CHAPTER 5

Accounting for Merchandising Operations

ASSIGNMENT CLASSIFICATION TABLE

Brief A
Learning Objectives Questions Exercises Do It! Exercises Problems

*1. Describe merchandising 2, 3, 4 1, 2 1 1

operations and inventory
systems.

*2. Record purchases under a 5, 6, 7, 8 3, 5 2 2, 3, 4, 11 1A, 2A, 4A

perpetual inventory system.

*3. Record sales under a perpetual 9, 10, 11 3, 4 3 3, 4, 5, 11 1A, 2A, 4A

inventory system.

*4. Apply the steps in the 1, 12, 13, 6, 7 4 6, 7, 8 3A, 4A, 5A

accounting cycle to a 14
merchandising company.

*5. Compare a multiple-step with a 15, 16, 17, 8, 9, 10 5 6, 9, 10, 12, 2A, 3A, 5A,
single-step income statement. 18, 19, 20 13, 14 6A, 7A

*6. Prepare a worksheet for 21 11 15, 16 5A

a merchandising company

*7. Record purchases and sales 22, 23 12, 13, 14, 17, 18, 19, 6A, 7A, 8A
under a periodic inventory 15, 16 20, 21, 22
system.

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendices to the
chapter.

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

Number Description Level Allotted (min.)

1A Journalize purchase and sales transactions under Simple 20–30

a perpetual inventory system.

2A Journalize, post, and prepare a partial income statement. Simple 30–40

3A Prepare financial statements and adjusting and Moderate 40–50

closing entries.

4A Journalize, post, and prepare a trial balance. Simple 30–40

*5A Complete accounting cycle beginning with a worksheet. Moderate 50–60

*6A Determine cost of goods sold and gross profit under Moderate 40–50
periodic approach.

*7A Calculate missing amounts and assess profitability. Moderate 20–30

*8A Journalize, post, and prepare trial balance and partial Simple 30–40
income statement using periodic approach.

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 WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS

Number LO BT Difficulty Time (min.)

BE1 1 AP Simple 4–6
BE2 1 AP Simple 4–6
BE3 2, 3 AP Simple 2–4
BE4 3 AP Simple 6–8
BE5 2 AP Simple 6–8
BE6 4 AP Simple 1–2
BE7 4 AP Simple 2–4
BE8 5 AP Simple 2–4
BE9 5 C Simple 4–6
BE10 5 AP Simple 4–6
*BE11 6 K Simple 2–4
*BE12 7 AP Simple 4–6
*BE13 7 AP Simple 3–5
*BE14 7 AP Simple 6–8
*BE15 7 AP Simple 4–6
*BE16 7 K Simple 2–4
DI1 1 C Simple 2–4
DI2 2 AP Simple 2–4
DI3 3 AP Simple 4–6
DI4 4 AP Simple 4–6
DI5 5 AP Simple 10–12
EX1 1 C Simple 3–5
EX2 2 AP Simple 8–10
EX3 2, 3 AP Simple 8–10
EX4 2, 3 AP Simple 8–10
EX5 3 AP Simple 8–10
EX6 4, 5 AP Simple 6–8
EX7 4 AP Simple 6–8
EX8 4 AP Simple 8–10
EX9 5 AP Simple 8–10
EX10 5 AP Simple 8–10
EX11 2, 3 AN Moderate 6–8
EX12 5 AP Simple 8–10

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ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)

Number LO BT Difficulty Time (min.)

EX13 5 AN Simple 6–8
EX14 5 AN Moderate 8–10
*EX15 6 AP Simple 2–4
*EX16 6 AP Simple 8–10
*EX17 7 AP Simple 6–8
*EX18 7 AP Simple 8–10
*EX19 7 AN Moderate 10–12
*EX20 7 AP Simple 8–10
*EX21 7 AP Simple 8–10
*EX22 7 AP Simple 6–8
P1A 2, 3 AP Simple 20–30
P2A 2, 3, 5 AP Simple 30–40
P3A 4, 5 AN Moderate 40–50
P4A 2–4 AP Simple 30–40
P5A 4–6 AP Moderate 50–60
P6A 5, 7 AP Moderate 40–50
P7A 5, 7 AN Moderate 20–30
P8A 7 AP Simple 30–40
BYP1 5 AN, E Simple 10–15
BYP2 5 AN, E Simple 15–20
BYP3 5 AN, E Simple 15–20
BYP4 — AP Simple 10–15
BYP5 5 AN, S, E Moderate 20–30
BYP6 3 C Simple 10–15
BYP7 2 E Simple 10–15
BYP8 — E Simple 5–10
BYP9 — AP Moderate 10–15

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 BLOOM’ S TAXONOMY TABLE
Copyright © 2015 John Wiley & Sons, Inc.

