Problems (Group A)

For all problems, assume the perpetual inventory system is used unless stated otherwise. Round all numbers to the nearest whole dollar unless stated otherwise.

P5-31A Journalizing purchase and sale transactionsLearning Objective 3Sep. 10 Cash $3,977

Journalize the following transactions that occurred in September 2016 for Purple Haze, assuming perpetual inventory system is being used. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

SOLUTION

P5-31A, cont

P5-31A, cont

P5-31A, cont

P5-31A, cont

P5-32A Journalizing purchase and sale transactionsLearning Objectives 1, 2, 3Nov. 14 Merch. Inv. $40

Journalize the following transactions that occurred in November 2016 for May’s Adventure Park. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

SOLUTION

Date Accounts and Explanation Debit CreditNov. 4 Merchandise Inventory 8,000

Accounts Payable—Valera Company 8,000

6 Merchandise Inventory 160 Cash 160

8 Accounts Payable—Valera Company 4,000Merchandise Inventory ($8,000 × 0.50) 4,000

10 Cash 1,700Sales Revenue 1,700

Cost of Goods Sold 680Merchandise Inventory 680

11 Accounts Receivable—Garrison Corporation 10,300Sales Revenue 10,300

Cost of Goods Sold 5,150Merchandise Inventory 5,150

12 Delivery Expense 30 Cash 30

13 Accounts Receivable—Cain Company 9,000Sales Revenue 9,000

Cost of Goods Sold 4,500Merchandise Inventory 4,500

14 Accounts Payable—Valera Company ($8,000 – $4,000) 4,000Cash ($4,000 – $40) 3,960Merchandise Inventory ($4,000 × 0.01) 40

16 Sales Returns and Allowances 200Accounts Receivable—Garrison Corporation 200

17 Sales Returns and Allowances 400Accounts Receivable—Cain Company 400

Merchandise Inventory 200Cost of Goods Sold 200

P5-32A, cont.

Nov. 18 Merchandise Inventory 3,700Accounts Payable—Regan Corporation 3,700

20 Cash ($10,100 – $303) 9,797Sales Discounts ($10,100 × 0.03) 303

Accounts Receivable—Garrison Corporation ($10,300 – $200) 10,100

26 Accounts Payable—Regan Corporation 3,700Cash ($3,700 – $74) 3,626Merchandise Inventory ($3,700 × 0.02) 74

28 Cash ($8,600 – $86) 8,514Sales Discounts ($8,600 × 0.01) 86

Accounts Receivable—Cain Company ($9,000 – $400) 8,600

29 Merchandise Inventory 12,000Cash 12,000

Merchandise Inventory 200 Cash 200

P5-33A Preparing a multi-step income statement, journalizing closing entries, and preparing a post-closing trial balanceLearning Objectives 4, 51. Operating Income $59,050

The adjusted trial balance of Big Rita’s Music Company at June 30, 2016, follows:

Requirements1. Prepare Big Rita’s multi-step income statement for the year ended June 30, 2016.2. Journalize Big Rita’s closing entries.3. Prepare a post-closing trial balance as of June 30, 2016.

SOLUTION

Requirement 1

BIG RITA’S MUSIC COMPANYIncome Statement

Year Ended June 30, 2016

Sales Revenue $ 187,000Less: Sales Returns and Allowances 4,500

Sales Discounts 3,500Net Sales Revenue $ 179,000Cost of Goods Sold 84,150Gross Profit 94,850Operating Expenses:

Selling Expenses 18,800Administrative Expenses 17,000Total Operating Expenses 35,800

Operating Income 59,050Other Revenues and (Expenses):

Interest Expense (1,000)Total Other Revenues and (Expenses) (1,000)

Net Income $ 58,050

Requirement 2

Date Accounts and Explanation Debit CreditJun. 30 Sales Revenue 187,000

Income Summary 187,000

30 Income Summary 128,950Sales Returns and Allowances 4,500Sales Discounts 3,500Cost of Goods Sold 84,150Selling Expense 18,800Administrative Expense 17,000Interest Expense 1,000

30 Income Summary 58,050Rita, Capital 58,050

30 Rita, Capital 42,500Rita, Withdrawals 42,500

P5-33A, cont.Requirement 3

BIG RITA’S MUSIC COMPANYPost-Closing Trial Balance

June 30, 2016

Account Title BalanceDebit Credit

Cash $ 3,700Accounts Receivable 38,500Merchandise Inventory 17,100Office Supplies 850Furniture 39,800Accumulated Depreciation—Furniture $ 8,800Accounts Payable 13,100Salaries Payable 800Unearned Revenue 7,400Notes Payable, long-term 15,000Rita, Capital 54,850Total $ 99,950 $ 99,950

