CHAPTER 5

Accounting for Merchandising Operations

ASSIGNMENT CLASSIFICATION TABLE
Study Objectives

Questions

Brief
Exercises

Problems
Set A

Exercises

Problems
Set B

1. Describe the differences between a

service company and a merchandising
company.

1, 2, 3, 4, 5

2. Explain and complete the entries for

purchases under a perpetual inventory
system.

6, 7

2, 4, 5

1, 3, 4, 5,
6

1, 2, 3, *9.
*10

1, 2, 3, *9,
*10

3. Explain and complete the entries for

sales revenue under a perpetual
inventory system.

7, 8, 9

3, 4, 5

2, 3, 4, 5

1, 2, 3, *9,
*10

1, 2, 3, *9,
*10

4. Explain and perform the steps in the

accounting cycle for a merchandising
company.

10, 11, 12

6, 7

6, 7

4, 5, *11

4, 5, *11

5. Distinguish between and be able to

prepare both a multiple-step and a
single-step income statement.

13, 14, 15,

16

8, 9, 10

7, 8, 9, 10

3, 4, 5, 6, 7,
*10, *11

3, 4, 5, 6, 7,
*10, *11

6. Explain the importance of and be able to

calculate gross profit.

17

10, 11

10, 11

7. Calculate the inventory turnover and

days sales in inventory ratios.

18, 19, 20

11

10, 11

*8.

Describe and perform the accounting

for sales taxes (Appendix 5A).

*21, *22

*12

*12

*9, *10

*9, *10

*9.

Prepare a work sheet for a

merchandising company (Appendix
5B).

*23

*13

*13

*11

*11

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the Appendices to each
chapter.

5-1

ASSIGNMENT CHARACTERISTIC TABLE

Problem
Description

Difficulty
Level

Time
Allotted (min.)

1A

Journalize and post inventory transactions.

Moderate

30-40

2A

Journalize inventory transactions.

Moderate

20-30

3A

Journalize, post, and prepare partial income statement and

balance sheet.

Moderate

60-70

4A

Prepare financial statements and closing entries.

Moderate

30-40

5A

Prepare financial statements, adjusting and closing entries.

Moderate

40-50

6A

Classify the accounts of a merchandising company.

Simple

10-15

7A

Prepare correct multiple-step and single-step income statements.

Complex

50-60

8A

Calculate inventory ratios and comment.

Moderate

20-25

*9A

Journalize inventory transactions with sales tax.

Moderate

40-50

*10A

Journalize, post, and prepare trial balance and partial income

statement, with sales taxes.

Moderate

70-80

*11A

Complete work sheet, financial statements, adjusting and closing

entries, and post-closing trial balance.

Moderate

50-60

1B

Journalize and post inventory transactions.

Moderate

30-40

2B

Journalize inventory transactions.

Moderate

20-30

3B

Journalize, post, and prepare partial income statement and

balance sheet.

Moderate

60-70

4B

Prepare financial statements, adjusting entries, and closing

entries.

Moderate

30-40

5B

Prepare financial statements, adjusting entries and closing entries.

Moderate

40-50

6B

Classify the accounts of a merchandising company.

Simple

10-15

7B

Prepare correct multiple-step and single-step income statements.

Complex

50-60

8B

Calculate inventory ratios and comment.

Moderate

20-25

*9B

Journalize inventory transactions, with sales tax.

Moderate

40-50

*10B

Journalize, post, and prepare trial balance and partial income

statement, with sales taxes.

Moderate

70-80

*11B

Complete work sheet, financial statements, adjusting and closing

entries, and post-closing trial balance.

Moderate

50-60

5-2

BLOOMS TAXONOMY TABLE

Correlation Chart between Blooms Taxonomy, Study Objectives and End-of-Chapter Material
Study Objective
1. Describe the differences
between a service
company and a
merchandising
company.

Knowledge

Comprehension
Q5-1
Q5-4
Q5-2
Q5-5
Q5-3

Application
BE5-1

Analysis

Q5-6
Q5-7

BE5-2
BE5-4
BE5-5
E5-1
E5-3
E5-4
E5-6
P5-1A
P5-2A
BE5-3
BE5-4
BE5-5
E5-2
E5-3
E5-4
P5-1A
P5-2A
BE5-6
BE5-7
E5-6
E5-7
P5-4A

E5-5

2.

Explain and complete

the entries for
purchases under a
perpetual inventory
system.

3.

Explain and complete

the entries for sales
revenue under a
perpetual inventory
system.

Q5-8

Q5-7
Q5-9

4.

Explain and perform the

steps in the accounting
cycle for a
merchandising
company.

Q5-12

Q5-10
Q5-11

5.

Distinguish between and

be able to prepare both
a multiple-step and a
single-step income
statement.

Q5-14
P5-6A
P5-6B

Q5-15
Q5-16

6.

Explain the importance

of and be able to
calculate gross profit.

7.

Calculate the inventory

turnover and days sales
in inventory ratios.

*8.

Describe and perform

the accounting for sales
taxes (Appendix 5A).

*9. Prepare a work sheet for

a merchandising
company (Appendix 5B).

Q5-18

*Q5-23
*BE5-13

Q5-13
BE5-8
BE5-9
BE5-10
E5-7
E5-9
E-10
P5-3A
P5-4A
P5-5A
Q5-17
BE5-10

Q5-19
Q5-20

P5-3A
*P5-9A
*P5-10A
P5-1B
P5-2B
P5-3B
*P5-9B
*P5-10B
P5-3A
*P5-9A
*P5-10A
P5-1B
P5-2B
P5-3B
*P5-9B
*P5-10B
P5-5A
*P5-11A
P5-4B
P5-5B
*P5-11B

E5-5

P5-7A
*P5-10A
*P5-11A
P5-3B
P5-4B
P5-5B
P5-7B
*P5-10B
*P5-11B

E5-8

BE5-11
E5-10

E5-11
P5-8A
P5-8B

BE5-11
E5-10
*Q5-21
*Q5-22
*BE5-12
*E5-12
*P5-11A
*P5-10B
*P5-11B

*E5-13

Broadening Your
Perspective

Evaluation

BYP5-6

BYP5-7

E5-11
P5-8A
P5-8B
*P5-9A
*P5-10A
*P5-9B
*P5-10B

BYP5-1
BYP 5-2
BYP5-3
BYP5-4
BYP5-5

5-3

Synthesis

ANSWERS TO QUESTIONS
1. The components of revenues and expenses differ as follows:
Merchandising

Service
Service Revenue, Fees
Earned, Rent Revenue,
Interest Revenue,
Investment Income, Gains

Revenue

Sales

Other
Revenue

Rent Revenue, Interest

Revenue, Investment
Income, Gains

Expenses

Cost of Goods Sold,

Operating Expenses

Other
Expense

Interest Expense, Losses

All expenses

2. The income measurement process in a merchandising company can

be summarized as follows:
Sales
Revenues

Less

Cost of
Goods
Sold

Equals

Gross
Profit

Less

Operating
Expenses

Equals

Net
Income

3. The normal operating cycle for a merchandising company is likely to

be longer than for a service company because inventory must first be
purchased and sold, and then the receivables must be collected.
4. Under a perpetual inventory system, inventory quantities and
amounts are updated continually. At any point in time, the Cost of
Goods Sold and Inventory accounts represent what has been sold to
date, and what remains.
Under a periodic inventory system, temporary accounts are used
to accumulate purchases of inventory throughout the period. The
cost of goods sold and inventory are determined only at the end of
the period (annually for example).
5-4

Questions Chapter 5 (Continued)

5. Computer technology enables perpetual inventory systems to be
used by any company that requires timely information about the
quantities of inventory on hand. It is more complex and costly to
maintain a perpetual inventory record of costs, so companies with
point of sale systems integrated with their inventory systems tend to
be larger.
6. The reason for recording the purchase of merchandise for resale in a
separate account is to enable a company to determine its gross
profit. This information is useful in setting prices.
7. The letters FOB mean free on board. FOB shipping point means that
the goods are placed free on board the carrier by the seller, and the
buyer pays the freight costs. FOB shipping point will result in a debit
to the Inventory account by the buyer.
FOB destination means that the goods are placed free on board to
the buyers place of business, and the seller pays the freight. FOB
destination will result in a debit to the Freight Out account by the
seller.
8. (a) The primary source documents are:
(1)
(2)
(3)

Cash salescash register tapes,

Credit salessales invoices, and
Sales returns and allowancescredit memoranda.

5-5

Questions Chapter 5 (Continued)

8.

(b)
Seller
Cash sales

Cash................................................
Sales........................................

Debit Credit
XXX
XXX

Cost of Goods Sold.......................

Merchandise Inventory...........

XXX

Accounts Receivable....................
Sales........................................

XXX

Cost of Goods Sold.......................

Merchandise Inventory...........

XXX

Sales returns
Sales Returns and Allowances....
& allowances
Accounts Receivable or Cash

XXX

Merchandise Inventory.................
Cost of Goods Sold................

XXX

Merchandise Inventory................
Cash........................................

XXX

Credit purchase Merchandise Inventory................

Accounts Payable..................

XXX

Purchase returns Cash or Accounts Payable...........

& allowances
Merchandise Inventory.........

XXX

Credit sales

Purchaser
Cash purchase

XXX
XXX
XXX
XXX
XXX

XXX
XXX
XXX

9. Sales returns are not debited directly to the Sales account because
this would not provide information on the cost of the goods returned.
This information can be useful in making decisions. Debiting returns
directly to sales may also cause problems in comparing sales for
different periods.

5-6

Questions Chapter 5 (Continued)

10. Disagree. The steps in the accounting cycle are the same for both a
merchandising company and a service enterprise.
11.A physical count is an important control feature. Using a perpetual
inventory system a company knows what should be on hand.
Performing a physical counts and checking it to the perpetual records
is necessary to detect any errors in record keeping and/or shortages
in stock.
12. Of the merchandising accounts, only Merchandise Inventory (ending)
will appear in the post-closing trial balance.
13. Gross profit........................................................................
Less: Net income..............................................................
Operating expenses..........................................................

$580,000
0300,000
$280,000

14.

(a)

The operating activities part of the income statement has three

sections: sales revenues, cost of goods sold, and operating
expenses.
(b) The non-operating activities part consists of two sections: other
revenues and gains, and other expenses and losses.

15.

The functional groupings are selling and administrative. The problem

with functional groupings is that some expenses may relate to both,
and have to be allocated between the functions.

16.

The single-step income statement differs from the multiplestep income statement in that (1) all data are classified into two
categories: Revenues and expenses; and (2) only one step,
subtracting total expenses from total revenues, is required in
determining net income (or net loss).

5-7

Questions Chapter 5 (Continued)

17.

Sales revenues.......................................................... $100,000

Cost of goods sold....................................................
70,000
Gross profit................................................................
30,000
Operating expenses..................................................
20,000
Net income................................................................. $ 10,000
Gross profit margin = $30,000 $100,000 = 30%
Profit margin = $10,000 $100,000 = 10%

18. Two ratios that help management determine whether or not there is
sufficient inventory on hand are Inventory turnover and days sales in
inventory
19. Managing inventory is critical to a companys success. It is often the
largest current asset (inventory) and the largest expense (cost of
goods sold) on the income statement. Companies must manage the
quantity of inventory on hand to avoid excessive cost and to ensure
they can meet demand.
20. An increase in days sales in inventory would be viewed as a
deterioration because it means there is more inventory on hand in
relation to sales.
*21. Accounts Receivable....................................................
Sales......................................................................
GST Payable.........................................................
PST Payable..........................................................

1,053

Cost of Goods Sold.......................................................

Merchandise Inventory........................................

600

*22. Office Furniture [$2,000 + (8% x $2,000)]....................

GST Recoverable ($2,000 x 7%)...................................
Accounts Payable ...............................................

2,160
140

*23. (a)
(b)

900
63
90
600

2,300

Merchandise inventory Trial balance debit column; Adjusted

trial balance debit column; and Balance sheet debit column
Cost of goods sold Trial balance debit column; Adjusted trial
balance debit column; and Income statement debit column
5-8

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1
(a) Cost of goods sold = $43,500 ($75,000 $31,500)
Operating expenses = $20,700 ($31,500 $10,800)
(b) Gross profit = $38,000 ($108,000 $70,000)
Operating expenses = $8,500 ($38,000 $29,500)
(c) Sales = $181,500 ($71,900 + $109,600)
Net income = $70,100 ($109,600 $39,500)
BRIEF EXERCISE 5-2
Rowen Company
(a) March 2 Merchandise Inventory................................. 900,000
Accounts Payable....................................

