Chapter 6 Accounting for

Merchandising Activities

Questions

1. WestJet is not a merchandiser since its main source of revenue is through the sale of
services and not generated by the sale of merchandise inventory.
2. The calculation of the cost of goods sold is not provided.
3. Additional accounts of a merchandising company include Merchandise Inventory, Sales,
Cost of Goods Sold, Sales Discounts, and Sales Returns and Allowances.
4. Only merchandising companies present merchandise inventory on the balance sheet.
Only merchandising companies present sales and cost of goods sold on the income
statement.
5. A company can have a net loss if its operating expenses are greater than its gross profit
from sales of merchandise.
6. Cash discounts are granted in return for early payment and reduce the amount paid
below the negotiated price. Trade discounts are deducted from the list or catalogue
price to determine the purchase price. Trade discounts are not recorded in the
accounting records.
7. A company’s manager should be concerned about the quantity of its purchase returns
because the company incurs costs in receiving, inspecting, identifying, and returning
the merchandise. Therefore, more returns create more expenses. By knowing more
about the returns, the manager can decide if they are a problem.
8. Leon’s should attempt to negotiate the shipping terms to FOB destination. Title will pass
after the goods are safely delivered to his store and transportation charges will be the
responsibility of the vendor he is buying from.
9. The sender of a debit memorandum records a debit and the recipient records a credit.
10. Sales discount is a term used by a seller to describe a cash discount granted to a
customer. Purchase discount is a term used by a purchaser to describe a cash discount
received from a supplier.
11. A cash discount would be offered to encourage customers to pay promptly, which
provides the cash more quickly to the seller and avoids the costs of additional billing.

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Solutions Manual for Chapter 6 435
 12. In today’s business world, organizations must concentrate on meeting their customers’
needs and avoiding the possibility of their dissatisfaction. If the needs aren’t met and
dissatisfaction grows, the customers will deal with other companies or entities.

One measure of the dissatisfaction of a merchandiser’s customers is the amount of

sold goods that are later returned by those customers. Their dissatisfaction needs to
be understood and then dealt with promptly to encourage them to remain loyal to the
company. The reasons for the return also need to be determined to allow the problem
to be avoided in the future. For example, the returns might arise from product defects,
shipping damage, misleading information provided at the time of sale, or fickle
customers.

An important early step in controlling returns is to have information about their dollar
amount. In addition, managers can set goals for reducing the dollar amount of sales
returns. Both purposes can be helped by having the company’s accounting system
record the sales value of returned goods in a separate contra account instead of the
Sales account. Although this information can be gathered in other ways, this approach
captures the information at the time of the return and allows it to be easily reported.

Although a company’s sales return record can be highly important for managers, there
is relatively little value in the information for external decision makers because they are
not concerned with day-to-day operating details. Although management might choose
to report the amount of sales returns as evidence of the effectiveness of a program to
reduce them, their amount is virtually never reported in financial statements provided
to investors, creditors, and other external users.
13. Inventory shrinkage is determined by taking a physical count of the inventory on hand
and comparing the cost of that inventory with the amount recorded in the Merchandise
Inventory account.
14. The single-step format presents the cost of goods sold and operating expenses in one
list, totals the list, and subtracts the total from net sales in one step. The multiple-step
format presents intermediate totals, including gross profit (the difference between net
sales and cost of goods sold).

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436 Fundamental Accounting Principles, Twelfth Canadian Edition
QUICK STUDY

Quick Study 6-1

A B C D E
Net sales............................$14,000 $102,000 $68,000 $540,000 $398,000
Cost of goods sold............. 8,000 64,000 31,000 320,000 215,000
Gross profit from sales....$ 6,000 $ 38,000 $37,000 $220,000 $183,000
Operating expenses.......... 9,000 31,000 22,000 261,000 106,000
Net income (loss)..............$ (3,000) $ 7,000 $15,000 $(41,000) $ 77,000

Quick Study 6-2

a. Periodic AND perpetual inventory systems
b. Perpetual inventory systems
c. Perpetual inventory systems
d. Periodic inventory systems
e. Perpetual inventory systems

Quick Study 6-3

a. This information reflects a perpetual inventory system.
150 + 340 – 60 = 430 Cost of Goods Sold (credit to Merchandise Inventory
and
debit to Cost of Goods Sold)

b. This information reflects a periodic inventory system.

150 + 340 – 60 = 430 Cost of Goods Sold

Quick Study 6-4

a. This information reflects a periodic inventory system.
170 + 700 – 120 = 750 Cost of goods sold

b. This information reflects a perpetual inventory system.

200 + 1,000 – 75 = 1,125 Cost of Goods Sold

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Solutions Manual for Chapter 6 437
Quick Study 6-5
May 1 Merchandise Inventory..................................... 1,200
Accounts Payable....................................... 1,200
To record purchase of merchandise; terms
1/10, n30.

1 Accounts Payable............................................... 1,200

4
Cash............................................................. 1,200
To record payment of credit purchase.

1 Merchandise Inventory..................................... 3,000

5
Accounts Payable....................................... 3,000
To record purchase of merchandise; terms
2/15, n30.

3 Accounts Payable............................................... 3,000

0
Merchandise Inventory.............................. 60
Cash............................................................. 2,940
To record payment of credit purchase within
discount period; $3,000 x 2% = $60
discount.

Quick Study 6-6

Aug. 2 Merchandise Inventory..................................... 14,000
Accounts Payable....................................... 14,000
To record purchase of merchandise; terms
1/5,
n15.

4 Accounts Payable............................................... 1,500

Merchandise Inventory.............................. 1,500
To record allowance regarding August 2
credit
purchase.

1 Accounts Payable............................................... 12,500

7
Cash............................................................. 12,500
To record payment of credit purchase less
allowance; 14,000 – 1,500 = 12,500.

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438 Fundamental Accounting Principles, Twelfth Canadian Edition
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 439
Quick Study 6-7
Mar. 5 Merchandise Inventory ............................... 2,000
Accounts Payable ................................. 2,000
(500  $5) × 80% = $2,000
7 Accounts Payable ........................................ 200
Merchandise Inventory ........................ 200
(50/500) × $2,000 = $200
15 Accounts Payable ........................................ 1,800
Cash ....................................................... 1,764
Merchandise Inventory ........................ 36
$2,000 - $200 = $1,800;
$1,800 – ($1,800 × 2%) = $1,764

Quick Study 6-8

Sept. 1 Accounts Receivable – JenAir.......................... 6,000
Sales............................................................. 6,000
To record sale; terms 2/10, n30.

1 Cost of Goods Sold............................................ 4,200

Merchandise Inventory.............................. 4,200
To record cost of sales.

1 Cash.................................................................... 6,000
4
Accounts Receivable – JenAir................... 6,000
To record collection from credit customer.

1 Accounts Receivable – Dennis Leval............... 1,800

5
Sales............................................................. 1,800
To record sale; terms 2/10, n30.

1 Cost of Goods Sold............................................ 1,500

5
Merchandise Inventory.............................. 1,500
To record cost of sales.

2 Cash.................................................................... 1,764
5
Sales Discounts................................................... 36
Accounts Receivable – Dennis Leval........ 1,800
To record collection within discount period;
$1,800 x 2% = $36 discount.

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440 Fundamental Accounting Principles, Twelfth Canadian Edition
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
Solutions Manual for Chapter 6 441
Quick Study 6-9
Oct. 1 Accounts Receivable – Leslie Garth................ 900
5
Sales............................................................. 900
To record sale; terms 1/5, n20.

1 Cost of Goods Sold............................................ 600

5
Merchandise Inventory.............................. 600
To record cost of sales.

1 Sales Returns and Allowances.......................... 100

6
Accounts Receivable – Leslie Garth......... 100
To record allowance.

2 Cash.................................................................... 800
5
Accounts Receivable – Leslie Garth......... 800
To record collection; 900 – 100 = 800.

Quick Study 6-10

Apr. 1 Accounts Receivable ................................... 2,000
Sales ....................................................... 2,000
To record credit sale.
1 Cost of Goods Sold ...................................... 1,400
Merchandise Inventory ........................ 1,400
To record cost of sale.
4 Sales Returns and Allowances.................... 500
Accounts Receivable ............................. 500
To record sales return.
4 Merchandise Inventory ............................... 350
Cost of Goods Sold ............................... 350
To restore goods to inventory.
11 Cash .............................................................. 1,470
Sales Discounts ............................................ 30
Accounts Receivable.............................. 1,500
To record payment on account;
$2,000 – $500 = $1,500; $1,500 × 98% = $1,470.

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442 Fundamental Accounting Principles, Twelfth Canadian Edition
Quick Study 6-11
(a) (b) (c) (d)
Sales .................................................. $130,000 $512,000 $35,700 $245,700
Sales discounts ................................. (4,200) (16,500) (400) (3,500)
Sales returns and allowances.......... (17,000) (5,000) (5,000) (700)
Net sales ........................................... $108,800 $490,500 $30,300 $241,500
Cost of goods sold ............................ (76,600) (326,700) (21,300) (125,900)
Gross profit from sales.................... $ 32,200 $163,800 $ 9,000 $115,600
Gross profit ratio..............................29.60%1 33.39%2 29.70%3
47.87%4

Gross profit ratio calculations*:

1. ($32,200/$108,800) x 100 = 29.60%
2. ($163,800/$490,500)) x 100 = 33.39%
3. ($9,000/$30,300) x 100 = 29.70%
4. ($115,600/$241,500) x 100 = 47.87%
*rounded to two decimal places

Quick Study 6-12

July 31 Cost of Goods Sold ...................................... 1,900
Merchandise Inventory ........................ 1,900
$34,800 – $32,900 = $1,900

Gross profit from sales = Net sales – Cost of goods sold

= (157,200 – 1,700 – 3,500) – (102,000 + 1,900)
= 152,000 – 103,900
= 48,100

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Solutions Manual for Chapter 6 443
Quick Study 6-13
a. Classified Multi-Step Income Statement
JETCO
Income Statement
For Year Ended December 31, 2011
Sales......................................................................... $10
0
Less: Sales discounts............................................. 4
Net sales................................................................... $
96
Cost of goods sold................................................... 60
Gross profit from sales........................................... $
36
Operating expenses:
 Selling expenses:
  Salessalaries expense........................................... $ 15
  Advertising expense.............................................. 6
  Totalselling expenses........................................... $ 21
 General and administrative expenses:
Office salaries expense.................................... $ 10
Office supplies expense................................... 3
Total general and administrative expenses... 13
 Total operating expenses...................................... 34
Income from operations......................................... $ 2
Other revenues/expenses:
Interest revenue................................................. 5
Net income............................................................... $ 7

b. Single-Step Income Statement

JETCO
Income Statement
For Year Ended December 31, 2011
Revenues:
Net sales.............................................................. $ 96
Interest revenue................................................. 5
Total revenues................................................... $101
Expenses:
Cost of goods sold.............................................. $ 60
Selling expenses................................................. 21
General and administrative expenses.............. 13
 Total expenses....................................................... 94
Net income............................................................... $ 7
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444 Fundamental Accounting Principles, Twelfth Canadian Edition
Quick Study 6-14
($248,000 – $114,080)/$248,000 = 0.54 or 54%

This means that Willaby realizes a gross margin of 54¢ for each $1 of sales.
Willaby’s gross profit ratio of 54% is favourable in comparison to the industry
average of 53%, or 53¢ for each $1 of sales.

Quick Study 6-15

Dec. 31 Sales .............................................................. 70
Income Summary.................................. 70
To close Sales.
31 Income Summary ........................................ 41
Sales Discounts ..................................... 3
Sales Returns and Allowances ............. 4
Cost of Goods Sold................................ 25
Amortization Expense .......................... 2
Advertising Expense ............................. 7
To close income statement accounts with
debit balances.

31 Income Summary ........................................ 29

Tony Ingram, Capital........................... 29
To close income summary account to capital.
31 Tony Ingram, Capital ................................. 1
Tony Ingram, Withdrawals.................. 1
To close withdrawals account to capital.

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Solutions Manual for Chapter 6 445
*Quick Study 6-16
a. QS6-5 – Periodic
May 1 Purchases............................................................ 1,200
Accounts Payable....................................... 1,200
To record purchase; terms 1/10, n30.

1 Accounts Payable............................................... 1,200

4
Cash............................................................. 1,200
To record payment of credit purchase.

1 Purchases............................................................ 3,000
5
Accounts Payable....................................... 3,000
To record purchase; terms 2/15, n30.

3 Accounts Payable............................................... 3,000

0
Purchase Discounts.................................... 60
Cash............................................................. 2,940
To record payment within discount period;
$3,000 x 2% = $60 discount.
b. QS6-6 – Periodic
Aug. 2 Purchases............................................................ 14,000
Accounts Payable....................................... 14,000
To record purchase; terms 1/5, n15.

4 Accounts Payable............................................... 1,500

Purchase Returns and Allowances........... 1,500
To record allowance.

1 Accounts Payable............................................... 12,500

7
Cash............................................................. 12,500
To record payment less allowance.

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446 Fundamental Accounting Principles, Twelfth Canadian Edition
*Quick Study 6-16 (concluded)
c. QS6-7 - Periodic
5 Purchases............................................................ 2,000
Mar.
 Accounts Payable........................................ 2,000
 (500× $5) × 80% = $2,000
7 Accounts Payable............................................... 200
 Purchase Returns and Allowances.............. 200
 (50/500) × $2,000 = $200
1 Accounts Payable............................................... 1,800
5
 Cash.............................................................. 1,764
 Purchase Discounts..................................... 36
 $1,800 – ($1,800 × 2%) = $1,764

*Quick Study 6-17

a. QS6-8 - Periodic
Sept. 1 Accounts Receivable – JenAir.......................... 6,000
Sales............................................................. 6,000
To record sale; terms 2/10, n30.

1 Cash.................................................................... 6,000
4
Accounts Receivable – JenAir................... 6,000
To record collection from credit customer.

1 Accounts Receivable – Dennis Leval............... 1,800

5
Sales............................................................. 1,800
To record sale; terms 2/10, n30.

2 Cash.................................................................... 1,764
5
Sales Discounts................................................... 36
Accounts Receivable – Dennis Leval........ 1,800
To record collection within discount period;
$1,800 x 2% = $36 discount.

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Solutions Manual for Chapter 6 447
*Quick Study 6-17 (concluded)
b. QS6-9 - Periodic
Oct. 15 Accounts Receivable – Leslie Garth.................. 900
 Sales................................................................ 900
 Torecord sale; terms 1/5, n20.

16 Sales Returns and Allowances........................... 100

 Accounts Receivable – Leslie Garth............ 100
 Torecord sales allowance.

25 Cash...................................................................... 800
 Accounts Receivable – Leslie Garth............ 800
 Torecord payment less allowance.

c. QS6-10 - Periodic
Apr. 1 Accounts Receivable........................................... 2,000
 Sales................................................................ 2,000
 Torecord sale; terms 2,10, EOM.

4 Sales Returns and Allowances........................... 500

 Accounts Receivable..................................... 500
 Torecord sales return; returned to inventory.

11 Cash...................................................................... 1,470
Sales Discounts.................................................... 30
 Accounts Receivable..................................... 1,500
 Torecord payment less return and discount.

*Quick Study 6-18

Merchandise inventory, January 1, 2011........................ $ 40,000
Purchases........................................................................... $180,000
Less: Purchase discounts................................................. 1,400
Add: Transportation-in................................................... 14,000
Net Purchases.................................................................... 192,600
Cost of Goods Available for Sale..................................... $232,600
Less: Merchandise inventory, December 31, 2011....... 22,000
Cost of Goods Sold............................................................ $210,600

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448 Fundamental Accounting Principles, Twelfth Canadian Edition
*Quick Study 6-19
Dec 31 Sales...................................................................... 450,000
Purchase Discounts............................................. 1,400
Merchandise Inventory...................................... 22,000
 Income Summary.......................................... 473,400
 Toclose all credit balance temporary accounts.

31 Income Summary................................................ 412,000

 Merchandise Inventory................................ 40,000
 Sales Returns and Allowances..................... 27,000
 Purchases....................................................... 180,000
 Transportation-In......................................... 14,000
 Salaries Expense........................................... 120,000
 Amortization Expense.................................. 31,000
 Toclose all debit balance temporary accounts.

31 Income Summary................................................ 61,400

 KayBondar, Capital..................................... 61,400
 Toclose the income summary to capital.

31 Kay Bondar, Capital........................................... 65,000

 KayBondar, Withdrawals........................... 65,000
 Toclose the withdrawals account to capital.

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Solutions Manual for Chapter 6 449
*Quick Study 6-20
a b c d
Sales................................................... $ $ $ $
130,000  512,000  35,700  245,700 
Sales discounts.................................. (4,200) (16,500) (400) (3,500)
Net Sales............................................ $125,800 $495,500 $35,300  $242,200 
       
Merchandise inventory, Jan. 1, 2011 8,000  21,000  1,500  4,300 
Purchases.......................................... 120,000  350,000  29,000  131,000 
Purchase returns and allowances.... (4,000) (14,000) (750) (3,100)
Cost of goods available for sale....... $ 124,000  $ $ $
357,000  29,750  132,200 
Merchandise inventory, Dec. 31, (7,500) (22,000) (900) (4,100)
2011....................................................
Cost of goods sold............................. 116,500  335,000  28,850  128,100 
       
Gross profit from sales..................... $ 9,300  $160,500  $ 6,450  $114,100 
Gross profit ratio.............................. 7.39%1 32.39%2 18.27%3 47.11%4

Calculations*:
1. 9,300/125,800 x 100 = 7.39%
2. 160,500/495,500 x 100 = 32.39%
3. 6,450/35,300 x 100 = 18.27%
4. 114,100/242,200 x 100 = 47.11%
*Rounded to two decimal places

*Quick Study 6-21

Mar. 1 Merchandise Inventory ................................ 5,000

GST Receivable ............................................. 300
Accounts Payable ................................... 5,300
To record credit purchase; $5,000 x 6% = 300 GST.

*Quick Study 6-22

Mar. 17 Accounts Receivable ..................................... 6,696

PST Payable ............................................ 348
GST Payable ........................................... 348
Sales ......................................................... 5,800
To record credit sale; $5,800 x 6% = 348 PST;
$5,800 x 6% = $348 GST.
17 Cost of Goods Sold......................................... 5,000
Merchandise Inventory ......................... 5,000
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450 Fundamental Accounting Principles, Twelfth Canadian Edition
 To record cost of sale.

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Solutions Manual for Chapter 6 451
*Quick Study 6-23

Mar. 1 Purchases ..................................................... 5,000

GST Receivable ........................................... 300
Accounts Payable ................................. 5,300
To record credit purchase; $5,000 x 6% = 300 GST.
*Quick Study 6-24

Mar. 17 Accounts Receivable ................................... 6,696

PST Payable .......................................... 348
GST Payable ......................................... 348
Sales ....................................................... 5,800
To record credit sale; $5,800 x 6% = 348 PST;
$5,800 x 6% = $348 GST.

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452 Fundamental Accounting Principles, Twelfth Canadian Edition
EXERCISES

Exercise 6-1 (15 minutes)

a b c d e
Sales..............................................
$ 240,000 $ 140,000 $ 75,000 $462,000 $85,000
Cost of goods sold........................ 126,000 86,000 42,000 268,000 46,000
Gross profit from sales............... $ 114,000 $ 54,000 $33,000 $194,000 $ 39,000
Operating expenses..................... 95,000 82,000 41,000 146,000 53,000
Net Income (Loss)....................... $ 19,000 $ ($ 8,000) $ 48,000 ($ 14,000)
(28,000)

Exercise 6-2 (25 minutes)

Feb. 1 Merchandise Inventory..................................... 7,000
Accounts Payable....................................... 7,000
To record purchase; terms 1/10, n30.

5 Merchandise Inventory..................................... 2,400

Cash............................................................. 2,400
To record purchase for cash.

6 Merchandise Inventory..................................... 10,000

Accounts Payable....................................... 10,000
To record purchase; terms 2/15, n45.

9 Office Supplies................................................... 900

Accounts Payable....................................... 900
To record purchase; n15.

1 No entry.
0

1 Accounts Payable............................................... 7,000

1
Cash............................................................. 6,930
Merchandise Inventory.............................. 70
To record payment within discount period;
$7,000 x 1% = $70 discount.

2 Accounts Payable............................................... 900

4
Cash............................................................. 900
To record payment.

Mar. 2 Accounts Payable............................................... 10,000

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Solutions Manual for Chapter 6 453
 3
Cash............................................................. 10,000
To record payment.

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454 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-3 (30 minutes)
2011
Mar. 2 Merchandise Inventory ............................... 3,600
Accounts Payable — Blanton Company
3,600
Purchased merchandise on credit.

3 Merchandise Inventory ............................... 200

Cash........................................................ 200
Paid shipping charges on purchased
merchandise.

4 Accounts Payable — Blanton Company... 600

Merchandise Inventory ........................ 600
Returned unacceptable merchandise.

