(10 min.) S 5-3 (Req.

1)

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
a. Jul 8 Inventory 185,800
Accounts payable 185,800

b. 12 Accounts payable 18,530

Inventory 18,530

c. 15 Accounts payable
($185,800 − $18,530) 167,270
Inventory ($167,270 × .02) 3,345
Cash ($167,270 × .98) 163,925

Req. 2

Cost of Inventory: $163,925 Inventory

Jul 8 185,800 Jul 12 18,530
15 3,345
Bal 163,925

(5-10 min.) S 5-4 (Req. 1)

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
BUBBA’S ENTRIES

Jul 1 Inventory 61,000

Accounts payable 61,000
Purchased inventory on account.

10 Accounts payable 61,000

Cash ($61,000 × .98) 59,780
Inventory ($61,000 × .02) 1,220
Paid within discount period.

Req. 2

Bubba’s cost of the inventory = Amount of the cash payment

= $61,000 − $1,220
= $59,780

Chapter 5 Merchandising Operations 1

 (10 min.) S 5-5 (Req. 1)

TOMAS’S ENTRIES
Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT
REF.
Jul 1 Accounts receivable 61,000
Sales revenue 61,000
Sale on account.

1 Cost of goods sold 32,000

Inventory 32,000
Recorded the cost of goods sold.

10 Cash ($61,000 × .98) 59,780

Sales discounts ($61,000 × .02) 1,220
Accounts receivable 61,000
Cash collection within the discount period.

(10 min.) S 5-6 (Req. 1)

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
PIRANHA.COM’S ENTRIES

Oct 10 Accounts receivable (2,500 × $15) 37,500

Sales revenue 37,500
Sale on account.

10 Cost of goods sold 22,500

Inventory 22,500
Recorded the cost of goods sold.

13 Sales returns and allowances

(100 × $15) 1,500
Accounts receivable 1,500
Received returned goods.

13 Inventory 900
Cost of goods sold 900
Returned goods to inventory.

22 Cash [($37,500 − $1,500) × .98] 35,280

Sales discounts ($36,000 × .02) 720
Accounts receivable ($37,500 − $1,500) 36,000
Received cash within discount period.
(5 min.) S 5-7
(Req. 1)

2 Chapter 5 Merchandising Operations

 Gross sales revenue $37,500
Less: Sales returns and allowances (100 x $15) 1,500
Sales discount ($36,000 x .02) 720
Net sales revenue $35,280

Req. 2

Net sales revenue ($37,500 − $1,500 − $720) $35,280

Cost of goods sold ($22,500 − $900) 21,600
Gross profit $13,680

(5 min.) S 5-8
Req. 1

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
Adjusting Entry
Dec 31 Cost of goods sold 1,100
Inventory ($63,000 − $61,900) 1,100
Adjustment for inventory shrinkage.

(5-10 min.) S 5-9

Req. 1

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
CLOSING ENTRIES
Dec 31 Sales revenue 696,000
Sales discounts 9,000
Income summary 687,000

31 Income summary 418,000

Cost of goods sold 385,000
Rent expense 21,000
Depreciation expense 12,000

31 Income summary ($687,000 − $418,000) 269,000

Retained earnings 269,000

31 Retained earnings 61,000

Dividends 61,000

(5-10 min.) S 5-10

Req. 1

Carolina Communications, Corp.

Income Statement
Chapter 5 Merchandising Operations 3
 Year Ended July 31, 2012

Net sales revenue $28,000

Cost of goods sold 18,000
Gross profit $10,000
Total operating expenses 3,500
Net income $ 6,500

(10-15 min.) P 5-26A

Req. 1 High Roller is using a perpetual inventory system.

Req. 2 May 3rd and May 5th

Req. 3
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
May 1 Inventory 3,000
Accounts payable 3,000

