5-1 chapter 5 merchandising operations demonstration problems © 2016 pearson education, inc

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Chapter 5

Merchandising Operations

Demonstration Problems

© 2016 Pearson Education, Inc.

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Progress Fertilizers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.

Demonstration of E5-17

Jan. 2 Purchased inventory of $12,000 on account from Yield Chemical Limited , a chemical importer. Terms were 2/10, n/45, FOB shipping point.

2 Paid freight charges, $900.

10 Returned $1,200 of inventory to Yield Chemicals.

18 Paid Yield Chemicals, less return.

20 Purchased inventory of $8,000 on account from Taylor Chemicals, a chemicals importer. Terms were 3/10, n/EOM, FOB destination.

21 Received a $500 allowance from Taylor for damaged but usable goods.

24 Paid Taylor Chemicals, less allowance and discount.


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Jan. 2 Purchased inventory of $12,000 on account from Yield Chemical Limited , a chemical importer. Terms were 2/10, n/45, FOB shipping point.

Date Accounts and Explanation Debit Credit

Jan. 2 Merchandise Inventory 12,000

Accounts Payable 12,000



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Jan. 2 Paid freight charges, $900.


Jan. 2 Merchandise Inventory 900

Cash 900



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Jan. 10 Returned $1,200 of inventory to Yield Chemicals.


Jan. 10 Accounts Payable 1,200

Merchandise Inventory 1,200



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Jan. 18 Paid Yield Chemicals, less return.


Jan. 18 Accounts Payable ($12,000 − $1,200) 10,800

Cash 10,800



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Jan. 20 Purchased inventory of $8,000 on account from Taylor Chemicals, a chemicals importer. Terms were 3/10, n/EOM, FOB destination.


Jan. 20 Merchandise Inventory 8,000

Accounts Payable 8,000



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Jan. 21 Received a $500 allowance from Taylor for damaged but usable goods.


Jan. 21 Accounts Payable 500

Merchandise Inventory 500



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Jan. 24 Paid Taylor Chemicals, less allowance and discount.


Jan. 24 Accounts Payable ($8,000 − $500) 7,500

Cash ($7,500 − $225) 7,275

Merchandise Inventory ($7,500 × 0.03) 225



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Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.


Sales $90,000 $120,000 $75,000 $ (f)

Sales Returns and Allowances 900 (b) 2,000 1,000

Sales Discounts 500 1,000 600 800

Net Sales 88,600 110,000 (d) (g)

Cost of Goods Sold 60,000 (c) 50,400 85,000

Gross Profit (a) $40,000 (e) $35,000


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Sales $90,000 $120,000 $75,000 $ (f)

Sales Returns and Allowances 900 (b) 2,000 1,000


Net Sales 88,600 110,000 (d) (g)


Gross Profit $28,600 $40,000 (e) $35,000

a. Gross Profit = $28,600 ﴾$88,600 − $60,000﴿



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Sales $90,000 $120,000 $75,000 $ (f)

Sales Returns and Allowances 900 9,000 2,000 1,000


Net Sales 88,600 110,000 (d) (g)


Gross Profit $28,600 $40,000 (e) $35,000

b. Sales Returns and Allowances = $9,000 ﴾$120,000 − $110,000 − $1,000﴿



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Sales $90,000 $120,000 $75,000 $ (f)



Net Sales 88,600 110,000 (d) (g)

Cost of Goods Sold 60,000 70,000 50,400 85,000

Gross Profit $28,600 $40,000 (e) $35,000

c. Cost of Goods Sold = $70,000 ﴾$110,000 − $40,000﴿



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Sales $90,000 $120,000 $75,000 $ (f)



Net Sales 88,600 110,000 72,400 (g)


Gross Profit $28,600 $40,000 (e) $35,000

d. Net Sales = $72,400 ﴾$75,000 − $2,000 − $600﴿



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Sales $90,000 $120,000 $75,000 $ (f)



Net Sales 88,600 110,000 72,400 (g)


Gross Profit $28,600 $40,000 $22,000 $35,000

e. Gross Profit = $22,000 ﴾$72,400 − $50,400﴿



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Sales $90,000 $120,000 $75,000 $ (f)



Net Sales 88,600 110,000 72,400 120,000


Gross Profit $28,600 $40,000 $22,000 $35,000

g. Net Sales = $120,000 ﴾$85,000 + $35,000﴿



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Sales $90,000 $120,000 $75,000 $121,800



Net Sales 88,600 110,000 72,400 120,000


Gross Profit $28,600 $40,000 $22,000 $35,000

f. Sales = $121,800 ﴾$120,000 + $800 + $1,000﴿



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The adjusted trial balance of Leading Business Systems at March 31, 2016, follows:

