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PRACTICE EXERCISES
PE 5–1A
$162,300 ($32,800 + $379,500 – $250,000)
PE 5–1B
$490,000 ($375,000 + $815,000 – $700,000)
PE 5–2A
Cost of merchandise sold:
Merchandise inventory, June 1................................. $ 35,500
Purchases .................................................................. $384,000
Less: Purchases returns and allowances.............. $ 11,000
Purchases discounts .................................... 3,000 14,000
Net purchases ........................................................... $370,000
Add freight in ............................................................. 6,000
Cost of merchandise purchased ........................ 376,000
Merchandise available for sale ................................. $ 411,500
Less merchandise inventory, June 30...................... 40,500
Cost of merchandise sold ......................................... $371,000
PE 5–2B
Cost of merchandise sold:
Merchandise inventory, August 1............................. $ 120,000
Purchases .................................................................. $780,000
Less: Purchases returns and allowances.............. $20,000
Purchases discounts .................................... 10,000 30,000
Net purchases ........................................................... $750,000
Add freight in ............................................................. 5,000
Cost of merchandise purchased ........................ 755,000
Merchandise available for sale ................................. $875,000
Less merchandise inventory, August 31.................. 150,000
Cost of merchandise sold ......................................... $725,000
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PE 5–3A
a. Accounts Receivable ................................................................... 41,000
Sales ....................................................................................... 41,000
Cost of Merchandise Sold ........................................................... 22,500
Merchandise Inventory .......................................................... 22,500
b. Cash .............................................................................................. 40,590
Sales Discounts ........................................................................... 410
Accounts Receivable ............................................................. 41,000
PE 5–3B
a. Accounts Receivable ................................................................... 16,000
Sales ....................................................................................... 16,000
Cost of Merchandise Sold ........................................................... 9,600
Merchandise Inventory .......................................................... 9,600
b. Cash .............................................................................................. 15,680
Sales Discounts ........................................................................... 320
Accounts Receivable ............................................................. 16,000
PE 5–4A
a. $19,800. Purchase of $21,500 less the return of $1,500 less the discount of
$200 [($21,500 – $1,500) × 1%].
b. Accounts Payable
PE 5–4B
a. $4,410. Purchase of $8,000 less the return of $3,500 less the discount of
$90 [($8,000 – $3,500) × 2%)].
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PE 5–6A
Saddlebag Co. journal entries:
Cash ($17,500 – $350 + $600) ................................................................ 17,750
Sales Discounts ($17,500 × 2%) ............................................................ 350
Accounts Receivable—Bioscan Co. ($17,500 + $600) ................... 18,100
Bioscan Co. journal entries:
Accounts Payable—Saddlebag Co. ($17,500 + $600) .......................... 18,100
Merchandise Inventory ($17,500 × 2%) .......................................... 350
Cash ($17,500 – $350 + $600) ......................................................... 17,750
PE 5–7A
Oct. 31 Cost of Merchandise Sold....................................................... 80,250
Merchandise Inventory ..................................................... 80,250
Inventory shrinkage ($975,000 – $894,750).
EXERCISES
Ex. 5–1
a. $318,000 ($795,000 – $477,000)
b. 40% ($318,000 ÷ $795,000)
c. No. If operating expenses are less than gross profit, there will be a net income. On the other
hand, if operating expenses exceed gross profit, there will be a net loss.
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Ex. 5–6
a. Net sales: $5,105,000 ($5,280,000 – $100,000 – $75,000)
b. Gross profit: $2,105,000 ($5,105,000 – $3,000,000)
Ex. 5–8
PAPER PLUS COMPANY
Income Statement
For the Year Ended June 30, 2010
Revenues:
Net sales ..................................................................................... $6,500,000
Rent revenue .............................................................................. 100,000
Total revenues........................................................................ $6,600,000
Expenses:
Cost of merchandise sold .......................................................... $4,000,000
Selling expenses ........................................................................ 750,000
Administrative expenses ........................................................... 500,000
Interest expense ......................................................................... 30,000
Total expenses ....................................................................... 5,280,000
Net income .......................................................................................... $1,320,000
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Ex. 5–11
a.