17 Accounts Payable — Blanton Company.... 3,000

Merchandise Inventory......................... 60
Cash........................................................ 2,940
Paid balance within the discount period;
3,600 – 600 = 3,000; 3,000 x 2% = 60.

18 Merchandise Inventory ............................... 7,500

Accounts Payable — Fleming Corp..... 7,500
Purchased merchandise on credit.

21 Accounts Payable — Fleming Corp............ 2,100

Merchandise Inventory ........................ 2,100
Received an allowance on purchase.

28 Accounts Payable — Fleming Corp............ 5,400

Merchandise Inventory......................... 108
Cash........................................................ 5,292
Paid balance within the discount period;
7,500 – 2,100 = 5,400; 5,400 x 2% = 108.

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Solutions Manual for Chapter 6 455
Exercise 6-4 (25 minutes)
Jan. 5 Accounts Receivable.......................................... 4,000
Sales............................................................. 4,000
To record sale; terms 1/10, n30.

5 Cost of Goods Sold............................................ 3,200

Merchandise Inventory.............................. 3,200
To record cost of sales.

7 Cash.................................................................... 3,600
Sales............................................................. 3,600
To record cash sale.

7 Cost of Goods Sold............................................ 3,000

Merchandise Inventory.............................. 3,000
To record cost of sales.

8 Accounts Receivable.......................................... 9,600

Sales............................................................. 9,600
To record sale; terms 1/10, n30.

8 Cost of Goods Sold............................................ 8,200

Merchandise Inventory.............................. 8,200
To record cost of sales.

1 Cash.................................................................... 3,960
5
Sales Discounts................................................... 40
Accounts Receivable................................... 4,000
To record collection within discount period;
$4,000 x 1% = $40 discount.

Feb. 4 Cash.................................................................... 9,600

Accounts Receivable................................... 9,600
To record collection.

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456 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-5 (30 minutes)
Feb. 1 Accounts Receivable.......................................... 2,400
Sales............................................................. 2,400
To record sale; terms 2/10, n30, FOB
destination.
1 Cost of Goods Sold............................................ 2,000
Merchandise Inventory.............................. 2,000
To record cost of sales.
2 Delivery Expense or Freight-Out..................... 150
Cash............................................................. 150
To record delivery expenses for goods sold.
3 Sales Returns and Allowances.......................... 1,200
Accounts Receivable................................... 1,200
To record return of merchandise.
3 Merchandise Inventory..................................... 1,000
Cost of Goods Sold..................................... 1,000
To return merchandise to inventory.
4 Accounts Receivable.......................................... 3,800
Sales............................................................. 3,800
To record sale; terms 2/10, n30, FOB
destination.
4 Cost of Goods Sold............................................ 3,100
Merchandise Inventory.............................. 3,100
To record cost of sales.
1 Cash.................................................................... 1,176
1
Sales Discounts................................................... 24
Accounts Receivable................................... 1,200
To record collection, less return and discount;
$2,400 - $1,200 = $1,200 x 2% = $24 discount.
2 Cash.................................................................... 1,200
3
Sales............................................................. 1,200
To record cash sale.
2 Cost of Goods Sold............................................ 950
3
Merchandise Inventory.............................. 950

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Solutions Manual for Chapter 6 457
 To record cost of sales.
2 Cash.................................................................... 3,800
8
Accounts Receivable................................... 3,800
To record collection.

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458 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-6 (30 minutes)
a.
Mar. 1 Merchandise Inventory ....................................... 11,000
Accounts Payable - Raintree........................... 11,000
Purchased merchandise on credit.

11 Accounts Payable - Raintree................................ 11,000

Merchandise Inventory................................... 330
Cash.................................................................. 10,670
Paid account payable within the discount period;
11,000 x 3% = 330.

b.
Mar. 1 Accounts Receivable – Sundown Company........ 11,000
Sales.................................................................. 11,000
Sold merchandise on account.

1 Cost of Goods Sold ............................................... 7,500

Merchandise Inventory .................................. 7,500
To record cost of sale.

11 Cash....................................................................... 10,670
Sales Discounts...................................................... 330
Accounts Receivable – Sundown Company. . 11,000
Collected account receivable.

Analysis component:

Amount borrowed to pay the balance owing.............. $10,670.00

Annual rate of interest .................................................       × 8%
Interest per year............................................................ $ 853.60

Interest per day ($853.60/365)...................................... $ 2.34

Discount taken............................................................... $ 330.00

Interest paid on the 50-day* loan (50  $2.34)............ (117.00)
Net savings from borrowing to pay within
the discount period..................................................... $ 213.00

*60 days in credit period – 10 days in discount period = 50 days.

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Solutions Manual for Chapter 6 459
Exercise 6-7 (25 minutes)
a.
2011
May 11 Merchandise Inventory ............................... 30,000
Accounts Payable – Hostel Sales.......... 30,000
Purchased merchandise on credit.

11 Merchandise Inventory ............................... 335

Cash........................................................ 335
Paid shipping charges on purchased
merchandise.

12 Accounts Payable – Hostel Sales.................... 1,200

Merchandise Inventory ........................... 1,200
Returned unacceptable merchandise.

20 Accounts Payable – Hostel Sales.................... 28,800

Merchandise Inventory............................ 864
Cash........................................................... 27,936
Paid balance within the discount period;
30,000 – 1,200 = 28,800; 28,800 x 3% = 864.

b.
2011
May 11 Accounts Receivable – Wilson Purchasing.... 30,000
Sales........................................................... 30,000
Sold merchandise on account.

11 Cost of Goods Sold........................................... 20,000

Merchandise Inventory............................ 20,000
To record cost of sale.

12 Sales Returns and Allowances........................ 1,200

Accounts Receivable – Wilson Purchasing
1,200
Accepted a return from a customer.

12 Merchandise Inventory .................................. 800

Cost of Goods Sold.................................... 800
Returned goods to inventory.

21 Cash.................................................................. 27,936
Sales Discounts................................................. 864

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460 Fundamental Accounting Principles, Twelfth Canadian Edition
 Accounts Receivable – Wilson Purchasing
28,800
Collected account receivable;
30,000 – 12,000 = 28,800; 28,800 x 3% = 864.

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Solutions Manual for Chapter 6 461
Exercise 6-7 (concluded)
Analysis Component

Amount borrowed to pay the amount owing............. $27,936.00

Annual rate of interest ................................................        × 5%
Interest per year........................................................... $ 1,396.80

Interest per day ($1,396.80/365)................................. $ 3.83

Discount taken.............................................................. $ 864.00

Interest paid on the 80-day* loan (80  $3.83).......... (306.40)
Net savings from borrowing to pay within
the discount period................................................. $ 557.60

*90 days in credit period – 10 days in discount period = 80 days.

Exercise 6-8 (10 minutes)

1.   d.  6. e.
2.   c.  7. j.
3.   f.  8. i.
4.   a.  9. b.
5.   h.  10. g.

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462 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-9 (30 minutes)

Merchandise Inventory
Balance, Dec. 31, 2010 ....... 37,000 Purchase discounts received.. 1,600
Invoice cost of purchases.... 190,500 Purchase returns and
Returns by customers ........ 2,200 allowances received ............ 4,100
Transportation-in .............. 1,900 Cost of sales transactions ...... 186,000
Shrinkage ............................... 32,000
Balance, Dec. 31, 2011........ 7,900

Cost of Goods Sold

Represents all entries to Represents all entries to record
record the cost component merchandise returned
of sales transactions........... 186,000 by customers and restored to 2,200
inventory during 2011
Inventory shrinkage
recorded in December 31,
2011, adjusting entry.......... 32,000
Balance ............................... 215,800

Analysis component:
The shrinkage was $32,000. The cost of merchandise actually sold to customers
was $186,000. The cost of goods sold was $215,800. Shrinkage therefore was 17%
of the actual cost of merchandise sold ($32,000/$186,000 × 100) or 15% of the total
cost of goods sold ($32,000/$215,800 × 100). As the inventory manager, I would
want to know the cause of this significant shrinkage. Is it breakage or spoilage
that can be controlled? Is it theft caused by weak internal controls? Reviewing
the numbers allows the inventory manager to ask appropriate questions for the
purpose of making good decisions.

Exercise 6-10 (10 minutes)

a) 500,000 – 17,000 – 3,000 = 480,000 net sales
b) 28,000 + 124,000 = 152,000 total operating expenses
c) 480,000 – 124,000 = 356,000 cost of goods sold
d) (124,000/480,000) × 100 = 25.83%

Analysis component:

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Solutions Manual for Chapter 6 463
The change in the gross profit ratio for the year ended May 31, 2010 was 2.83%
(from 23% to 25.83%). This is a favourable change because Westlawn is
generating more gross profit per sales dollar that will contribute towards the
covering of operating expenses.

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464 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-11 (30 minutes)
Company A Company B
2011 2010 2011 2010
256,00 160,00 110,00
Sales............................................... 0 0 0 50,000
Sales discounts.............................. 2,560 1,600 1,100 500
Sales returns and
allowances..................................... 51,200 16,000 5,500 2,500
202,24 142,40 103,40
Net sales........................................ 0 0 0 47,000
153,60
Cost of goods sold......................... 0 88,000 55,000 25,000
Gross profit from sales................ 48,640 54,400 48,400 22,000
Selling expenses............................ 17,920 16,000 24,200 9,000
Administrative expenses.............. 25,600 24,000 29,700 11,000
Total operating expenses............. 43,520 40,000 53,900 20,000
Net income (loss).......................... 5,120 14,400 (5,500) 2,000
24.05 38.20 46.81 46.81
1 2 3
Gross profit ratio......................... % % % %4

Calculations:
1. (48,640/202,240) × 100 = 24.05%
2. (54,400/142,400) × 100 = 38.20%
3. (48,400/103,400) × 100 = 46.81%
4. (22,000/47,000) × 100 = 46.81%

Analysis component:
Company B has more favourable gross profit ratios for both 2010 and 2011.
Company A is showing a lower gross profit ratio than Company B and decreasing
gross profit as a percentage of net sales.

Note to instructor:
You may wish to engage students in a discussion of other interesting
comparisons in this information. For example:
— COGS as a percentage of sales is lower for Company B than Company A.
— Sales discounts as a percentage of sales is constant for both companies.
— Sales returns and allowances are higher as a percentage of sales for
Company A than Company B (which is particularly interesting considering
that Company A has a higher COGS than Company B … you might assume
higher quality but then why the higher returns/allowances?).
— Company B has higher operating expenses as a percentage of sales than
Company A.

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Solutions Manual for Chapter 6 465
 Company B has more than doubled its sales from 2010 to 2011 in comparison
to the growth for Company A.

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466 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-12 (20 minutes)
(a) (b) (c)
Purchases............................................ $ $ $ 122,000
90,000 160,000
Purchases discounts........................... (4,000) (10,000) (2,600)
Purchases returns and allowances. . . (3,000) (6,000) (4,400)
Transportation-in............................... 6,400 14,000 16,000
Cost of goods purchased.................... $ $ $ 131,000
89,400 158,000

Beginning inventory........................... $ $38,400 $ 36,000

7,000
Cost of goods purchased.................... 89,400 158,000 131,000
Ending inventory................................ (4,400) (30,000) (30,480)
Cost of goods sold............................... $92,000 $ 166,400 $ 136,520

a. Transportation-in is calculated as the amount needed to make cost of goods

purchased equal the given amount. Cost of goods sold is calculated the usual
way.

b. Purchases discounts is calculated as the amount needed to make cost of

goods purchased equal the given amount. The beginning inventory is
calculated as the amount needed to make cost of goods sold equal the given
amount.

c. Cost of goods purchased is calculated the usual way. Then, that amount is
transferred to the lower section and the ending inventory is calculated as the
amount needed to make cost of goods sold equal the given amount.

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Solutions Manual for Chapter 6 467
Exercise 6-13 (30 minutes)
Company A Company B
2011 2010 2011 2010
120,00 180,00
Sales............................................... 0 0 90,000 45,000
Cost of goods sold:
Merchandise inventory
(beginning)............................... 18,700 22,300 9,875 9,000
Net cost of merchandise 104,40
purchases................................. 72,000 0 49,500 26,100
Merchandise inventory (16,40 (18,70
(ending)......................................... 0) 0) (8,920) (9,875)
108,00
Cost of goods sold...................... 74,300 0 50,455 25,225
Gross profit from sales................ 45,700 72,000 39,545 19,775
Operating expenses...................... 36,000 54,000 27,000 13,500
Net income (loss).......................... 9,700 18,000 12,545 6,275
38.08 40.00 43.94 43.94
1 2 3
Gross profit ratio......................... % % % %4

Calculations:
1. (45,700/120,000) × 100 = 38.08%
2. (72,000/180,000) × 100 = 40.00%
3. (39,545/90,000) × 100 = 43.94%
4. (25,225/45,000) × 100 = 43.94%

Analysis component:
Company B has a stable and more favourable gross profit ratio than Company A.
Company A’s gross profit ratio decreased from 2010 to 2011 which is
unfavourable.

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468 Fundamental Accounting Principles, Twelfth Canadian Edition
Exercise 6-14 (20 minutes)
(a) (b) (c)
Invoice cost of merchandise purchases. $ $ 20,000 $ 15,250
45,000
Purchase discounts received................... (2,000) (1,250) (325)
Purch. returns and allow. received........ (1,500) (750) (550)
Cost of transportation-in........................ 3,200 1,750 2,00
0
Total cost of merchandise purchases..... $ $ 19,750 $ 16,375
44,700
Merchandise inventory (beginning)....... $ $ 4,800 $ 4,500
3,500
Total cost of merchandise purchases..... 44,700 19,750 16,375
Merchandise inventory (ending)............ (2,20) (3,750) (3,810)
0
Cost of goods sold.................................... $46,000 $ 20,800 $ 17,065
a. Transportation-in is calculated as the amount needed to make cost of
merchandise purchased equal the given amount. Cost of goods sold is
calculated the usual way.
b. Purchase discounts is calculated as the amount needed to make cost of
merchandise purchases equal the given amount. The merchandise inventory
(beginning) is calculated as the amount needed to make cost of goods sold equal
the given amount.
c. Total cost of merchandise purchases is calculated the usual way. Then, that
amount is transferred to the lower section and the merchandise inventory
(ending) is calculated as the amount needed to make cost of goods sold equal
the given amount.

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Solutions Manual for Chapter 6 469
Exercise 6-15 (30 minutes)
a) Multiple-step income statement:

COMPU-SOFT
Income Statement
For Month Ended November 30, 2011

Net sales.............................................................. $26,935*

Cost of goods sold.............................................. 14,800
Gross profit from sales..................................... $12,135
Operating expenses:
  Wagesexpense................................................. $4,200
  Utilities expense............................................... 2,100
  Amortization expense, store equipment........ 120
   Totaloperating expenses............................... 6,420
Income from operations.................................... $ 5,715
Other revenues and expenses:
  Rentrevenue.................................................... 850
Net income.......................................................... $ 6,565
*Calculated as: 27,700 – 45 – 720 = 26,935
b)
2011 Closing entries:
Nov. 3 Rent Revenue.................................................. 850
0
Sales................................................................. 27,700
  Income Summary......................................... 28,550
 
To close temporary credit balance accounts. 

3 Income Summary........................................... 21,985

0
  Salesreturns and allowances...................... 720
  Salesdiscounts.............................................. 45
  Costof goods sold......................................... 14,800
  Amortization expense, store equipment..... 120
  Wagesexpense.............................................. 4,200
  Utilities expense............................................ 2,100
 
To close temporary debit balance accounts.

3 Income Summary........................................... 6,565

0
  PeterDelta, capital....................................... 6,565
 
To close income summary to capital.

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470 Fundamental Accounting Principles, Twelfth Canadian Edition
 3 Peter Delta, capital......................................... 3,500
0
  PeterDelta, withdrawals............................. 3,500
 
To close withdrawals to capital.
Exercise 6-15 (concluded)
c)

Peter Delta,
Capital
1,635 (Beg. bal.)
$1,635 – $3,500 + $6,565 = $4,700 (With 3,50 6,565 (Net income)
OR .) 0
4,700 (End. bal.)

Analysis component:
The gross profit ratio for October is 40% ($32,000 - $19,200 = $12,800 gross
profit; $12,800/$32,000 × 100 = 40%). The gross profit ratio for November is 45%
($12,135/$26,935 × 100 = 45.05%). Compu-Soft generated a higher gross profit
per sales dollar in November than in October which is favourable because this
represents a greater contribution towards the coverage of operating expenses.

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Solutions Manual for Chapter 6 471
 Exercise 6-16 (60 minutes)
464
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a) Perdu Sales
Work Sheet
For Year Ended December 31, 2011
Balance Sheet
and Statement
Unadjusted Income of Owner’s
Trial Balance Adjustments Statement Equity
Account Debit Credit Debit Credit Debit Credit Debit Credit
Cash 26,000 26,00
0
Merchandise inventory 2,000 2,000
Prepaid selling expenses 8,000 1,500 6,500
Store equipment 40,000 40,00
0
Accumulated amortization, store 9,000 2,500 11,500
eq.
Accounts payable 14,840 14,840
Fundamental Accounting Principles, Twelfth Canadian Edition

Salaries payable 0 3,200 3,200

Eldon Perdu, capital 45,600 45,600
Eldon Perdu, withdrawals 3,600 3,600
Sales 858,00 858,00
0 0
Sales returns and allowances 33,000 33,000
Sales discounts 8,000 8,000
Cost of goods sold 424,84 424,84
0 0
Sales salaries expense 94,000 3,200 97,200
Utilities expense, store 28,000 28,000
Amortization expense, store equip. - 2,500 2,500
Other selling expenses 70,000 1,500 71,500
Other administrative expenses 190,00                                   190,0                                     
0   00
 Totals 927,44 927,44 7,200 7,200 855,04 858,00 78,10 75,140
0 0 0 0 0
Net Income 2,96                          2,960
0  
 Totals 858,00 858,00 75,60 75,600
0 0 0
Exercise 6-16 (continued)
b) Classified multiple-step income statement:
PERDU SALES
Income Statement
For Year Ended December 31, 2011
Sales......................................................................... $858,000
Less: Sales returns and allowances..... $33,000
Sales discounts............................. 8,000 41,000
Net sales................................................................... $817,000
Cost of goods sold................................................... 424,840
Gross profit from sales........................................... $392,160
Operating expenses:
 Selling expenses:
  Salessalaries expense........................................... $97,20
0
  Otherselling expenses.......................................... 71,50
0
  Utilities expense, store......................................... 28,000
Amortization expense, store........................... 2,500
  Totalselling expenses........................................... $199,200
 General and administrative expenses:................. 190,000
 Total operating expenses...................................... 389,200
Net income............................................................... $ 2,960

c) 2011 Closing entries:

Dec 3 Sales........................................................................ 858,000
. 1
  Income Summary................................................ 858,000
 Toclose sales.

3 Income Summary.................................................. 855,040

1
  SalesReturns and Allowances........................... 33,000
  SalesDiscounts.................................................... 8,000
  Costof Goods Sold.............................................. 424,840
  SalesSalaries Expense........................................ 97,200
  Utilities Expense.................................................. 28,000
  Selling Expenses.................................................. 71,500
Amortization Expense, Store Equipment.... 2,500
  Administrative Expenses.................................... 190,000
 Toclose temporary debit balance accounts.

3 Income Summary.................................................. 2,960

1
  EldonPerdu, Capital.......................................... 2,960
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474 Fundamental Accounting Principles, Twelfth Canadian Edition
  To close the Income Summary account to
capital.

3 Eldon Perdu, Capital............................................ 3,600

1
  EldonPerdu, Withdrawals................................. 3,600
 Toclose withdrawals to capital.

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Solutions Manual for Chapter 6 475
Exercise 6-16 (concluded)
Analysis component:
The gross profit ratio for 2011 is $392,160/$817,000 × 100 = 48%. The gross profit
ratio for 2010 was $330,000*/$600,000 × 100 = 55%. The gross profit ratio
decreased from 2010 to 2011 which is unfavourable since the gross profit
generated per net sales dollar has decreased thereby contributing less towards the
coverage of operating expenses in 2011 than in 2010.

*Sales – COGS = GP – Operating Expenses = Net Loss, therefore, $600,000 - ? =

? - $344,000 = -$14,000; GP - $344,000 = -$14,000 so GP = $330,000.

Exercise 6-17 (25 minutes)

a) 531,000 – 14,000 – 7,000 = 510,000

b) Single-step income statement:

SABBA CO.
Income Statement
For Year Ended January 31, 2011

Revenues:
Net sales...................................................... $510,000
Expenses:
Cost of goods sold...................................... $301,000
 Selling expenses............................................. 117,000
 General and administrative expenses......... 109,000
 Interest expense............................................. 750
 Total expenses............................................... 527,750
Net loss............................................................ $ 17,750

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476 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-18 (20 minutes)
1) Periodic Perpetual
Nov 1 Purchases.............................. 2,80 Merchandise Inventory........ 2,800
. 0
  Accounts Payable............... 2,800   Accounts Payable................ 2,800
 
To record purchases on      
To record purchases on    
account. account.

