FOR NEEL ONLY

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Survey of Accounting, Third Edition

Accountingfor MerchandisingBusnesses 117

Required
Calculate the following:

a. Cost of goods available for sale during the year,
b. Cost of goods sold for the year.
c. Amount of inventory Joe’s would report on the year-end balance sheet.

Exercise 3·19 DetermirrinK cost of goods sold: periodic system (Appendix)
Lane Antiques uses tile periodic inventory system to account for its inventory transactions.
The following account titles and balances were drawn from Lane’s records: beginning balance
in inventory, S24,OOO; purchases, S150,OOO; purchase returns and allowaaces, SIO,ooO; sales,
S400,OOO: sales returns and allowances, $2.500; freight-in, $750; and operating expenses,
S26.000. A physical count indicated that $18,000 of merchandise was on hand at the end of
the

accounting period.

Reqaired
a. Prepare a schedule of cost of goods sold.
b. Prepare a multistep income statement.

Exercise 3·20 Using common size statements ami IYItws to IIUlIce compArisons
At the end of 2012, the following infoenauon is avallable for Chicago and 51. Louis companies:

Sales
Cost of goods sold
Selling and administrative expenses
Totalassets
Stoekholders’ equity

Chicago

SJ.ooo,ooo
1.8011,000

960.000
3,7511.001I
I,OOltoOO

St. Louis

$3,0110
2,100

780
3.150
1,200

Required
a. Prepare common size income statements for each company.
b. One company is a high-end retailer, and the other operates a discount store. Which is the

discounter’! Support your selection by referring to tbe commoa size statements.

PROBLEMS

All applicable ProbleMS are available with McGraw·Hilf.
Connect AcCtluRting.

Problem 3-21 Basic tnuuactwns for thre« Ilccounting cycles: perpetlllll system
Ginger’s Flower Company was started in 2012 when it acquired S80,OOO cash from the issue
of common stock. The following data summarize the c-ompany’s first three years’ operating
activities. Assume that all transactions were cash transactions.

2012 2013 2014

Purchases of inventory $ 6Il.DOO IS 90.000 $130,0110
Sales 102.000 146.000 22.0,0110
Cost of goods sold 54.000 18.000 140,0110
Selling and administrative expenses 40.1100 52.000 72.0110

Required
Prepare an income statement (use multistep format) and balance sheet for each fiscal year.
(Hint: Record the transaction data for each accounting period in the accounting equation
before preparing the statements for that year.)

LOB

L07

connect

L02
CHECKRG ES
2012 Net Income:sa.ooo
2014 Total Assets: $112.1100

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120 ACC201

Chapter 3

L01

CHECK fiGURE
a. Period cost

L03

••HECXAGURf
EventIb): Period -Cost 5300

L02,3

If
C E AG ES
a. Ending Cash:$5II,49Il
b. Net ineome: $13.100

Assets

Problem J.22 Jdmtifying prodllct ami period costs
Rlquired
Indicate whether each of the following COSIS is a product cost or a period (selling and admin-
istrative) cost.

I. Advertising expense,
b. Insurance on vans used to deliver goods to customers,
c. Salaries of sales supervisors.
d. Monthly maintenance expense for a copier.
e. Goods purchased for resale.
r. Cleaning supplies for the office.
R. Freight 011 goods purchased for resale.
b. Salary of the marketing director.
i, Freight on goods sold to customer with terms FOB destination.
j. Utilities expense incurred for office building.

Problem J.23 ldelftifying freig”l costs
Rlquired
For each of the following events, determine the amount of freight paid by The Dive Shop. Also
indicate whether the freight cost would be classified as a product or period (selling and adminis-
trative) cost.

8. Purchased merchandise inventory with freight costs of SI,400. The merchandise ••••.as shipped
FO B destination.

b. Shipped merchandise to customers, freight terms FOB destination. The freight costs were S300.
c. Purchased inventory with freight costs of 5500. The goods were shipped FOB

shipping point.

d. Sold merchandise to a customer. Freight costs were SSOO.The goods were shipped FOB

shipping point.

Problem J.24 Effect of purcJuue reJJmo ami al/owances IUId plITcJuue discounts on
the jiIuuu:iaI statements: perpetrml system

The following events were completed by Chan’s Imports in September 2012.

Sept. I Acquired $60,000 cash from the issue of common stock.
I Purchased $36,000 of merchandise on account with terms 2110, n/3O.
5 Paid SSOOcash for freight to obtain merchandise purchased on September 1.
8 Sold merchandise that cost 520,000 to customers for S38,OOOon account, with terms

2110, nlJO.
8 Returned $1.500 of defective merchandise from the September I purchase to the

supplier.
10 Paid cash fur the balance due on the merchandise purchased on September I.
20 Received cash from customers of September 8 sale in settlement of the account

balances. but not within the discount period.
30 Paid S4,900 cash for selling expenses.

Required
a. Record each event in a statements model like the following one. The first event is recorded as

an example.

Usb. Rev. ~ Exp. Casll FlowNet Inc.
I’

NA NA
Cash + AI:cIs. Rec. + Inv.