3 Accounts receivable 3,500

Sales revenue 3,500

3 Cost of goods sold 2,240

Inventory 2,240

5 Sales returns and allowances 300

Accounts receivable 300

5 Inventory 198
Cost of goods sold 198

11 Accounts payable 3,000

Inventory ($3,000 x .01) 30
Cash ($3,000 - $30) 2,970

13 Cash ($3,200 - $64) 3,136

Sales discount ($3,200 x .02) 64
Accounts receivable ($3,500 - $300) 3,200

4 Chapter 5 Merchandising Operations

(20-25 min.) P 5-27A
Req. 1

DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT

Sep 3 Inventory 5,000
Accounts payable 5,000

4 Inventory 1,700
Cash 1,700

6 Cash 500
Inventory 500

8 Accounts receivable 6,000

Sales revenue 6,000

8 Cost of goods sold 2,640

Inventory 2,640

10 Accounts payable 5,000

Inventory ($5,000 x .01) 50
Cash (5,000 - $50) 4,950

12 Sales returns and allowances 400

Accounts receivable 400

12 Inventory 160
Cost of goods sold 160

23 Cash ($5,600 - $112) 5,488

Sales discounts ($5,600 x .02) 112
Accounts receivable ($6,000 - $400) 5,600

Sep 25 Accounts receivable 1,175

Sales revenue 1,100
Cash 75

25 Cost of goods sold 400

Inventory 400

29 Cash 1,175
Accounts receivable 1,175

Chapter 5 Merchandising Operations 5

(15-20 min.) P 5-28A
Reqs. 1 and 2

Journal

DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT

Req.1 D & S ENTRIES
Jul 6 Inventory 12,000
Accounts payable 12,000

6 Inventory 200
Cash 200

10 Accounts payable 3,000

Inventory 3,000

15 Accounts payable 6,000

Inventory ($6,000 × .03) 180
Cash ($6,000 - $180) 5,820

27 Accounts payable
($12,000 − $3,000 − $6,000) 3,000
Cash 3,000

Req. 2 Belvidere Pharmaceuticals ENTRIES

Jul 6 Accounts receivable 12,000
Sales revenue 12,000

6 Cost of goods sold 3,600

Inventory 3,600

10 Sales returns and allowances 3,000

Accounts receivable 3,000

10 Inventory 1,200
Cost of goods sold 1,200
Jul 15 Cash ($6,000 - $180) 5,820
Sales discounts ($6,000 × .03) 180
Accounts receivable 6,000

27 Cash 3,000
Accounts receivable
($12,000 − $3,000 − $6,000) 3,000

6 Chapter 5 Merchandising Operations

(20-25 min.) P 5-29A (Req. 1)

DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT

Nov 1 Supplies 700
Cash 700

4 Inventory 9,600
Accounts payable 9,600

8 Accounts payable ($9,600 × 1/2) 4,800

Inventory 4,800

10 Cash 1,200
Sales revenue 1,200

10 Cost of goods sold 700

Inventory 700

13 Accounts receivable 9,900

Sales revenue 9,900

13 Cost of goods sold 5,300

Inventory 5,300

14 Accounts payable ($9,600 – $4,800) 4,800

Inventory ($4,800 × .03) 144
Cash ($4,800 − $144) 4,656

17 Sales returns and allowances 600

Accounts receivable 600
Nov 17 Inventory 450
Cost of goods sold 450

18 Inventory 4,100
Accounts payable 4,100

26 Accounts payable 4,100

Inventory ($4,100 × .02) 82
Cash ($4,100 - $82) 4,018

28 Cash ($9,300 − $186) 9,114

Sales discounts ($9,300 × .02) 186
Accounts receivable ($9,900 − $600) 9,300

29 Inventory ($12,000 + $200) 12,200

Cash 12,200

Chapter 5 Merchandising Operations 7

(35-45 min.) P 5-30A (Req. 1)

Alto Publishers Company

Income Statement
Year Ended November 30, 2012
Sales revenue $114,200
Less: Sales returns and allowances $ 3,000
Sales discounts 2,400 5,400
Net sales revenue $108,800
Cost of goods sold 53,000
Gross profit $55,800
Operating expenses:
Selling expenses $18,100
General expenses 9,300 27,400
Net income $ 28,400

Alto Publishers Company

Statement of Retained Earnings
Year Ended November 30, 2012
Retained earnings, December 1, 2011 $ 0
Net income 28,400
28,400
Dividends 0
Retained earnings, November 30, 2012 $28,400

8 Chapter 5 Merchandising Operations

 Alto Publishers Company
Balance Sheet
November 30, 2012
ASSETS
Current assets:
Cash $ 36,100
Inventory 44,000
Total current assets 80,100
Plant assets:
Furniture $37,300
Accumulated depreciation (23,100) 14,200
Total assets $94,300
LIABILITIES
Current liabilities:
Accounts payable $ 13,400
Salary payable 1,400
Total current liabilities 14,800
Long-term liabilities:
Note payable 21,700
Total liabilities 36,500
STOCKHOLDERS’ EQUITY
Common stock 29,400
Retained earnings 28,400
Total stockholders’ equity 57,800
Total liabilities and stockholders’ equity $94,300