2)
Nov 5 Accounts Payable............... 2,80 Accounts Payable............... 2,800
. 0
  Purchases Discount.......... 56   Merchandise Inventory... 56
  Cash.................................. 2,744   Cash.................................. 2,744
 
To record cash payment  
To record cash payment
within within
 discount period; discount period;
2,800 x 2% = 56. 2,800 x 2% = 56.

3)
Nov 7 Cash.................................... 196 Cash....................................... 196
.
  Purchases Returns and     Merchandise Inventory...... 196
  Allowances......................
  196  Torecord cheque received for
To record cheque received  return of merchandise
for  return of purchases  previously paid for with
previously  paid for with  discount already taken;
discount already  taken; 200  200– 2% = 196.
– 2% = 196.

4)
Nov 10 Transportation-In.............. 160 Merchandise Inventory........ 160
.
  Cash.................................. 160   Cash..................................... 160
 Torecord payment of freight  Torecord payment of freight
 charges.  charges.

5)
Nov 13 Accounts Receivable.......... 3,00 Accounts Receivable............. 3,000
. 0
  Sales.................................. 3,000   Sales..................................... 3,000
 Torecord sale of merchandise  Torecord sale of merchandise
 oncredit.  oncredit.

13 No entry. Cost of Goods Sold............... 1,500

  
Merchandise Inventory..... 1,500

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Solutions Manual for Chapter 6 477
  Torecord cost of merchandise
 sold.

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478 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-18 (concluded)
6)
Nov 16 Sales Returns and Allowances 400 Sales Returns and Allowances 400
.
  Accounts Receivable........ 400   Accounts Receivable........ 400
 Torecord return of  Torecord return of
 merchandise bought on  merchandise bought on      
 account. account.

16 No entry. Merchandise Inventory........ 200

  Costof Goods Sold............. 200
 Torecord return of         
merchandise by customer.
*Exercise 6-19
Feb. 1 Purchases............................................................ 7,000
Accounts Payable....................................... 7,000
To record purchase; terms 1/10, n30.

5 Purchases............................................................ 2,400
Cash............................................................. 2,400
To record purchase for cash.

6 Purchases............................................................ 10,000
Accounts Payable....................................... 10,000
To record purchase; terms 2/15, n45.

9 Office Supplies................................................... 900

Accounts Payable....................................... 900
To record purchase; n15.

1 No entry.
0

1 Accounts Payable............................................... 7,000

1
Cash............................................................. 6,930
Purchase Discounts.................................... 70
To record payment within discount period;
$3,500 x 1% = $35 discount.

2 Accounts Payable............................................... 900

4
Cash............................................................. 900
To record payment.

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Solutions Manual for Chapter 6 479
 Mar. 2 Accounts Payable............................................... 10,000
3
Cash............................................................. 10,000
To record payment.

*Exercise 6-20 (25 minutes)

2011
Ma 2 Purchases.................................................................. 3,600
r
Accounts Payable — Blanton Company.... 3,600
 Purchased merchandise on credit.
3 Transportation-in..................................................... 200
Cash............................................................ 200
 Paidshipping charges on purchased
merchandise.
4 Accounts Payable — Blanton Company................ 600
Purchase Returns and Allowances......................... 600
 Returned unacceptable merchandise.
17 Accounts Payable — Blanton Company................ 3,000
Purchase Discounts.................................................. 60
Cash........................................................................... 2,940
 Paidbalance within the discount period;
3,600 – 600 = 3,000; 3,000 x 2% = 60.
18 Purchases.................................................................. 7,500
Accounts Payable — Fleming Corp....................... 7,500
 Purchased merchandise on credit.
21 Accounts Payable — Fleming Corp....................... 2,100
Purchase Returns and Allowances......................... 2,100
 Received an allowance on purchase.
28 Accounts Payable — Fleming Corp....................... 5,400
Purchase Discounts.................................................. 108
Cash........................................................................... 5,292
 Paidbalance within the discount period;
7,500 – 2,100 = 5,400; 5,400 x 2% = 108.

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480 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-21 (20 minutes)

Jan. 5 Accounts Receivable.......................................... 4,000

Sales............................................................. 4,000
To record sale; terms 1/10, n30.

7 Cash.................................................................... 3,600
Sales............................................................. 3,600
To record cash sale.

8 Accounts Receivable.......................................... 9,600

Sales............................................................. 9,600
To record sale; terms 1/10, n30.

1 Cash.................................................................... 3,960
5
Sales Discounts................................................... 40
Accounts Receivable................................... 4,000
To record collection within discount period;
$2,000 x 1% = $20 discount.

Feb. 4 Cash.................................................................... 9,600

Accounts Receivable................................... 9,600
To record collection.

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Solutions Manual for Chapter 6 481
*Exercise 6-22 (20 minutes)

Feb. 1 Accounts Receivable.......................................... 2,400

Sales............................................................. 2,400
To record sale; terms 2/10, n30, FOB
destination.

2 Delivery Expense or Freight-Out..................... 150

Cash............................................................. 150
To record delivery expenses for goods sold.

3 Sales Returns and Allowances.......................... 1,200

Accounts Receivable................................... 1,200
To record return of merchandise.
4 Accounts Receivable.......................................... 3,800
Sales............................................................. 3,800
To record sale; terms 2/10, n30, FOB
destination.

1 Cash.................................................................... 1,176
1
Sales Discounts................................................... 24
Accounts Receivable................................... 1,200
To record collection, less return and discount;
$2,400 - $1,200 = $1,200 x 2% = $24 discount.

2 Cash.................................................................... 1,200
3
Sales............................................................. 1,200
To record cash sale.

2 Cash.................................................................... 3,800
8
Accounts Receivable................................... 3,800
To record collection.

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482 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-23 (15 minutes)
a)
2011
Mar. Purchases.................................................................. 11,000
1
Accounts Payable – Raintree....................... 11,000
 Purchased merchandise on credit.

11 Accounts Payable – Raintree.................................. 11,000

Purchase Discounts ..................................... 330
Cash............................................................... 10,670
 Paidaccount payable within the discount period;
11,000 x 3% = 330.
b)
2011
Mar. Accounts Receivable – Sundown Company........... 11,000
1
Sales............................................................... 11,000
 Soldmerchandise on account.

11 Cash........................................................................... 10,670
Sales Discounts......................................................... 330
Accounts Receivable – Sundown 11,000
Company.......................................................
 Collected account receivable.

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Solutions Manual for Chapter 6 483
*Exercise 6-24 (20 minutes)
a)

2011
May Purchases.................................................................. 30,000
11
Accounts Payable – Hostel Sales................. 30,000
 Purchased merchandise on credit.

11 Transportation-In.................................................... 335
Cash............................................................... 335
 Paidshipping charges on purchased
merchandise.
13 Accounts Payable – Hostel Sales............................. 1,200
Purchase Returns and Allowances.............. 1,200
 Returned unacceptable merchandise.

20 Accounts Payable – Hostel Sales............................. 28,800

Purchase Discounts....................................... 864
Cash............................................................... 27,936
 Paidbalance within the discount period;
30,000 – 1,200 = 28,800; 28,800 x 3% = 864.

b)

2011
May Accounts Receivable – Wilson Purchasing............ 30,000
11
Sales............................................................... 30,000
 Soldmerchandise on account.

12 Sales Returns and Allowances................................ 1,200

Accounts Receivable – Wilson Purchasing. 1,200
 Accepted a return from a customer.

21 Cash........................................................................... 27,936
Sales Discounts......................................................... 864
Accounts Receivable – Wilson Purchasing. 28,800
 Collected account receivable;
30,000 – 1,200 = 28,800; 28,800 x 3% = 864.

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484 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-25 (35 minutes)
a. Gross profit from sales................................... $145,000
Less: Operating expenses...............................      ?  
Net income....................................................... $ 65,000
Therefore:
Total operating expenses................................ $ 80,000

b. Sales................................................................. $340,000
Less: Sales discounts....................................... $ 5,500
Sales returns.......................................... 14,000 19,500
Net sales........................................................... $320,500
Less: Cost of goods sold.................................      ?  
Gross profit from sales................................... $145,000
Therefore:
Cost of goods sold........................................... $175,500

c. Merchandise inventory (beginning).............. $ 30,000

Invoice cost of merchandise purchases ........ $175,000
Less: Purchase discounts................................ 3,600
Purchase returns................................... 6,000
Net purchases ................................................. $165,400
Add: Transportation-in ................................. 11,000
Total cost of merchandise purchased............ 176,400
Goods available for sale ................................ $206,400
Less: Merchandise inventory (ending)..........     ?  
Cost of goods sold (from b)............................ $175,500
Therefore:
Merchandise inventory (ending)................... $ 30,900

d. (145,000/320,500) x 100 = 45.24% Gross Profit Ratio (rounded to two decimal

places)

Analysis component:
The gross profit ratio for 2011 is 45.24%. In comparison with the 2010 gross
profit ratio of 47%, this represents an unfavourable change. This is unfavourable
because the gross profit generated per net sales dollar decreased in 2011 from
2010 thereby contributing less towards the coverage of operating expenses in 2011
than in 2010.

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Solutions Manual for Chapter 6 485
 *Exercise 6-26 (40 minutes)
Solutions Manual for Chapter 6
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

DEWER’S STOP‘N SHOP

Work Sheet
For Year Ended December 31, 2011
Balance Sheet
Unadjusted and
Trial Income Statement of
        Balance          Adjustments    Statement      Owner’s Equity
No. Account Debit Credit Debit Credit Debit Credit Debit Credit
101 Cash................................ 7,400 7,400
106 Accounts receivable....... 3,600 3,600
119 Merchandise inventory. . 2,400 2,400 2,720 2,720
125 Store supplies................. 1,200 (a) 300 900
201 Accounts payable........... 280 280
209 Salaries payable.............. (b) 120 120
301 Mi Dewer, capital........... 11,570 11,570
302 Mi Dewer, withdrawals. 750 750
413 Sales................................ 12,000 12,000
414 Sales returns and 290 290
allowances.......................
505 Purchases........................ 6,400 6,400
506 Purchase discounts......... 250 250
507 Transportation-in........... 160 160
622 Salaries expense............. 1,400 (b) 1,520
120
640 Rent expense................... 500 500
651 Store supplies expense. . .                        (a)              300                           
300
 Totals............................. 24,100 24,100 420 420 11,57 14,970 15,37 11,970
0 0
Net income...................... 3,400                   3,400
 Totals 14,97 14,970 15,37 15,370
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475

486 Fundamental Accounting Principles, Tenth Canadian Edition

0 0
*Exercise 6-27 (30 minutes)

a) Net Sales:
Sales.................................................................................. $445,000 
 Sales returns and allowances............................................. (25,000)
Sales discounts................................................................. (16,000)
Net sales............................................................................ $404,000 

b) Cost of goods purchased:

Purchases.............................................................................. $286,000 
Purchases returns and allowances....................................... (22,000)
Purchase discounts............................................................... (11,400)
Transportation-in................................................................. 8,800 
Cost of goods purchased....................................................... $261,400 
c) Cost of goods sold:
Beginning inventory............................................................. $ 15,000 
Cost of goods purchased....................................................... 261,400 
Goods available for sale........................................................ $276,400 
Ending inventory.................................................................. (11,000)
Cost of goods sold................................................................. $265,400 

d) Multiple-step income statement:

FOX FIXTURES CO.

Income Statement
For Year Ended March 31, 2011
Net sales............................................................... $404,000
Cost of goods sold................................................ 265,400
Gross profit from sales....................................... $138,600
Operating expenses:
Selling expenses................................................ $69,000
General and administrative expenses............. 33,500
 Total operating expenses................................ 102,500
Income from operations..................................... $ 36,100
Other revenues and expenses:
 Interest revenue................................................. 1,200
Net income........................................................... $ 37,300

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488 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-28 (40 minutes)
a)
$33,700 – $1,740 = $31,960 Net sales

b)
$6,200 + $16,676 – $110 – $28 + $380 – $2,460 = $20,658 Cost of goods
sold

c) Classified multiple-step income statement:

JOHN’S ELECTRONICS
Income Statement
For Month Ended April 30, 2011
Sales........................................................................ $33,700
Less: Sales returns and allowances..................... 1,74
0
Net sales.................................................................. $31,960
Cost of goods sold:
Merchandise inventory, March 31, 2011........... $ 6,200
Purchases............................................................ $16,676
Less: Purchase discounts................................. 28
Purchase returns and allowances......... 110
Net purchases..................................................... $16,538
Add: Transportation-in................................. 380
Cost of goods purchased................................... 16,918
Cost of goods available for sale........................ $23,118
Less: Merchandise inventory, April 30, 2011 2,460
Cost of goods sold.................................................. 20,658
Gross profit from sales.......................................... $
11,302
Operating expenses:..............................................
Selling expenses:
Wages expense, selling...................................... $8,000
Amortization expense, delivery trucks............ 640
Telephone expense, store.................................. 340
Total selling expenses........................................ $8,980
General and administrative expenses:
Wages expense, office........................................ 2,800
Telephone expense, office.................................. 150
Total general and administrative expenses 2,950
Total operating expenses................................... 11,93
0
Operating loss........................................................ $ 628
Other revenues and expenses:
Interest expense................................................ 13

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Solutions Manual for Chapter 6 489
 0
Net loss.................................................................... $ 758

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490 Fundamental Accounting Principles, Twelfth Canadian Edition
*Exercise 6-28 (concluded)
d)
2011 Closing entries:
Apr 30 Merchandise Inventory................................... 2,460
.
Purchases Returns and Allowances............... 110
Purchases Discounts........................................ 28
Sales.................................................................. 33,700
Income Summary........................................ 36,298
To close temporary credit balance accounts.

30 Income Summary............................................. 37,056

Merchandise Inventory............................... 6,200
Sales Returns and Allowances................... 1,740
Purchases..................................................... 16,676
Transportation-In....................................... 380
Amortization Expense, Delivery Trucks... 640
Wages Expense, Office................................ 2,800
Wages Expense, Selling............................... 8,000
Telephone Expense, Office......................... 150
Telephone Expense, Store........................... 340
Interest Expense.......................................... 130
To close temporary debit balance accounts.

30 John Yu, Capital.............................................. 758

Income Summary........................................ 758
To close income summary to capital.

30 John Yu, Capital.............................................. 9,200

John Yu, Withdrawals................................ 9,200
To close withdrawals to capital.

Part e:

John Yu, Capital

(Net loss) 758 30,300 (Beg. bal.)
$30,300 – $9,200 - $758 = $20,342 (With.) 9,200
OR
20,342 (End. bal.)

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Solutions Manual for Chapter 6 491
*Exercise 6-29 (15 minutes)

June 1 Merchandise Inventory ............................... 2,000

GST Receivable ........................................... 120
Accounts Payable ................................. 2,120
To record credit purchase;
$2,000 x 6% = 120 GST.

5 Accounts Receivable ................................... 1,596

PST Payable .......................................... 112
GST Payable ......................................... 84
Sales ....................................................... 1,400
To record credit sale; $1,400 x 8% = 112 PST;
$1,400 x 6% = $84 GST.
5 Cost of Goods Sold....................................... 1,000
Merchandise Inventory ........................ 1,000
To record cost of sale.

*Exercise 6-30 (15 minutes)

June 1 Purchases ..................................................... 2,000

GST Receivable ........................................... 120
Accounts Payable ................................. 2,120
To record credit purchase;
$2,000 x 6% = $120 GST.

5 Accounts Receivable ................................... 1,596

PST Payable .......................................... 112
GST Payable ......................................... 84
Sales ....................................................... 1,400
To record credit sale; $1,400 x 8% = 112 PST;
$1,400 x 6% = $84 GST.

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492 Fundamental Accounting Principles, Twelfth Canadian Edition
PROBLEMS

Problem 6-1A (40 minutes) Part 1

June 1 Accounts Receivable – Avery & Wiest............ 7,000
Sales............................................................. 7,000
To record sales; terms 2/5, n15, FOB destination.

1 Cost of Goods Sold............................................ 6,250

Merchandise Inventory.............................. 6,250
To record cost of sales.

2 Merchandise Inventory..................................... 3,500

Accounts Payable – Angolac Suppliers.... 3,500
To record purchase of merchandise; terms 1/10,
n20, FOB shipping point.

4 Merchandise Inventory..................................... 14,500

Accounts Payable – Bastille Sales............. 14,500
To record purchase of merchandise; terms 1/15,
n45, FOB Bastille Sales.

5 Accounts Receivable – Gelgar.......................... 11,000

Sales............................................................. 11,000
To record sales; terms 2/5, n15, FOB destination.

5 Cost of Goods Sold............................................ 9,000

Merchandise Inventory.............................. 9,000
To record cost of sales.

6 Cash.................................................................... 6,860
Sales Discounts................................................... 140
Accounts Receivable – Avery & Wiest..... 7,000
To record collection within discount period;
$7,000 x 2% = $140 discount.

1 Accounts Payable – Angolac Suppliers............ 3,500

2
Cash............................................................. 3,465
Merchandise Inventory.............................. 35
To record payment within discount period;
$3,500 x 1% = $35 discount.

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Solutions Manual for Chapter 6 493
Problem 6-1A (concluded)
June 2 Cash.................................................................... 11,000
0
Accounts Receivable – Gelgar................... 11,000
To record collection.

3 Accounts Payable – Bastille Sales.................... 14,500

0
Cash............................................................. 14,500
To record payment.

Part 2
a. Net sales = $17,860 ($7,000 + $11,000 - $140)
b. Cost of goods sold = $15,250 ($6,250 + $9,000)
c. Gross profit from sales = $2,610 ($17,860 - $15,250)

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494 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-2A (40 minutes)
July 1 Merchandise Inventory................................ 12,000
Accounts Payable—Jones Co. ............. 12,000
Purchased goods on credit.
2 Accounts Receivable—Terra Co. .............. 1,600
Sales........................................................ 1,600
Sold goods on credit.
2 Cost of Goods Sold....................................... 1,000
Merchandise Inventory......................... 1,000
To record the cost of the July 2 sale.
3 Merchandise Inventory................................ 200
Cash........................................................ 200
Paid freight on incoming goods.
8 Cash............................................................... 3,200
Sales........................................................ 3,200
Sold goods for cash.
8 Cost of Goods Sold....................................... 2,400
Merchandise Inventory......................... 2,400
To record the cost of the July 8 sale.
9 Merchandise Inventory................................ 4,600
Accounts Payable—Keene Co.............. 4,600
Purchased goods on credit.
12 Accounts Payable—Keene Co. ................... 400
Merchandise Inventory......................... 400
Received credit memo.
12 Cash............................................................... 1,568
Sales Discounts............................................. 32
Accounts Receivable—Terra Co.......... 1,600
Collected receivable within the discount
period; 1,600 x 2% = 32.
13 Office Supplies ............................................. 960
Accounts Payable—East Co................. 960
Purchased goods on credit.
16 Accounts Payable—Jones Co. .................... 12,000
Merchandise Inventory......................... 120
Cash........................................................ 11,880
Paid payable within the discount period; 12,000 x 1% = 120.

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Solutions Manual for Chapter 6 495
Problem 6-2A (continued)
19 Accounts Receivable—Urban Co. ............. 2,500
Sales........................................................ 2,500
Sold goods on credit.
19 Cost of Goods Sold....................................... 1,800
Merchandise Inventory......................... 1,800
To record the cost of the July 19 sale.

21 Sales Returns and Allowances.................... 300

Accounts Receivable—Urban Co. ....... 300
Issued credit memo.

22 Sales............................................................... 100
Accounts Receivable—Urban Co. ....... 100
Received debit memo for error.

29 Accounts Payable—Keene Co. ................... 4,200

Cash........................................................ 4,200
Paid payable beyond the discount period.

30 Cash............................................................... 2,058
Sales Discounts............................................. 42
Accounts Receivable—Urban Co. ....... 2,100
Collected receivable within the discount
period; 2,500 – 300 – 100 = 2,100;
2% × 2,100 = 42.

31 Accounts Receivable—Terra Co. .............. 10,000

Sales........................................................ 10,000
Sold goods on credit.

31 Cost of Goods Sold....................................... 6,400

Merchandise Inventory......................... 6,400
To record the cost of the July 31 sale.

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496 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-2A (concluded)
Analysis component:
The cost of the lost discount regarding the July 9 purchase is $53.55*. By itself,
the $53.55 does not appear to be a significant amount. However, if you multiply
this by the number of lost discounts it could be a large sum that does impact net
income. If a net savings results from borrowing to enable paying within the
discount period, the company should borrow. Otherwise, payment should be
made on the last day of the payment period.

*Calculations:
Amount borrowed to pay within the discount period....... $ 4,116.00
Annual rate of interest ........................................................        × 6%
Interest per year................................................................... $ 246.96
Interest per day ($246.96/365)............................................. $ 0.6766

Discount................................................................................ $ 84.00
Interest that would be paid on the 45-day** loan (45  $0.6766) (30.4461)
Net savings from borrowing to pay within
the discount period..................................................... $ 53.5539
**60 days in credit period – 15 days in discount period = 45 days.