LEADING BUSINESS SYSTEMSAdjusted Trial Balance

March 31, 2016Balance

Account Title Debit CreditCash $3,000 Accounts Receivable 10,000 Merchandise Inventory 40,000 Office Supplies 7,500 Equipment 45,000 Accumulated Depreciation—Equipment $18,000Accounts Payable 15,000Salaries Payable 2,500Notes Payable, long-term 11,100Common Stock 30,000Retained Earnings 20,000Dividends 55,000 Sales Revenue 300,000Sales Returns and Allowances 3,000 Sales Discounts 2,500 Cost of Goods Sold 180,000 Selling Expense 30,000 Administrative Expense 18,000 Interest Expense 2,600

Total $396,600 $396,600

Demonstration of E5-22, E5-23, & E5-24


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Requirements

E5-22 1. Journalize the required closing entries at March 31, 2016.

2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts and calculate their ending balances.

3. How much was Leading’s net income or net loss?

E5-23 Prepare Leading’s single-step income statement for the year ended March 31, 2016.

E5-24 Prepare Leading’s multi-step income statement for the year ended March 31, 2016.

Demonstration of E5-22, E5-23, & E5-24


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Mar. 31 Sales Revenue 300,000

Income Summary 300,000

Income Summary

300,000 Clos. 1

Demonstration of E5-22-Req. 1 & Req. 2


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Mar. 31 Income Summary 236,100 Sales Returns and Allowances 3,000 Sales Discounts 2,500 Cost of Goods Sold 180,000 Selling Expense 30,000 Administrative Expense 18,000 Interest Expense 2,600

Income Summary

Clos. 2 236,100 300,000 Clos. 1

63,900 Bal.



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Mar. 31 Income Summary 63,900

Retained Earnings 63,900

Income Summary

Clos. 2 236,100 300,000 Clos. 1

63,900 Bal.

Clos. 3 63,900

0 Bal.

Retained Earnings

20,000 Adj. bal.

63,900 Clos. 3



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Mar. 31 Retained Earnings 55,000

Dividends 55,000

Retained Earnings

30,000 Adj. bal.

63,900 Clos. 3

Clos. 4 55,000

28,900 Bal.

Dividends

Adj. bal. 55,000

55,000 Clos.4

Bal. 0



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Sales Revenue 300,000

Sales Returns and Allowances 3,000

Sales Discounts 2,500

Cost of Goods Sold 180,000

Selling Expense 30,000

Administrative Expense 18,000

Interest Expense 2,600

Net Income ═ Revenues − Expenses

Demonstration of E5-22-Req. 3


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═$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿



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═$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿

═ $300,000 − $236,100



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═$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿

═ $300,000 − $236,100

═ $63,900



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LEADING BUSINESS SYSTEMSIncome Statement

Year Ended March 31, 2016Revenues:

Net Sales Revenue $294,500



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Net Sales Revenue $294,500 Expenses:

Cost of Goods Sold $180,000



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Cost of Goods Sold $180,000 Selling Expense 30,000



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Cost of Goods Sold $180,000 Selling Expense 30,000 Administrative Expense 18,000



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Cost of Goods Sold $180,000 Selling Expense 30,000 Administrative Expense 18,000 Interest Expense 2,600



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Total Expenses 230,600



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Total Expenses 230,600 Net Income $63,900



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Year Ended March 31, 2016Sales Revenue $300,000



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Year Ended March 31, 2016Sales Revenue $300,000 Less: Sales Returns and Allowances 2,500



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Sales Discounts 3,000 Net Sales Revenue $294,500



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Sales Discounts 3,000 Net Sales Revenue $294,500 Cost of Goods Sold 180,000



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Sales Discounts 3,000 Net Sales Revenue $294,500 Cost of Goods Sold 180,000 Gross Profit 114,500



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Sales Discounts 3,000 Net Sales Revenue $294,500 Cost of Goods Sold 180,000 Gross Profit 114,500 Operating Expenses:

Selling Expenses 30,000



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Selling Expenses 30,000 Administrative Expenses 18,000



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Total Operating Expenses 48,000



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Total Operating Expenses 48,000 Operating Income 66,500



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Total Operating Expenses 48,000 Operating Income 66,500 Other Revenues and (Expenses):

Interest Expense (2,600)



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Interest Expense (2,600) Total Other Revenues and (Expenses) (2,600)



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Interest Expense (2,600) Total Other Revenues and (Expenses) (2,600)

Net Income $63,900



5-1 chapter 5 merchandising operations demonstration problems © 2016 pearson education, inc

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paid taylor chemicals

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yield chemical limited