Ex. 5–2 $15,710 million ($20,946 million – $5,236 million) Ex. 5–7




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Ex. 5–1

a. $490,000 ($250,000 + $975,000 – $735,000)
b. 40% ($490,000 ÷ $1,225,000)
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.
Ex. 5–2

$15,710 million ($20,946 million – $5,236 million)
Ex. 5–7

a. Selling expense, (1), (3), (8)

b. Administrative expense, (2), (5), (6), (7)

  1. Other expense, (4)
Ex. 5–8

THE MERIDEN COMPANY

Income Statement

For the Year Ended June 30, 2006
Revenues:

Net sales $5,400,000

Rent revenue 30,000

Total revenues $5,430,000

Expenses:

Cost of merchandise sold $3,240,000

Selling expenses 480,000

Administrative expenses 300,000

Interest expense 47,500

Total expenses 4,067,500

Net income $1,362,500

Ex. 5–11

a.

CALLOWAY COMPANY

Income Statement

For the Year Ended January 31, 2006
Revenue from sales:

Sales $925,000

Less: Sales returns and allowances $60,000

Sales discounts 20,000 80,000

Net sales $845,000

Cost of merchandise sold 560,000

Gross profit $285,000

Operating expenses:

Selling expenses $120,000

Administrative expenses 80,000

Total operating expenses 200,000

Income from operations $ 85,000

Other expense:

Interest expense 7,500

Net income $ 77,500
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. 5–20

a. Merchandise Inventory 7,500

Accounts Payable 7,500
b. Accounts Payable 1,200

Merchandise Inventory 1,200
c. Accounts Payable 6,300

Cash 6,174

Merchandise Inventory 126
Ex. 5–21

a. Merchandise Inventory 12,000

Accounts Payable—Loew Co. 12,000
b. Accounts Payable—Loew Co. 12,000

Cash 11,760

Merchandise Inventory 240
c. Accounts Payable*—Loew Co. 2,940

Merchandise Inventory 2,940
d. Merchandise Inventory 2,000

Accounts Payable—Loew Co. 2,000
e. Cash 940

Accounts Payable—Loew Co. 940

*Note: The debit of $2,940 to Accounts Payable in entry (c) is the amount of cash refund due from Loew Co. It is computed as the amount that was paid for the returned merchandise, $3,000, less the purchase discount of $60 ($3,000 × 2%). The credit to Accounts Payable of $2,000 in entry (d) reduces the debit balance in the account to $940, which is the amount of the cash refund in entry (e). The alternative entries below yield the same final results.

Ex. 5–16

a. $18,000

b. $18,375

c. $540 (3% × $18,000)

d. $17,835
Ex. 5–23

a. At the time of sale

b. $4,000

c. $4,280

d. Sales Tax Payable
Ex. 5–24

a. Accounts Receivable 9,720

Sales 9,000

Sales Tax Payable 720
Cost of Merchandise Sold 6,300

Merchandise Inventory 6,300
b. Sales Tax Payable 9,175

Cash 9,175

Prob. 5–4A

Aug. 1 Merchandise Inventory 8,750

Accounts Payable—Fisher Co. 8,750
5 Merchandise Inventory 10,400

Accounts Payable—Byrd Co. 10,400
10 Accounts Payable—Fisher Co. 8,750

Cash 8,580

Merchandise Inventory 170
13 Merchandise Inventory 7,500

Accounts Payable—Mickle Co. 7,500
14 Accounts Payable—Mickle Co. 2,500

Merchandise Inventory 2,500
18 Merchandise Inventory 10,000

Accounts Payable—Lanning Company 10,000
18 Merchandise Inventory 150

Cash 150
19 Merchandise Inventory 7,500

Accounts Payable—Hatcher Co. 7,500
23 Accounts Payable—Mickle Co. 5,000

Cash 4,950

Merchandise Inventory 50
29 Accounts Payable—Hatcher Co. 7,500

Cash 7,350

Merchandise Inventory 150
31 Accounts Payable—Lanning Company 10,000

Cash 10,000
31 Accounts Payable—Byrd Co. 10,400

Cash 10,400
Prob. 5–6A

1.
June 2 Accounts Receivable—Brandy Company 14,000

Sales 14,000
2 Accounts Receivable—Brandy Company 350

Cash 350
2 Cost of Merchandise Sold 8,000

Merchandise Inventory 8,000
8 Accounts Receivable—Brandy Company 12,500

Sales 12,500
8 Cost of Merchandise Sold 7,500

Merchandise Inventory 7,500
8 Transportation Out 550

Cash 550
12 Sales Returns and Allowances 3,000

Accounts Receivable—Brandy Company 3,000
12 Merchandise Inventory 1,800

Cost of Merchandise Sold 1,800
12 Cash 14,070

Sales Discounts 280

Accounts Receivable—Brandy Company 14,350
23 Cash 9,405

Sales Discounts 95

Accounts Receivable—Brandy Company 9,500
24 Accounts Receivable—Brandy Company 10,000

Sales 10,000
24 Cost of Merchandise Sold 6,000

Merchandise Inventory 6,000
30 Cash 10,000

Accounts Receivable—Brandy Company 10,000
Prob. 5–6A Concluded

2.

June 2 Merchandise Inventory 14,350

Accounts Payable—Schnaps Company 14,350

$14,000 + $350 = $14,350
8 Merchandise Inventory 12,500

Accounts Payable—Schnaps Company 12,500
12 Accounts Payable—Schnaps Company 3,000

Merchandise Inventory 3,000
12 Accounts Payable—Schnaps Company 14,350

Cash 14,070

Merchandise Inventory 280
23 Accounts Payable—Schnaps Company 9,500

Cash 9,405

Merchandise Inventory 95
24 Merchandise Inventory 10,000

Accounts Payable—Schnaps Company 10,000
26 Merchandise Inventory 310

Cash 310
30 Accounts Payable—Schnaps Company 10,000

Cash 10,000
Ex. 5–29

Cost of Merchandise Sold 11,550

Merchandise Inventory 11,550
Appendix Ex. 5–33

Sales 925,000

Income Summary 925,000
Income Summary 847,500

Sales Discounts 20,000

Sales Returns and Allowances 60,000

Cost of Merchandise Sold 560,000

Selling Expenses 120,000

Administrative Expenses 80,000

Interest Expense 7,500
Income Summary 77,500

Retained Earnings 77,500
Retained Earnings 25,000

Dividends 25,000


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