900,000

(b) March 6 Accounts Payable.......................................... 130,000

Merchandise Inventory............................

130,000

(c) March 31 Accounts Payable ($900,000 $130,000).... 770,000

Cash..........................................................

770,000

5-9

BRIEF EXERCISE 5-3

Hunt Company
(a) March 2

(b) March 6

Accounts Receivable................................... 900,000

Sales......................................................

900,000

Cost of Goods Sold...................................... 600,000

Merchandise Inventory.........................

600,000

Sales Returns and Allowances................... 130,000

Accounts Receivable............................

130,000

Merchandise Inventory................................
Cost of Goods Sold..............................

90,000
90,000

(c) March 31 Cash ($900,000 $130,000)......................... 770,000

Accounts Receivable............................

770,000

BRIEF EXERCISE 5-4

Keo Company
Nov. 12

Merchandise Inventory................................
Cash.......................................................

900
900

Mayo Company
Nov. 12

Cash..............................................................
Sales......................................................

900

Cost of Goods Sold......................................

Merchandise Inventory.........................

700

5-10

900
700

BRIEF EXERCISE 5-5

March

Merchandise Inventory (20 X $25)..................

Accounts Payable.................................

500

Accounts Payable............................................
Merchandise Inventory (3 X $25).........

75

March 21 Accounts Receivable (15 X $45).....................

Sales......................................................

675

Cost of Goods Sold (15 x $25)........................

Merchandise Inventory.........................

375

March

3
6

500
75
675
375

Quantity: 20 3 15 = 2 units remaining

Cost:
$500 - $75 - $375 = $50
Proof: 2 units x $25 = $50
BRIEF EXERCISE 5-6
Aug.

31

Cost of Goods Sold (Inventory shrinkage)...

Merchandise Inventory
($98,000 $97,100)...............................

900
900

BRIEF EXERCISE 5-7

July

31

Sales.................................................................
Prasad, Capital......................................

180,000

Prasad, Capital.................................................
Sales Returns and Allowances............
Cost of Goods Sold..............................

102,000

180,000
2,000
100,000

Ending capital balance (not required):

$150,000 + $180,000 - $102,000 = $228,000
Merchandise Inventory is a balance sheet (permanent) account and is not
closed.
5-11

BRIEF EXERCISE 5-8

HULDA COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2003
Sales revenues
Sales ($300,000 + $100,000)...............................................
Less: Sales returns and allowances................................
Net sales..............................................................................

$400,000
30,000
$370,000

BRIEF EXERCISE 5-9

(1) Multiple-Step Income Statement
Item
a.
b.
c.
d.

Section

Gain on sale of equipment

Interest expense
Cost of goods sold
Rent revenue

Other revenues and gains

Other expenses and losses
Cost of goods sold
Other revenues and gains

(2) Single-Step Income Statement

Item
a.
b.
c.
d.

Section

Gain on sale of equipment

Interest expense
Cost of goods sold
Rent revenue

Revenues
Expenses
Expenses
Revenues

5-12

BRIEF EXERCISE 5-10

(a) Net sales = $485,000 ($500,000 $15,000)
(b) Gross profit = $145,000 ($485,000 $340,000)
(c) Net income = $35,000 ($145,000 - $70,000- $40,000)
BRIEF EXERCISE 5-11
(a) Gross profit margin = 45% [($550,000 $300,000) $550,000]
(b) Inventory turnover = 12 times ($300,000 $25,000)
(c) Days sales in inventory = 30 days (365 12)
*BRIEF EXERCISE 5-12
Merchandise Inventory...................................................
Supplies [$1,000 + ($1,000 X 10%)]...............................
GST Recoverable [($8,000 + $1,000) X 7%]...................
Accounts Payable...................................................

8,000
1,100
630
9,730

*BRIEF EXERCISE 5-13

(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Balance sheet debit column.
(b) Merchandise Inventory: Trial balance debit column; Adjusted trial
balance debit column; Balance sheet debit column.
(c) Sales: Trial balance credit column; Adjusted trial balance credit column;
Income statement credit column.
(d) Cost of Goods Sold: Trial balance debit column; Adjusted trial balance
debit column; Income statement debit column.

5-13

SOLUTIONS TO EXERCISES
EXERCISE 5-1
1.
2.
3.
4.
5.

April 5
April 6
April 7
April 8
May

Merchandise Inventory.................................. 18,000

Accounts Payable....................................
Merchandise Inventory..................................
Cash..........................................................

900
900

Equipment....................................................... 26,000
Accounts Payable....................................
Accounts Payable..........................................
Merchandise Inventory...........................

26,000

3,000

Accounts Payable ($18,000 $3,000)........... 15,000

Cash..........................................................

5-14

18,000

3,000
15,000

EXERCISE 5-2
(a) Pippen Company
1.

2.
3.

Dec.

Dec.

Dec. 13

Accounts Receivable................................
Sales....................................................

400,000

Cost of Goods Sold...................................

Merchandise Inventory......................

320,000

Sales Returns and Allowances................

Accounts Receivable..........................

20,000

Cash ($400,000 $20,000)........................

Accounts Receivable..........................

380,000

Merchandise Inventory.............................
Accounts Payable...............................

400,000

Accounts Payable.....................................
Merchandise Inventory.......................

20,000

Accounts Payable.....................................
Cash.....................................................

380,000

400,000
320,000
20,000
380,000

(b) Thomas Co.

1.
2.
3.

Dec.
Dec.

3
8

Dec. 13

5-15

400,000
20,000
380,000

EXERCISE 5-3
Sept. 6
10
12

14

20

Merchandise Inventory (60 X $20)..........................

Accounts Payable............................................

1,200

Accounts Payable (2 X $20)....................................

Merchandise Inventory....................................

40

Accounts Receivable (26 X $30).............................

Sales..................................................................

780

Cost of Goods Sold (26 X $20)...............................

Merchandise Inventory....................................

520

Sales Returns and Allowances...............................

Accounts Receivable.......................................

30

Merchandise Inventory...........................................
Cost of Goods Sold.........................................

20

Accounts Receivable (30 X $30).............................

Sales..................................................................

900

Cost of Goods Sold (30 X $20)...............................

Merchandise Inventory....................................

600

5-16

1,200
40
780
520
30
20
900
600

EXERCISE 5-4
Sept. 2
5
8

12

20
30

Merchandise Inventory (90 X $15)..........................

Accounts Payable............................................

1,350

Accounts Payable....................................................
Merchandise Inventory....................................

60

Accounts Receivable..............................................
Sales (50 x $25)................................................

1,250

Cost of Goods Sold.................................................

Merchandise Inventory (50 x $15)..................

750

Accounts Receivable..............................................
Sales (30 x $25)................................................

750

Cost of Goods Sold.................................................

Merchandise Inventory (30 x $15)..................

450

Merchandise Inventory (15 x $16)..........................

Accounts Payable............................................

240

Cost of Goods Sold (Inventory Loss)....................

Merchandise Inventory....................................

15*

1,350
60
1,250
750
750
450
240
15

10 + 90 4 50 30 + 15 = 31 desk sets per records;

30 desk sets per count = 1 missing
* Note: We assumed that the missing desk set had a cost of $15. It could
also have been assumed to be $16, from the September 20 purchase.

5-17

EXERCISE 5-5
1.
2.

3.
4.

Sales Returns and Allowances.........................................

Sales............................................................................

150

Supplies..............................................................................
Cash.....................................................................................
Accounts Payable.......................................................
Merchandise Inventory...............................................

250
250

Sales....................................................................................
Merchandise Inventory...............................................

50

Cash.....................................................................................
Merchandise Inventory...............................................

270

5-18

150

250
250
50
270

EXERCISE 5-6
(a) Jun. 10
11
12
July

7
15
15

(b) July 31
31

Merchandise Inventory.....................................
Accounts Payable......................................

5,000

Merchandise Inventory.....................................
Cash............................................................

300

Accounts Payable..............................................
Merchandise Inventory..............................

500

5,000
300
500

Accounts Payable ($5,000 $500)...................

Cash............................................................

4,500

Cash...................................................................
Sales...........................................................

8,500

Cost of Goods Sold ($5,000 + $300 - $500).....

Merchandise Inventory..............................

4,800

Sales...................................................................
Capital.........................................................

8,500

Capital................................................................
Cost of Goods Sold...................................

4,800

5-19

4,500
8,500
4,800
8,500
4,800

EXERCISE 5-7
(a)
CECILIE COMPANY
Income Statement (Partial)
For the Year Ended October 31, 2003
Sales revenues
Sales.....................................................................................
Less: Sales returns and allowances.................................
Net sales...............................................................................

$900,000
24,000
$876,000

Note: Freight Out is a selling expense.

(b) Closing entries:
Oct.

31
31

Sales............................................................ 900,000
Capital..................................................
Capital.........................................................
Sales Returns and Allowances..........
Freight Out..........................................

5-20

900,000

36,000
24,000
12,000

EXERCISE 5-8
Sales
Less: Sales returns
Net sales
Less: Cost of goods sold
Gross profit
Less: Operating expenses
Net income

Natural
Cosmetics
$90,000
(a) 16,000
74,000
64,000
10,000
6,000
(b) $ 4,000

Mattar
Grocery
(c) $100,000
6,000
94,000
(d) 72,000
22,000
(e) 12,000
$ 10,000

Allied
Wholesalers
$144,000
12,000
(f) 132,000
(g) 108,000
24,000
18,000
(h) $ 6,000

(a) Sales...........................................................................
*Sales returns............................................................
Net sales....................................................................

$90,000
(16,000)
$74,000

(b) Gross profit...............................................................

Operating expenses..................................................
*Net income...............................................................

$10,000
(6,000)
$ 4,000

(c) *Sales.........................................................................
Sales returns.............................................................
Net sales....................................................................

$100,000
(6,000)
$ 94,000

(d) Net sales....................................................................

*Cost of goods sold..................................................
Gross profit...............................................................

$94,000
(72,000)
$22,000

(e) Gross profit...............................................................

*Operating expenses................................................
Net income.................................................................

$22,000
(12,000)
$10,000

(f)

Sales...........................................................................
Sales returns.............................................................
*Net sales...................................................................

$144,000
(12,000)
$132,000

(g) Net sales....................................................................

*Cost of goods sold..................................................
Gross profit...............................................................

$132,000
(108,000)
$ 24,000

(h) Gross profit...............................................................

Operating expenses..................................................
*Net income...............................................................

$24,000
(18,000)
$ 6,000

5-21

EXERCISE 5-9
(a)
CHEVALIER COMPANY
Income Statement
For the Year Ended December 31, 2002
Net sales......................................................................
Cost of goods sold......................................................
Gross profit..................................................................
Operating expenses
Selling expenses.................................................
Administrative expenses....................................
Total operating expenses............................
Income from operations.............................................
Other revenues and gains
Interest revenue...................................................
Other expenses and losses
Interest expense.....................................$70,000
Loss on sale of equipment...................... 10,000
Net income...................................................................
(b)

$2,359,000
00,989,000
1,370,000
$690,000
0435,000
1,125,000
245,000
$45,000
80,000

35,000
$ 210,000

CHEVALIER COMPANY
Income Statement
For the Year Ended December 31, 2002

Revenues
Net sales..............................................................
Interest revenue..................................................
Total revenues..............................................
Expenses
Cost of goods sold.............................................
Selling expenses.................................................
Administrative expenses...................................
Interest expense.................................................
Loss on sale of equipment................................
Total expenses.............................................
Net income..................................................................

5-22

$2,359,000
0 45,000
2,404,000
$989,000
690,000
435,000
70,000
0010,000
2,194,000
$ 210,000

EXERCISE 5-10
(a)

JETFORM CORPORATION
Income Statement
For the Year Ended April 30, 2000
(in thousands)

Revenues
Revenue from products and services.................
Interest revenue....................................................
Gain on sale of assets..........................................
Other income.........................................................
Total revenues.................................................
Expenses
Cost of products and services.............................
Sales and marketing expenses............................
General and administrative expenses.................
Amortization expense...........................................
Income tax expense...............................................
Total expenses................................................
Net loss...........................................................................