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Solutions Manual for Chapter 6 497
Problem 6-3A (40 minutes)
Aug. 1 Merchandise Inventory.......................................... 3,000
Accounts Payable—Dickson Company.......... 3,000
Purchased goods on credit.
4 Accounts Payable—Dickson Company................ 50
Cash.................................................................. 50
Paid freight for Dickson.
5 Accounts Receivable—Griften Corp.................... 2,100
Sales.................................................................. 2,100
Sold goods on credit.
5 Cost of Goods Sold................................................. 1,500
Merchandise Inventory................................... 1,500
To record the cost of the July 5 sale.
8 Merchandise Inventory.......................................... 2,650
Accounts Payable—Kendall Corporation....... 2,650
Purchased goods on credit.
9 Delivery Expense or Freight-Out.......................... 60
Cash.................................................................. 60
Paid shipping charges on August 5 sale.
10 Sales Returns and Allowances............................... 350
Accounts Receivable—Griften Corp. ........... 350
Customer returned merchandise.
10 Merchandise Inventory.......................................... 250
Cost of Goods Sold........................................... 250
Returned goods to inventory.
12 Accounts Payable—Kendall Corporation............ 400
Merchandise Inventory................................... 400
Received a credit memorandum for
August 8 purchase.
15 Cash......................................................................... 1,715
Sales Discounts........................................................ 35
Accounts Receivable—Griften Corp. ........... 1,750
Collected receivable within the
discount period; 2,100 – 350 = 1,750;
2% × 1,750 = 35.

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498 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-3A (concluded)
17 Office Equipment................................................... 600
Accounts Payable–West Co............................ 600
Purchased office equipment on credit.

18 Accounts Payable—Kendall Corporation............ 2,250

Merchandise Inventory................................... 22.50
Cash.................................................................. 2,227.50
Paid payable within the discount period;
2,650 – 400 = 2,250; 1% × 2,250 = 22.50.

19 Accounts Receivable—Farley................................ 1,800

Sales.................................................................. 1,800
Sold goods on credit.

19 Cost of Goods Sold................................................. 1,250

Merchandise Inventory................................... 1,250
To record the cost of the August 19 sale.

22 Sales Returns and Allowances............................... 300

Accounts Receivable—Farley......................... 300
Issued credit memo.

29 Cash......................................................................... 1,485
Sales Discounts........................................................ 15
Accounts Receivable—Farley......................... 1,500
Collected receivable within the discount
period; 1,800 – 300 = 1,500; 1% × 1,500 = 15.

30 Accounts Payable—Dickson Company................ 2,950

Cash.................................................................. 2,950
Paid payable; $3,000 – $50 = 2,950.

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Solutions Manual for Chapter 6 499
 Problem 6-4A (80 minutes)
Solutions Manual for Chapter 6
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1.
JUMBO’S
Work Sheet
For Year Ended December 31, 2011
Unadjusted Balance Sheet and 
Trial     Income     Statement of
      Balance      Adjustments              Statement      Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit Credit
Cash........................................................... 10,275 10,275
Accounts receivable.................................. 22,665 22,665
Merchandise inventory............................. 54,365 (e) 53,800
565
Store supplies............................................ 2,415 (a) 415
2,000
Office Supplies.......................................... 775 (a) 75
700
Prepaid insurance..................................... 3,255 (b) 455
2,800
Equipment................................................. 74,490 74,490
Accumulated amortization, equipment 13,655 (c) 19,655
6,000
Accounts payable...................................... 8,000 8,000
Salaries payable........................................ (d) 655
655
Sally Fowler, capital................................. 166,015 166,015
Sally Fowler, withdrawals........................ 15,000 15,000
Interest revenue........................................ 310 310
Sales........................................................... 502,140 502,140
Sales returns and allowances.................... 5,070 5,070
Cost of goods sold..................................... 381,160 (e) 565 381,725
Salaries expense........................................ 91,550 (d) 655 92,205
Rent expense............................................. 29,100 29,100
Supplies expense....................................... (a) 2,700 2,700
Amortization expense, equipment........... (c) 6,000 6,000
Insurance expense.....................................                            (b) 2,800                      2,800                                            
 Totals........................................................ 690,120 690,120 12,720 12,720 519,600 502,450 177,175 194,325
Net loss.......................................................                 17,150  17,150              
487
 Totals........................................................ 519,600 519,600 194,325 194,325
Problem 6-4A (concluded)
2. Multiple-step income statement:
JUMBO’S
Income Statement
For Year Ended December 31, 2011

Net sales1........................................................... $497,070

Cost of goods sold............................................. 381,725
...........................................................................
Gross profit from sales..................................... $115,345
...........................................................................
Operating expenses:
Salaries expense............................................. $92,205
Rent expense.................................................. 29,100
Supplies expense............................................ 2,700
Amortization expense, equipment................ 6,000
Insurance expense......................................... 2,800
Total operating expenses............................... 132,805

Loss from operations........................................ $ 17,460

...........................................................................
Other revenues and expenses:
  Interest revenue.............................................. 310
Net loss.............................................................. $ 17,150

Calculations:
1. 502,140 – 5,070 = 497,070

Analysis component:
Interest Revenue is shown under Other revenues and expenses because it is not a
day-to-day operating activity for Jumbo’s. Revenues and expenses not related to
day-to-day operations are listed under Other revenues and expenses.

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502 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-5A

1. Classified, multiple-step income statement:

DAVISON COMPANY
Income Statement
For Year Ended October 31, 2011
Sales...................................................................... $424,000
 Less: Sales discounts......................................... $ 6,500
 Sales returns and allowances................. 28,000 34,500
 Netsales.............................................................. $389,500
Cost of goods sold................................................ 165,200
Gross profit from sales....................................... $224,300
Operating expenses:
Selling expenses:
Sales salaries expense................................... $58,000
Advertising expense.................................... 36,000
Rent expense, selling space.......................... 20,000
Store supplies expense................................. 5,000
Total selling expenses................................... $ 119,000
General and administrative expenses:
Office salaries expense................................. $53,000
Rent expense, office space........................... 5,200
Office supplies expense................................ 1,600
Total general and administrative expenses 59,800
Total operating expenses................................. 178,800
Income from operations..................................... $ 45,500
Other revenues and expenses:
  Interest revenue................................................ 1,120
Net income........................................................... $ 46,620

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Solutions Manual for Chapter 6 503
Problem 6-5A (concluded)
2. Single-step income statement:
DAVISON COMPANY
Income Statement
For Year Ended October 31, 2011
Revenues:
Net sales............................................................ $389,500
Interest revenue...............................................          1,120
 Total revenues................................................. $390,620
Expenses:
Cost of goods sold............................................ $165,200
Selling expenses................................................ 119,000
General and administrative expenses............ 59,800
 Total expenses................................................. 344,000
Net income........................................................... $ 46,620

Problem 6-6A (30 minutes)

Oct. 31 Interest Revenue........................................... 1,120
Sales .............................................................. 424,000
Income Summary.................................. 425,120
To close temporary accounts with credit
balances.

31 Income Summary......................................... 378,500

Sales Discounts ..................................... 6,500
Sales Returns and Allowances ............. 28,000
Cost of Goods Sold................................ 165,200
Sales Salaries Expense.......................... 58,000
Rent Expense, Selling Space................. 20,000
Store Supplies Expense......................... 5,000
Advertising Expense.............................. 36,000
Office Salaries Expense......................... 53,000
Rent Expense, Office Space.................. 5,200
Office Supplies Expense........................ 1,600
To close temporary accounts with debit
balances.

31 Income Summary......................................... 46,620

Brenda Davison, Capital....................... 46,620
To close the Income Summary account.

31 Brenda Davison, Capital.............................. 32,000

Brenda Davison, Withdrawals............. 32,000
To close the withdrawals account.

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504 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-7A (60 minutes)
1. Classified, multiple-step income statement:
PLYMOUTH ELECTRONICS
Income Statement
For Year Ended December 31, 2011

Sales................................................................. $963,000
.........................................................................
  Less:Sales returns and allowances.............. $ 5,715
     Sales discounts......................................... 14,580 20,295
.........................................................................
  Netsales......................................................... $942,705
Cost of goods sold........................................... 652,025
.........................................................................
Gross profit from sales................................... $290,680
.........................................................................
Operating expenses:
 Selling expenses:
  Salessalaries expense................................... $80,080
.........................................................................
  Rentexpense, selling space........................... 33,000
  Amortization expense, store equipment...... 8,910
  Storesupplies expense.................................. 1,620
.........................................................................
  Totalselling expenses................................... $123,610
.........................................................................
 General and administrative expenses:
  Office salaries expense.................................. $ 65,945
.........................................................................
  Insurance expense......................................... 3,390
.........................................................................
  Rentexpense, office space............................ 3,000
  Amortization expense, office equipment...... 2,760
  Office supplies expense................................. 735
.........................................................................
  Totalgeneral and administrative expenses. 75,830
 Total operating expenses............................... 199,440
.........................................................................
Income from operations................................. $ 91,240
Other revenues and expenses:
  Dividend revenue.......................................... 720
Net income....................................................... $ 91,960

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Solutions Manual for Chapter 6 505
Problem 6-7A (concluded)
2. Single-step income statement:
PLYMOUTH ELECTRONICS
Income Statement
For Year Ended December 31, 2011

Revenues:
 Netsales.................................................................... $942,705
 Dividend revenue.....................................................          720
  Totalrevenues......................................................... 943,425
Expenses:
 Costof Goods sold.................................................... $652,025
 Selling expenses........................................................ 123,610
 General and administrative expenses..................... 75,830
  Totalexpenses......................................................... 851,465
Net income................................................................. $ 91,960

Analysis component:
The gross profit ratio for Plymouth Electronics’ year ended December 31, 2011 is
30.83% ($942,705 - $652,025 = $290,680 gross profit; $290,680/$942,705 × 100 =
69.17%). This represents an unfavourable change when compared to the 32%
gross profit ratio for the prior year.

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506 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-8A (20 minutes)
2011 Closing entries:
Dec. 3 Dividend Revenue................................................. 720
1
Sales....................................................................... 963,00
0
  Income Summary................................................ 963,720
 Toclose temporary accounts with credit balances.
3 Income Summary.................................................. 871,76
1 0
  SalesReturns and Allowances............................ 5,715
  SalesDiscounts.................................................... 14,580
  Costof goods sold................................................ 652,025
  SalesSalaries Expense........................................ 80,080
  RentExpense, Selling Space............................... 33,000
  StoreSupplies Expense....................................... 1,620
  Amortization Expense, Store Equipment..........    8,910
  Office Salaries Expense....................................... 65,945
  RentExpense, Office Space................................ 3,000
  Office Supplies Expense...................................... 735
  Insurance Expense.............................................. 3,390
  Amortization Expense, Office Equipment 2,760
 Toclose temporary accounts with debit balances.
3 Income Summary.................................................. 91,960
1
  Celine Plymouth, Capital.................................... 91,960
 Toclose Income Summary to capital.
3 Celine Plymouth, Capital...................................... 50,000
1
  Celine Plymouth, Withdrawals........................... 50,000
 Toclose withdrawals to capital.

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Solutions Manual for Chapter 6 507
Problem 6-9A (60 minutes)

1. Classified multiple-step income statement

Bell Servicing
Income Statement
For Year Ended December 31, 2011

Sales................................................................. $180,000
.........................................................................
  Less:Sales discounts..................................... _2,000
  Netsales......................................................... $178,000
Cost of goods sold........................................... 74,800
.........................................................................
Gross profit from sales................................... $103,200
.........................................................................
Operating expenses:
 Selling expenses:
  Salessalaries expense................................... $20,000
.........................................................................
Advertising expense................................. 17,600
  Rentexpense, selling space........................... 7,000
  Storesupplies expense.................................. 2,400
.........................................................................
Insurance expense, store.......................... 2,000
  Amortization expense, store equipment...... 1,40
0
  Totalselling expenses................................... $50,400
.........................................................................
 General and administrative expenses:
  Office salaries expense.................................. $
......................................................................... 12,000
  Rentexpense, office space............................ 3,000
  Amortization expense, office equipment...... 1,800
  Insurance expense, office.............................. 1,600
.........................................................................
  Office supplies expense................................. 1,20
......................................................................... 0
  Totalgeneral and administrative expenses. 19,600
 Total operating expenses............................... 70,000
.........................................................................
Net income....................................................... $33,200

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508 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-9A (concluded)
2. Multiple-step income statement

Bell Servicing
Income Statement
For Year Ended December 31, 2011

Net sales......................................................... $178,000

Cost of goods sold.......................................... 74,800
Gross profit from sales................................. $103,200
Operating expenses:
 Salaries expense........................................... $32,000
 Advertising expense..................................... 17,600
 Rentexpense................................................. 10,000
 Insurance expense........................................ 3,600
 Supplies expense........................................... 3,600
 Amortization expense, equipment............... 3,200
  Totaloperating expenses............................ 70,000
Net income..................................................... $33,200

3. Single-step income statement

Bell Servicing
Income Statement
For Year Ended December 31, 2011

Revenues:
 Netsales........................................................ $178,000
Expenses:
 Costof goods sold......................................... $74,800
 Selling expenses............................................ 50,400
 General and administrative expenses......... 19,600
  Totalexpenses............................................. 144,800
Net income..................................................... $33,200

Analysis component:

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Solutions Manual for Chapter 6 509
If I were a decision maker external to Bell Servicing, I would prefer the classified
multi-step income statement format because it provides the greatest level of detail
of the three income statement formats. As an external user, I would expect the
single-step income statement format because it provides information but without
giving details that might provide Bell’s competition with an edge. For example,
total Selling Expenses is provided without disclosing how much Bell spends on
advertising.

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510 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-10A (40 minutes)
June 1 Accounts Receivable – Avery & Wiest............ 7,000
Sales............................................................. 7,000
To record sales; terms 2/5, n15, FOB
destination.

2 Purchases............................................................ 3,500
Accounts Payable – Angolac Suppliers.... 3,500
To record purchase of merchandise;
terms 1/10, n20, FOB shipping point.

4 Purchases............................................................ 14,500
Accounts Payable – Bastille Sales............. 14,500
To record purchase of merchandise;
terms 1/15, n45, FOB Bastille Sales.

5 Accounts Receivable – Gelgar.......................... 11,000

Sales............................................................. 11,000
To record sales; terms 2/5, n15, FOB
destination.

6 Cash.................................................................... 6,860
Sales Discounts................................................... 140
Accounts Receivable – Avery & Wiest..... 7,000
To record collection within discount period;
$7,000 x 2% = $140 discount.

1 Accounts Payable – Angolac Suppliers............ 3,500

2
Cash............................................................. 3465
Purchase Discounts.................................... 35
To record payment within discount period;
$3,500 x 1% = $35 discount.

2 Cash.................................................................... 11,000
0
Accounts Receivable – Gelgar................... 11,000
To record collection.

3 Accounts Payable – Bastille Sales.................... 14,500

0
Cash............................................................. 14,500
To record payment.

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Solutions Manual for Chapter 6 511
*Problem 6-11A (30 minutes)
Oct. 1 Purchases............................................................... 14,400
  Accounts Payable — Zeon Company................. 14,400
2 Cash........................................................................ 1,500
  Sales...................................................................... 1,500
7 Purchases............................................................... 10,500
  Accounts Payable — Billings Company............. 10,500
7 Transportation-In.................................................. 450
  Cash...................................................................... 450
8 Delivery Equipment.............................................. 24,000
  Accounts Payable — Finlay Supplies................. 24,000
12 Accounts Receivable — Comry Holdings............ 6,000
  Sales...................................................................... 6,000
13 Accounts Payable — Billings Co.......................... 1,500
  Purchases Returns and Allowances.................... 1,500
13 Office Supplies....................................................... 480
  Accounts Payable — Staples............................... 480
15 Accounts Receivable — Tom Willis..................... 4,200
  Sales...................................................................... 4,200
15 Accounts Payable — Billings Co.......................... 9,000
  Purchases Discounts............................................ 180
  Cash...................................................................... 8,820
 $10,500 – $1,500 = $9,000; $9,000 × 2% = $180.
16 Accounts Payable — Staples................................. 120
  Office Supplies..................................................... 120
19 Sales Returns and Allowances.............................. 420
  Accounts Receivable — Tom Willis................... 420
25 Cash........................................................................ 3,704.40
Sales Discounts...................................................... 75.60
  Accounts Receivable — Tom Willis 3,780.00
 $4,200 – $420 = $3,780; $3,780 × 2% = $75.60.
27 Cash........................................................................ 5,880
Sales Discounts...................................................... 120
  Accounts Receivable — Comry Holdings.......... 6,000
 $6,000 × 2% = $120.
31 Accounts Payable — Zeon Company................... 14,400
  Cash...................................................................... 14,400

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512 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-12A (40 minutes)
1. Net sales:
 Sales $85,000
 Less: Sales returns and allowances.............................. 7,500
  Sales discounts.................................................... 1,125
 Netsales........................................................................... $76,375
2. Cost of goods purchased:
 Purchases........................................................................ $ 45,000
 Less: Purchases returns and allowances.................... 2,150
  Purchases discounts........................................... 900
 Transportation-in........................................................... 1,550
 Costof goods purchased................................................. $ 43,500
3. Cost of goods sold:
 Beginning inventory........................................................ $ 12,500
 Costof goods purchased (from 2).................................. 43,500
 Less: Ending inventory................................................. 13,500
 Costof goods sold........................................................... $ 42,500
4. Multiple-step income statement:

MENDELSTEIN COMPANY
Income Statement
For Year Ended October 31, 2011

Net Sales................................................................ $76,375

Cost of goods sold.................................................. 42,500
Gross profit from sales.......................................... $ 33,875
Operating expenses:
 Salaries expense.................................................. $22,000
 Advertising expense............................................ 9,000
 Rent expense........................................................ 6,250
 Supplies expense.................................................. 1,950
  Totaloperating expenses.................................... 39,200
Loss from operations............................................ $ 5,325
Other revenues and expenses:
 Interest revenue.................................................... 150
Net loss................................................................... $ 5,175

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Solutions Manual for Chapter 6 513
*Problem 6-12A (concluded)
5. Single-step income statement:

MENDELSTEIN COMPANY
Income Statement
For Year Ended October 31, 2011
Revenues:
Net sales.............................................................. $76,375
Interest revenue.................................................    150
 Total revenues................................................... $76,525
Expenses:............................................................
Cost of goods sold............................................... $42,500
Selling expenses.................................................. 29,500
General and administrative expenses............... 9,700
 Total expenses................................................... 81,700
Net loss................................................................ $ 5,175

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514 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-13A (30 minutes)
201 Closing entries:
1
Oct. 31 Interest Revenue.................................................. 150
Merchandise Inventory........................................ 13,500
Sales...................................................................... 85,000
Purchases Returns and Allowances.................... 2,150
Purchases Discounts............................................. 900
  Income Summary............................................... 101,700
 To close temporary accounts with credit
 balances and record the ending inventory.

31 Income Summary................................................. 106,875

  Merchandise Inventory...................................... 12,500
  SalesReturns and Allowances........................... 7,500
  SalesDiscounts................................................... 1,125
  Purchases............................................................ 45,000
  Transportation-In.............................................. 1,550
  SalesSalaries Expense....................................... 14,000
  RentExpense, Selling Space.............................. 5,000
  StoreSupplies Expense...................................... 1,500
  Advertising Expense.......................................... 9,000
  Office Salaries Expense...................................... 8,000
  RentExpense, Office Space............................... 1,250
  Office Supplies Expense..................................... 450
 To close temporary accounts with debit balances
 andto remove the beginning inventory balance.

31 Joe Mendelstein, Capital...................................... 5,175

  Income Summary............................................... 5,175
 To close the Income Summary Account.

31 Joe Mendelstein, Capital...................................... 8,500

  Joe Mendelstein, Withdrawals......................... 8,500
 To close the withdrawals account.