EL DORADO FURNISHINGS COMPANY
Income Statement
For the Year Ended March 31, 2010
Revenue from sales:
Sales ....................................................................... $2,550,000
Less: Sales returns and allowances ................... $160,000
Sales discounts ......................................... 40,000 200,000
Net sales ........................................................... $2,350,000
Cost of merchandise sold ............................................ 1,400,000
Gross profit................................................................... $ 950,000
Expenses:
Selling expenses .................................................... $ 410,000
Administrative expenses ....................................... 250,000
Total expenses ................................................. 660,000
Income from operations ............................................... $ 290,000
Other expense:
Interest expense ..................................................... 15,000
Net income .................................................................... $ 275,000
b. The major advantage of the multiple-step form of income statement is that relationships such
as gross profit to sales are indicated. The major disadvantages are that it is more complex
and the total revenues and expenses are not indicated, as is the case in the single-step
income statement.
Ex. 5–13
a. Cash .............................................................................................. 18,500
Sales ....................................................................................... 18,500
Cost of Merchandise Sold ........................................................... 11,000
Merchandise Inventory .......................................................... 11,000
b. Accounts Receivable ................................................................... 12,000
Sales ....................................................................................... 12,000
Cost of Merchandise Sold ........................................................... 7,200
Merchandise Inventory .......................................................... 7,200
c. Cash .............................................................................................. 115,200
Sales ....................................................................................... 115,200
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6. Cost of Merchandise Sold ........................................................... 70,000
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Merchandise Inventory .......................................................... 70,000
d. Cash .............................................................................................. 45,000
Sales ....................................................................................... 45,000
Cost of Merchandise Sold ........................................................... 27,000
Merchandise Inventory .......................................................... 27,000
e. Credit Card Expense .................................................................... 5,600
Cash ....................................................................................... 5,600
Ex. 5–26
a. Accounts Receivable—Bitone Co. ............................................. 23,400
Sales ....................................................................................... 23,400
Cost of Merchandise Sold ........................................................... 14,000
Merchandise Inventory .......................................................... 14,000
b. Sales Returns and Allowances .................................................... 4,400
Accounts Receivable—Bitone Co. ........................................ 4,400
Merchandise Inventory ................................................................ 2,600
Cost of Merchandise Sold ..................................................... 2,600
c. Cash .............................................................................................. 18,620
Sales Discounts ........................................................................... 380
Accounts Receivable—Bitone Co. ........................................ 19,000
Ex. 5–27
a. Merchandise Inventory ................................................................ 23,400
Accounts Payable—Summit Co. .......................................... 23,400
b. Accounts Payable—Summit Co. ................................................ 4,400
Merchandise Inventory .......................................................... 4,400
c. Accounts Payable—Summit Co. ................................................ 19,000
Cash ....................................................................................... 18,620
Merchandise Inventory .......................................................... 380
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7. Ex. 5–31
2010
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Mar. 31 Sales .................................................................................. 2,550,000
Income Summary ........................................................ 2,550,000
31 Income Summary .............................................................. 2,275,000
Sales Discounts .......................................................... 40,000
Sales Returns and Allowances................................... 160,000
Cost of Merchandise Sold .......................................... 1,400,000
Selling Expenses ........................................................ 410,000
Administrative Expenses............................................ 250,000
Interest Expense ......................................................... 15,000
31 Income Summary .............................................................. 275,000
Retained Earnings ...................................................... 275,000
31 Retained Earnings............................................................. 50,000
Dividends .................................................................... 50,000
PROBLEMS
Prob. 5–3A
Aug. 1 Accounts Receivable—Tomahawk Co. ........................... 12,500
Sales ............................................................................ 12,500
1 Cost of Merchandise Sold................................................. 7,500
Merchandise Inventory ............................................... 7,500