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Describe merchandising Q5-2 Q5-3 DI5-1 BE5-1

operations and inventory Q5-4 E5-1 BE5-2
systems.
2. Record purchases under a Q5-5 Q5-6 Q5-8 E5-3 E5-11
perpetual inventory system. Q5-7 BE5-3 E5-4
BE5-5 P5-1A
DI5-2 P5-2A
E5-2 P5-4A
3. Record sales under a Q5-10 Q5-11 E5-4 Q5-9
Weygandt, Accounting Principles, 12/e, Solutions Manual

perpetual inventory system. BE5-3 E5-5 E5-11

BE5-4 P5-1A
DI5-3 P5-2A
E5-3 P5-4A
4. Apply the steps in the Q5-1 Q5-13 E5-6 P5-5A P5-3A
accounting cycle to a Q5-12 BE5-6 E5-7
merchandising company. Q5-14 BE5-7 E5-8
DI5-4 P5-4A
5. Compare a multiple-step with Q5-18 Q5-19 BE5-8 P5-5A E5-13
a single-step income BE5-9 BE5-10 P5-6A E5-14
statement. Q5-17 DI5-5 Q5-15 P5-3A
E5-6 Q5-16 P5-7A
E5-9 Q5-20
E5-10
E5-12
P5-2A

*6. Prepare a worksheet for Q5-21 E5-15 P5-5A

a merchandising company. BE5-11 E5-16
*7. Record purchases and sales Q5-22 Q5-23 BE5-15 E5-22 E5-19
(For Instructor Use Only)

under a periodic inventory BE5-16 E5-17 P5-6A P5-7A

system. BE5-12 E5-18 P5-8A
BE5-13 E5-20
BE5-14 E5-21
Broadening Your Perspective Communication Real-World Focus Financial Reporting Decision Making All About You
FASB Codification Comparative Analysis Across the Comparative Analysis
Decision Making Across Organization Financial Reporting
the Organization Decision Making Across
the Organization
Ethics Case
5-5
 ANSWERS TO QUESTIONS

1. (a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.

2. The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.

3. The components of revenues and expenses differ as follows:

Merchandising Service
Revenues Sales Revenue Fees, Rents, etc.
Expenses Cost of Goods Sold and Operating Operating (only)

4. Income measurement for a merchandising company differs from a service company as follows:
(a) sales are the primary source of revenue and (b) expenses are divided into two main
categories: cost of goods sold and operating expenses.

5. In a perpetual inventory system, cost of goods sold is determined each time a sale occurs.

6. The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on
board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB
destination means that the goods are placed free on board to the buyer’s place of business.
Thus, the seller pays the freight and debits Freight-out.

7. Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.

8. July 24 Accounts Payable ($2,000 – $200) ............................................... 1,800

Inventory ($1,800 X 2%) ........................................................ 36
Cash ($1,800 – $36).............................................................. 1,764

9. Agree. In accordance with the revenue recognition principle, sales revenues are generally con-
sidered to be recognized when the goods are transferred from the seller to the buyer; that is,
when the exchange transaction occurs. The recognition of revenue is not dependent on the
collection of credit sales.

10. (a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales—
sales invoice.

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Questions Chapter 5 (Continued)

(b) The entries are:

Debit Credit
Cash sales— Cash .............................................................. XX
Sales Revenue ...................................... XX
Cost of Goods Sold ....................................... XX
Inventory ................................................ XX

Credit sales— Accounts Receivable ..................................... XX

Sales Revenue ...................................... XX
Cost of Goods Sold ....................................... XX
Inventory ................................................ XX

11. July 19 Cash ($800 – $16) ............................................................... 784

Sales Discounts ($800 X 2%)................................................ 16
Accounts Receivable ($900 – $100) .............................. 800

12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.