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Solutions Manual for Chapter 6 515
 *Problem 6-14A (60 minutes) Part 1
Solutions Manual for Chapter 6
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
WOODSTOCK STORE
Work Sheet
For Year Ended December 31, 2011
Unadjusted Balance Sheet and
Trial     Income      Statement of
      Balance Adjustments              Statement      Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit Credit
Cash...................................................................... 7,305 7,305
Merchandise inventory......................................... 47,000 47,000 48,980 48,980
Store supplies........................................................ 1,715 (a) 1,330 385
Office supplies....................................................... 645 (b) 465 180
Prepaid insurance................................................. 3,960 (c) 880 3,080
Store equipment.................................................... 57,615 57,615
Accumulated amortization, store equipment....... 8,750 (d) 3,500 12,250
Office equipment.................................................. 14,400 14,400
Accumulated amortization, office equipment...... 9,000 (e) 3,600 12,600
Accounts payable.................................................. 4,000 4,000
Zen Woodstock, capital........................................ 89,080 89,080
Zen Woodstock, withdrawals............................... 31,500 31,500
Rental revenue...................................................... 680 680
Sales...................................................................... 478,850 478,850
Sales returns and allowances................................ 2,915 2,915
Sales discounts...................................................... 5,190 5,190
Purchases.............................................................. 331,315 331,315
Purchases returns and allowances....................... 1,845 1,845
Purchases discounts.............................................. 4,725 4,725
Transportation-in................................................. 2,810 2,810
Sales salaries expenses.......................................... 34,710 34,710
Rent expense, selling space................................... 24,000 24,000
Advertising expense.............................................. 1,220 1,220
Store supplies expense.......................................... (a) 1,330 1,330
Amortization expense, store equipment............... (d) 3,500 3,500
Office salaries expense.......................................... 27,630 27,630
Rent expense, office space..................................... 3,000 3,000
Office supplies expense......................................... (b) 465 465
Insurance expense................................................. (c) 880 880
Amortization expense, office equipment..............                  (e) 3,600            3,600                             
         
 Totals.................................................................... 596,930 596,930 9,775 9,775 489,565 535,080 163,445 117,930
Net income............................................................ 45,515                          45,515
501
  
 Totals.................................................................... 535,080 535,080 163,445 163,445
*Problem 6-14A (concluded) Part 2
2011 Closing entries: Page G10
Dec 3 Rental Revenue............................................................. 680
. 1
Merchandise Inventory................................................ 48,980
Sales............................................................................... 478,850
Purchase Returns and Allowances.............................. 1,845
Purchase Discounts....................................................... 4,725
  Income Summary....................................................... 535,080
 
To close temporary credit balance accounts.
3 Income Summary......................................................... 489,565
1
  Merchandise Inventory.............................................. 47,000
  SalesReturns and Allowances................................... 2,915
  SalesDiscounts........................................................... 5,190
  Purchases.................................................................... 331,315
  Transportation-In....................................................... 2,810
  SalesSalaries Expense................................................ 34,710
  RentExpense, Selling Space...................................... 24,000
  Advertising Expense................................................... 1,220
  StoreSupplies Expense.............................................. 1,330
  Amortization Expense, Store Equipment.................. 3,500
  Office Salaries Expense.............................................. 27,630
  RentExpense, Office Space....................................... 3,000
  Office Supplies Expense............................................. 465
  Insurance Expense...................................................... 880
  Amortization Expense, Office Equipment................ 3,600
 Toclose temporary debit balance accounts.
3 Income Summary......................................................... 45,515
1
  ZenWoodstock, Capital............................................. 45,515
 Toclose the Income Summary account to capital.
3 Zen Woodstock, Capital............................................... 31,500
1
  ZenWoodstock, Withdrawals................................... 31,500
 Toclose withdrawals to capital.
Part 3
Merchandise Inventory Account No. 110
Date Explanation PR Debit Credit Balance
2010
Dec. 3 December 31, 2010 Balance 47,000.00
1
2011
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518 Fundamental Accounting Principles, Twelfth Canadian Edition
Dec. 3 Closing-out December 31, 2010 G1 47,000.00 0
1 Balance 0
3 December 31, 2011 Balance G1 48,980.00 48,980.00
1 0
*Problem 6-15A (20 minutes)
CLASSIFIED MULTIPLE-STEP INCOME STATEMENT:

WOODSTOCK STORE
Income Statement
For Year Ended December 31, 2011

Sales....................................................................... $478,85
0
Less: Sales returns and allowances.................. $2,915
Sales discounts......................................... 5,190 8,105
Net Sales................................................................ $470,74
5
Cost of goods sold:
Merchandise inventory, December 31, 2010 $47,000
Purchases.......................................................... $331,31
5
Less: $1,845
Purchase returns and allowances...........
Purchase discounts 4,725 6,570
Net purchases..................................................... $324,74
5
Add: Transportation-in................................ 2,810
Cost of goods purchased.................................... 327,555
Goods available for sale..................................... $374,55
5
Less: Merchandise inventory, December 31, 48,980
2011........................................................................
Cost of goods sold............................................... 325,575
Gross profit from sales.......................................... $145,17
0
Operating expenses:
Selling expenses:
Sales salaries expense....................................... $34,710
Rent expense, selling space.............................. 24,000
Amortization expense, store equipment.......... 3,500
Store supplies expense...................................... 1,330
Advertising expense......................................... 1,220
Total selling expenses....................................... $64,760
General and administrative expenses:

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Solutions Manual for Chapter 6 519
 Office salaries expense..................................... $27,630
Rent expense, office space................................ 3,000
Insurance expense............................................ 880
Amortization expense, office equipment......... 3,600
Office supplies expense.................................... 465
Total general and administrative expenses..... 35,575
  Totaloperating expenses.................................... 100,33
5
Income from operations........................................ $ 44,835
Other revenues and expenses:
 Rental revenue...................................................... 680
Net income............................................................. $ 45,515

*Problem 6-16A (40 minutes)

Aug. 1 Merchandise Inventory ............................... 1000
GST Receivable ........................................... 60
Cash ....................................................... 1060
To record cash purchase;
$1,000 x 6% = $60 GST.
2 Merchandise Inventory ............................... 3,400
GST Receivable ........................................... 204
Accounts Payable ................................. 3,604
To record credit purchase;
$3,400 x 6% = $204 GST.
5 Accounts Receivable ................................... 2,912
PST Payable .......................................... 156
GST Payable ......................................... 156
Sales ....................................................... 2,600
To record credit sale; $2,600 x 6% = $156 PST;
$2,600 x 6% = $156 GST.
5 Cost of Goods Sold....................................... 1,800
Merchandise Inventory ........................ 1,800
To record cost of sale.
12 Accounts Payable......................................... 3,604
Merchandise Inventory ........................ 68
Cash ....................................................... 3,536
To record payment within discount period;
$3,400* x 2% = $68.
15 Cash............................................................... 2,886
Sales Discounts ............................................ 26
Accounts Receivable ............................. 2,912

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520 Fundamental Accounting Principles, Twelfth Canadian Edition
 To record collection within discount period;
$2,600* x 1% = $26.
17 Merchandise Inventory ............................... 6,000
GST Receivable ........................................... 360
Accounts Payable ................................. 6,360
To record credit purchase;
$6,000 x 6% = $360 GST.

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Solutions Manual for Chapter 6 521
*Problem 6-16A (concluded)
Aug. 19 Cash .............................................................. 7,840
PST Payable .......................................... 420
GST Payable ......................................... 420
Sales ....................................................... 7,000
To record cash sale; $7,000 x 6% = $420 PST;
$7,000 x 6% = $420 GST.
19 Cost of Goods Sold....................................... 5,800
Merchandise Inventory ........................ 5,800
To record cost of sale.

*Discounts are applied to the before tax value.

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522 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-17A
Aug. 1 Purchases ..................................................... 1,000
GST Receivable ........................................... 60
Cash ....................................................... 1060
To record cash purchase; $1,000 x 6% = $60 GST.
2 Purchases ..................................................... 3,400
GST Receivable ........................................... 204
Accounts Payable ................................. 3,604
To record credit purchase; $3,400 x 6% = $204 GST.

5 Accounts Receivable ................................... 2,912

PST Payable .......................................... 156
GST Payable ......................................... 156
Sales ....................................................... 2,600
To record credit sale; $2,600 x 6% = $156 PST;
$2,600 x 6% = $156 GST.
12 Accounts Payable......................................... 3,604
Purchase Discounts .............................. 68
Cash ....................................................... 3,536
To record payment within discount period;
$3,400* x 2% = $68.

15 Cash............................................................... 2,886
Sales Discounts ............................................ 26
Accounts Receivable ............................. 2,912
To record collection within discount period;
$2,600* x 1% = $26.
17 Purchases ..................................................... 6,000
GST Receivable ........................................... 360
Accounts Payable ................................. 6,360
To record credit purchase; $6,000 x 6% = $360 GST.
19 Cash .............................................................. 7,910
PST Payable .......................................... 420
GST Payable ......................................... 420
Sales ....................................................... 7,000
To record cash sale; $7,000 x 6% = $420 PST;
$7,000 x 6% = $420 GST.

*Discounts are applied to the before tax value.

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Solutions Manual for Chapter 6 523
ALTERNATE PROBLEMS

Problem 6-1B (40 minutes)

Part 1
Mar. 5 Merchandise Inventory.......................................... 25,000
Cash.................................................................. 25,000
To record purchase of merchandise for cash.

6 Accounts Receivable – Tessier & Welsh............... 16,000

Sales.................................................................. 16,000
To record sales; terms 2/10, n30, FOB
destination.
6 Cost of Goods Sold.................................................. 12,800
Merchandise Inventory................................... 12,800
To record cost of sales.

7 Merchandise Inventory.......................................... 32,000

Accounts Payable – Janz Company............... 32,000
To record purchase of merchandise; terms
1/10, N45, FOB shipping point.

8 Merchandise Inventory.......................................... 75
Cash.................................................................. 75
To record payment of shipping costs.

9 Accounts Receivable – Parker Company............. 28,000

Sales.................................................................. 28,000
To record sales; terms 2/10, n30, FOB
destination.

9 Cost of Goods Sold.................................................. 23,000

Merchandise Inventory................................... 23,000
To record cost of sales.

1 Merchandise Inventory.......................................... 7,000

0
Accounts Payable – Delton Suppliers............ 7,000
To record purchase; terms 2/10, n45, FOB
destination.

1 Cash......................................................................... 15,680
6
Sales Discounts........................................................ 320
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524 Fundamental Accounting Principles, Twelfth Canadian Edition
 Accounts Receivable – Tessier & Welsh....... 16,000
To record collection within discount period;
$16,000 x 2% = $320 discount.
Problem 6-1B (concluded)
Mar. 1 Accounts Payable – Janz Company................. 32,000
7
Cash............................................................. 31,680
Merchandise Inventory.............................. 320
To record payment within discount period;
$32,000 x 1% = $320 discount.

3 Accounts Payable – Delton Suppliers.............. 7,000

0
Cash............................................................. 7,000
To record payment.

3 Cash.................................................................... 28,000
1
Accounts Receivable – Parker Company. 28,000
To record collection.

Part 2
a. Net sales = $43,680 ($16,000 + $28,000 – $320)
b. Cost of goods sold = $35,800 ($12,800 + $23,000)
c. Gross profit from sales = $7,880 ($43,680 - $35,800)

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Solutions Manual for Chapter 6 525
Problem 6-2B (40 minutes)
May 2 Merchandise Inventory..................................... 9,000
Accounts Payable—Mobley Co................. 9,000
Purchased goods on credit.

4 Accounts Receivable—Cornerstone Co.......... 1,200

Sales............................................................. 1,200
Sold goods on credit.

4 Cost of Goods Sold............................................ 750

Merchandise Inventory.............................. 750
To record the cost of the May 4 sale.
4 Merchandise Inventory..................................... 150
Cash............................................................. 150
Paid freight on incoming goods.

9 Cash.................................................................... 2,400
Sales............................................................. 2,400
Sold goods for cash.

9 Cost of Goods Sold............................................ 1,800

Merchandise Inventory.............................. 1,800
To record the cost of the May 9 sale.

10 Merchandise Inventory..................................... 3,450

Accounts Payable—Richter Co................. 3,450
Purchased goods on credit.

12 Accounts Payable—Richter Co........................ 300

Merchandise Inventory.............................. 300
Received credit memo.

14 Cash.................................................................... 1,176
Sales Discounts.................................................. 24
Accounts Receivable—Cornerstone Co.... 1,200
Collected receivable within discount period;
1,200 x 2% = 24.

15 Cash.................................................................... 500
Office Equipment....................................... 500
To record sale of office equipment at cost.

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526 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-2B (continued)
May 17 Accounts Payable—Mobley Co........................... 9,000
Merchandise Inventory................................. 90
Cash................................................................. 8,910
Paid payable within the discount period;
1% × $9,000 = $90.
18 Cleaning Supplies................................................. 820
Accounts Payable–A & Z Suppliers............. 820
Purchased supplies on credit.
20 Accounts Receivable—Harrill Co....................... 1,875
Sales................................................................. 1,875
Sold goods on credit.
20 Cost of Goods Sold................................................ 1,350
Merchandise Inventory................................. 1,350
To record the cost of the May 20 sale.
22 Sales Returns and Allowances............................. 300
Accounts Receivable—Harrill Co. .............. 300
Issued credit memo.
23 Sales....................................................................... 75
Accounts Receivable—Harrill Co. .............. 75
Received debit memo for error.
25 Accounts Payable—Richter Co........................... 3,150
Merchandise Inventory................................. 63
Cash................................................................. 3,087
Paid within the discount period;
3,450 – 300 = 3,150; 2% × $3,150 = 63.
31 Cash....................................................................... 1,470
Sales Discounts...................................................... 30
Accounts Receivable—Harrill Co. .............. 1,500
Collected receivable within discount
period; 1,875 – 300 – 75 = 1,500; 1,500 x 2% = 30.
31 Accounts Receivable—Cornerstone Co. ............ 7,500
Sales................................................................. 7,500
Sold goods on credit...........................................
31 Cost of Goods Sold................................................ 4,800
Merchandise Inventory................................. 4,800
To record the cost of the May 31 sale.

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Solutions Manual for Chapter 6 527
Problem 6-2B (concluded)
Analysis component:
If the Richter Co. invoice is not paid on May 25, the cost of the lost discount would
be $40.05*. By itself, the $40.05 does not appear to be a significant amount.
However, if you multiply this by the number of lost discounts it could be a large
sum that does impact net income. If a net savings results from borrowing to
enable paying within the discount period, the company should borrow. Otherwise,
payment should be made on the last day of the payment period.

*Calculations:
Amount borrowed to pay within the discount period....... $3,087.00
Annual rate of interest ........................................................ _     × 6%
Interest per year................................................................... $ 185.22
Interest per day ($185.22/365)............................................. $ 0.51

Discount................................................................................ $ 63.00
Interest that would be paid on the 45-day* loan (45  $0.51) (22.95)
Net savings from borrowing to pay within
the discount period..................................................... $ 40.05

*60 days in credit period – 15 days in discount period = 45 days.

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528 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-3B (40 minutes)
July 3 Merchandise Inventory..................................... 15,000
Accounts Payable—CMP Corp. ............... 15,000
Purchased goods on credit.

4 Accounts Payable—CMP Corp. ...................... 250

Cash............................................................. 250
Paid freight for supplier.

7 Accounts Receivable—Harbison Co. .............. 10,500

Sales............................................................. 10,500
Sold goods on credit.
7 Cost of Goods Sold............................................ 7,500
Merchandise Inventory.............................. 7,500
To record the cost of the July 7 sale.

10 Merchandise Inventory..................................... 13,250

Accounts Payable—Cimarron Corporation
13,250
Purchased goods on credit.

11 Delivery Expense or Freight-Out..................... 300

Cash............................................................. 300
Paid shipping charges on July 7 sale.

12 Sales Returns and Allowances.......................... 1,750

Accounts Receivable—Harbison Co. ....... 1,750
Customer returned merchandise.

12 Merchandise Inventory..................................... 1,250

Cost of Goods Sold..................................... 1,250
Returned goods to inventory.

14 Accounts Payable—Cimarron Corporation... 2,050

Merchandise Inventory.............................. 2,050
Received a credit memorandum for
July 10 purchase.

17 Cash.................................................................... 8,575
Sales Discounts.................................................. 175
Accounts Receivable—Harbison Co. ....... 8,750

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Solutions Manual for Chapter 6 529
 Collected receivable within
discount period; 10,500 – 1,750 = 8,750;
8,750 x 2% = 175.

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530 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-3B (concluded)
July 18 Cash............................................................... 15,000
Land........................................................ 15,000
Sold land at cost.

19 Van................................................................ 18,000
Cash........................................................ 5,000
Notes Payable......................................... 13,000
To record purchase of van.

20 Accounts Payable—Cimarron Corporation 11,200

Merchandise Inventory......................... 112
Cash........................................................ 11,088
Paid payable within the discount period;
$13,250 – 2,050 = $11,200; 11,200 x 1% = 112.

21 Accounts Receivable—Hess........................ 9,000

Sales........................................................ 9,000
Sold goods on credit.

21 Cost of Goods Sold....................................... 6,250

Merchandise Inventory......................... 6,250
To record the cost of the July 21 sale.

24 Sales Returns and Allowances.................... 1,500

Accounts Receivable—Hess.................. 1,500
Issued credit memo.

31 Cash............................................................... 7,425
Sales Discounts............................................. 75
Accounts Receivable—Hess.................. 7,500
Collected receivable within discount
period; 9,000 – 1,500 = 7,500; 7,500 x 1% = 75.

31 Accounts Payable—CMP Corp.................. 14,750

Cash........................................................ 14,750
Paid payable; 15,000 – 250 = 14,750.

Analysis component:
The alternative to granting a credit memorandum would be to have the customer
return the unsatisfactory merchandise and reissue the order. An advantage of
having the customer return the merchandise and reissuing the order is that the
customer will have the merchandise that meets their original specifications. A
disadvantage of the alternative is that the cost and related efforts may be greater
than issuing a credit memo.

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Solutions Manual for Chapter 6 531
 Problem 6-4B (60 minutes) Part 1
514
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
RESOURCE PRODUCTS COMPANY
Work Sheet
For Year Ended October 31, 2011
Balance Sheet and
Unadjusted Adjusting Entries Adjusted Trial Income Statement of
Trial Balance Balance Statement Owner’s Equity
Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash............................................. 6,400 6,400 6,400
Merchandise inventory............... 23,000 (d) 22,200 22,200
800
Store supplies.............................. 9,450 (a) 3,300 3,300
6,150
Prepaid insurance....................... 4,750 (b) 1,750 1,750
3,000
Store equipment.......................... 83,800 83,800 83,800
Accumulated amortization, store
 equipment................................... 30,000 (c) 3,000 33,000 33,000
Fundamental Accounting Principles, Twelfth Canadian Edition

Accounts payable........................ 16,000 16,000 16,000

Jan Smithers, capital.................. 80,400 80,400 80,400
Jan Smithers, withdrawals......... 6,000 6,000 6,000
Sales............................................. 198,00 198,00 198,00
0 0 0
Sales discounts............................. 2,000 2,000 2,000
Sales returns and allowances...... 4,000 4,000 4,000
Cost of goods sold....................... 74,800 (d) 75,600 75,600
800
Amortization expense, store (c) 3,000 3,000 3,000
equipment
Salaries expense.......................... 62,000 62,000 62,000
Interest expense........................... 400 400 400
Insurance expense....................... (b) 3,000 3,000
3,000
Rent expense............................... 28,000 28,000 28,000
Store supplies expense................ (a) 6,150 6,150
6,150
Advertising expense.................... 19,800 19,800 19,800
 Totals.......................................... 324,40 324,40 12,950 12,950 327,400 327,40 203,950 198,00 123,450 129,400
0 0 0 0
Net loss......................................... 5,950 5,950
 Totals.......................................... 203,950 203,95 129,400 129,400
0

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Solutions Manual for Chapter 6 533
Problem 6-4B (concluded)
Part 2 Multiple-step income statement:

RESOURCE PRODUCTS COMPANY

Income Statement
For Year Ended October 31, 2011
Net sales............................................................ $192,000
Cost of goods sold............................................ 75,600
Gross profit from sales.................................... $116,400
Operating expenses:
Salaries expense ........................................... $62,000
Rent expense................................................. 28,000
Advertising expense .................................... 19,800
Store supplies expense ................................ 6,150
Insurance expense ....................................... 3,000
Amortization expense, store equipment .... 3,000
 Total operating expenses............................ 121,950
Loss from operations....................................... $ 5,550
Other revenues and expenses:
 Interest expense.............................................. 400
Net loss.............................................................. $ 5,950

Analysis component:
Interest Expense is shown under Other revenues and expenses because it is not a
day-to-day operating activity for Resource Products Company. Revenues and
expenses not related to day-to-day operations are listed under Other revenues and
expenses.

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534 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-5B (40 minutes)

1. Classified, multiple-step income statement:

REYNA COMPANY
Income Statement
For Year Ended May 31, 2011
Sales......................................................................... $318,000
 Less:Sales discounts.............................................. $ 4,875
   Sales returns and allowances...................... 21,000 25,875
 Netsales.................................................................. $292,125
Cost of goods sold.................................................. 123,900
Gross profit from sales........................................... $168,225
Operating expenses:
Selling expenses:
Sales salaries expense...................................... $ 43,500
Advertising expense......................................... 27,000
Rent expense, selling space............................. 15,000
Store supplies expense..................................... 3,750
Total selling expenses...................................... $ 89,250
General and administrative expenses:
Office salaries expense.................................... $ 39,750
Rent expense, office space............................... 3,900
Office supplies expense.................................... 1,200
Total general and administrative expenses... 44,850
Total operating expenses.................................... 134,100
Net income............................................................... $ 34,125

2. Single-step income statement:

REYNA COMPANY
Income Statement
For Year Ended May 31, 2011
Net sales................................................................... $292,125
Expenses:
 Costof goods sold.................................................. $123,900
 Selling expenses..................................................... 89,250
 General and administrative expenses.................. 44,850
  Totalexpenses....................................................... 258,000
Net income............................................................... $ 34,125

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Solutions Manual for Chapter 6 535
Problem 6-6B (30 minutes)
 2011 Closing entries:
May 31 Sales .............................................................. 318,000
Income Summary.................................. 318,000
To close temporary account with credit
balance.