P5-34A Journalizing adjusting entries, preparing adjusted trial balance, and preparing financial statementsLearning Objectives 4, 52. Total Credits $482,880

The unadjusted trial balance for Travis Electronics Company at March 31, 2016, follows:

Requirements1. Journalize the adjusting entries using the following data:

a. Interest revenue accrued, $450.b. Salaries (Selling) accrued, $2,500.c. Depreciation expense—Equipment (Administrative), $1,330.d. Interest expense accrued, $1,100.e. A physical count of inventory was completed. The ending Merchandise Inventory should

have a balance of $44,600.2. Prepare Travis Electronics’s adjusted trial balance as of March 31, 2016.3. Prepare Travis Electronics’s multi-step income statement for year ended March 31, 2016.4. Prepare Travis Electronics’s statement of owner’s equity for year ended March 31, 2016.

Assume Travis made no additional contributions during the year.5. Prepare Travis Electronics’s classified balance sheet in report form as of March 31, 2016.

SOLUTION

Requirement 1

Date Accounts and Explanation Debit CreditMar. 31 Interest Receivable 450

Interest Revenue 450

31 Salaries Expense (Selling) 2,500Salaries Payable 2,500

31 Depreciation Expense—Equipment (Administrative) 1,330Accumulated Depreciation—Equipment 1,330

31 Interest Expense 1,100Interest Payable 1,100

31 Cost of Goods Sold 500Merchandise Inventory 500

($45,100 – $44,600)

P5-34A, cont.Requirement 2

TRAVIS ELECTRONICS COMPANYAdjusted Trial Balance

March 31, 2016

Account Title BalanceDebit Credit

Cash $ 3,700Accounts Receivable 33,300Interest Receivable 450Merchandise Inventory 44,600Office Supplies 6,300Equipment 133,000Accumulated Depreciation—Equipment $ 37,930Accounts Payable 16,400Salaries Payable 2,500Interest Payable 1,100Unearned Revenue 13,600Notes Payable, long-term 44,000Travis, Capital 56,900Travis, Withdrawals 21,000Sales Revenue 310,000Interest Revenue 450Sales Returns and Allowances 7,100Sales Discounts 3,000Cost of Goods Sold 171,000Salaries Expense (Selling) 26,500Rent Expense (Selling) 15,000Salaries Expense (Administrative) 5,400Utilities Expense (Administrative) 10,100Depreciation Expense—Equipment (Administrative) 1,330Interest Expense 1,100Total $ 482,880 $ 482,880

P5-34A, cont.Requirement 3

TRAVIS ELECTRONICS COMPANYIncome Statement

Year Ended March 31, 2016

Sales Revenue $ 310,000Less: Sales Returns and Allowances 7,100

Sales Discounts 3,000Net Sales Revenue $ 299,900Cost of Goods Sold 171,000Gross Profit 128,900Operating Expenses:

Selling Expenses:Salaries Expense 26,500Rent Expense 15,000Total Selling Expenses 41,500

Administrative Expenses:Salaries Expense 5,400Utilities Expense 10,100Depreciation Expense—Equipment 1,330Total Administrative Expenses 16,830

Total Operating Expenses 58,330Operating Income 70,570Other Revenues and (Expenses):

Interest Revenue 450Interest Expense (1,100)Total Other Revenues and (Expenses) (650)

Net Income $ 69,920

Requirement 4

TRAVIS ELECTRONICS COMPANYStatement of Owner’s EquityYear Ended March 31, 2016

Travis, Capital, April 1, 2015 $ 56,900Owner contribution 0Net income for the year 69,920

$ 126,820Owner withdrawal (21,000)Travis, Capital, March 31, 2016 $ 105,820

P5-34A, cont.Requirement 5

TRAVIS ELECTRONICS COMPANYBalance Sheet

March 31, 2016

AssetsCurrent Assets: Cash $ 3,700 Accounts Receivable 33,300

Interest Receivable 450Merchandise Inventory 44,600Office Supplies 6,300

Total Current Assets $ 88,350Plant Assets: Equipment $ 133,000 Less: Accumulated Depreciation (37,930) Total Plant Assets 95,070Total Assets $ 183,420

LiabilitiesCurrent Liabilities: Accounts Payable $ 16,400 Salaries Payable 2,500 Interest Payable 1,100 Unearned Revenue 13,600 Total Current Liabilities $ 33,600Long-term Liabilities: Notes Payable 44,000Total Liabilities 77,600

Owner’s EquityTravis, Capital 105,820Total Liabilities and Owner’s Equity $ 183,420

P5-35A Preparing a single-step income statement, preparing a multi-step income statement, and computing the gross profit percentageLearning Objectives 5, 62. Operating Income $80,700

The records of Quality Cut Steak Company list the following selected accounts for the quarter ended April 30, 2016:

Requirements1. Prepare a single-step income statement.2. Prepare a multi-step income statement.3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least

50%. Did Quality Cut achieve this goal? Show your calculations.