OO.OOD +

Accts.I’IV. “” Com. SIll. + ReI. Earn.
+ NA NA – NA 60.000 FANANA

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Survey of Accounting. Third n

Acco.mti 9 fur Merchandsi,-:g 8us:nesses

b. Prepare an income statement for the month endiog September 30.
Co Prepare a statement of cashflows for the month ending September 30.
d. Explain why there is a difference between net ineoroe and cash flow from operating activities,

Problem 3-25 Compre/um!liw! cycle problem: PerpetJUd system
At the beginning of 2012, the Jeater Company had the following balances in its accounts:

La 2.3.5.8
C ECI( fIG
c. Net Income: SI.500

Total Assets:S14.BOOCaSh
Inventory
Common stock
Reta ined earnings

s 4.300
9,000

10))00
3,300

JC

During 20 12. the company experienced the fonawing events.

l. Purchased inventory that cost S2,200 on account from Blue Company under terms 1/10, n/3O.
The merchandise was delivered FOB shipping point. Freight costs of SilO were paid ill cash.

2. Returned S200 of the inventol)’ that it had purchased because the inventory was damaged in
transit. The freight company agreed to pay the return freight cost.

3. Paid the amount due on its account payable to Blue Company within the cash discount period.
4. Sold inventory that had COSt S3,OOOfor S5,300 on account, under terms 2/10, n/45.
S. Received merchandise returned from a customer. The merchandise originally cost $400 and

was sold to the customer for Si 10 cash during the previous accounting period. The customer
was paid S710 cash for the ret urned merchandise.

6. Delivered goods FOB destination in event 4. Freight costs of S60 were paid in cash.
7. Collected the amount due 011 the account receivable within the discount period.
8. Took a physical count indicating that S7,970 of inventory was on hand at the end of the

accounting period.

Required
a. Identify these events as asset source (AS), asset use (Au), asset exchange (AE), or claims

exchange (CE).
b. Record each even! in a statements model ~ the following one.

Balaoca Sheet Income Statement————-~ Statement of
CasbFlows

Usb.Event Assets Equity Rev. – Exp. = Net Inc.

CasII ‘” Acetl. Ree. + Mdse.lnv. Acots. Pay. ‘” Ret. Earn.

c. Prepare an income statement, a staremeut of changes in stockholders’ equity, a balance
sheet, and a statement of cash Jlow-s.

Problem 3-26 Using common size income statemelltl to tnIlke compariJonl
The following income statements were drawn from the annual reports of Pierro Sales Company.

L07

21112″
5520.600
(389.600)
151.000

21113″
S580.500
(401.500)
119.001

Net sales
Cost o’ goodsaold
Gross margin
Less: Operating expense

Sellng and administratiVe exPenses
Net income

“All d~lif amo nlS B’.lepolia

The president’s message in the companys annual report stated that the company had imple-
mented a strategy to increase J::I.alht shan b> spending more on advertising. The president
Indicated that prioes held steady and saIt:s grtw as expected. Write a memo indicating whether
you agree with the president’s SlalemeDlS. ROIi has the strategy affected profitability’! Support
your ans .•••.er by ~ ~~ in sales and selling expenses. Also prepare common size
income statements and na.be appro’ rd”ereoces to the differences between 2012 and 2013.

Prohlam 3-27 ~ • ~ of cost of goods wid tUUl _/tinep ami
siltxk-nq . JUrI~c Periodic :I}’5tf!lll (Appendix)

The following account titles Yi’ere taken from the adjusted trial balance of Brisco
Farm Co. for 20 12. The the perioC.ic inventory system.

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122 ACC201

120 Chap:=3

LOS,S

C RGUIIES
a. Cost of Goods Available fO(

Sale: S48.675
b. Net Income:555,000

LOS

Jf
CHECK fiGURES
a. Ending Cash: S7D.524
b. Cost 01 Goods Sold: $94,876

Balance

$ 3.250
400
700

69.1511
2.750
!troD
l.n5

42,000
360

6.200
5,000
4,050
1.250
3.400

710

~~=::::.JanU8ry 1
~ • December31
PlII-:t;lSI!n!II”””sand allowances

Required
I, Prepare a 5d::af*rc ‘as=~e Ule amount of cost of goods sold.
b. Prepare a 1.
c. Prepare a t,

Problem3-211 qcY problem: Periodic system (Appendix)
The foll

Beginning Balances

$26.000
4.000

511.000
4,DOO

43.000

~
$80.000

reaivable
IS8inventory
payable

stock
eamngs

$

The fo·Do”~~~lI:5oa:.:1red in 2012. Assume that ~ate’s uses the periodic inventory method.
1, ..000cash.

2. on account for 596,000, terms 1/10 nf45.
3. PaX! cash on merchandise purchased FOB shipping poiru.
4. ecuve merchandise purchased in Event 2.
5. br 586.000cash.
6. account for S90,000’terms 2/10 nj30.
7. discount period on accounts payable due on merchandise purchased in
E