31 Income Summary......................................... 283,875

Sales Discounts ..................................... 4,875
Sales Returns and Allowances ............. 21,000
Cost of Goods Sold................................ 123,900
Sales Salaries Expense.......................... 43,500
Rent Expense, Selling Space................. 15,000
Store Supplies Expense......................... 3,750
Advertising Expense.............................. 27,000
Office Salaries Expense......................... 39,750
Rent Expense, Office Space.................. 3,900
Office Supplies Expense........................ 1,200
To close temporary accounts with debit
balances.

31 Income Summary......................................... 34,125

Paul Reyna, capital................................ 34,125
To close the Income Summary account.

31 Paul Reyna, Capital..................................... 24,000

Paul Reyna, Withdrawals..................... 24,000
To close the withdrawals account.

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536 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-7B (50 minutes)
1. Classified, multiple-step income statement:

BANDARA SALES
Income Statement
For Year Ended December 31, 2011
Sales................................................................. $946,300
 Less: Sales returns and allowances............ $ 7,345
Sales discounts................................... 1,390 8,735
 Netsales.......................................................... $937,565
Cost of goods sold........................................... 649,820
Gross profit from sales................................... $287,745
Operating expenses:
 Selling expenses:
  Salessalaries expense................................... $149,4851
  Rentexpense, selling space........................... 39,8082
  Amortization expense, store equipment...... 16,020
  Storesupplies expense.................................. 4,2003
  Totalselling expenses................................... $209,513
 General and administrative expenses:
  Office salaries expense.................................. $ 64,0654
  Rentexpense, office space............................ 9,9525
  Office supplies expense................................. 7,8006
  Insurance expense......................................... 6,200
  Amortization expense, office equipment...... 3,450
  Totalgeneral and administrative expenses. 91,467
 Total operating expenses............................... 300,980
Net loss............................................................ $ 13,235

1. 70% × 213,550
2. 80% × 49,760
3. 35% × 12,000
4. 30% × 213,550
5. 20% × 49,760
6. 65% × 12,000

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Solutions Manual for Chapter 6 537
Problem 6-7B (concluded)
2. Single-step income statement:

BANDARA SALES
Income Statement
For Year Ended December 31, 2011

Revenues:
Net sales............................................... $937,565
Expenses:
  Costof goods sold.................................... $649,82
0
  Selling expenses........................................ 209,513
  General and administrative expenses..... 91,467 950,800
Net loss....................................................... $ 13,235

Analysis component:
The gross profit ratio for Bandara Sales’ year ended December 31, 2011 is 30.69%
($287,745/$937,565 × 100 = 30.69%). This represents a favourable change when
compared to the 28% gross profit ratio for the prior year.

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538 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-8B
2011 Closing entries:
Dec 3 Sales............................................................... 946,30
. 1 0
  Income Summary........................................ 946,30
0
 Toclose temporary credit balance accounts.

3 Income Summary.......................................... 959,53

1 5
  SalesReturns and Allowances.................... 7,345
  SalesDiscounts............................................ 1,390
  Costof goods sold........................................ 649,82
0
  Salaries Expense......................................... 213,55
0
  RentExpense............................................... 49,760
  Supplies Expense......................................... 12,000
  Amortization Expense, Store Equipment. .   16,020
  Insurance Expense...................................... 6,200
  Amortization Expense, Office Equipment. 3,450
 Toclose temporary debit balance accounts.

3 Diego Amara, Capital................................... 13,235

1
  Income Summary........................................ 13,235
 Toclose the Income Summary account to
 capital.

3 Diego Amara, Capital................................... 102,50

1 0
  DiegoAmara, Withdrawals........................ 102,50
0
 Toclose withdrawals to capital.

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Solutions Manual for Chapter 6 539
Problem 6-9B (60 minutes)
1. Classified, multiple-step income statement:
TINKER SALES
Income Statement
For Year Ended July 31, 2011
Sales................................................................. $78,500
 Less: Sales discounts................................... 1,000
 Netsales.......................................................... $77,500
Cost of goods sold........................................... 47,400
Gross profit from sales................................... $30,100
Operating expenses:
 Selling expenses:
Sales salaries expense.............................. $18,000
Advertising expense................................. 9,900
Rent expense, selling space...................... 7,000
Store supplies expense............................. 1,600
Amortization expense, store equipment. 1,000
Insurance expense, store.......................... 750
  Totalselling expenses................................... $38,250
 General and administrative expenses:
Office salaries expense............................. $ 5,000
Rent expense, office space....................... 5,000
Amortization expense, office equipment. 2,500
Office supplies expense............................ 1,200
Insurance expense, office......................... 250
  Totalgeneral and administrative expenses. 13,950
 Total operating expenses............................... 52,200
Net loss............................................................ $22,100

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540 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 6-9B (concluded)
2. Multiple-step income statement:

TINKER SALES
Income Statement
For Year Ended July 31, 2011

Net sales............................................................ $77,500

Cost of goods sold............................................ 47,400
Gross profit from sales.................................... $30,100
Operating expenses:
Salaries expense ........................................... $23,000
Rent expense................................................. 12,000
Advertising expense .................................... 9,900
Supplies expense .......................................... 2,800
Amortization expense, equipment ............. 3,500
Insurance expense ....................................... 1,000
 Total operating expenses............................ 52,200
Net loss.............................................................. $ 22,100

3. Single-step income statement:

TINKER SALES
Income Statement
For Year Ended July 31, 2011
Revenues:
Net sales............................................................ $77,500
Expenses:
Cost of goods sold............................................ $47,400
Selling expenses................................................ 38,250
General and administrative expenses............ 13,950
 Total expenses................................................ 99,600
Net loss................................................................ $ 22,100

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Solutions Manual for Chapter 6 541
*Problem 6-10B (40 minutes)
Mar. 5 Purchases............................................................ 25,000
Cash............................................................. 25,000
To record purchase of merchandise for cash.

6 Accounts Receivable – Tessier & Welsh......... 16,000

Sales............................................................. 16,000
To record sales; terms 2/10, n30, FOB
destination.

7 Purchases............................................................ 32,000
Accounts Payable – Janz Company.......... 32,000
To record purchase of merchandise;
terms 1/10, n45, FOB shipping point.
8 Transportation-in or Freight-In....................... 75
Cash............................................................. 75
To record payment of shipping costs.

9 Accounts Receivable – Parker Company........ 28,000

Sales............................................................. 28,000
To record sales; terms 2/10, n30, FOB
destination.

1 Purchases............................................................ 7,000
0
Accounts Payable – Delton Suppliers....... 7,000
To record purchase; terms 2/10, n45, FOB
destination.

1 Cash.................................................................... 15,680
6
Sales Discounts................................................... 320
Accounts Receivable – Tessier & Welsh. . 16,000
To record collection within discount period;
$16,000 x 2% = $320 discount.

1 Accounts Payable – Janz Company................. 32,000

7
Cash............................................................. 31,680
Purchase Discounts.................................... 320
To record payment within discount period;
$32,000 x 1% = $320 discount.

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542 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-10B (concluded)
Mar. 3 Accounts Payable – Delton Suppliers.............. 7,000
0
Cash............................................................. 7,000
To record payment.

3 Cash.................................................................... 28,000
1
Accounts Receivable – Parker Company. 28,000
To record collection.

*Problem 6-11B (30 minutes)

Date Account Debit Credit
Mar. Purchases............................................................ 20,000
1
  Accounts Payable — Zender Holdings.......... 20,000
 Purchased merchandise terms 1/10, n/15.

2 Cash..................................................................... 1,800
  Sales.................................................................. 1,800
 Soldmerchandise for cash.

7 Purchases............................................................ 16,000
  Accounts Payable — Red River Co................ 16,000
 Purchased merchandise terms 2/10, n/30.

8 Transportation-in or Freight-In........................ 350

  Accounts Payable — Dan’s Shipping............ 350
 Paidfreight charges on purchase of March 7.

12 Accounts Receivable — Bev Dole..................... 9,000

  Sales................................................................... 9,000
 Soldmerchandise on credit, terms 2/10, n/45.

13 Accounts Payable — Red River Co.................. 500

  Purchase Returns and Allowances................. 500
 Received credit memo re purchase of March 7.

14 Office Furniture.................................................. 1,600

  Accounts Payable — Wilson Supplies............ 1,600
 Purchased office furniture on credit.

15 Accounts Receivable — Ted Smith................... 17,000

  Sales................................................................... 17,000
 Soldmerchandise terms 2/10, n/45.
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Solutions Manual for Chapter 6 543
*Problem 6-11B (concluded)
Mar. Accounts Payable — Red River Co.................. 15,500
16
  Purchase Discounts.......................................... 310
  Cash................................................................... 15,190
 Paidfor merchandise purchased on March 7;
 16,000 – 500 = 15,500; 15,500 – 2% = 15,190.

17 Sales Returns and Allowances........................... 1,000

  Accounts Receivable — Ted Smith................. 1,000
 Issued credit memo to customer of March 15.

19 Accounts Payable — Wilson Supplies.............. 750

  Office Furniture................................................ 750
 
To record memorandum regarding damaged
 furniture purchased on March 14.

24 Cash..................................................................... 15,680
Sales Discounts................................................... 320
  Accounts Receivable — Ted Smith................. 16,000
 Torecord receipt of payment regarding March
15
 saleless return and discount;
17,000 – 1,000 = 16,000; 16,000 x 2% = 320.

27 Cash..................................................................... 9,000
  Accounts Receivable — Bev Dole................... 9,000
 Received payment from customer regarding
 March 12 sale.

31 Accounts Payable — Zender Holdings............. 20,000

  Cash................................................................... 20,000
 Paidfor merchandise purchased on March 1.

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544 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-12B (40 minutes)
1. Net sales:
 Sales................................................................................. $540,000
 Less: Sales returns and allowances................................ 57,000
  Sales discounts..................................................... 4,700
 Netsales........................................................................... $478,300
2. Cost of goods purchased:
 Purchases........................................................................ $ 240,000
 Less: Purchases returns and allowances...................... 8,100
  Purchases discounts............................................. 2,300
 Transportation-in........................................................... 9,700
 Costof goods purchased................................................. $ 239,300
3. Cost of goods sold:
 Beginning inventory........................................................ $ 50,000
 Costof goods purchased (from 2).................................. 239,300
 Less: Ending inventory................................................... 32,000
 Costof goods sold........................................................... $ 257,300

4. Multiple-step income statement:

GARNEAU COMPANY
Income Statement
For Year Ended November 30, 2011

Net Sales................................................................ $478,300

Cost of goods sold.................................................. 257,300
Gross profit from sales.......................................... $221,000
Operating expenses:
 Salaries expense................................................. $120,000
 Rent expense....................................................... 72,000
 Advertising expense........................................... 6,000
 Supplies expense................................................. 10,000
  Totaloperating expenses.................................... 208,000
Income from operations........................................ $ 13,000
Other revenues and expenses...............................
 Interest expense....................................................         700
Net income............................................................. $ 12,300

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Solutions Manual for Chapter 6 545
*Problem 6-12B (concluded)
5. Single-step income statement:

GARNEAU COMPANY
Income Statement
For Year Ended November 30, 2011

Revenues:
Net sales................................................................... $478,300
Expenses:....................................................................
Cost of goods sold................................................... $257,300
Selling expenses....................................................... 131,900
General and administrative expenses.................... 76,100
Interest expense...................................................... 700
Total expenses....................................................... 466,000
Net income.................................................................. $ 12,300

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546 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-13B (30 minutes)
2011 Closing entries:
Nov 30 Merchandise Inventory.............................................. 32,000
.
Sales............................................................................. 540,000
Purchases Returns and Allowances........................... 8,100
Purchases Discounts................................................... 2,300
  Income Summary...................................................... 582,400
 
To close temporary accounts with credit balances
 andrecord the ending inventory.

30 Income Summary........................................................ 570,100

  Merchandise Inventory............................................ 50,000
  SalesReturns and Allowances.................................. 57,000
  SalesDiscounts.......................................................... 4,700
  Purchases................................................................... 240,000
  Transportation-In..................................................... 9,700
  Salaries Expense........................................................ 120,000
  RentExpense............................................................. 72,000
  Supplies Expense....................................................... 10,000
  Advertising Expense................................................. 6,000
Interest Expense.................................................. 700
 To close temporary accounts with debit balances
and
 toremove the beginning inventory balance.

30 Income Summary........................................................ 12,300

  Teresa Garneau, Capital.......................................... 12,300
 To close the Income Summary Account.

30 Teresa Garneau, Capital............................................ 20,000

  Teresa Garneau, Withdrawals................................. 20,000
 
To close the withdrawals account.

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Solutions Manual for Chapter 6 547
 *Problem 6-14B (60 minutes) Part 1
Solutions Manual for Chapter 6
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.
THE DOWNTOWN STORE
Work Sheet
For Year Ended March 31, 2011
Unadjusted Balance Sheet  and 
Trial     Income      Statement of
      Balance     Adjustments              Statement      Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit Credit
Cash............................................................... 14,000 14,000
Merchandise inventory................................. 96,000 96,000 18,000 18,000
Supplies......................................................... 1,200 (a) 300 900
Prepaid rent.................................................. 14,000 (b) 10,000 4,000
Store equipment............................................ 120,000 120,000
Accumulated amortization, store equipment..................................28,000 (c) 3,200 31,200
Office equipment.......................................... 46,000 46,000
Accumulated amortization, office 13,000 (d) 6,500 19,500
equipment......................................................
Accounts payable.......................................... 32,000 32,000
Lucy Baker, capital...................................... 269,200 269,200
Lucy Baker, withdrawals............................. 68,000 68,000
Sales............................................................... 998,000 998,000
Sales returns and allowances....................... 23,000 23,000
Sales discounts............................................... 12,000 12,000
Purchases....................................................... 692,000 692,000
Purchases returns and allowances............... 5,700 5,700
Purchases discounts...................................... 14,300 14,300
Transportation-in......................................... 32,000 32,000
Salaries expenses (60% selling; 40% office)...................................
120,000 120,000
Rent expense (80% selling; 20% office)...... 91,000 (b) 10,000 101,000
Advertising expense...................................... 14,000 14,000
Supplies expense (30% selling; 70% office) 17,000 (a) 300 17,300
Amortization expense, store equipment...... 0 (c) 3,200 3,200
Amortization expense, office equipment.....               (d) 6,500                6,50                                            
      0         0
Totals.......................................................... 1,360,200 1,360,200 20,000 20,000 1,117,00 1,036,000 270,900 351,900
0
Net loss...........................................................            81,000 81,000                    
             
Totals.......................................................... 1,117,00 1,107,000 351,900 351,900
529
0
*Problem 6-14B (concluded) Part 2
2011 Closing entries: Page
G14
Ma 3 Merchandise Inventory......................................... 18,000
r. 1
Sales........................................................................ 998,000
Purchase Returns and Allowances........................ 5,700
Purchase Discounts................................................ 14,300
  Income Summary................................................. 1,036,000
 Toclose temporary credit balance accounts.

3 Income Summary................................................... 1,117,000

1
  Merchandise Inventory....................................... 96,000
  SalesReturns and Allowances............................. 23,000
  SalesDiscounts..................................................... 12,000
  Purchases.............................................................. 692,000
  Transportation-In................................................ 32,000
  Salaries Expense.................................................. 120,000
  RentExpense........................................................ 101,000
  Advertising Expense............................................ 14,000
  Supplies Expense.................................................. 17,300
  Amortization Expense, Store Equipment........... 3,200
  Amortization Expense, Office Equipment.......... 6,500
 Toclose temporary debit balance accounts.

3 Lucy Baker, Capital.............................................. 81,000

1
  Income Summary................................................. 81,000
 Toclose the Income Summary account to capital.

3 Lucy Baker, Capital.............................................. 68,000

1
  LucyBaker, Withdrawals................................... 68,000
 Toclose withdrawals to capital.

Part 3 Merchandise Inventory Account No. 110

Date Explanation PR Debit Credit Balance
2010
Mar. March 31, 2010 balance (brought 96,000.0
31 forward) 0

2011
Mar. Close out March 31, 2010 balance G1 96,000.0 0
31 4 0

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550 Fundamental Accounting Principles, Twelfth Canadian Edition
 31 March 31, 2011 balance G1 18,000.0 18,000.0
4 0 0

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Solutions Manual for Chapter 6 551
*Problem 6-15B (40 minutes)
Classified multiple-step income statement:
THE DOWNTOWN STORE
Income Statement
For Year Ended March 31, 2011

Sales....................................................................... $998,000
Less: Sales returns and allowances................... $23,000
Sales discounts.......................................... 12,000 35,000
Net Sales................................................................. $963,000
Cost of goods sold:
Merchandise inventory, March 31, 2010.......... $96,000
Purchases.......................................................... $692,000
Less: $ 5,700
Purchase returns and allowances...........
14,300 20,000
Purchase discounts
Net purchases..................................................... $672,000
Add: Transportation-in................................. 32,000
Cost of goods purchased.................................... 704,000
Goods available for sale..................................... $800,000
Less: Merchandise inventory, March 31, 2011 18,000
Cost of goods sold............................................... 782,000
Gross profit from sales.......................................... $181,000
Operating expenses:
Selling expenses:
Rent expense, selling space1............................. $80,800
2
Sales salaries expense ...................................... 72,000
Advertising expense......................................... 14,000
3
Store supplies expense .................................... 5,190
Amortization expense, store equipment.......... 3,200
Total selling expenses....................................... $175,190
General and administrative expenses:
Office salaries expense4.................................... $48,000
Rent expense, office space5............................... 20,200
6
Office supplies expense ................................... 12,110
Amortization expense, office equipment......... 6,500
Total general and administrative expenses..... 86,810
  Totaloperating expenses.................................... 262,000
Net loss................................................................... $ 81,000

Calculations:

1. 101,000 x 80% 4. 120,000 x 40%

2. 120,000 x 60% 5. 101,000 x 20%
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552 Fundamental Accounting Principles, Twelfth Canadian Edition
3. 17,300 x 30% 6. 17,300 x 70%

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Solutions Manual for Chapter 6 553
*Problem 6-16B (40 minutes)
Sept. 2 Cash ........................................................................ 7,980
PST Payable .................................................... 560
GST Payable ................................................... 420
Sales ................................................................. 7,000
To record cash sale; $7,000 x 8% = $560 PST;
$7,000 x 6% = $420 GST.
2 Cost of Goods Sold................................................. 5,800
Merchandise Inventory .................................. 5,800
To record cost of sale.
3 Merchandise Inventory ......................................... 8,000
GST Receivable ..................................................... 480
Cash ................................................................. 8,480
To record cash purchase; $8,000 x 6% = $480 GST.
7 Merchandise Inventory ......................................... 5,000
GST Receivable ..................................................... 300
Accounts Payable ............................................ 5,300
To record credit purchase; $5,000 x 6% = $300 GST.
8 Accounts Receivable .............................................. 17,100
PST Payable .................................................... 1,200
GST Payable ................................................... 900
Sales ................................................................. 15,000
To record credit sale; $15,000 x 8% = $1,200 PST;
$15,000 x 6% = $900 GST.
8 Cost of Goods Sold................................................. 13,200
Merchandise Inventory .................................. 13,200
To record cost of sale.
17 Accounts Payable.................................................... 5,300
Merchandise Inventory .................................. 50
Cash ................................................................. 5,250
To record payment within discount period;
$5,000* x 1% = $50.
18 Cash......................................................................... 16,800
Sales Discounts ....................................................... 300
Accounts Receivable ....................................... 17,100
To record collection within discount period;
$15,000* x 2% = $300.
*The discount applies only to the amount before tax.

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554 Fundamental Accounting Principles, Twelfth Canadian Edition
*Problem 6-17B (40 minutes)
Sept. 2 Cash ........................................................................ 7,980
PST Payable .................................................... 560
GST Payable ................................................... 420
Sales ................................................................. 7,000
To record cash sale; $7,000 x 8% = $560 PST;
$7,000 x 6% = $420 GST.
3 Purchases ............................................................... 8,000
GST Receivable ..................................................... 480
Cash ................................................................. 8,480
To record cash purchase; $8,000 x 6% = $480 GST.
7 Purchases ............................................................... 5,000
GST Receivable ..................................................... 300
Accounts Payable ............................................ 5,300
To record credit purchase; $5,000 x 6% = $300 GST.
8 Accounts Receivable .............................................. 17,100
PST Payable .................................................... 1,200
GST Payable ................................................... 900
Sales ................................................................. 15,000
To record credit sale; $15,000 x 8% = $1,200 PST;
$15,000 x 6% = $900 GST.
17 Accounts Payable.................................................... 5,300
Purchase Discounts ......................................... 50
Cash ................................................................. 5,250
To record payment within discount period;
$5,000* x 1% = $50.
18 Cash......................................................................... 16,800
Sales Discounts ....................................................... 300
Accounts Receivable ....................................... 17,100
To record collection within discount period;
$15,000* x 2% = $300.