5-23

$94,317
2,868
1,813
295
$ 99,293
$24,426
45,097
26,485
10,300
1,086
107,394
($ 8,101)

EXERCISE 5-10 (Continued)

(b)

JETFORM CORPORATION
Income Statement
For the Year Ended April 30, 2000
(in thousands)

Revenue from products and services.......................

Cost of products and services...................................
Gross profit..................................................................
Operating expenses
Sales and marketing expenses..........................
General and administrative expenses
(including amortization expense)...............
Total operating expenses............................
Loss from operations.................................................
Other revenues and gains
Interest revenue...................................................
Gain on sale of assets.........................................
Other income.......................................................
Other expenses and losses
Income tax expense*............................................
Net loss.........................................................................

$ 94,317
00, 24,426
69,891
$45,097
0 36,785
81,882
(11,991)
$2,868
1,813
295
4,976
1,086

3,890
($ 8,101)

*Note to Instructor: You may wish to explain that income tax expense is
usually presented differently (following an income (or loss) before income
taxes caption) in corporate income statements.

5-24

EXERCISE 5-10 (Continued)

(c) Gross profit margin = 74% ($69,891 $94,317)
Profit margin = (8.6%) ($8,101 $94,317)
Inventory turnover = 22 times ($24,426 $1,111)
Days sales in inventory = 17 days (365 22)
These results are misleading and likely overly high. The revenue
includes revenue from services, in addition to products. Revenue from
services does not have the same level of cost as does revenue from
products. In other words, the revenue and costs from services does
not have any cost of goods sold nor inventory. No further
breakdown is available on Jetforms financial statements. These ratios
are still useful in determining trends, when compared against similar
calculations for prior years.

5-25

EXERCISE 5-11
Inventory turnover
2000 = 7.3 times [$1,298,606 ($193,831 + $160,092) 2]
1999 = 7.5 times [$1,546,723 ($160,092 + $254,690) 2]
Days sales in inventory
2000 = 50 days (365 7.3)
1999 = 49 days (365 7.5)
Gross profit margin
2000 = 23% [($1,683,142 - $1,298,606) $1,683,142]
1999 = 21% [($1,960,274 - $1,546,723) $1,960,274]
The gross profit margin has improved, increasing from 21% in 1999 to 23%
in 2000. The inventory turnover and days sales in inventory are basically
unchanged from one year to the next.

5-26

*EXERCISE 5-12
Sept. 2

12

20

30

Merchandise Inventory (90 X $15)................

GST Recoverable ($1,350 x 7%)....................
Accounts Payable...................................

1,350.00
94.50

Accounts Payable..........................................
Merchandise Inventory..........................
GST Recoverable....................................

64.20

Accounts Receivable.....................................
Sales (50 x $25).......................................
GST Payable ($1,250 x 7%)....................

1,337.50

Cost of Goods Sold........................................

Merchandise Inventory (50 x $15).........

750.00

Accounts Receivable.....................................
Sales (30 x $25).......................................
GST Payable ($750 x 7%).......................

802.50

Cost of Goods Sold........................................

Merchandise Inventory (30 x $15).........

450.00

Merchandise Inventory (15 x $16).................

GST Recoverable ($240 x 7%).......................
Accounts Payable...................................

240.00
16.80

Cost of Goods Sold (Inventory Loss)...........

Merchandise Inventory..........................

1,444.50
60.00
4.20
1250.00
87.50
750.00
750.00
52.50
450.00

256.80
15.00*
15.00

10 + 90 4 50 30 + 15 = 31 desk sets per records;

30 desk sets per count = 1 missing
* Note: We assumed that the missing desk set had a cost of $15. It could
also have been assumed to be $16, from the September 20 purchase.
There is no GST effect of this loss.

5-27

*EXERCISE 5-13
(a)
Accounts

Adjusted
Trial Balance
Debit

Cash
Merchandise Inven.
Sales
Sales Returns
Cost of Goods Sold
Rent Expense

Credit

Income
Statement
Debit

Credit

9,000
80,000

Balance
Sheet
Debit

Credit

9,000
80,000
450,000

10,000
250,000
42,000

450,000
10,000
250,000
42,000

(b) The accounts appearing in the post-closing trial balance are the balance
sheet accounts of Cash ($9,000) and Merchandise Inventory ($80,000).

5-28

SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
(a)
April 5

13

17

20

22
24

28

Merchandise InventoryCustom Sedans

(3 x $24,000)....................................................... 72,000
Accounts Payable......................................

72,000

Merchandise InventoryRecreation Vehicles

(2 x $28,000)....................................................... 56,000
Accounts Payable......................................

56,000

Accounts Receivable........................................ 114,000

Sales (4 x $28,500).....................................
114,000
Cost of Goods Sold (4 x $24,000)..................... 96,000
Merchandise InventoryCustom Sedans.

96,000

Merchandise InventoryConvertibles
(2 x $26,000)....................................................... 52,000
Accounts Payable......................................

52,000

Accounts Payable.............................................. 26,000

Merchandise InventoryConvertibles......

26,000

Accounts Receivable........................................ 102,000

Sales (3 x $34,000).....................................
102,000
Cost of Goods Sold (3 x $28,000)..................... 84,000
Merchandise InventoryRecreation Vehicles

84,000

Accounts Receivable........................................ 31,000

Sales...........................................................

31,000

Cost of Goods Sold........................................... 26,000

Merchandise InventoryConvertibles......

26,000

5-29

PROBLEM 5-1A (Continued)

(b)
Merchandise Inventory
Custom Sedans
Bal. 96,000
96,000
72,000
72,000

Merchandise Inventory
Convertibles
Bal. 78,000
26,000
52,000
26,000
78,000

Merchandise Inventory
Recreation Vehicles
Bal. 56,000
84,000
56,000
28,000

Cost of Goods Sold

96,000
84,000
26,000
206,000

5-30

PROBLEM 5-2A
GENERAL JOURNAL

Date

Account Titles

July 1

Merchandise Inventory (50 x $30)............ 120

Accounts Payable.............................. 201

1,500

Accounts Receivable (40 x $50)............... 112

Sales.................................................... 401

2,000

Cost of Goods Sold (40 x $30).................. 505

Merchandise Inventory...................... 120

1,200

Accounts Payable...................................... 201

Cash.................................................... 101

1,500

12

Cash............................................................ 101
Accounts Receivable......................... 112

2,000

17

Accounts Receivable (30 x $50)............... 112

Sales.................................................... 401

1,500

Cost of Goods Sold (30 x $30).................. 505

Merchandise Inventory...................... 120

900

18

Merchandise Inventory ($1,700 + $100). . . 120

Accounts Payable.............................. 201
Cash.................................................... 101

1,800

20

Accounts Payable...................................... 201

Merchandise Inventory...................... 120

300

21

Cash............................................................ 101
Accounts Receivable......................... 112

1,500

5-31

Ref. Debit

Credit
1,500
2,000
1,200
1,500
2,000
1,500
900
1,700
100
300
1,500

PROBLEM 5-2A (Continued)

Date

Account Titles

Ref. Debit

July 22

Accounts Receivable (40 x $50)............... 112

Sales.................................................... 401

2,000

Cost of Goods Sold (40 x $30).................. 505

Merchandise Inventory...................... 120

1,200

30

Accounts Payable ($1,700 - $300)............ 210

Cash.................................................... 101

1,400

31

Sales Returns and Allowances................. 412

Accounts Receivable......................... 112

250

Merchandise Inventory.............................. 120

Cost of Goods Sold ........................... 505

150

5-32

Credit
2,000
1,200
1,400
250
150

PROBLEM 5-3A
(a)
Date
Apr. 2
4

GENERAL JOURNAL

Account Titles
Ref. Debit
Merchandise Inventory.............................. 120 4,900
Accounts Payable.............................. 201
Accounts Receivable................................. 112
Sales.................................................... 401

5,000

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

4,000

Freight Out................................................. 644

Cash.................................................... 101

200

Accounts Payable...................................... 201

Merchandise Inventory...................... 120

300

14

Merchandise Inventory.............................. 120

Cash.................................................... 101

4,400

16

Cash............................................................ 101
Merchandise Inventory...................... 120

500

18

Merchandise Inventory.............................. 120

Accounts Payable.............................. 201

4,200

20

Merchandise Inventory.............................. 120

Cash.................................................... 101

100

23

Cash............................................................ 101
Sales.................................................... 401

6,400

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

5,200

5-33

J1
Credit
4,900
5,000
4,000
200
300
4,400
500
4,200
100
6,400
5,200

PROBLEM 5-3A (Continued)

(a) (Continued)
Date
Apr. 26

Account Titles
Ref. Debit
Merchandise Inventory.............................. 120 2,300
Cash.................................................... 101

27

Accounts Payable ($4,900 - $300)............ 201

Cash.................................................... 101

4,600

28

Cash............................................................ 101
Accounts Receivable......................... 112

5,000

29

Sales Returns and Allowances................. 412

Cash.................................................... 101

90

Merchandise Inventory.............................. 120

Cost of Goods Sold............................ 505

60

Accounts Receivable................................. 112

Sales.................................................... 401

3,700

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

3,000

30

J2
Credit
2,300
4,600
5,000
90
60
3,700
3,000

(b)
Cash
Date
Apr.

No. 101
Explanation

1
5
14
16
20
23
26
27
28
29

Balance

Ref.

J1
J1
J1
J1
J1
J2
J2
J2
J2
5-34

Debit

Credit

Balance

200
4,400
500
100
6,400
2,300
4,600
5,000
90

9,000
8,800
4,400
4,900
4,800
11,200
8,900
4,300
9,300
9,210

PROBLEM 5-3A (Continued)

(b) (Continued)
Accounts Receivable
Date
Apr.

Explanation
4
28
30

No. 112
Ref.
J1
J2
J2

Debit

Credit

5,000
5,000
3,700

Merchandise Inventory
Date
Apr.

Explanation
2
4
6
14
16
18
20
23
26
29
30

Ref.

Debit

Credit

Apr.

Explanation
2
6
18
27

Balance

4,900
4,000
300
4,400
500
4,200
100
5,200
2,300
60
3,000

Accounts Payable
Date

5,000
0
3,700

No. 120
J1
J1
J1
J1
J1
J1
J1
J1
J2
J2
J2

1415

Balance

4,900
900
600
5,000
4,500
8,700
8,800
3,600
5,900
5,960
2,960

No. 201
Ref.
J1
J1
J1
J2

5-35

Debit

Credit
4,900

300
4,600

4,200

Balance
4,900
4,600
8,800
4,200

PROBLEM 5-3A (Continued)

(b) (Continued)
M. Nisson, Capital
Date

Explanation

Apr.

Balance

No. 301
Ref.

Debit

Credit

Balance
9,000

Sales

No. 401

Date
Apr.

Explanation
4
23
30

Ref.

Debit

Credit

J1
J1
J2

Balance

5,000
6,400
3,700

Sales Returns and Allowances

Date

Explanation

Apr. 29

No. 412
Ref.

Debit

J2

Credit

Apr.

Explanation
4
23
29
30

90
No. 505

Ref.
J1
J1
J2
J2

Debit

Credit

Apr.

60

3,000

4,000
9,200
9,140
12,140

No. 644
Explanation

Balance

4,000
5,200

Freight Out
Date

Balance

90

Cost of Goods Sold

Date

5,000
11,400
15,100

Ref.
J1

5-36

Debit
200

Credit

Balance
200

PROBLEM 5-3A (Continued)

(c)

NISSON DISTRIBUTING COMPANY

Income Statement (Partial)
For the Month Ended April 30, 2003
Sales revenues
Sales.................................................................................
Less: Sales returns and allowances............................
Net sales..........................................................................
Cost of goods sold.................................................................
Gross profit.............................................................................

(d)

$15,100
90
15,010
12,140
$2,870

NISSON DISTRIBUTING COMPANY

Balance Sheet (Partial)
April 30, 2003
Assets

Current assets
Cash.................................................................................
Accounts receivable.......................................................
Merchandise inventory...................................................
Total current assets................................................

5-37

$ 9,210
3,700
2,960
15,870

PROBLEM 5-4A
Adjusting entriesnot required:
Dec. 31

(a)

Insurance Expense...................................................
Prepaid Insurance.............................................

