800 Amortization expense—furniture .................... 2,650 Supplies expense ................................................. 2,580 107,080 Income from operations .......................................... 55,750 Other expense: Interest expense................................................... 3,500 Net income ................................................................ $ 52,250 JAN KING DISTRIBUTING COMPANY LTD. Statement of Retained Earnings For the Year Ended December 31, 2003 Retained Earnings, January 1, 2003........................................................................... $13,680 Add: Net income.......................................................................................................... 52,250 65,930 Less: Dividends............................................................................................................ 48,000 Retained Earnings, December 31, 2003..................................................................... $17,930 Assets Current assets: Cash................................ $ 5,670 Accounts receivable..... 37,100 Inventory....................... 65,800 Supplies ......................... 1,350 Prepaid rent .................. 1,000 Total current assets.... 110,920 Capital assets: Furniture ....................... $26,500 Less: Accumulated amortization .... 23,850 2,650 Total assets.......................... $113,570 JAN KING DISTRIBUTING COMPANY LTD. Balance Sheet December 31, 2003 Liabilities Current liabilities: Accounts payable................... $ 46,340 Salary payable ........................ 1,300 Interest payable...................... 600 Unearned sales revenue........ 2,400 Total current liabilities....... 50,640 Long-term note payable ............. 35,000 Total liabilities.............................. Shareholders’ Equity 85,640 Common stock............................. 10,000 Retained earnings........................ 17,930 Total shareholders’ equity 27,930 Total liabilities and shareholders’ equity .............. $113,570
Requirement 4 Inventory Cost of goods sold $166,470 turnover = = = 2.6 times per year Average inventory ($60,500 + $65,800)/2 The increase in the rate of inventory turnover from 2.1 to 2.6 times suggests higher profits in 2003 than in 2002. Supplement Exercises Exercise 5S-1 Journalizing purchase and sale transactions under the periodic inventory system (Obj. S2) Journalize, without explanations, the following transactions of Pinetree Fashions Ltd. during the month of June 2004: June 3 Purchased $1,400 of inventory under terms of 2/10 n/eom (end of month) and FOB shipping point. 7 Returned $600 of defective merchandise purchased on June 3. 9 Paid freight bill of $110 on June 3 purchase. 10 Sold inventory for $4,400, collecting cash of $800. Payment terms on the remainder were 2/15 n/30. 12 Paid amount owed on credit purchase of June 3, less the discount and the return. 16 Granted a sales allowance of $1,600 on the June 10 sale. 23 Received cash from June 10 customer in full settlement of her debt, less the allowance and the discount. Exercise 5-S2 Journalizing transactions from a purchase invoice under the periodic inventory system (Obj. S2) As the manager of Kendrick Tire Ltd., you receive the invoice on page 294 from a supplier (GST has been disregarded): Required 1. Record the May 14 purchase on account. 2. The R39 truck tires were ordered by mistake and therefore were returned to ABC. Journalize the return on May 19. 3. Record the May 22 payment of the amount owed. Exercise 5S-3 Journalizing purchase transactions under the periodic inventory system (Obj. S2) On April 30, Mavis Jewellers Ltd. purchased inventory of $7,500 on account from La Roche Fine Gems Ltd., a jewellery importer. Terms were 3/15 net 45. On receiving the goods Mavis checked the order and found $1,200 of unsuitable merchandise. Therefore, Mavis returned $1,200 of merchandise to La Roche on May 4. To pay the remaining amount owed, Mavis had to borrow from the bank. On May 14 Mavis signed a short-term note payable to the bank and immediately paid the borrowed funds to La Roche. On June 14, Mavis paid the bank the net amount of the invoice, which Mavis had borrowed, plus 1% interest monthly (round to the nearest dollar). Chapter Five Merchandising Operations and the Accounting Cycle 293
Page 1 and 2:
C H 5A P T E R Merchandising Operat
Page 3 and 4:
Before launching into merchandising
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Suppose FGL’s Sports Experts stor
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debiting the Inventory account. A $
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Austin paid within the discount per
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STOP & THINK Refer to the Accounts
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STOP & THINK Why is there no Januar
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sales. Therefore the GST paid on pu
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Requirement 2 Inventory Cost of Goo
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Exhibit 5-5. All the new accounts
Page 21 and 22: EXHIBIT 5-7 Financial Statements of
Page 23 and 24: Journal Adjusting Entries a. Dec. 3
Page 25 and 26: Two Key Ratios for Decision Making
Page 27 and 28: Wal-Mart 1 2 3 4 5 6 Austin Sound C
Page 29 and 30: Decision Guidelines How do merchand
Page 31 and 32: 3. Prepare the company’s multi-st
Page 33 and 34: Requirement 3 JAN KING DISTRIBUTING
Page 35 and 36: c. Buying a large enough quantity o
Page 37 and 38: Date: ___________________________ T
Page 39 and 40: 2. The R39 truck tires were ordered
Page 41 and 42: Required 1. Prepare the business’
Page 43 and 44: $7,700, $12,160, and $10,180 thousa
Page 45 and 46: 2. The note payable signed on May 2
Page 47 and 48: Trial Balance Adjustments Account T
Page 49 and 50: Sales discounts....................
Page 51 and 52: e. Store supplies on hand at Decemb
Page 53 and 54: Required 1. Inventory on hand at Se
Page 55 and 56: c. The equipment is expected to las
Page 57 and 58: HEIGHTS PHARMACY LTD. Balance Sheet
Page 59 and 60: Supplement to Chapter 5 Accounting
Page 61 and 62: Panel A Panel B Beginning inventory
Page 63 and 64: AUSTIN SOUND CENTRE INC. Trial Bala
Page 65 and 66: Assets Current assets: Cash .......
Page 67 and 68: Journal Adjusting Entries a. Dec. 3
Page 69 and 70: Summary Problem for Your Review The
Page 71: Requirement 2 Adjusting Entries 200
Page 75 and 76: Required Journalize these transacti
Page 77: BLISS SALES COMPANY LTD. Trial Bala
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Merchandising Operations and the Accounting Cycle - Pearson

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