*The discount applies only to the amount before tax.

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Solutions Manual for Chapter 6 555
ANALYTICAL AND REVIEW PROBLEMS

A&R Problem 6-1 – Perpetual

Multiple-step income statement:

DEMO SALES
Income Statement
For Month Ended July 31, 2011

Net sales............................................................ $559,340*

Cost of goods sold............................................ 394,000
Gross profit from sales.................................... $165,340
Operating expenses:
Advertising expense .................................... $14,000
Rent expense................................................. 5,000
Amortization expense, equipment ............. 3,000
Insurance expense ....................................... 2,500
Interest expense............................................     1,700
 Total operating expenses............................ 26,200
Net income........................................................ $139,140

*$562,140 - $2,800 = $559,340

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556 Fundamental Accounting Principles, Twelfth Canadian Edition
Ethics Challenge

1. Some students may feel that Claire has devised a clever way to beat the
system. She appears to be succeeding in getting something for free. Other
students will feel that Claire is definitely abusing the system and that her
ethical code needs a major overhaul. Their instructor may wish to point out
that customer abuses such as Claire’s usually result in stores adopting
stringent return policies that will impact all customers who have legitimate
needs to return unused products. At some point Claire will probably suffer
discomfort when questioned about items that are returned in less than
perfect condition. Also if store managers suspect Claire’s behaviour over
time they may no longer allow her to shop at their store. If Claire is banned
from the store she will likely suffer humiliation for herself and her family.
Probably Claire’s parents do not know of her scheme and she may suffer
additional consequences once they learn of her practices.
2. The store must account for sales returns using a contra-revenue account
called Sales Returns and Allowances. A dress returned with a sales bill of
$100 would be accounted for as follows:
Sales Returns and Allowances……….. $100
Accounts Receivable……………….. $100

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Solutions Manual for Chapter 6 557
Focus on Financial Statements
FFS 6-1
Single-step income statement:

COLUMBIA TEXTILES
Income Statement
For Year Ended December 31, 2011
(000’s)
Revenues:
Net sales............................................................ $614
Interest earned................................................. 2
Total revenues $616
Expenses:
Cost of goods sold............................................ $459
Selling expenses1.............................................. 193
General and administrative expense2............. 114
Interest expense............................................... 4
Total expenses.................................................. 770
Net loss................................................................... $ 154

COLUMBIA TEXTILES
Statement of Owner’s Equity
For Year Ended December 31, 2011
(000’s)
Brandy Columbia, capital, January 1................. $5403
Add: Investments by owner................................ 0
Total.................................................................. $540
Less: Withdrawals for the year......................... $78
Net loss....................................................... 154 232
Brandy Columbia, capital, December 31............ $308

1. $21 + $46 + $120 + $6 = $193

2. $63 + $17 + $21 + $8 + $5 = $114
3. Calculated as post-closing capital balance of $308 + withdrawals of $78 + net loss of $154
= $540 capital at January 1.

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558 Fundamental Accounting Principles, Twelfth Canadian Edition
FFS 6-1 (continued)
COLUMBIA TEXTILES
Balance Sheet
December 31, 2011
(000’s)
Assets
Current assets:
Cash........................................................................... $ 48
Accounts receivable.................................................. 106
Merchandise inventory............................................. 236
Office supplies........................................................... 5
Prepaid rent.............................................................. 32
Current portion of notes receivable........................ 3
Total current assets.................................................. $ 430
Long-term investments:
Notes receivable, less current portion 11
Property, plant and equipment:
Office furniture......................................................... $ 52
Less: Accumulated amortization, office 38 $ 14
furniture.............................................................................
Store fixtures............................................................. $106
Less: Accumulated amortization, store fixtures 61 45
Total property, plant and equipment...................... 59
Intangible assets:
Franchise.................................................................. 62
Total assets........................................................................ $ 562

Liabilities
Current liabilities:
Accounts payable....................................................... $ 17
Unearned sales........................................................... 12
Current portion of notes long-term notes payable. 45
Total current liabilities........................................... $ 74
 Long-term liabilities:
Notes payable, less current portion.......................... 180
 Total liabilities................................................................ $ 254

Owner’s Equity
 Brandy Columbia, capital.............................................. 308
Total liabilities and owner’s equity................................. $ 562

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Solutions Manual for Chapter 6 559
FFS 6-1 (concluded)
Analysis component:
Although Danier Leather has more total liabilities than Columbia Textiles,
$28,428,000 vs. $254,000, Danier Leather’s total liabilities represent 34.10% of
total assets ($28,428,000/$83,365,000 × 100) which is less than Columbia Textiles.
Columbia Textiles’s total liabilities represent 45.20% of total assets
($254,000/$562,000 × 100). Therefore, Danier Leather has the stronger balance
sheet. However, Danier is in the retail clothing industry while Columbia is in the
textile industry; similar but different therefore there is a question of how valid the
comparison is.

FFS 6-2
a. Danier sells products because the income statement includes Cost of sales,
another term used to describe Cost of goods sold, the expense account that
represents the cost of the goods actually sold.
b. WestJet sells services since its expense accounts on the income statement do
not include an account for Cost of sales or Cost of goods sold.
c. The gross profit of $83,487 (thousand) represents the profit earned on the
sale of goods before deducting operating expenses.
d. Yes, Danier had sufficient gross profit to cover operating expenses for the
year ended June 25, 2005, since net earnings before discontinued operations
for the year totalled $2,583 (thousand).
e. Danier has prepared its income statement using the single-step format.
f. According to note 3, inventory for Danier represents raw materials, work-
in-process, and finished goods whereas inventory for WestJet, according to
note 1(f), represents materials and supplies.

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560 Fundamental Accounting Principles, Twelfth Canadian Edition
Critical Thinking Question
CT 6-1
Note to instructor: Student responses will vary therefore the answer here is only
suggested and not inclusive of all possibilities; it is presented in point form for
brevity.

Problem(s):
— Review and assess the inventory information
Goal(s)*:
— To review and assess the inventory information so that appropriate
questions can be asked and answered to effectively manage the inventory
Assumption(s)/Principle(s):
— That the information provided is correct; given that the cost of merchandise
sold to customers increased by 50% from 2010 to 2011 (480,000 – 320,000 =
160,000/320,000 × 100 = 50%), it can be assumed that there was a
corresponding increase in sales from 2010 to 2011
Facts:
— The information provided was reorganized into the following T-accounts:

2010:
Merchandise Inventory Cost of Goods Sold
320,00 320,00
Beg. 84,000 0 COGS COGS 0 22,400 Sales Ret
Purchase 240,00 Shrinkag Shrinkag
s 0 14,000 e e 14,000
311,60
TI 12,000 2,400 Purch disc Adj. Bal. 0
Purch
Sales Ret 22,400 1,200 ret  
End. Inv. 20,800  

2011:    
Merchandise Inventory Cost of Goods Sold
480,00 480,00 Sales
Beg 20,800 0 COGS COGS 0 115,000 Ret
Purchase 510,00 Shrinkag
s 0 2,500 Shrinkage e 2,500
Purch 367,50
TI 25,500 5,100 disc 0
115,00
Sales Ret 0 2,550 Purch ret  
End 181,15

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Solutions Manual for Chapter 6 561
 0
   

*The goal is highly dependent on “perspective.”

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562 Fundamental Accounting Principles, Twelfth Canadian Edition
CT 6-1 (concluded)
Conclusion(s)/Consequence(s):
— Sales returns in 2011 were $115,000 which is 413% greater than in 2010
(115,000 – 22,400 = 92,600/22,400 × 100). This is an unfavourable change
and requires immediate attention; questions need to be asked to determine
the cause(s) so that the appropriate corrective action can be taken
— Shrinkage decreased by $11,500 or 82% from 2010 to 2011 (14,000 – 2,500 =
11,500/14,000 × 100); this is a favourable change and the inventory manager
should find out how this occurred and improve on it, if possible

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Solutions Manual for Chapter 6 563
Perpetual Serial Problem, Echo Systems (150 minutes) Part 1
Journal entries:
General Journal Page G7
Date Account Titles and Explanations PR Debit Credit
2012
Jan. 4 Wages Expense .......................................623 200
Wages Payable ........................................210 800
Cash ..................................................101 1,000
Paid employee.
5 Cash .........................................................101 48,000
Mary Graham, Capital ...................301 48,000
Investment by owner.
7 Merchandise Inventory .........................119 11,200
Accounts Payable—Shephard Corp. 201
11,200
Purchased merchandise on credit.
9 Cash .........................................................101 3,000
Accounts Receivable—Fostek Co. . 106.6 3,000
Collected accounts receivable.
11 Accounts Receivable—Alamo Eng. Co. 106.1 9,000
Unearned Computer Services Revenue 236 3,000
Computer Services Revenue ..........403 12,000
Completed work on project.
13 Accounts Receivable—Elite Corp. .......106.5 8,400
Sales ..................................................413 8,400
Sold merchandise on credit.
13 Cost of Goods Sold .................................502 6,720
Merchandise Inventory ...................119 6,720
To record the cost of the January 13 sale.
15 Merchandise Inventory .........................119 1,400
Cash ..................................................101 1,400
Paid freight on incoming merchandise.
16 Cash .........................................................101 6,000
Computer Services Revenue ..........403 6,000
Collected cash revenue from customer.
17 Accounts Payable—Shephard Corp. ....201 11,200
Merchandise Inventory ...................119 112
Cash ..................................................101 11,088
Paid account payable within discount period.

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564 Fundamental Accounting Principles, Twelfth Canadian Edition
Perpetual Serial Problem (continued)
General Journal G8
Date Account Titles and Explanations PR Debit Credit
2012
Jan. 20 Sales Returns and Allowances ..............415 800
Accounts Receivable—Elite Corp. .106.5 800
Customer returned defective goods.
22 Cash .........................................................101 7,524
Sales Discounts .......................................414 76
Accounts Receivable—Elite Corp. .106.5 7,600
Collected accounts receivable.
24 Accounts Payable—Shephard Corp. ....201 792
Merchandise Inventory....................119 792
Returned merchandise for credit.
26 Merchandise Inventory .........................119 16,000
Accounts Payable—Shephard Corp. 201
16,000
Purchased merchandise for resale.
26 Accounts Receivable—Hacienda, Inc. . 106.8 11,600
Sales ..................................................413 11,600
Sold merchandise on credit.
26 Cost of Goods Sold .................................502 9,280
Merchandise Inventory ...................119 9,280
To record the cost of the January 26 sale.
29 No entry recorded in the journal.
31 Wages Expense .......................................623 2,000
Cash ..................................................101 2,000
Paid employee.
Feb. 1 Prepaid Rent ...........................................131 6,750
Cash ..................................................101 6,750
Paid three months’ rent in advance.
3 Accounts Payable—Shephard Corp. ....201 15,208
Merchandise Inventory ...................119 160
Cash ..................................................101 15,048
Paid account payable within discount
period.
5 Advertising Expense ..............................655 1,600
Cash ..................................................101 1,600
Purchased ad in local newspaper.

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Solutions Manual for Chapter 6 565
Perpetual Serial Problem (continued)
General Journal G9
Date Account Titles and Explanations PR Debit Credit
2012
Feb. 11 Cash .........................................................101 9,000
Accounts Receivable—Alamo
Engin. Co. ...................................106.1 9,000
Collected accounts receivable.

15 Mary Graham, Withdrawals ................302 9,600

Cash ..................................................101 9,600
Owner withdrew cash.

23 Accounts Receivable—Grandview Co. 106.7 6,400

Sales ..................................................413 6,400
Sold merchandise on credit.

23 Cost of Goods Sold .................................502 5,120

Merchandise Inventory ...................119 5,120
To record the cost of the February 23 sale.

26 Wages Expense .......................................623 1,600

Cash ..................................................101 1,600
Paid employee.

27 Mileage Expense .....................................676 600

Cash ..................................................101 600
Reimbursed Mary Graham for use of auto.

Mar. 8 Computer Supplies .................................126 4,800

Accounts Payable—Abbot Office
Prod. .................................................201 4,800
Purchased supplies on credit.

Mar. 9 Cash .........................................................101 6,400

Accounts Receivable—Grandview Co. 106.7
6,400
Collected accounts receivable.

11 Repairs Expense, Computer .................684 1,720

Cash ..................................................101 1,720
Paid for computer repairs.

16 Cash .........................................................101 8,520

Computer Services Revenue ..........403 8,520

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566 Fundamental Accounting Principles, Twelfth Canadian Edition
 Collected cash revenue from customer.

Perpetual Serial Problem (continued)

General Journal G10
Date Account Titles and Explanations PR Debit Credit
2012
Mar. 19 Accounts Payable ..........................................201 7,110
Cash .........................................................101 7,110
Paid accounts payable.

24 Accounts Receivable—Capital Leasing ......106.3 11,800

Computer Services Revenue .................403 11,800
Billed customer for services.
25 Accounts Receivable—Buckman Services...106.2 3,600
Sales .........................................................413 3,600
Sold merchandise on credit.

25 Cost of Goods Sold ........................................502 2,004

Merchandise Inventory .........................119 2,004
To record the cost of the March 25 sale.

30 Accounts Receivable—Decker Co. ..............106.4 4,440

Sales .........................................................413 4,440
Sold merchandise on credit.

30 Cost of Goods Sold ........................................502 2,200

Merchandise Inventory .........................119 2,200
To record the cost of the March 30 sale.

31 Mileage Expense ...........................................676 400

Cash .........................................................101 400
Reimbursed Mary Graham for use of auto.

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Solutions Manual for Chapter 6 567
Perpetual Serial Problem (continued) Part 2
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 89,090
1
2012
Jan. 4 G7 1,000 88,090
5 G7 48,000 136,090
9 G7 3,000 139,090
1 G7 1,400 137,690
5
1 G7 6,000 143,690
6
1 G7 11,088 132,602
7
2 G8 7,524 140,126
2
3 G8 2,000 138,126
1
Feb. 1 G8 6,750 131,376
3 G8 15,048 116,328
5 G8 1,600 114,728
1 G9 9,000 123,728
1
1 G9 9,600 114,128
5
2 G9 1,600 112,528
6
2 G9 600 111,928
7
Mar. 9 G9 6,400 118,328
1 G9 1,720 116,608
1
1 G9 8,520 125,128
6
1 G1 7,110 118,018
9 0
3 G1 400 117,618
1 0

Accounts Receivable—Alamo Engineering Co. Acct. No. 106.1

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0

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568 Fundamental Accounting Principles, Twelfth Canadian Edition
 1
2012
Jan. 1 G7 9,000 9,000
1
Feb. 1 G9 9,000 0
1

Accounts Receivable—Buckman Services Acct. No. 106.2

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Mar. 2 G1 3,600 3,600
5 0

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Solutions Manual for Chapter 6 569
Perpetual Serial Problem (continued) Part 2
Accounts Receivable—Capital Leasing Acct. No. 106.3
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Mar. 2 G1 11,800 11,800
4 0

Accounts Receivable—Decker Co. Acct. No. 106.4

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,700
1
2012
Mar. 3 G1 4,440 7,140
0 0

Accounts Receivable—Elite Corporation Acct. No. 106.5

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Jan. 1 G7 8,400 8,400
3
2 G8 800 7,600
0
2 G8 7,600 0
2

Accounts Receivable—Fostek Co. Acct. No. 106.6

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,000
1
2012
Jan. 9 G7 3,000 0

Accounts Receivable—Grandview Co. Acct. No. 106.7

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1

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570 Fundamental Accounting Principles, Twelfth Canadian Edition
 2012
Feb. 2 G9 6,400 6,400
3
Mar. 9 G9 6,400 0

Accounts Receivable—Hacienda, Inc. Acct. No. 106.8

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Jan. 2 G8 11,600 11,600
6
Perpetual Serial Problem (continued) Part 2
Accounts Receivable—Images, Inc. Acct. No. 106.9
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1

Merchandise Inventory Acct. No. 119

Date Explanation PR Debit Credit Balance
2012
Jan. 7 G7 11,200 11,200
1 G7 6,720 4,480
3
1 G7 1,400 5,880
5
1 G7 112 5,768
7
2 G8 792 4,976
4
2 G8 16,000 20,976
6
2 G8 9,280 11,696
6
Feb. 3 G8 160 11,536
2 G9 5,120 6,416
3
Mar. 2 G1 2,004 4,412
5 0
3 G1 2,200 2,212
0 0

Computer Supplies Acct. No. 126

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Solutions Manual for Chapter 6 571
 Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 1,440
1
2012
Mar. 8 G9 4,800 6,240

Prepaid Insurance Acct. No. 128

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,240
1

Prepaid Rent Acct. No. 131

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,250
1
2012
Feb. 1 G8 6,750 9,000

Office Equipment Acct. No. 163

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 18,000
1

Perpetual Serial Problem (continued) Part 2

Accumulated Amortization, Office Equipment Acct. No. 164
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 1,500
1

Computer Equipment Acct. No. 167

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 36,000
1

Accumulated Amortization, Computer Acct. No. 168

Equipment
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,250
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572 Fundamental Accounting Principles, Twelfth Canadian Edition
 1

Accounts Payable Acct. No. 201

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,310
1
2012
Jan. 7 G7 11,200 13,510
1 G7 11,200 2,310
7
2 G8 792 1,518
4
2 G8 16,000 17,518
6
Feb. 3 G8 15,208 2,310
Mar. 8 G9 4,800 7,110
1 G1 7,110 0
9 0

Wages Payable Acct. No. 210

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 800
1
2012
Jan. 4 G7 800 0

Unearned Computer Services Revenue Acct. No. 236

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,000
1
2012
Jan. 1 G7 3,000 0
1

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Solutions Manual for Chapter 6 573
Perpetual Serial Problem (continued) Part 2
Mary Graham, Capital Acct. No. 301
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 145,860
1
2012
Jan. 5 G7 48,000 193,860

Mary Graham, Withdrawals Acct. No. 302

Date Explanation PR Debit Credit Balance
2012
Feb. 1 G9 9,600 9,600
5
Computer Services Revenue Acct. No. 403
Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 12,000 12,000
1
1 G7 6,000 18,000
6
Mar. 1 G9 8,520 26,520
6
2 G1 11,800 38,320
4 0

Sales Acct. No. 413

Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 8,400 8,400
3
2 G8 11,600 20,000
6
Feb. 2 G9 6,400 26,400
3
Mar. 2 G1 3,600 30,000
5 0
3 G1 4,440 34,440
0 0

Sales Discounts Acct. No. 414

Date Explanation PR Debit Credit Balance
2012
Jan. 2 G8 76 76

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574 Fundamental Accounting Principles, Twelfth Canadian Edition
 2

Sales Returns and Allowances Acct. No. 415

Date Explanation PR Debit Credit Balance
2012
Jan. 2 G8 800 800
0

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Solutions Manual for Chapter 6 575
Perpetual Serial Problem (continued) Part 2
Cost of Goods Sold Acct. No. 502
Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 6,720 6,720
3
2 G8 9,280 16,000
6
Feb. 2 G9 5,120 21,120
3
Mar. 2 G1 2,004 23,124
5 0
3 G1 2,200 25,324
0 0
Amortization Expense, Office Equipment Acct. No. 612
Date Explanation PR Debit Credit Balance

Amortization Expense, Computer Equipment Acct. No. 613

Date Explanation PR Debit Credit Balance

Wages Expense Acct. No. 623

Date Explanation PR Debit Credit Balance
2012
Jan. 4 G7 200 200
3 G8 2,000 2,200
1
Feb. 2 G9 1,600 3,800
6

Insurance Expense Acct. No. 637

Date Explanation PR Debit Credit Balance

Rent Expense Acct. No. 640

Date Explanation PR Debit Credit Balance

Computer Supplies Expense Acct. No. 652

Date Explanation PR Debit Credit Balance

Advertising Expense Acct. No. 655

Date Explanation PR Debit Credit Balance
2012
Feb. 5 G8 1,600 1,600

Mileage Expense Acct. No. 676

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576 Fundamental Accounting Principles, Twelfth Canadian Edition
 Date Explanation PR Debit Credit Balance
2012
Feb. 2 G9 600 600
7
Mar. 3 G1 400 1,000
1 0

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Solutions Manual for Chapter 6 577
Perpetual Serial Problem (continued) Part 2
Repairs Expense, Computer Acct. No. 684
Date Explanation PR Debit Credit Balance
2012
Mar. 1 G9 1,720 1,720
1

Charitable Donations Expense Acct. No. 699

Date Explanation PR Debit Credit Balance

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578 Fundamental Accounting Principles, Twelfth Canadian Edition
Perpetual Serial Problem (continued) Part 3

ECHO SYSTEMS
Partial Work Sheet
For Three Months Ended March 31, 2012
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
101 Cash....................................... 117,618 117,618
106.1 Alamo Engineering Co. .......... 0 0
106.2 Buckman Services................... 3,600 3,600
106.3 Capital Leasing....................... 11,800 11,800
106.4 Decker Co. ............................. 7,140 7,140
106.5 Elite Corporation.................... 0 0
106.6 Fostek Co. .............................. 0 0
106.7 Grandview Co........................ 0 0
106.8 Hacienda, Inc. ........................ 11,600 11,600
106.9 Images, Inc. ............................ 0 0
119 Merchandise inventory........... 2,212 (g) 252 1,960
126 Computer supplies.................. 6,240 (a) 2,010 4,230
128 Prepaid insurance................... 3,240 (b) 1,080 2,160
131 Prepaid rent............................ 9,000 (d) 6,750 2,250
163 Office equipment.................... 18,000 18,000
164 Accumulated amortization,
office equipment................. 1,500 (f) 1,500 3,000
167 Computer equipment............. 36,000 36,000
168 Accumulated amortization,
computer equipment........... 2,250 (e) 2,250 4,500
201 Accounts payable.................... 0 0
210 Wages payable........................ 0 (c) 1,400 1,400
236 Unearned computer services
revenue............................... 0 0
301 Mary Graham, capital............ 193,860 193,860
302 May Graham, withdrawals..... 9,600 9,600
403 Computer services revenue..... 38,320 38,320
413 Sales........................................ 34,440 34,440
414 Sales discounts........................ 76 76
415 Sales returns and allowances... 800 800
502 Cost of goods sold................... 25,324 (g) 252 25,576
612 Amortization expense,
office equipment................. 0 (f) 1,500 1,500
613 Amortization expense,
computer equipment........... 0 (e) 2,250 2,250
623 Wages expense........................ 3,800 (c) 1,400 5,200
637 Insurance expense................... 0 (b) 1,080 1,080
640 Rent expense........................... 0 (d) 6,750 6,750
652 Computer supplies expense..... 0 (a) 2,010 2,010
655 Advertising expense................ 1,600 1,600
676 Mileage expense...................... 1,000 1,000
684 Repairs expense, computer..... 1,720       1,720  
699 Charitable donations expense.            0                                                                0
             

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Solutions Manual for Chapter 6 579
  Totals..................................... 270,370 270,370  15,242  15,242 275,520 275,520
Perpetual Serial Problem (continued)
Part 4: Single-step income statement

ECHO SYSTEMS
Income Statement
For Three Months Ended March 31, 2012

Revenues:
Computer services revenue ............................ $38,320
Net sales............................................................ 33,564
 Total revenues................................................. $71,884
Expenses:
Cost of goods sold............................................ $25,576
Rent expense ................................................... 6,750
Wages expense ................................................ 5,200
Amortization expense1..................................... 3,750
Computer supplies expense ........................... 2,010
Repairs expense, computer ........................... 1,720
Advertising expense ........................................ 1,600
Insurance expense ........................................... 1,080
Mileage expense .............................................. 1,000
 Total expenses................................................. 48,686
Net income........................................................... $23,198

1. Amortization expense, office equipment of $1,500 + amortization expense,

computer equipment of $2,250 = Total amortization expense of $3,750.