800

Amortization Expense..............................................
Accumulated AmortizationStore Equipment

3,000

Rent Expense............................................................
Rent Payable.....................................................

500

800
3,000

WORLD ENTERPRISES
Income Statement
For the Year Ended December 31, 2002

Sales revenues
Sales..........................................................................
Less: Sales returns and allowances......................
Net sales....................................................................
Cost of goods sold...........................................................
Gross profit .....................................................................
Operating expenses
Salaries expense......................................
$31,600
Amortization expense.............................
3,000
Rent expense ($6,100 + $500).................
6,600
Insurance expense .................................
000800
Total operating expenses...................................
Net income........................................................................

$238,500
4 4,600
233,900
177,000
56,900

... 42,000
$14,900

WORLD ENTERPRISES
Statement of Owners Equity
For the Year Ended December 31, 2002
R. Roger, Capital, January 1............................................
Add: Net income...............................................................
R. Roger, Capital, December 31.......................................

5-38

$50,300
14,900
$65,200

500

PROBLEM 5-4A (Continued)

(a) (Continued)
WORLD ENTERPRISES
Balance Sheet
December 31, 2002
Assets
Current assets
Cash..................................................................................
Accounts receivable .......................................................
Merchandise inventory....................................................
Prepaid insurance ($1,800 $800)..................................
Total current assets..................................................

$ 14,000
30,600
27,500
1,000
73,100

Capital assets
Equipment........................................................... $42,000
Less: Accumulated amortization Equipment 12,000

30,000

Total assets.............................................................. $103,100

Liabilities and Owner's Equity
Current liabilities
Accounts payable ($34,400 + $500)................................ $ 34,900
Sales taxes payable.........................................................
3,000
Total current liabilities.....................................................
37,900
Owner's equity
R. Roger, Capital..............................................................

65,200

Total liabilities and owner's equity......................... $103,100

5-39

PROBLEM 5-4A (Continued)

(b) Dec. 31
31

Sales............................................................
R. Roger, Capital.................................

238,500

R. Roger, Capital........................................
Sales Returns and Allowances..........
Cost of Goods Sold............................
Salaries Expense................................
Rent Expense......................................
Insurance Expense.............................
Amortization Expense........................

223,600

5-40

238,500
4,600
177,000
31,600
6,600
800
3,000

PROBLEM 5-5A
(a)
DAIGLE DEPARTMENT STORE
Income Statement
For the Year Ended November 30, 2003
Sales revenues
Sales........................................................................................
Less: Sales returns and allowances...................................
Net sales.................................................................................
Cost of goods sold........................................................................
Gross profit ..................................................................................
Operating expenses
Selling expenses
Salaries expense ($139,000 X 70%)
$97,300
Sales commissions expense............
12,750
Amortization expensebuilding
9,500
Delivery expense...............................
8,200
Insurance expense ($9,000 x 50%)
4,500
Amortization expense
delivery equipment........................ 00 4,000
Total selling expenses..............
$136,250
Administrative expenses
Salaries expense ($139,000 X 30%). $41,700
Utilities expense................................
10,600
Insurance expense ($9,000 x 50%). .
4,500
Property tax expense........................
3,500
Total administrative expenses..
0 60,300
Total operating expenses
Income from operations......................................................
Other revenues and gains
Interest revenue...........................................................
$5,000
Other expenses and losses
Interest expense..........................................................
8,000
Net income...........................................................................

5-41

$850,000
10,000
840,000
633,220
206,780

196,550
10,230

000 3,000
$ 7,230

PROBLEM 5-5A (Continued)

(a) (Continued)
DAIGLE DEPARTMENT STORE
Statement of Owner's Equity
For the Year Ended November 30, 2003
B. Daigle, Capital, December 1, 2002................................................
Add: Net income...............................................................................
Less: Drawings..................................................................................
B. Daigle, Capital, November 30, 2003..............................................

5-42

$84,200
7,230
91,430
012,000
$79,430

PROBLEM 5-5A (Continued)

(a) (Continued)
DAIGLE DEPARTMENT STORE
Balance Sheet
November 30, 2003
Assets
Current assets
Cash..............................................................................
$008,000
Accounts receivable....................................................
11,770
Merchandise inventory................................................
36,200
Prepaid insurance........................................................
4,500
Total current assets.............................................
60,470
Capital assets
Land....................................................
$50,000
Building.............................................. $125,000
Less: Accumulated amortization
building.............................00 41,800 83,200
Delivery equipment.......................... $57,000
Less: Accumulated amortization
delivery equipment.............. 19,680 037,320
Total capital assets....................
0170,520
Total assets................................................................... $230,990
Liabilities and Owner's Equity
Current liabilities
Accounts payable......................................................... $ 47,310
Property taxes payable................................................
3,500
Sales commissions payable........................................
4,750
Current portion of mortgage.......................................
6,000
Total current liabilities..........................................
61,560
Long-term liabilities
Mortgage payable......................................................... 0 90,000
Total liabilities.......................................................
151,560
Owner's equity
B. Daigle, Capital.......................................................... 0 79,430
Total liabilities and owner's equity.............................. $230,990

5-43

PROBLEM 5-5A (Continued)

(b) Nov. 30

30
30
30
(c) Nov. 30

Nov. 30

30

Amortization ExpenseDelivery Equip........

Amortization ExpenseBuilding...................
Accum. Amortiz.Delivery.....................
Accum. Amortiz.Building.....................

4,000
9,500

Insurance Expense........................................
Prepaid Expense....................................

9,000

Property Tax Expense...................................

Property Tax Payable.............................

3,500

Sales Commissions Expense.......................

Sales Commissions Payable.................

4,750

4,000
9,500
9,000
3,500
4,750

Sales............................................................... 850,000
Interest Revenue............................................
5,000
B. Daigle, Capital....................................
B. Daigle, Capital........................................... 847,770
Sales Returns and Allowances.............
Cost of Goods Sold................................
Salaries Expense....................................
Amortization ExpenseDelivery
Equipment............................................
Delivery Expense...................................
Sales Commission Expense.................
Amortization ExpenseStore
Equipment............................................
Insurance Expense................................
Property Tax Expense............................
Utilities Expense....................................
Interest Expense....................................
B. Daigle, Capital............................................
B. Daigle, Drawings................................

5-44

855,000
10,000
633,220
139,000
4,000
8,200
12,750
9,500
9,000
3,500
10,600
8,000

12,000
12,000

PROBLEM 5-6A
Account
Accounts Payable

Statement
Balance Sheet

Classification
Current Liabilities

Accounts Receivable

Balance Sheet

Current Assets

Accumulated Amortization
Office Building

Balance Sheet

Capital Assets
(Contra Account)

Accumulated Amortization
Store Equipment

Balance Sheet

Capital Assets
(Contra Account)

Advertising Expense

Income Statement

Selling Expenses

Amortization Expense
Office Building

Income Statement

Administrative Expenses

Amortization Expense
Store Equipment

Income Statement

Selling Expenses

Cash

Balance Sheet

Current Assets

Swirsky, Capital

Balance Sheet

Owners Equity

Freight Out

Income Statement

Selling Expenses

Swirsky, Drawings

Statement of
Owners Equity

Drawings

Income Tax Expense

Income Statement

Other Expenses

Income Tax Payable

Balance Sheet

Current Liabilities

Insurance Expense

Income Statement

Administrative Expenses

Interest Expense

Income Statement

Other Expenses

Interest Payable

Balance Sheet

Current Liabilities

5-45

Account

Statement

Classification

Land

Balance Sheet

Capital Assets

Merchandise Inventory

Balance Sheet

Current Assets

Mortgage Payable

Balance Sheet

Long-Term Liability

Office Building

Balance Sheet

Capital Assets

Prepaid Insurance

Balance Sheet

Current Assets

Salaries Expense
Office Staff

Income Statement

Administrative Expenses

Salaries Expense
Store Staff

Income Statement

Selling Expenses

Salaries Payable

Balance Sheet

Current Liabilities

Sales Returns and

Allowances

Income Statement

Contra Revenue

Store Equipment

Balance Sheet

Capital Assets

Utilities ExpenseOffice

Income Statement

Administrative Expenses

Utilities ExpenseStore

Income Statement

Selling Expenses

Wages Payable

Balance Sheet

Current Liabilities

5-46

PROBLEM 5-7A
(a)

MCGRATH COMPANY
Income Statement
For the Year Ended December 31, 2002

Sales revenues
Sales.........................................................................
Less: Sales returns and allowances.....................
Net sales...................................................................
Cost of goods sold..........................................................
Gross profit......................................................................
Operating expenses
Selling expenses
Sales salaries expense
($80,000 + $16,000) ........................... $96,000
Delivery expense................................ 30,000
Advertising expense.......................... 10,000
Sales commissions expense............ 6,000 $142,000
Administrative expenses
Office salaries expense..................... $27,000
Rent expense...................................... 24,000
Utilities expense................................. 12,000
Amortization expenseoffice equip. 8,000
71,000
Total operating expenses.......................................
Income from operations.................................................
Other revenues and gains
Rent revenue............................................................ $40,000
Other expenses and losses
Interest expense......................................................
2,000
Net income.......................................................................

5-47

$800,000
30,000
770,000
555,000
215,000

213,000
2,000

38,000
$ 40,000

PROBLEM 5-7A (Continued)

(b)
MCGRATH COMPANY
Income Statement
For the Year Ended December 31, 2002
Revenues
Net sales................................................................... $770,000
Rent revenue............................................................ 40,000
Expenses
Cost of sales............................................................ $555,000
Selling expenses
($80,000 + $16,000 + $30,000 + $10,000 + $6,000). 142,000
Administrative
($27,000 + $24,000 + $12,000 + $8,000).................
71,000
Interest expense...................................................... 2,000
Net income.......................................................................

5-48

$810,000

770,000
$ 40,000

PROBLEM 5-8A
(a)
2000
Gross profit
margin

Inventory turnover

Days sales in
inventory

1999

19.5%

23.8%

($949,263 - $764,198)
$949,263

($808,251 $615,827)
$808,251

3.5 times

3.3 times

$764,198 [($225,958 +
$212,382) 2]

$615,827 [($212,382 +
$164,557) 2]

104.3 days

110.6 days

365 days 3.5 times

365 days 3.3 times

(b) IPSCOs gross profit margin declined in 2000. However, its management
of its inventories improved. Its inventory turned over (sold) faster in
2000 and the number of days sales in inventory declined from 110.6 days
to 104.3 days. This means that IPSCO is not holding its inventory for as
long in 2000, as it did in 1999. The faster you sell your inventory, the
faster the company will collect cash/receivables, the lower its carrying
costs, and the reduced risk of inventory obsolescence.

5-49

*PROBLEM 5-9A

GENERAL JOURNAL
Date

Account Titles and Explanation

Ref.

Debit

Sept. 2 GST Recoverable.......................................

Merchandise Inventory..............................
Accounts Payable..............................

4,200
60,000

4 Merchandise Inventory..............................
Cash....................................................

02,000

5 Accounts Payable......................................
Merchandise Inventory......................
GST Recoverable...............................

07,490

6 Accounts Receivable.................................
Sales....................................................
GST Payable.......................................
PST Payable.......................................

23,520

Cost of Goods Sold...................................

Merchandise Inventory......................

15,000

15 GST Recoverable.......................................
Supplies [$4,000 + (5% x $4,000)].............
Cash....................................................

280
4,200

18 GST Recoverable.......................................
Merchandise Inventory..............................
Cash....................................................

420
6,000

Credit

64,200
02,000
07,000
490
21,000
1,470
1,050
15,000

04,480

06,420

22 Accounts Receivable........................................................
31,360
Sales...........................................................................
GST Payable (7% x $28,000).....................................
PST Payable (5% x $28,000).....................................

28,000
1,960
1,400

Cost of Goods Sold..........................................................

20,000
Merchandise Inventory.............................................

20,000

5-50

*PROBLEM 5-9A (Continued)

Date

Account Titles and Explanation

Debit

Credit

Sept. 27 Delivery Equipment

[$30,000 + (5% x $30,000)]................................................
31,500
GST Recoverable (7% x $30,000).....................................
2,100
Accounts Payable.....................................................

33,600

28 Accounts Payable ($64,200 $7,490)..............................

56,710
Cash...........................................................................

0
56,710

30 Cash...................................................................................
23,520
Accounts Receivable................................................
00,

23,520

5-51

Ref.