2 Cash ................................................................................... 21,400
Sales ............................................................................ 20,000
Sales Tax Payable ....................................................... 1,400
2 Cost of Merchandise Sold................................................. 13,100
Merchandise Inventory ............................................... 13,100
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8. 5 Accounts Receivable—Epworth Company ...................... 30,000
Sales ............................................................................ 30,000
5 Cost of Merchandise Sold................................................. 19,500
Merchandise Inventory ............................................... 19,500
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8 Cash ................................................................................... 12,305
Sales ............................................................................ 11,500
Sales Tax Payable ....................................................... 805
8 Cost of Merchandise Sold................................................. 7,000
Merchandise Inventory ............................................... 7,000
13 Cash ................................................................................... 8,000
Sales ............................................................................ 8,000
13 Cost of Merchandise Sold................................................. 5,000
Merchandise Inventory ............................................... 5,000
14 Accounts Receivable—Osgood Co. ................................ 11,800
Sales ............................................................................ 11,800
14 Cost of Merchandise Sold................................................. 7,000
Merchandise Inventory ............................................... 7,000
15 Cash ................................................................................... 29,700
Sales Discounts ................................................................ 300
Accounts Receivable—Epworth Company 30,000
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Prob. 5–3A Concluded
Aug. 16 Sales Returns and Allowances ......................................... 1,800
Accounts Receivable—Osgood Co. .......................... 1,800
16 Merchandise Inventory ..................................................... 1,000
Cost of Merchandise Sold .......................................... 1,000
18 Accounts Receivable—Horton Company......................... 6,850
Sales ............................................................................ 6,850
18 Accounts Receivable—Horton Company......................... 210
Cash ............................................................................ 210
18 Cost of Merchandise Sold................................................. 4,100
Merchandise Inventory ............................................... 4,100
24 Cash ................................................................................... 9,900
Sales Discounts ................................................................ 100
Accounts Receivable—Osgood Co. .......................... 10,000
28 Cash ................................................................................... 6,923
Sales Discounts ................................................................ 137
Accounts Receivable—Horton Company .................. 7,060
31 Delivery Expense .............................................................. 2,100
Cash ............................................................................ 2,100
31 Cash ................................................................................... 12,500
Accounts Receivable—Tomahawk Co. ..................... 12,500
Sept. 3 Credit Card Expense ......................................................... 980
Cash ............................................................................ 980
10 Sales Tax Payable ............................................................. 1,750
Cash ............................................................................ 1,750
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Prob. 5–4A
Oct. 1 Merchandise Inventory ..................................................... 15,900
Accounts Payable—Wood Co. .................................. 15,900
5 Merchandise Inventory ..................................................... 14,150
Accounts Payable—Davis Co. ................................... 14,150
10 Accounts Payable—Wood Co. ......................................... 15,900
Cash ............................................................................ 15,590
Merchandise Inventory ............................................... 310
13 Merchandise Inventory ..................................................... 8,000
Accounts Payable—Folts Co. .................................... 8,000
14 Accounts Payable—Folts Co. .......................................... 1,500
Merchandise Inventory ............................................... 1,500
18 Merchandise Inventory ..................................................... 12,250
Accounts Payable—Lakey Company ......................... 12,250
18 Merchandise Inventory ..................................................... 180
Cash ............................................................................ 180
19 Merchandise Inventory ..................................................... 11,150
Accounts Payable—Noman Co. ................................ 11,150
23 Accounts Payable—Folts Co. .......................................... 6,500
Cash ............................................................................ 6,435
Merchandise Inventory ............................................... 65
29 Accounts Payable—Noman Co. ....................................... 11,150
Cash ............................................................................ 10,927
Merchandise Inventory ............................................... 223
31 Accounts Payable—Lakey Company ............................... 12,250
Cash ............................................................................ 12,250
31 Accounts Payable—Davis Co. ......................................... 14,150
Cash ............................................................................ 14,150
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