13. Two closing entries are required:

(1) Sales Revenue .............................................................................. 200,000
Income Summary ................................................................... 200,000

(2) Income Summary ........................................................................... 145,000

Cost of Goods Sold ................................................................ 145,000

14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.

15. Sales revenues ...................................................................................................... $105,000

Cost of goods sold ................................................................................................. 70,000
Gross profit ............................................................................................................ $ 35,000

Gross profit rate: $35,000 ÷ $105,000 = 33.3%

16. Gross profit ............................................................................................................ $370,000

Less: Net income .................................................................................................. 240,000
Operating expenses............................................................................................... $130,000

17. There are three distinguishing features in the income statement of a merchandising company:
(1) a sales revenues section, (2) a cost of goods sold section, and (3) gross profit.

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Questions Chapter 5 (Continued)

*18. (a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.

(b) The nonoperating activities part consists of two sections: other revenues and gains, and
other expenses and losses.

*19. The single-step income statement differs from the multiple-step income statement in that: (1) all data
are classified into two categories: revenues and expenses, and (2) only one step, subtracting
total expenses from total revenues, is required in determining net income (or net loss).

20. Apple’s gross profit rate for 2013 was 37.6% [($170,910 – $106,606) ÷ $170,910]. Its gross
profit rate in 2012 was 43.9% [($156,508 – $87,846) ÷ $156,508] so the rate decreased from
2012 to 2013.

*21. The columns are:

(a) Inventory—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Balance
Sheet (Dr.).
(b) Cost of Goods Sold—Trial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).

*22.
Accounts Added/Deducted
Purchase Returns and Allowances Deducted
Purchase Discounts Deducted
Freight-in Added

*23. July 24 Accounts Payable ($3,000 – $200) ................................................... 2,800

Purchase Discounts ($2,800 X 2%) ........................................... 56
Cash ($2,800 – $56).................................................................. 2,744

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 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 5-1

(a) Cost of goods available for sale = $80,000 + $100,000 = $180,000.

Ending inventory = $180,000 – $120,000 = $60,000.

(b) Purchases = $115,000 – $50,000 = $65,000.

Cost of goods sold = $115,000 – $35,000 = $80,000.

(c) Beginning inventory = $160,000 – $110,000 = $50,000.

Cost of goods sold = $160,000 – $29,000 = $131,000.

BRIEF EXERCISE 5-2

(a) Cost of goods sold = $47,000 ($75,000 – $28,000).

Operating expenses = $18,200 ($28,000 – $19,800).

(b) Gross profit = $38,000 ($108,000 – $70,000).

Operating expenses = $8,500 ($38,000 – $29,500).

(c) Sales Revenue = $163,500 ($83,900 + $79,600).

Net income = $40,100 ($79,600 – $39,500).

BRIEF EXERCISE 5-3

Cha Company
Inventory ............................................................. 780
Accounts Payable ....................................... 780

Wirtz Company
Accounts Receivable .......................................... 780
Sales Revenue ............................................. 780
Cost of Goods Sold ............................................ 470
Inventory ...................................................... 470

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BRIEF EXERCISE 5-4

(a) Accounts Receivable .......................................... 900,000

Sales Revenue ............................................. 900,000
Cost of Goods Sold ............................................ 590,000
Inventory ...................................................... 590,000

(b) Sales Returns and Allowances .......................... 90,000

Accounts Receivable .................................. 90,000
Inventory ............................................................. 62,000
Cost of Goods Sold ..................................... 62,000

(c) Cash ($810,000 – $16,200) .................................. 793,800

Sales Discounts ($810,000 X 2%)....................... 16,200
Accounts Receivable .................................. 810,000
($900,000 – $90,000)

BRIEF EXERCISE 5-5

(a) Inventory ............................................................. 900,000

Accounts Payable ....................................... 900,000

(b) Accounts Payable ............................................... 90,000

Inventory ...................................................... 90,000

(c) Accounts Payable ($900,000 – $90,000) ............ 810,000

Inventory
($810,000 X 2%) ....................................... 16,200
Cash ($810,000 – $16,200) .......................... 793,800

BRIEF EXERCISE 5-6

Cost of Goods Sold .................................................... 1,900

Inventory ............................................................. 1,900

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BRIEF EXERCISE 5-7

Sales Revenue ............................................................ 195,000

Income Summary ................................................ 195,000

Income Summary ....................................................... 119,000

Cost of Goods Sold ............................................ 117,000
Sales Discounts .................................................. 2,000