*PROBLEM 5-10A
(a)
GENERAL JOURNAL
Date

Account Titles and Explanation

J1
Ref.

Debit

April 4 GST Recoverable....................................

Merchandise Inventory..........................
Accounts Payable...........................

114
120
201

42.00
600.00

6 Merchandise Inventory..........................
Cash.................................................

120
101

060.00

8 Accounts Receivable.............................
Sales................................................
GST Payable....................................
PST Payable....................................

112
401
214
215

1,053.00

Cost of Goods Sold.................................

Merchandise Inventory...................

505
120

630.00

10 Accounts Payable...................................
Merchandise Inventory...................
GST Recoverable ($40 X 7%)........

201
120
114

042.80

11 GST Recoverable....................................
Merchandise Inventory..........................
Cash.................................................

114
120
101

21.00
300.00

14 GST Recoverable....................................
Merchandise Inventory..........................
Accounts Payable...........................

114
120
201

49.00
700.00

15 Cash.........................................................
Merchandise Inventory...................
GST Recoverable............................

101
120
114

053.50

17 Merchandise Inventory..........................
Cash.................................................

120
101

070.00

5-52

Credit

642.00
060.00
900.00
63.00
90.00
630.00
040.00
2.80

321.00

749.00
050.00
3.50
070.00

*PROBLEM 5-10A (Continued)

(a) (Continued)
J2
Date

Account Titles and Explanation

Ref.

Debit

April 18 Accounts Receivable................................. 112

Sales.................................................... 401
GST Payable....................................... 214
PST Payable....................................... 215

936.00

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

560.00

20 Cash............................................................ 101
Accounts Receivable......................... 112

500.00

27 GST Payable............................................... 214

PST Payable............................................... 215
Sales Returns and Allowances................. 412
Accounts Receivable......................... 112

2.10
3.00
30.00

Merchandise Inventory............................. 120

Cost of Goods Sold............................ 505

25.00

29 Accounts Payable...................................... 201

Cash.................................................... 101

599.20

30 Accounts Receivable................................. 112

Sales.................................................... 401
GST Payable....................................... 214
PST Payable....................................... 215

1,170.00

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

730.00

30 Cash............................................................ 101
Accounts Receivable......................... 112

1,200.00

5-53

Credit
800.00
56.00
80.00
560.00
500.00

035.10
25.00
599.20
1,000.00
70.00
100.00
730.00
1,200.00

*PROBLEM 5-10A (Continued)

(b)

Cash

No. 101

Date
Apr.

Explanation
1
6
11
15
17
20
29
30

Balance

Ref.

J1
J1
J1
J1
J2
J2
J2

Debit

Credit
060.00
321.00

053.50
070.00
500.00
599.20
1,200.00

Accounts Receivable
Explanation
Apr.

8
18
20
27
30
30

Ref.
J1
J2
J2
J2
J2
J2

Apr.

Explanation
4
10
11
14
15

2,500.00
2,440.00
2,119.00
2,172.50
2,102.50
2,602.50
2,003.30
3,203.30

No. 112
Debit

Credit

1,053.00
936.00

1,053.00
1,989.00
500.00 1,489.00
035.10 1,453.90
2,623.90
1,200.00 1,423.90

1,170.00

GST Recoverable
Date

Balance

Balance

No. 114
Ref.
J1
J1
J1
J1
J1

5-54

Debit

Credit

42.00
21.00
49.00

2.80
3.50

Balance
42.00
39.20
60.20
109.20
105.70

*PROBLEM 5-10A (Continued)

(b) (Continued)
Merchandise Inventory
Date
Apr.

Explanation
1
4
6
8
10
11
14
15
17
18
27
30

Balance

No. 120
Ref.

J1
J1
J1
J1
J1
J1
J1
J1
J2
J2
J2

Debit

Credit

600.00
60.00
630.00
40.00
300.00
700.00
50.00
70.00
560.00
25.00
730.00

Accounts Payable
Date
Apr.

Explanation
4
10
14
29

Apr.

Ref.
J1
J1
J1
J2

Debit

Credit

Balance

642.00
42.80
599.20

642.00
599.20
749.00 1,348.20
749.00

No. 214
Explanation

8
18
27
30

3,500.00
4,100.00
4,160.00
3,530.00
3,490.00
3,790.00
4,490.00
4,440.00
4,510.00
3,950.00
3,975.00
3,245.00

No. 201

GST Payable
Date

Balance

Ref.
J1
J2
J2
J2

5-55

Debit

Credit
63.00
56.00

2.10
70.00

Balance
63.00
119.00
116.90
186.90

*PROBLEM 5-10A (Continued)

(b) (Continued)

PST Payable
Date
Apr.

No. 215
Explanation

8
18
27
30

Ref.
J1
J2
J2
J2

Debit

Credit
90.00
80.00

3.00
100.00

B. J. Evert, Capital
Date
Apr.

Explanation
1

Balance

Ref.

Debit

Credit

Balance
6,000.00

No. 401

Date

Explanation
8
18
30

Ref.

Debit

J1
J2
J2

Credit

Date

Explanation

Apr. 27

No. 412
Ref.
J2

Debit

Credit

030.00

Explanation
8
18
27
30

Balance
0,030.00

Cost of Goods Sold

Date

Balance

900.00 0,900.00
800.00 1,700.00
1,000.00 2,700.00

Sales Returns and Allowances

Apr.

90.00
170.00
167.00
267.00

No. 301

Sales
Apr.

Balance

No. 505
Ref.
J1
J2
J2
J2

5-56

Debit
630.00
560.00
730.00

Credit

Balance

0,630.00
1,190.00
25.00 1,165.00
1,895.00

*PROBLEM 5-10A (Continued)

(c)
B. J.'S TENNIS SHOP
Trial Balance
April 30, 2003
Debit
Cash..............................................................................
$3,203.30
Accounts Receivable...................................................
1,423.90
GST Recoverable.......................................................... 105.70
Merchandise Inventory................................................
3,245.00
Accounts Payable........................................................
GST Payable.................................................................
PST Payable..................................................................
B. J. Evert, Capital........................................................
Sales..............................................................................
Sales Returns and Allowances................................... 30.00
Cost of Goods Sold......................................................
1,895.00
$9,902.90

Credit

$ 749.00
186.90
267.00
6,000.00
02,700.00
00000000
$9,902.90

(d)
B. J.'S TENNIS SHOP
Income Statement (Partial)
For the Month Ended April 30, 2003
Sales revenues
Sales........................................................................................
Less: Sales returns and allowances....................................
Net sales..................................................................................
Cost of goods sold.........................................................................
Gross profit.....................................................................................

5-57

$2,700
30
2,670
1,895
775

*PROBLEM 5-11A
(a)
METIS WHOLESALE COMPANY
Work Sheet
For the Year Ended December 31, 2002
Account Titles

Trial Balance
Dr.

Cash
33,400
Accounts Receivable
37,600
Merchandise Inventory
92,400
Land
92,000
Buildings
197,000
Accum. Amortization
Equipment
83,500
Accum. Amortization
Notes Payable
Accounts Payable
G. Metis, Capital
G. Metis, Drawings
10,000
Sales
Cost of Goods Sold
712,100
Salaries Expense
69,800
Utilities Expense
9,400
Repair Expense
5,900
Gas and Oil Expense
7,200
Insurance Expense
0,00 3,500
Totals
1,353,800
Amort. ExpenseBldings
Amort. Expense Equip.
Interest Expense
Interest Payable
Totals
Net Income
Totals

Adjustments

Cr.

Dr.

Cr.

(3) 2,400
54,000

Adjusted
Trial Balance
Dr.

Income
Statement

Cr.

Dr.

Balance Sheet

Cr.

33,400
37,600
90,000
92,000
197,000

(1) 10,000

Dr.
33,400
37,600
90,000
92,000
197,000

64,000

64,000

83,500
42,400
50,000
37,500
267,800

(1) 9,000

83,500
51,400
50,000
37,500
267,800

51,400
50,000
37,500
267,800

10,000
902,100

10,000
902,100

902,100

(3) 2,400

714,500
69,800
9,400
5,900
7,200
3,500

714,500
69,800
9,400
5,900
7,200
3,500

(1) 10,000
(1) 9,000
(2) 4,000
000000
0025,400

10,000
9,000
4,000
(2) 04,000 00000000
25,400 1,376,800

10,000
9,000
4,000
0000000
0833,300
068,800
902,100

00000000
1,353,800

0,004,000
1,376,800

0000000
902,100
0000000
00902,100

0000000
543,500
0000000
543,500

Key: (1) Amortization expensebuildings, (1) Amortization expenseequipment, (2) Interest payable., (3) Inventory adjustment.

5-58

Cr.

004,000
474,700
068,800
543,500

*PROBLEM 5-11A (Continued)

(b)
METIS WHOLESALE COMPANY
Income Statement
For the Year Ended December 31, 2002
Sales...................................................................................................... $902,100
Cost of goods sold...............................................................................
714,500
Gross profit ........................................................................................
187,600
Operating expenses
Selling expenses
Salaries expense ($69,800 X 80%).....$55,840
Gas and oil expense............................ 0007,200
Total selling expenses.................
$63,040
Administrative expenses
Salaries expense ($69,800 X 20%)..... $13,960
Amortization expensebuildings..... 10,000
Utilities expense..................................
9,400
Amortization expenseequipment. . .
9,000
Repair expense....................................
5,900
Insurance expense..............................
3,500
Total administrative expenses....
00 51,760
Total operating expenses...................................... 0 114,800
Income from operations......................................................................
72,800
Other expenses and losses
Interest expense .......................................................................... 00 4,000
Net income............................................................................................ $ 68,800
METIS WHOLESALE COMPANY
Statement of Owners Equity
For the Year Ended December 31, 2002
G. Metis, Capital January 1.................................................................. $267,800
Add: Net income...................................................................................
68,800
............................................................................................................... 336,600
Less: Drawings.....................................................................................
10,000
G. Metis, Capital December 31............................................................ $326,600

5-59

*PROBLEM 5-11A (Continued)

(b) (Continued)
METIS WHOLESALE COMPANY
Balance Sheet
December 31, 2002
Assets
Current assets
Cash..............................................................................................
Accounts receivable....................................................................
Merchandise inventory................................................................
Total current assets..............................................................

$ 33,400
37,600
90,000
161,000

Capital assets
Land............................................................
$ 92,000
Buildings..................................................... $197,000
Less: Accumulated amortization.............. (64,000) 133,000
Equipment..................................................
83,500
Less: Accumulated amortization.............. (51,400)
32,100 257,100
Total assets........................................................................... $418,100
Liabilities and Owners Equity
Current liabilities
Notes payable................................................................................ $ 50,000
Accounts payable.........................................................................
37,500
Interest payable.............................................................................
4,000
Total liabilities.......................................................................
91,500
Owners Equity
G. Metis Capital.............................................................................
326,600
Total liabilities and owners equity..................................... $418,100

5-60

*PROBLEM 5-11A (Continued)

(c)

(d)

Dec. 31 Amortization ExpenseBuilding......... 10,000

Accum. Amortiz.Building...........

10,000

Amortization ExpenseEquipment.....
Accum. Amortiz.Equipment.......

9,000
9,000

Interest Expense..................................
Interest payable............................

4,000

Cost of Goods Sold..............................

Merchandise Inventory.................

2,400

4,000
2,400

Dec. 31 Sales..................................................... 902,100

G. Methis, Capital.........................

902,100

G. Metis, Capital.................................. 833,300

Cost of Goods Sold......................
Salaries Expense..........................
Utilities Expense..........................
Repair Expense............................
Gas and Oil Expense...................
Insurance Expense......................
Amortization ExpenseBuildings
Amortization ExpenseEquipment
Interest Expense..........................

714,500
69,800
9,400
5,900
7,200
3,500
10,000
9,000
4,000

G. Metis, Capital..................................
G. Metis, Drawings.......................

5-61

10,000
10,000

*PROBLEM 5-11A (Continued)

(e)
METIS WHOLESALE COMPANY
Post-Closing Trial Balance
December 31, 2002

Cash ...............................................................
Accounts Receivable....................................
Merchandise Inventory.................................
Land...............................................................
Buildings........................................................
Accumulated AmortizationBuildings.......
Equipment.....................................................
Accumulated AmortizationEquipment....
Notes Payable...............................................
Accounts Payable.........................................
Interest Payable............................................
G. Metis, Capital............................................
Totals

5-62

Debit
$ 33,400
37,600
90,000
92,000
197,000

Credit

$ 64,000
83,500

00000 00
$533,500

51,400
50,000
37,500
4,000
326,600
$533,500

PROBLEM 5-1B
(a)
June 5

13

17

Merchandise InventoryJet Runners

(2 x $22,000)...................................................
Accounts Payable.................................