SOLUTION

Requirement 1

QUALITY CUT STEAK COMPANYIncome Statement

Quarter Ended April 30, 2016

Revenues:Net Sales Revenue $ 292,000Interest Revenue 500

Total Revenues $ 292,500Expenses:

Cost of Goods Sold 160,600Rent Expense (Selling) 21,400Utilities Expense (Selling) 10,600Delivery Expense (Selling) 3,500Depreciation Expense—Equipment (Administrative) 1,300Utilities Expense (Administrative) 4,300Rent Expense (Administrative) 9,600Interest Expense 1,700

Total Expenses 213,000Net Income $ 79,500

P5-35A, cont.Requirement 2

QUALITY CUT STEAK COMPANYIncome Statement

Quarter Ended April 30, 2016

Sales Revenue $ 306,000Less: Sales Returns and Allowances 8,500

Sales Discounts 5,500Net Sales Revenue $ 292,000Cost of Goods Sold 160,600Gross Profit 131,400Operating Expenses:

Selling Expenses:Rent Expense 21,400Utilities Expense 10,600Delivery Expense 3,500Total Selling Expenses 35,500

Administrative Expenses:Depreciation Expense—Equipment 1,300Utilities Expense 4,300Rent Expense 9,600Total Administrative Expenses 15,200

Total Operating Expenses 50,700Operating Income 80,700Other Revenues and (Expenses):

Interest Revenue 500Interest Expense (1,700)Total Other Revenues and (Expenses) (1,200)

Net Income $ 79,500

Requirement 3

Quality Cut Steak Company did not achieve the goal of a gross profit percentage of 50%, it was only 45%

Net Sales Revenue $ 292,000Less: Cost of Goods Sold 160,600Gross Profit $ 131,400

Gross profit percentage = $131,400 / $292,000 = 45%

P5A-37A Preparing a multi-step income statement and journalizing closing entriesLearning Objective 7Appendix 5A1. Gross Profit $200,200

Travis Department Store uses a periodic inventory system. The adjusted trial balance of Travis Department Store at December 31, 2016, follows:

Requirements1. Prepare Travis Department Store’s multi-step income statement for the year ended

December 31, 2016. Assume ending Merchandise Inventory is $36,500.2. Journalize Travis Department Store’s closing entries.

SOLUTION

Requirement 1

TRAVIS DEPARTMENT STOREIncome Statement

Year Ended December 31, 2016

Sales Revenue $ 387,000Less: Sales Returns and Allowances 6,700

Sales Discounts 4,300Net Sales Revenue $ 376,000Cost of Goods Sold:

Beginning Merchandise Inventory 37,500Purchases $ 294,000Less: Purchase Returns & Allowances 113,000 Purchase Discounts 6,700Net Purchases 174,300Plus: Freight In 500

Net Cost of Purchases 174,800Cost of Goods Available for Sale 212,300Less: Ending Merchandise Inventory 36,500Cost of Goods Sold 175,800

Gross Profit 200,200Operating Expenses:

Selling Expenses 41,900Administrative Expenses 26,500Total Operating Expenses 68,400

Operating Income 131,800Other Revenues and (Expenses):

Interest Expense (3,000)Total Other Revenues and (Expenses) (3,000)

Net Income $ 128,800

P5A-37A, cont.Requirement 2

Date Accounts and Explanation Debit CreditDec. 31 Sales Revenue 387,00

0Purchase Returns and Allowances 113,00

0Purchase Discounts 6,700Merchandise Inventory (ending) 36,500

Income Summary 543,200

31 Income Summary 414,400

Sales Returns and Allowances 6,700Sales Discounts 4,300Purchases 294,000Freight In 500Merchandise Inventory (beginning) 37,500Selling Expense 41,900Administrative Expense 26,500Interest Expense 3,000

31 Income Summary 128,800

Tays, Capital 128,800

31 Tays, Capital 89,500Tays, Withdrawals 89,500