Part 5

ECHO SYSTEMS
Statement of Owner’s Equity
For Three Months Ended March 31, 2012

Mary Graham, capital, December 31, 2011. . $ 145,860

Add: Net income.............................................. $23,198
Investment by owner ............................ 48,000 71,198
 Total................................................................. $217,058
Less: Withdrawals by owner.......................... 9,600
Mary Graham, capital, March 31, 2012........ $207,458

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580 Fundamental Accounting Principles, Twelfth Canadian Edition
Perpetual Serial Problem (concluded) Part 6

ECHO SYSTEMS
Balance Sheet
March 31, 2012
Assets
Current assets:
Cash......................................................................... $117,618
Accounts receivable................................................ 34,140
Merchandise inventory ......................................... 1,960
Computer supplies ................................................. 4,230
Prepaid insurance .................................................. 2,160
Prepaid rent ........................................................... 2,250
Total current assets................................................ $ 162,358
Property, plant and equipment:
Office equipment ................................................... $ 18,000
Less: Accumulated amortization...................... 3,000 $ 15,000
Computer equipment ............................................ $36,000
Less: Accumulated amortization......................... 4,500 31,500
Total property, plant and equipment.................. 46,500
Total assets..................................................................... $208,858
Liabilities
Current liabilities:
Wages payable ....................................................... $ 1,400
Owner’s Equity
 MaryGraham, capital................................................. 207,458
Total liabilities and owner’s equity.............................. $208,858

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Solutions Manual for Chapter 6 581
*Periodic Serial Problem, Echo Systems (150 minutes) Part 1
Journal entries:
General Journal G7
Date Account Titles and Explanations PR Debit Credit
2012
Jan. 4 Wages Expense .......................................623 200
Wages Payable ........................................210 800
Cash ..................................................101 1,000
Paid employee.

5 Cash .........................................................101 48,000

Mary Graham, Capital ...................301 48,000
Investment by owner.
7 Purchases ................................................505 11,200
Accounts Payable—Shephard Corp. 201
11,200
Purchased merchandise on credit.

9 Cash .........................................................101 3,000

Accounts Receivable—Fostek Co. . 106.6 3,000
Collected accounts receivable.

11 Accounts Receivable—Alamo Eng. Co. 106.1 9,000

Unearned Computer Services Revenue 236 3,000
Computer Services Revenue ..........403 12,000
Completed work on project.

13 Accounts Receivable—Elite Corp. .......106.5 8,400

Sales ..................................................413 8,400
Sold merchandise on credit.

15 Transportation-In ..................................508 1,400

Cash ..................................................101 1,400
Paid freight on incoming merchandise.

16 Cash .........................................................101 6,000

Computer Services Revenue ..........403 6,000
Collected cash revenue from customer.

17 Accounts Payable—Shephard Corp. ....201 11,200

Purchase Discounts .........................507 112
Cash ..................................................101 11,088
Paid account payable within discount period.

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582 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued)
General Journal G8
Date Account Titles and Explanations PR Debit Credit
2012
Jan. 20 Sales Returns and Allowances ..............415 800
Accounts Receivable—Elite Corp. .106.5 800
Customer returned defective goods.

22 Cash .........................................................101 7,524

Sales Discounts .......................................414 76
Accounts Receivable—Elite Corp. .106.5 7,600
Collected accounts receivable.

24 Accounts Payable—Shephard Corp. ....201 792

Purchase Returns and Allowances. 506 792
Returned merchandise for credit.

26 Purchases ................................................505 16,000

Accounts Payable—Shephard Corp. 201
16,000
Purchased merchandise for resale.

26 Accounts Receivable—Hacienda, Inc. . 106.8 11,600

Sales ..................................................413 11,600
Sold merchandise on credit.

29 No entry recorded in the journal.

31 Wages Expense .......................................623 2,000

Cash ..................................................101 2,000
Paid employee.

Feb. 1 Prepaid Rent ...........................................131 6,750

Cash ..................................................101 6,750
Paid three months’ rent in advance.

3 Accounts Payable—Shephard Corp. ....201 15,208

Purchase Discounts .........................507 160
Cash ..................................................101 15,048
Paid account payable within discount
period.

5 Advertising Expense ..............................655 1,600

Cash ..................................................101 1,600
Purchased ad in local newspaper.

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Solutions Manual for Chapter 6 583
Periodic Serial Problem (continued)
General Journal G9
Date Account Titles and Explanations PR Debit Credit
2012
Feb. 11 Cash .........................................................101 9,000
Accounts Receivable—Alamo
Engin. Co. 106.1 9,000
Collected accounts receivable.

15 Mary Graham, Withdrawals ................302 9,600

Cash ..................................................101 9,600
Owner withdrew cash.

23 Accounts Receivable—Grandview Co. 106.7 6,400

Sales ..................................................413 6,400
Sold merchandise on credit.

26 Wages Expense .......................................623 1,600

Cash ..................................................101 1,600
Paid employee.

27 Mileage Expense .....................................676 600

Cash ..................................................101 600
Reimbursed Mary Graham for use of auto.

Mar. 8 Computer Supplies .................................126 4,800

Accounts Payable—Abbot Office
Prod. .................................................201 4,800
Purchased supplies on credit.

9 Cash .........................................................101 6,400

Accounts Receivable—Grandview Co. 106.7
6,400
Collected accounts receivable.

11 Repairs Expense, Computer .................684 1,720

Cash ..................................................101 1,720
Paid for computer repairs.

16 Cash .........................................................101 8,520

Computer Services Revenue ..........403 8,520
Collected cash revenue from customer.

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584 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued)
General Journal G10
Date Account Titles and Explanations PR Debit Credit
2012
19 Accounts Payable ...................................201 7,110
Cash ..................................................101 7,110
Paid accounts payable.

24 Accounts Receivable—Capital Leasing 106.3 11,800

Computer Services Revenue ..........403 11,800
Billed customer for services.

25 Accounts Receivable—Buckman Services 106.2 3,600

Sales ..................................................413 3,600
Sold merchandise on credit.

30 Accounts Receivable—Decker Co. ......106.4 4,440

Sales..................................................413 4,440
Sold merchandise on credit.

31 Mileage Expense ....................................676 400

Cash .................................................101 400
Reimbursed Mary Graham for use of auto.

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Solutions Manual for Chapter 6 585
Periodic Serial Problem (continued) Part 2
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 89,090
1
2012
Jan. 4 G7 1,000 88,090
5 G7 48,000 136,090
9 G7 3,000 139,090
1 G7 1,400 137,690
5
1 G7 6,000 143,690
6
1 G7 11,088 132,602
7
2 G8 7,524 140,126
2
3 G8 2,000 138,126
1
Feb. 1 G8 6,750 131,376
3 G8 15,048 116,328
5 G8 1,600 114,728
1 G9 9,000 123,728
1
1 G9 9,600 114,128
5
2 G9 1,600 112,528
6
2 G9 600 111,928
7
Mar. 9 G9 6,400 118,328
1 G9 1,720 116,608
1
1 G9 8,520 125,128
6
1 G1 7,110 118,018
9 0
3 G1 400 117,618
1 0

Accounts Receivable—Alamo Engineering Co. Acct. No. 106.1

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0

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586 Fundamental Accounting Principles, Twelfth Canadian Edition
 1
2012
Jan. 1 G7 9,000 9,000
1
Feb. 1 G9 9,000 0
1

Accounts Receivable—Buckman Services Acct. No. 106.2

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Mar. 2 G1 3,600 3,600
5 0

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Solutions Manual for Chapter 6 587
Periodic Serial Problem (continued) Part 2
Accounts Receivable—Capital Leasing Acct. No. 106.3
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Mar. 2 G1 11,800 11,800
4 0

Accounts Receivable—Decker Co. Acct. No. 106.4

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,700
1
2012
Mar. 3 G1 4,440 7,140
0 0

Accounts Receivable—Elite Corporation Acct. No. 106.5

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Jan. 1 G7 8,400 8,400
3
2 G8 800 7,600
0
2 G8 7,600 0
2

Accounts Receivable—Fostek Co. Acct. No. 106.6

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,000
1
2012
Jan. 9 G7 3,000 0

Accounts Receivable—Grandview Co. Acct. No. 106.7

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1

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588 Fundamental Accounting Principles, Twelfth Canadian Edition
 2012
Feb. 2 G9 6,400 6,400
3
Mar. 9 G9 6,400 0

Accounts Receivable—Hacienda, Inc. Acct. No. 106.8

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1
2012
Jan. 2 G8 11,600 11,600
6
Periodic Serial Problem (continued) Part 2
Accounts Receivable—Images, Inc. Acct. No. 106.9
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1

Merchandise Inventory Acct. No. 119

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 0
1

Computer Supplies Acct. No. 126

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 1,440
1
2012
Mar. 8 G9 4,800 6,240

Prepaid Insurance Acct. No. 128

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,240
1

Prepaid Rent Acct. No. 131

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,250
1

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Solutions Manual for Chapter 6 589
 2012
Feb. 1 G8 6,750 9,000

Office Equipment Acct. No. 163

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 18,000
1

Accumulated Amortization, Office Equipment Acct. No. 164

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 1,500
1

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590 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 2
Computer Equipment Acct. No. 167
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 36,000
1

Accumulated Amortization, Computer Acct. No. 168

Equipment
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,250
1
Accounts Payable Acct. No. 201
Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 2,310
1
2012
Jan. 7 G7 11,200 13,510
1 G7 11,200 2,310
7
2 G8 792 1,518
4
2 G8 16,000 17,518
6
Feb. 3 G8 15,208 2,310
Mar. 8 G9 4,800 7,110
1 G1 7,104 0
9 0

Wages Payable Acct. No. 210

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 800
1
2012
Jan. 4 G7 800 0

Unearned Computer Services Revenue Acct. No. 236

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 3,000
1

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Solutions Manual for Chapter 6 591
 2012
Jan. 1 G7 3,000 0
1

Mary Graham, Capital Acct. No. 301

Date Explanation PR Debit Credit Balance
2011
Dec. 3 Beginning balance 145,860
1
2012
Jan. 5 G7 48,000 193,860

Periodic Serial Problem (continued) Part 2

Mary Graham, Withdrawals Acct. No. 302
Date Explanation PR Debit Credit Balance
2012
Feb. 1 G9 9,600 9,600
5

Computer Services Revenue Acct. No. 403

Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 12,000 12,000
1
1 G7 6,000 18,000
6
Mar. 1 G9 8,520 26,520
6
2 G1 11,800 38,320
4 0

Sales Acct. No. 413

Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 8,400 8,400
3
2 G8 11,600 20,000
6
Feb. 2 G9 6,400 26,400
3
Mar. 2 G1 3,600 30,000
5 0
3 G1 4400 34,440
0 0

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592 Fundamental Accounting Principles, Twelfth Canadian Edition
 Sales Discounts Acct. No. 414
Date Explanation PR Debit Credit Balance
2012
Jan. 2 G8 76 76
2

Sales Returns and Allowances Acct. No. 415

Date Explanation PR Debit Credit Balance
2012
Jan. 2 G8 800 800
0

Purchases Acct. No. 505

Date Explanation PR Debit Credit Balance
2012
Jan. 7 G7 11,200 11,200
2 G8 16,000 27,200
6

Purchase Returns and Allowance Acct. No. 506

Date Explanation PR Debit Credit Balance
2012
Jan. 2 G8 792 792
4

Periodic Serial Problem (continued) Part 2

Purchase Discounts Acct. No. 507
Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 112 112
7
Feb. 3 G8 160 272

Transportation-In Acct. No. 508

Date Explanation PR Debit Credit Balance
2012
Jan. 1 G7 1,400 1,400
5

Amortization Expense, Office Equipment Acct. No. 612

Date Explanation PR Debit Credit Balance

Amortization Expense, Computer Equipment Acct. No. 613

Date Explanation PR Debit Credit Balance
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Solutions Manual for Chapter 6 593
 Wages Expense Acct. No. 623
Date Explanation PR Debit Credit Balance
2012
Jan. 4 G7 200 200
3 G8 2,000 2,200
1
Feb. 2 G9 1,600 3,800
6

Insurance Expense Acct. No. 637

Date Explanation PR Debit Credit Balance

Rent Expense Acct. No. 640

Date Explanation PR Debit Credit Balance

Computer Supplies Expense Acct. No. 652

Date Explanation PR Debit Credit Balance

Advertising Expense Acct. No. 655

Date Explanation PR Debit Credit Balance
2012
Feb. 5 G8 1,600 1,600

Mileage Expense Acct. No. 676

Date Explanation PR Debit Credit Balance
2012
Feb. 2 G9 600 600
7
Mar. 3 G1 400 1,000
1 0
Periodic Serial Problem (continued) Part 2
Repairs Expense, Computer Acct. No. 684
Date Explanation PR Debit Credit Balance
2012
Mar. 1 G9 1,720 1,720
1

Charitable Donations Expense Acct. No. 699

Date Explanation PR Debit Credit Balance

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594 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (continued) Part 3
ECHO SYSTEMS
Partial Work Sheet
For Three Months Ended March 31, 2012
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
101 Cash........................................... 117,618 117,618
106.1 Alamo Engineering Co. .............. 0 0
106.2 Buckman Services....................... 3,600 3,600
106.3 Capital Leasing........................... 11,800 11,800
106.4 Decker Co. ................................. 7,140 7,140
106.5 Elite Corporation........................ 0 0
106.6 Fostek Co. .................................. 0 0
106.7 Grandview Co............................ 0 0
106.8 Hacienda, Inc. ............................ 11,600 11,600
106.9 Images, Inc. ............................... 0 0
119 Merchandise inventory............... 0 0
126 Computer supplies...................... 6,240 (a) 2,010 4,230
128 Prepaid insurance....................... 3,240 (b) 1,080 2,160
131 Prepaid rent................................ 9,000 (d) 6,750 2,250
163 Office equipment........................ 18,000 18,000
164 Accumulated amortization,
office equipment..................... 1,500 (f) 1,500 3,000
167 Computer equipment.................. 36,000 36,000
168 Accumulated amortization,
computer equipment............... 2,250 (e) 2,250 4,500
201 Accounts payable........................ 0 0
210 Wages payable............................ 0 (c) 1,400 1,400
236 Unearned computer services
revenue.................................. 0 0
301 Mary Graham, capital................ 193,860 193,860
302 May Graham, withdrawals......... 9,600 9,600
403 Computer services revenue.......... 38,320 38,320
413 Sales........................................... 34,440 34,440
414 Sales discounts............................ 76 76
415 Sales returns and allowances....... 800 800
505 Purchases................................... 27,200 27,200
506 Purchase returns and allowances. 792 792
507 Purchase discounts...................... 272 272
508 Transportation-In....................... 1,400 1,400
612 Amortization expense,
office equipment..................... 0 (f) 1,500 1,500
613 Amortization expense,
computer equipment............... 0 (e) 2,250 2,250
623 Wages expense............................ 3,800 (c) 1,400 5,200
637 Insurance expense....................... 0 (b) 1,080 1,080
640 Rent expense............................... 0 (d) 6,750 6,750
652 Computer supplies expense......... 0 (a) 2,010 2,010
655 Advertising expense.................... 1,600 1,600
676 Mileage expense.......................... 1,000 1,000
684 Repairs expense, computer.......... 1,720 1,720
699 Charitable donations expense......      0             0  
 Totals........................................ 271,434 271,434   14,990   14,990 276,584 276,584

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Solutions Manual for Chapter 6 595
Periodic Serial Problem (continued) Part 4

ECHO SYSTEMS
Income Statement
For Three Months Ended March 31, 2012

Revenues:
Computer services revenue ............................ $38,320
Net sales............................................................ 33,564
 Total revenues................................................. $71,884
Operating Expenses:
Cost of goods sold1........................................... $25,576
Rent expense ................................................... 6,750
Wages expense ................................................ 5,200
Amortization expense2 .................................... 3,750
Computer supplies expense ........................... 2,010
Repairs expense, computer ............................ 1,720
Advertising expense ........................................ 1,600
Insurance expense ........................................... 1,080
Mileage expense ..............................................     1,000
 Total operating expenses................................ 48,686
Net income........................................................... $23,198

1. COGS Beginning Merchandise Inventory............. $ 0

= ........................................................................
Add: Purchases............................................ 27,200
Less: Purchase Returns and Allowances... 792
Purchase Discounts............................ 272
Add: Transportation-In.............................. 1,400
Less: Ending Inventory............................... 1,960
$25,576

2. Amortization expense, office equipment of $1,500 +

amortization expense, computer equipment of $2,250 =
Total amortization expense of $3,750.

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596 Fundamental Accounting Principles, Twelfth Canadian Edition
Periodic Serial Problem (concluded) Part 5
ECHO SYSTEMS
Statement of Owner’s Equity
For Three Months Ended March 31, 2012

Mary Graham, capital, December 31, 2011. . $ 145,860

Add: Net income.............................................. $23,198
Investment by owner ............................ 48,000 71,198
 Total................................................................. $217,058
Less: Withdrawals by owner.......................... 9,600
Mary Graham, capital, March 31, 2012........ $207,458

Part 6

ECHO SYSTEMS
Balance Sheet
March 31, 2012
Assets
Current assets:
Cash......................................................................... $117,618
Accounts receivable................................................ 34,140
Merchandise inventory ......................................... 1,960
Computer supplies ................................................. 4,230
Prepaid insurance .................................................. 2,160
Prepaid rent ........................................................... 2,250
Total current assets................................................ $ 162,358
Property, plant and equipment:
Office equipment ................................................... $ 18,000
Less: Accumulated amortization...................... 3,000 $ 15,000
Computer equipment ............................................ $36,000
Less: Accumulated amortization......................... 4,500 31,500
Total property, plant and equipment.................. 46,500
Total assets..................................................................... $208,858
Liabilities
Current liabilities:
Wages payable ....................................................... $ 1,400
Owner’s Equity
 MaryGraham, capital................................................. 207,458
Total liabilities and owner’s equity.............................. $208,858

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Solutions Manual for Chapter 6 597