44,000

Merchandise InventorySkiffs
(2 x $25,000)...................................................
Accounts Payable.................................

50,000

22
23

24

50,000

Accounts Receivable (4 x $26,500).............. 106,000

Sales.......................................................
Cost of Goods Sold (4 x $22,000)................
Merchandise InventoryJet Runners...

18

44,000

Merchandise InventorySkiffs
(2 x $26,000)...................................................
Accounts Payable.................................

88,000
88,000
52,000
52,000

Accounts Payable.........................................
Merchandise InventorySkiffs..............

26,000

Accounts Receivable (2 x $33,000)..............

Sales.......................................................

66,000

Cost of Goods Sold (2 x $27,000) ...............

Merchandise InventoryPower.............

54,000

Accounts Receivable (3 x $29,000)..............

Sales.......................................................

87,000

Cost of Goods Sold (3 x $24,000)................

Merchandise InventorySkiffs..............

72,000

5-63

106,000

26,000
66,000
54,000
87,000
72,000

PROBLEM 5-1B (Continued)

(b)
Merchandise Inventory
Jet Runners
Bal. 88,000
88,000
44,000
44,000

Merchandise Inventory
Skiffs
Bal. 72,000
26,000
50,000
72,000
52,000
76,000

Merchandise Inventory
Power
Bal. 54,000
54,000
0

Cost of Goods Sold

88,000
54,000
72,000
214,000

5-64

PROBLEM 5-2B
GENERALJOURNAL

Date

Account Titles

June 1

Merchandise Inventory (130 x $5)............. 120

Accounts Payable............................... 201

650

Merchandise Inventory............................... 120

Cash..................................................... 101

50

Accounts Receivable (140 x $10).............. 112

Sales..................................................... 401

1,400

Cost of Goods Sold (140 x $6)................... 505

Merchandise Inventory....................... 120

840

Accounts Payable....................................... 201

Merchandise Inventory....................... 120

50

Accounts Payable....................................... 201

Cash..................................................... 101

600

15

Cash............................................................. 101
Accounts Receivable.......................... 112

1,400

17

Accounts Receivable (120 x $10).............. 112

Sales..................................................... 401

1,200

Cost of Goods Sold.................................... 505

Merchandise Inventory....................... 120

682

20

Merchandise Inventory (120 x $5)............. 120

Accounts Payable............................... 201

600

24

Cash............................................................. 101
Accounts Receivable.......................... 112

1,200

5-65

Ref. Debit

Credit
650
50
1,400
840
50
600
1,400
1,200
682
600
1,200

PROBLEM 5-2B (Continued)

Date

Account Titles

June 26

Accounts Payable...................................... 201

Cash.................................................... 101

600

28

Accounts Receivable (110 x $10)............. 112

Sales.................................................... 401

1,100

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

609

Sales Returns and Allowances................. 412

Accounts Receivable......................... 112

150

Merchandise Inventory.............................. 120

Cost of Goods Sold ........................... 505

75

30

Ref. Debit

5-66

Credit
600
1,100
609
150
75

PROBLEM 5-3B

(a)
GENERAL JOURNAL
Date
May

Account Titles and Explanation

J1
Ref.

Debit

1 Merchandise Inventory...............................120
Accounts Payable...............................201

5,000

2 Accounts Receivable..................................112
Sales.....................................................401

4,000

505
Cost of Goods Sold....................................120
Merchandise Inventory.......................

3,000

5 Accounts Payable.......................................201
Merchandise Inventory.......................120

0,200

7 Freight Out..................................................644
Cash.....................................................101

200

11 Supplies.......................................................126
Cash.....................................................101

0,900

12 Merchandise Inventory...............................120
Cash.....................................................101

2,400

15 Cash.............................................................101
Merchandise Inventory.......................120

0,230

17 Merchandise Inventory...............................120
Accounts Payable...............................201

1,900

19 Merchandise Inventory...............................120
Cash.....................................................101

0,250

5-67

Credit

5,000
4,000
3,000

0,200
200
0,900
2,400
0,230
1,900

0,250

PROBLEM 5-3B (Continued)

(a) (Continued)
J2
Date

Account Titles and Explanation

Ref.

Debit

May 24 Cash.........................................................
Sales................................................

101
401

6,200

Cost of Goods Sold................................

Merchandise Inventory...................

505
120

4,340

25 Merchandise Inventory..........................
Accounts Payable...........................

120
201

1,000

27 Cash ........................................................
Accounts Receivable......................

101
112

4,000
0,0

29 Sales Returns and Allowances..............

Cash.................................................

412
101

0,100

Merchandise Inventory..........................
Cost of Goods Sold........................

120
505

70

30 Accounts Payable ($5,000 $200)........

Cash.................................................

201
101

4,800

31 Accounts Receivable.............................
Sales................................................

112
401

1,600

Cost of Goods Sold................................

Merchandise Inventory...................

505
120

1,000

5-68

Credit
6,200
4,340
1,000
4,000
0,100
70
4,800
1,600
1,000

PROBLEM 5-3B (Continued)

(b)

Cash

No. 101

Date
May

Explanation
1
7
11
12
15
19
24
27
29
30

Balance

Ref.

J1
J1
J1
J1
J1
J2
J2
J2
J2

Debit

Credit
200
900
2,400

230
250
6,200
4,000
100
4,800

Accounts Receivable
Date
May

Explanation
2
27
31

Ref.
J1
J2
J2

May

Explanation
1
2
5
12
15
17
19
24
25
29
31

5,000
4,800
3,900
1,500
1,730
1,480
7,680
11,680
11,580
6,780
No. 112

Debit

Credit

4,000
4,000
1,600

Merchandise Inventory
Date

Balance

Balance
04,000
00,000
01,600
No. 120

Ref.
J1
J1
J1
J1
J1
J1
J1
J2
J2
J2
J2

5-69

Debit

Credit

5,000
3,000
200
2,400
230
1,900
250
4,340
1,000
70
1,000

Balance
5,000
2,000
1,800
4,200
3,970
5,870
6,120
1,780
2,780
2,850
1,850

PROBLEM 5-3B (Continued)

(b) (Continued)
Supplies
Date

No. 126
Explanation

May 11

Ref.
J1

Debit

Credit

0,900

00,900

Accounts Payable
Date
May

Explanation
1
5
17
25
30

No. 201
Ref.
J1
J1
J1
J2
J2

Debit

Credit

May

Explanation
1

Balance

0,200
1,900
1,000
4,800

05,000
04,800
6,700
7,700
2,900

No. 301
Ref.

Debit

Credit

Balance
05,000

Sales

No. 401

Date
May

Balance

5,000

S. Eagle, Capital
Date

Balance

Explanation
2
24
31

Ref.

Debit

J1
J2
J2

Credit
4,000
6,200
1,600

Sales Returns and Allowances

Date
May 29

Explanation

Balance
04,000
10,200
11,800
No. 412

Ref.
J2

5-70

Debit
0,100

Credit

Balance
00,100

PROBLEM 5-3B (Continued)

(b) (Continued)
Cost of Goods Sold
Date
May

No. 505

Explanation
2
24
29
31

Ref.
J1
J2
J2
J2

Debit

Credit

3,000
4,340
1,000

70

Freight Out
Date
May
(c)

03,000
07,340
07,270
8,270
No. 644

Explanation
7

Balance

Ref.
J1

Debit
0,200

Credit

Balance
00,200

EAGLE HARDWARE STORE

Income Statement (Partial)
For the Month Ended May 31, 2003
Sales revenues
Sales............................................................................... $11,800
Less: Sales returns and allowances..........................
100
Net sales........................................................................
11,700
Cost of goods sold...............................................................
8,270
Gross profit...........................................................................
3,430

(d)

EAGLE HARDWARE STORE

Balance Sheet (Partial)
May 31, 2003
Assets
Current assets
Cash............................................................................... $ 6,780
Accounts receivable.....................................................
1,600
Merchandise inventory.................................................
1,850
Supplies.........................................................................
900
Total current assets.............................................. $11,130
5-71

PROBLEM 5-4B
Adjusting entriesnot required:
Dec. 31

(a)

Cost of Goods Sold (Inventory Loss).....................

Merchandise Inventory.....................................

100

Insurance Expense...................................................
Prepaid Insurance.............................................

900

Amortization Expense..............................................
Accumulated AmortizationBuilding.............

4,000

Amortization Expense..............................................
Accumulated AmortizationStore Equipment

2,850

Property Tax Expense..............................................

Property Tax Payable........................................

6,000

100
900
4,000
2,850

GLOBAL ENTERPRISES
Income Statement
For the Year Ended December 31, 2002

Sales revenues
Sales............................................................................. $243,700
Less: Sales returns and allowances......................... 4 4,800
Net sales.......................................................................
238,900
Cost of goods sold ($180,300 + $100)...............................
180,400
Gross profit .......................................................................
58,500
Operating expenses
Salaries expense......................................$31,600
Utilities expense...................................... 5,100
Amortization expense ($4,000 + $2,850)
6,850
Property tax expense ............................. 6,000
Insurance expense .................................
900
Total operating expenses...............................
50,450
Net income........................................................................... $ 8,050

5-72

6,000

PROBLEM 5-4B (Continued)

(a) (Continued)
GLOBAL ENTERPRISES
Statement of Owners Equity
For the Year Ended December 31, 2002
T. Brown, Capital, January 1...............................................

$50,000

Add: Net income..................................................................

8,050

T. Brown, Capital, December 31.........................................

$58,050

5-73

PROBLEM 5-4B (Continued)

(a) (Continued)
GLOBAL ENTERPRISES
Balance Sheet
December 31, 2002
Assets
Current assets
Cash ............................................................................................
Accounts receivable ..................................................................
Merchandise inventory...............................................................
Prepaid insurance ($1,900 $900).............................................
Total current assets.............................................................

$ 13,000
31,700
28,000
1,000
73,700

Capital assets
Land..........................................................
$ 30,000
Building.................................................... $150,000
Less: Accumulated amortization
Building ($18,750 + $4,000)...................
22,750
127,250
Store equipment...................................... $45,000
Less: Accumulated amortization
Store Equipment ($9,100 + $2,850)......
11,950
33,050 190,300
Total assets.......................................................................... $264,000
Liabilities and Owner's Equity
Current liabilities
Accounts payable.......................................................................
Sales taxes payable....................................................................
Property tax payable...................................................................
Current portion of mortgage payable........................................
Total current liabilities................................................................

$ 34,700
4,000
6,000
5,000
49,700

Long-term liabilities
Mortgage payable........................................................................
Total liabilities......................................................................

156,250
205,950

Owner's equity
T. Brown, Capital.........................................................................
Total liabilities and owner's equity....................................

58,050
$264,000

5-74

PROBLEM 5-4B (Continued)

(b) Dec. 31
31

Sales.............................................................
T. Brown, Capital.................................

243,700

T. Brown, Capital.........................................
Sales Returns and Allowances..........
Cost of Goods Sold.............................
Salaries Expense.................................
Utilities Expense.................................
Insurance Expense.............................
Property Tax Expense.........................
Amortization Expense.........................

235,650

5-75

243,700
4,800
180,400
31,600
5,100
900
6,000
6,850

PROBLEM 5-5B
(a)

VEITCH DEPARTMENT STORE

Income Statement
For the Year Ended December 31, 2002

Sales revenues
Sales...........................................................................................
Less: Sales returns and allowances......................................
Net sales....................................................................................
Cost of goods sold...........................................................................
Gross profit.......................................................................................
Operating expenses
Selling expenses
Sales salaries expense.....................
$76,000
Sales commissions expense............
15,500
Amortization expense equipment
13,300
Utilities expense ($11,000 X 60%)....
6,600
Insurance expense ($7,200 X 60%). . 000 4,320
Total selling expenses...............
$115,720
Administrative expenses
Office salaries expense....................
$32,000
Amortization expense building. . .
10,400
Property taxes expense....................
4,800
Utilities expense ($11,000 X 40%)....
4,400
Insurance expense ($7,200 X 40%). . 000 2,880
Total administrative expenses
0054,480
Total operating expenses
Income from operations.....................................................
Other revenues and gains
Interest revenue..........................................................
$ 4,000
Other expenses and losses
Interest expense..........................................................
11,000
Net income..........................................................................