Journal
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
Nov 30 Sales revenue 114,200
Sales returns and allowances 3,000
Sales discounts 2,400
Income summary 108,800

30 Income summary 80,400

Cost of goods sold 53,000
Selling expenses 18,100
General expenses 9,300

30 Income summary ($108,800 − $80,400) 28,400

Retained earnings 28,400

Chapter 5 Merchandising Operations 9

(20-30 min.) P 5-31A (Req. 1)
Journal
POST
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
Jun 30 Sales revenue 180,000
Sales returns 5,000
Income summary 175,000

30 Income summary 115,300

Cost of goods sold 82,500
Selling expense 19,200
General expense 12,000
Interest expense 1,600

30 Income summary ($175,000 − $115,300) 59,700

Retained earnings 59,700

30 Retained earnings 40,500

Dividends 40,500

Req. 2
Big Papi Music Company
Income Statement
Year Ended June 30, 2012
Revenues:
Sales revenue $180,000
Less: Sales returns 5,000
Net sales revenue $175,000
Expenses:
Cost of goods sold $82,500
Selling expenses 19,200
General expenses 12,000
Interest expense 1,600
Total expenses 115,300
Net income $ 59,700

Req. 3
2012 2011

Gross profit Gross profit $175,000-$82,500

= = = 52.9% 50%
percentage Net sales revenue $175,000

Inventory Cost of goods sold $82,500 4.9

= Average inventory = ($12,200 + $17,200) / 2 = 5.6 times
turnover times
365 365
Days in
= Inventory turnover = 5.6 = 65 days ---
inventory
ratio

10 Chapter 5 Merchandising Operations

Req. 4

The increase in gross profit percentage suggests improvement in profitability this year
versus last year.

The increase in inventory turnover suggests improvement in profitability this year versus
last year.

(30-40 min.) P 5-32A (Req. 1)

Taylor Electronics Company

Income Statement
Month Ended March 31, 2012
Revenues:
Sales revenue $297,000
Less: Sales returns and allowances $ 7,500
Sales discounts 2,900 10,400
Net sales revenue $286,600
Cost of goods sold 162,300
Gross profit $124,300
Operating expenses:
Selling expenses $38,200
General expenses 16,700 54,900
Operating Income $69,400
Other revenue:
Interest revenue 200
Net income $ 69,600

Req. 2
Taylor Electronics Company
Statement of Retained Earnings
Month Ended March 31, 2012
Retained earnings, February 28, 2012 $ 38,600
Net income 69,600
108,200
Dividends (20,000)
Retained earnings, March 31, 2012 $88,200

Chapter 5 Merchandising Operations 11

Req. 3
Taylor Electronics Company
Balance Sheet
March 31, 2012
ASSETS
Current assets:
Cash $ 8,000
Accounts receivable 33,600
Inventory 45,100
Supplies 6,000
Total current assets 92,700
Plant assets:
Equipment $129,100
Accumulated depreciation (37,700) 91,400
Total assets $184,100
LIABILITIES
Current liabilities:
Accounts payable $ 16,700
Salary payable 2,700
Interest payable 1,200
Unearned sales revenue 13,800
Total current liabilities 34,400
Long-term liabilities:
Note payable, long-term 46,000
Total liabilities 80,400
STOCKHOLDERS’ EQUITY
Common stock 15,500
Retained earnings 88,200
Total stockholders’ equity 103,700
Total liabilities and stockholders’ equity $184,100

12 Chapter 5 Merchandising Operations

(15-25 min.) P 5-33A
(Req. 1)
Grade A Steak Company
Income Statement
Quarter Ended April 30, 2012
Revenue:
Sales revenue $296,100
Less: Sales returns and allowances $7,500
Sales discounts 2,000 9,500
Net sales revenue $286,600
Cost of goods sold 162,100
Gross profit $124,500
Operating expenses:
Selling expenses $38,300
General expenses 16,300 54,600
Operating income $69,900
Other revenue:
Interest revenue 800
Net income $ 70,700

Req. 2

2011 Goal

Gross profit Gross profit $ 124,500

= = = 43.4% 50%
percentage Net sales revenue $286,600

Net income Net income $70,700

= = = 24.7% 20%
percentage Net sales revenue $286,600

Grade A did not achieve its gross profit percentage goal.

Grade A did achieve its net income percentage goal.

Chapter 5 Merchandising Operations 13