5-76

$624,000
8,000
616,000
427,200
188,800

0 170,200
18,600

00 07,000
$ 11,600

PROBLEM 5-5B (Continued)

(a) (Continued)
VEITCH DEPARTMENT STORE
Statement of Owner's Equity
For the Year Ended December 31, 2002
S. Veitch, Capital, January 1..............................................................
Add: Net income...............................................................................
Less: Drawings..................................................................................
S. Veitch, Capital, December 31.........................................................

5-77

$226,600
0 11,600
238,200
0 28,000
$210,200

PROBLEM 5-5B (Continued)

(a) (Continued)
VEITCH DEPARTMENT STORE
Balance Sheet
December 31, 2002
Assets
Current assets
Cash..............................................................................................
Accounts receivable....................................................................
Merchandise inventory................................................................
Prepaid insurance........................................................................
Total current assets.............................................................
Capital assets
Land............................................................
$ 50,000
Building...................................................... $190,000
Less: Accum. amortizationbuilding....
52,500 137,500
Equipment.................................................. $110,000
Less: Accum. amortizationequipment
42,900 00 67,100
Total assets........................................

$023,000
50,300
72,500
0 2,400
148,200

0254,600
$402,800

Liabilities and Owner's Equity

Current liabilities
Accounts payable.......................................................................
Mortgage payable due next year...............................................
Property taxes payable..............................................................
Sales commissions payable......................................................
Interest payable..........................................................................
Sales taxes payable....................................................................
Total current liabilities........................................................
Long-term liabilities
Mortgage payable (less current portion)..................................
Total liabilities.....................................................................
Owner's equity
S. Veitch, Capital.........................................................................
Total liabilities and owner's equity....................................

5-78

$089,300
20,000
4,800
4,500
0008,000
00 06,000
132,600
00 60,000
192,600
0210,200
$402,800

PROBLEM 5-5B (Continued)

(b) Dec. 31
31
31
31
31
31
31

Amortization ExpenseBuilding.....................10,400
Accumulated AmortizationBuilding.....

10,400

Amortization ExpenseEquipment.................13,300
Accumulated AmortizationEquipment.

13,300

Insurance Expense............................................ 7,200

Prepaid Insurance......................................

7,200

Interest Expense..................................................8,000
Interest Payable.........................................

8,000

Property Taxes Expense......................................4,800

Property Taxes Payable.............................

4,800

Sales Commissions Expense.............................4,500

Sales Commissions Payable....................

4,500

Cost of Goods Sold (Inventory Loss).............. 2,500

Merchandise Inventory..............................

2,500

5-79

PROBLEM 5-5B (Continued)

(c) Dec. 31

31

31

Sales............................................................... 624,000
Interest Revenue...........................................
4,000
S. Veitch, Capital...................................

628,000

S. Veitch, Capital........................................... 616,400

Cost of Goods Sold...............................
Sales Returns and Allowances............
Office Salaries Expense........................
Sales Salaries Expense........................
Sales Commissions Expense...............
Property Taxes Expense.......................
Utilities Expense....................................
Amortization ExpenseBuilding.........
Amortization ExpenseEquipment.....
Insurance Expense................................
Interest Expense....................................

427,200
8,000
32,000
76,000
15,500
4,800
11,000
10,400
13,300
7,200
11,000

S. Veitch, Capital...........................................
S. Veitch, Drawings...............................

5-80

28,000
28,000

PROBLEM 5-6B
Account

Statement

Classification

Accumulated Depreciation

Balance Sheet

Capital Assets
(Contra Account)

Cash and Time Deposits

Balance Sheet

Current Assets

Cost of Sales

Income Statement

Cost of Goods Sold

Depreciation Expense

Income Statement

Operating Expenses
(Administrative
Expenses)

Income Taxes Expense

Income Statement

Other Expenses (or

Income Tax Expense)

Interest Expense

Income Statement

Other Expenses

InventoriesAluminum

Balance Sheet

Current Assets

InventoriesOther Supplies

Balance Sheet

Current Assets

InventoriesRaw Materials

Balance Sheet

Current Assets

Operating Income

Income Statement

Operating Income

Other Expenses

Income Statement

Other Expenses

Payables

Balance Sheet

Current Liabilities

Property, Plant, and

Equipment

Balance Sheet

Capital Assets

Receivables

Balance Sheet

Current Assets

Sales

Income Statement

Revenue

Selling, Administrative and

Income Statement

Operating Expenses

5-81

General Expenses

5-82

(a)

PROBLEM 5-7B
TAO COMPANY
Income Statement
For the Year Ended December 31, 2002

Sales revenues
Sales ($702,000 - $10,000).......................................................
Less: Sales returns and allowances......................................
Net sales...................................................................................
Cost of goods sold..........................................................................
Gross profit......................................................................................
Operating expenses
Selling expenses
Sales salaries expense...................
$76,000
Freight out.......................................
17,200
Advertising expense.......................
10,000
Amortization expensestore equip. 7,500
Sales commissions expense
($6,500 + $1,000).........................
7,500 $118,200
Administrative expenses
Office salaries expense.................. $19,000
Rent expense ($16,000 - $1,250)....
14,750
Utilities expense..............................
8,000
Insurance expense ($7,000 - $1,200) 5,800
47,550
Total operating expenses...........
Income from operations...................................................
Other revenues and gains
Interest revenue........................................................
$5,300
Other expenses and losses
Interest expense........................................................
4,000
Net income........................................................................
Reconciliation
Net Income as prepared by bookkeeper.........................................
Sales revenue unearned..................................................................
Insurance expense applicable to 2003............................................
Rent expense applicable to 2003.....................................................
Sales commission expense applicable to 2002.............................
Drawings............................................................................................
5-83

$692,000
4,100
687,900
470,000
217,900

165,750
52,150

1,300
$ 53,450
$50,000
(10,000)
1,200
1,250
(1,000)
12,000

As adjusted.......................................................................................

5-84

$53,450

PROBLEM 5-7B (Continued)

(b)

TAO COMPANY
Income Statement
For the Year Ended December 31, 2002

Revenues
Net sales...............................................................
Interest revenue...................................................
Total revenue................................................
Expenses
Cost of goods sold..............................................
Selling expenses (1)............................................
Administrative expenses (2)...............................
Interest expense...................................................
Total expenses..............................................
Net income...................................................................

$687,900
5,300
$470,000
118,200
47,550
4,000

(1) Selling expenses

Sales salaries expense........................................
Freight out............................................................
Advertising expense..........................................
Amortization expensestore equipment.........
Sales commissions expense ($6,500 + $1,000)
Total......................................................................

$ 76,000
17,200
10,000
7,500
7,500
$118,200

(2) Administrative expenses

Office salaries expense......................................
Rent expense ($16,000 - $1,250)........................
Utilities expense.................................................
Insurance expense ($7,000 - $1,200)..................
Total.......................................................................

$19,000
14,750
8,000
5,800
$47,550

Reconciliation
Net income as prepared by bookkeeper............................................
Sales revenue unearned.....................................................................
Insurance expense applicable to 2003..............................................
Rent expense applicable to 2003.......................................................
Sales commission expense applicable to 2002................................
Drawings..............................................................................................
As adjusted..........................................................................................
5-85

$693,200

639,750
$53,450

$50,000
(10,000)
1,200
1,250
(1,000)
12,000
$53,450

PROBLEM 5-8B
(a)
8 Months Ended
December 31, 1999
Gross profit margin

Inventory turnover

85.3%

57.1%

($74,314 $10,931)
$74,314

($1,472 $631) $1,472

1.64 times

0.25 times

$10,931 [($4,966 +
$8,330) 2]

$631 [($4,966 + $0) 2]

Days sales in inventory 148 days

Current ratio

Year Ended
April 30 1999

1,460 days

365 days x 8/12 1.64

times

365 days 0.25 times

1.42:1

1.15:1

$1,973,457 $1,390,850

$298,499 $259,851

(b) SAMs current ratio of more than 1 to 1 indicates that SAM does not
have a liquidity problem. Its current assets are more than its current
liabilities. It appears to managing inventory better in its second year of
operations, with a substantial reduction of days sales in inventory. The
inventory ratios for the year ended April 1999 are probably reflective of
the start up phase of the company.

5-86

*PROBLEM 5-9B
GENERAL JOURNAL
Date
Oct.

Account Titles and Explanation

Ref.

Debit

Credit

1 GST Recoverable..............................................................
5,250
Merchandise Inventory.....................................................
75,000
Accounts Payable.....................................................

80,250

3 Merchandise Inventory.....................................................
01,800
Cash...........................................................................

01,800

5 Accounts Payable.............................................................
06,420
Merchandise Inventory.............................................
GST Recoverable......................................................

06,000
420

8 Accounts Receivable........................................................
24,640
Sales...........................................................................
GST Payable..............................................................
PST Payable...............................................................

22,000
1,540
1,100

Cost of Goods Sold..........................................................

16,000
Merchandise Inventory.............................................

16,000

12 GST Recoverable..............................................................
350
Supplies ($5,000 + $250)..................................................
5,250
Cash...........................................................................

05,600

15 GST Recoverable..............................................................
350
Merchandise Inventory.....................................................
5,000
Cash...........................................................................

05,350

18 Accounts Receivable........................................................
33,600
Sales...........................................................................
GST Payable (7% x $ 30,000)....................................
PST Payable (5% x $ 30,000)....................................

30,000
2,100
1,500

Cost of Goods Sold..........................................................

23,000
Merchandise Inventory.............................................

23,000

5-87

*PROBLEM 5-9B (Continued)

Date

Account Titles and Explanation

Ref.

Debit

Credit

Oct. 20 Delivery Equipment

[$44,000 + (5% x $ 44,000)]...............................................
46,200
GST Recoverable (7% x $44,000).....................................
3,080
Accounts Payable.....................................................

049,280

25 Accounts Payable ($80,250 $6,420)..............................

73,830
Cash...........................................................................

0
73,830

27 Cash...................................................................................
24,640
Accounts Receivable................................................
00,

24,640

5-88

*PROBLEM 5-10B
(a)
GENERAL JOURNAL
Date
May

Account Titles and Explanation

J1
Ref.

Debit

4 GST Recoverable....................................... 114

Merchandise Inventory.............................. 120
Accounts Payable.............................. 201

49.00
700.00

6 Merchandise Inventory.............................. 120

Cash.................................................... 101

055.00

8 Accounts Receivable................................. 112

Sales.................................................... 401
GST Payable....................................... 214
PST Payable....................................... 215

936.00

Cost of Goods Sold.................................... 505

Merchandise Inventory...................... 120

600.00

9 Accounts Payable...................................... 201

Merchandise Inventory...................... 120
GST Recoverable ($45 X 7%)........... 114

048.15

14 GST Recoverable ($400 x 7%).................. 114

Merchandise Inventory.............................. 120
Cash.................................................... 101

28.00
400.00

16 GST Recoverable....................................... 114

Merchandise Inventory.............................. 120
Accounts Payable.............................. 201

42.00
600.00

18 Merchandise Inventory.............................. 120

Cash.................................................... 101

075.00

21 Cash............................................................ 101
Merchandise Inventory...................... 120
GST Recoverable............................... 114

058.85

5-89

Credit

749.00
055.00
800.00
56.00
80.00
600.00
045.00
3.15

428.00

642.00
075.00
055.00
3.85

*PROBLEM 5-10B (Continued)

(a) (Continued)
Date

J2

Account Titles and Explanation

Ref.

Debit

May 23 Cash............................................................ 101

Sales.................................................... 401
GST Payable....................................... 214
PST Payable....................................... 215

1,053.00

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

675.00

25 Cash............................................................ 101
Accounts Receivable......................... 112

400.00

27 GST Payable............................................... 214

PST Payable............................................. 215
Sales Returns and Allowances................. 412
Accounts Receivable......................... 112

2.45
3.50
35.00

Merchandise Inventory............................. 120

Cost of Goods Sold............................ 505

25.00

29 Accounts Payable ($749.00 - $ 48.15)...... 201

Cash.................................................... 101

700.85

30 Accounts Receivable................................. 112

Sales.................................................... 401
GST Payable....................................... 214
PST Payable....................................... 215

1,755.00

Cost of Goods Sold................................... 505

Merchandise Inventory...................... 120

1,125.00

Credit
900.00
63.00
90.00
675.00
400.00

040.95
25.00
700.85
1,500.0
0
105.00
150.00
1,125.00

31 Cash............................................................ 101
Accounts Receivable......................... 112

5-90

800.00
800.00

*PROBLEM 5-10B (Continued)

(b)

Cash

No. 101

Date
May

Explanation
1
6
14
18
21
23
25
29
31

Balance

Ref.

J1
J1
J1
J1
J2
J2
J2
J2

Debit

Credit

May

Explanation
8
25
27
30
31

3,000.00
2,945.00
2,517.00
2,442.00
2,500.85
3,553,85
3,953.85
3,253.00
4,053.00

055.00
428.00
075.00
058.85
1,053.00
400.00
700.85
800.00

Accounts Receivable
Date

Balance

No. 112
Ref.
J1
J2
J2
J2
J2

Debit

Credit

936.00

936.00
400.00
536.00
0440.95
495.05
2,250.05
800.00 1,450.05

1,755.00

GST Recoverable
Date
May

Explanation
4
9
14
16
21

Balance

No. 114
Ref.
J1
J1
J1
J1
J1

5-91

Debit

Credit

49.00
3.15
28.00
42.00
3.85

Balance
49.00
45.85
73.85
115.85
112.00

*PROBLEM 5-10B (Continued)

(b) (Continued)
Merchandise Inventory
Date
May

Explanation
1
4
6
8
9
14
16
18
21
23
27
30

Balance

No. 120
Ref.

J1
J1
J1
J1
J1
J1
J1
J1
J2
J2
J2

Debit

Credit

May

Explanation
4
9
16
29

1,850.00
2,550.00
2,605.00
2,005.00
1,960.00
2,360.00
2,960.00
3,035.00
2,980.00
2,305.00
2,330.00
1,205.00

700.00
55.00
600.00
45.00
400.00
600.00
75.00
55.00
675.00
25.00
1,125.00

Accounts Payable
Date

Balance

No. 201
Ref.
J1
J1
J1
J2

Debit

Credit
749.00

48.15
700.85

749.00
700.85
642.00 1,342.85
642.00

GST Payable
Date
May

No. 214
Explanation

8
23
27
30

Balance

Ref.
J1
J2
J2
J2

5-92

Debit

Credit
56.00
63.00

2.45

105.00

Balance
56.00
119.00
116.55
221.55

*PROBLEM 5-10B (Continued)

(b) (Continued)
PST Payable
Date
May

No. 215
Explanation

8
23
27
30

Ref.
J1
J2
J2
J2

Debit

Credit
80.00
90.00

3.50
150.00

J. Nejedly, Capital
Date
May

Explanation
1

Balance

Ref.

Debit

Credit

Balance
4,850.00

No. 401

Date

Explanation
8
23
30

Ref.

Debit

J1
J2
J2

Credit

Date

Explanation

May 27

No. 412
Ref.
J2

Debit

Credit

035.00

Explanation
8
23
27
30

Balance
0,035.00

Cost of Goods Sold

Date

Balance

800.00 800.00
900.00 1,700.00
1,500.00 3,200.00

Sales Returns and Allowances

May

80.00
170.00
166.50
316.50

No. 301

Sales
May

Balance

No. 505
Ref.
J1
J2
J2
J2

5-93

Debit
600.00
675.00
1,125.00

Credit

Balance

0,600.00
1,275.00
25.00 1,250.00
2,375.00

*PROBLEM 5-10B (Continued)

(c)
JANA'S TENNIS SHOP
Trial Balance
May 31, 2003
Debit
Cash..............................................................................
$4,053.00
Accounts Receivable...................................................
1,450.05
GST Recoverable..........................................................
112.00
Merchandise Inventory................................................
1,205.00
Accounts Payable........................................................
GST Payable.................................................................
PST Payable..................................................................
J. Nejedly, Capital.........................................................
Sales..............................................................................
Sales Returns and Allowances...................................
35.00
Cost of Goods Sold......................................................
2,375.00
$9,230.05

Credit

$ 642.00
221.55
316.50
4,850.00
03,200.00
00000000
$9,230.05

(d)
JANA'S TENNIS SHOP
Income Statement (Partial)
For the Month Ended May 31, 2003
Sales revenues
Sales.......................................................................................
Less: Sales returns and allowances...................................
Net sales.................................................................................
Cost of goods sold........................................................................
Gross profit....................................................................................

5-94

$3,200
35
3,165
2,375
790

*PROBLEM 5-11B
(a)

BRENNAN FASHION CENTRE

Work Sheet
For the Year Ended November 30, 2003
Account Titles

Trial Balance
Dr.

Cash
Accounts Receivable
Merchandise Inventory
Store Supplies
Land
Building
Accumulated Amortization
Delivery Equipment
Accumulated Amortization
Mortgage Payable
Accounts Payable
Sales Taxes Payable
L. Brennan, Capital
L. Brennan, Drawings
Sales
Sales Returns and Allow.
Cost of Goods Sold
Salaries Expense
Advertising Expense
Utilities Expense
Repair Expense
Delivery Expense
Rent Expense
Totals
Supplies Expense
Amort. ExpenseBldg.
Amort. ExpenseEquip.
Interest Expense
Interest Payable
Property Tax Expense
Property Tax Payable
Totals
Net Loss
Totals

Adjustments
Cr.

Dr.

16,700
40,700
48,000
5,500
60,000
85,000

Adj. Trial Balance

Cr.

(4) 3,000
(1) 2,000
17,000

Dr.

Cr.

Dr.

Balance Sheet

Cr.

Dr.

16,700
40,700
45,000
3,500
60,000
85,000

(2) 4,250

48,000

Income Statement

16,700
40,700
45,000
3,500
60,000
85,000
21,250

21,250

48,000
16,000
51,000
48,500
7,000
161,000

(2) 8,000

12,000

48,000
24,000
51,000
48,500
7,000
161,000

24,000
51,000
48,500
7,000
161,000

12,000
750,300

12,000
750,300

4,200
497,500
(4)
140,000
26,400
14,000
12,100
16,700
24,000
00000000
1,050,800 0,01,050,800
(1)
(2)
(2)
(3)

3,000

2,000
4,250
8,000
4,000
(3) 4,000

(5) 5,000
000000
26,250

(5) 05,000
26,250

5-95

Cr.

750,300

4,200
500,500
140,000
26,400
14,000
12,100
16,700
24,000

4,200
500,500
140,000
26,400
14,000
12,100
16,700
24,000

2,000
4,250
8,000
4,000
0,
5,000
00000000
1,072,050

2,000
4,250
8,000
4,000

4,000
0,005,000
1,072,050

4,000
5,000
00000 0
761,150
00 0000
761,150

0000000
750,300
010,850
761,150

0000000
310,900
00010,850
321,750

005,000
321,750
0000000
321,750

*PROBLEM 5-11B (Continued)

Key: (1) Supplies expense; (2) Amortization expensebuilding & equipment; (3) Interest payable; (4) Inventory adjustment; (5) Property tax
payable

5-96

*PROBLEM 5-11B (Continued)

(b)
BRENNAN FASHION CENTRE
Income Statement
For the Year Ended November 30, 2003
Sales revenues
Sales..............................................................................................
Less: Sales returns and allowances...........................................
Net sales........................................................................................
Cost of goods sold...............................................................................
Gross profit ........................................................................................
Operating expenses
Selling expenses
Salaries expense ($140,000 X 70%)
$98,000
Advertising expense.......................... 26,400
Rent expense ($24,000 x 80%)........... 19,200
Store supplies expense.....................
2,000
Delivery expense................................ 0016,700
Utilities expense ($14,000 x 80%)...... 11,200
Total selling expenses................
$173,500
Administrative expenses
Salaries expense ($140,000 X 30%)... $42,000
Repair expense................................... 12,100
Amortization expenseequipment...
8,000
Property tax expense.........................
5,000
Rent expense ($24,000 x 20%)...........000 4,800
Amortization expensebuilding.......
4,250
Utilities expense ($14,000 x 20%)......
2,800
Total administrative expenses
78,950
Total operating expenses
Loss from operations...........................................................................
Other expenses and losses
Interest expense ..........................................................................
Net loss.................................................................................................

5-97

$750,300
4,200
746,100
500,500
245,600

0 252,450
6,850
00 04,000
$ 10,850

*PROBLEM 5-11B (Continued)

(b) (Continued)
BRENNAN FASHION CENTRE
Statement of Owners Equity
For the Year Ended November 30, 2003
L. Brennan, Capital, December 1.....................................
Less: Net loss.................................................................
Drawings................................................................
L. Brennan, Capital, November 30...................................

5-98

$161,000
$10,850
12,000

22,850
$138,150

*PROBLEM 5-11B (Continued)

(b) (Continued)
BRENNAN FASHION CENTRE
Balance Sheet
November 30, 2003
Assets
Current assets
Cash...............................................................................................
Accounts receivable.....................................................................
Store supplies...............................................................................
Merchandise inventory.................................................................
Total current assets..............................................................

$ 16,700
40,700
3,500
45,000
105,900

Capital assets
Land..........................................................
$60,000
Building....................................................
$85,000
Less: Accumulated amortization............
21,250
63,750
Equipment................................................
$48,000
Less: Accumulated amortization............
24,000
24,000 147,750
Total assets............................................................................ $253,650
Liabilities and Owners Equity
Current liabilities
Accounts payable......................................................................... $ 48,500
Sales taxes payable......................................................................
7,000
Property tax payable.....................................................................
5,000
Interest payable.............................................................................
4,000
Current portion of mortgage payable..........................................
30,000
Total current liabilities..........................................................
94,500
Long-term liabilities
Mortgage payable.........................................................................
Total liabilities.......................................................................

21,000
115,500

Owners Equity
L. Brennan, Capital.......................................................................
138,150
Total liabilities and owners equity...................................... $253,650
5-99

*PROBLEM 5-11B (Continued)

(c)

(d)

Nov. 30

Nov. 30

Store Supplies Expense...................

Store Supplies............................

2,000

Amortization ExpenseBuilding......
Accum. Amortiz.Building.........

4,250

Amortization ExpenseEquipment. .
Accum. Amortiz.Equipment.....

8,000

Cost of Goods Sold...........................

Inventory.....................................

3,000

Interest Expense...............................
Interest payable..........................

4,000

Property Tax Expense.......................

Property Tax Payable.................

5,000

Sales..................................................
L. Brennan, Capital....................

750,300

2,000
4,250
8,000
3,000
4,000
5,000
750,300

L. Brennan, Capital........................... 761,150

Cost of Goods Sold...................
Salaries Expense.......................
Advertising Expense.................
Utilities Expense........................
Repair Expense..........................
Delivery Expense.......................
Rent Expense.............................
Amortization ExpenseBuilding
Amortization ExpenseEquipment
Interest Expense........................
Property Tax Expense...............
Supplies Expense......................
Sales Returns and Allowances.
L. Brennan, Capital...........................
L. Brennan, Drawings................

5-100

500,500
140,000
26,400
14,000
12,100
16,700
24,000
4,250
8,000
4,000
5,000
2,000
4,200

12,000
12,000

*PROBLEM 5-11B (Continued)

(e)
BRENNAN FASHION CENTRE
Post-Closing Trial Balance
November 30, 2003

Cash..............................................................
Accounts Receivable...................................
Merchandise Inventory................................
Store Supplies..............................................
Land...............................................................
Building .........................................................
Accumulated AmortizationBuilding........
Equipment.....................................................
Accumulated AmortizationEquipment....
Mortgage Payable.........................................
Accounts Payable........................................
Property Tax Payable...................................
Sales Taxes Payable....................................
Interest Payable............................................
L. Brennan, Capital.......................................
Totals

5-101

Debit
$ 16,700
40,700
45,000
3,500
60,000
85,000

Credit

$ 21,250
48,000

00 00000
$298,900

24,000
51,000
48,500
5,000
7,000
4,000
138,150
$298,900