BRIEF EXERCISE 5-8

NELSON COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2017

Sales revenues
Sales revenue ($280,000 + $95,000)................... $375,000
Less: Sales returns and allowances ................ $11,000
Sales discounts ....................................... 5,000 16,000
Net sales .............................................................. $359,000

BRIEF EXERCISE 5-9

As the name suggests, numerous steps are required in determining net

income in a multiple-step income statement. In contrast, only one step is
required to compute net income in a single-step income statement. A multiple-
step statement has five sections whereas a single-step statement has only
two sections. The multiple-step statement provides more detail than a single-
step statement, but net income is the same under both statements.
Some of the differences in presentation can be seen from the comparative
information presented below.

(1) Multiple-Step Income Statement

Item Section
a. Gain on sale of equipment Other revenues and gains
b. Interest expense Other expenses and losses
c. Casualty loss from vandalism Other expenses and losses
d. Cost of goods sold Cost of goods sold

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BRIEF EXERCISE 5-9 (Continued)

(2) Single-Step Income Statement

Item Section
a. Gain on sale of equipment Revenues
b. Interest expense Expenses
c. Casualty loss from vandalism Expenses
d. Cost of goods sold Expenses

BRIEF EXERCISE 5-10

(a) Net sales = $510,000 – $15,000 = $495,000.
(b) Gross profit = $495,000 – $330,000 = $165,000.

(c) Income from operations = $165,000 – $90,000 = $75,000.

(d) Gross profit rate = $165,000 ÷ $495,000 = 33.3%.

*BRIEF EXERCISE 5-11

(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Balance sheet debit column.

(b) Inventory: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.

(c) Sales revenue: Trial balance credit column; Adjusted trial balance
credit column, Income statement credit column.

(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.

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*BRIEF EXERCISE 5-12

Purchases ...................................................................... $450,000

Less: Purchase returns and allowances .................... $13,000
Purchase discounts ........................................... 9,000 22,000
Net purchases ............................................................... $428,000

Net purchases ............................................................... $428,000

Add: Freight-in ............................................................. 18,000
Cost of goods purchased ............................................. $446,000

*BRIEF EXERCISE 5-13

Net sales ........................................................................ $730,000

Beginning inventory...................................................... $ 60,000
Add: Cost of goods purchased*.................................. 446,000
Cost of goods available for sale................................... 506,000
Ending inventory ........................................................... 90,000
Cost of goods sold ........................................................ 416,000
Gross profit.................................................................... $314,000

*Information taken from Brief Exercise 5-12.

*BRIEF EXERCISE 5-14

(a) Purchases ............................................................. 900,000

Accounts Payable ......................................... 900,000

(b) Accounts Payable ................................................ 110,000

Purchase Returns and Allowances .............. 110,000

(c) Accounts Payable ($900,000 – $110,000) ........... 790,000

Purchase Discounts ($790,000 X 2%) .......... 15,800
Cash ($790,000 – $15,800) ............................ 774,200

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*BRIEF EXERCISE 5-15

Inventory (ending) ......................................................... 30,000

Sales Revenue ............................................................... 180,000
Purchase Returns and Allowances .............................. 30,000
Income Summary ................................................. 240,000

Income Summary .......................................................... 162,000

Purchases ............................................................. 120,000
Sales Discounts.................................................... 2,000
Inventory (beginning) ........................................... 40,000

*BRIEF EXERCISE 5-16

(a) Cash: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.

(b) Beginning inventory: Trial balance debit column; Adjusted trial

balance debit column; Income statement debit column.

(c) Accounts payable: Trial balance credit column; Adjusted trial balance
credit column; Balance sheet credit column.

(d) Ending inventory: Income statement credit column; Balance sheet

debit column.

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 SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 5-1

1. True.
2. False. Under a perpetual inventory system, a company determines the
cost of goods sold at each time a sale occurs.
3. False. Both service and merchandising companies are likely to use
accounts receivable.
4. True.

DO IT! 5-2

Oct. 5 Inventory ................................................................ 4,800

Accounts Payable ........................................... 4,800
(To record goods purchased on account)

Oct. 8 Accounts Payable.................................................. 650

Inventory .......................................................... 650
(To record return of defective goods)

DO IT! 5-3

Oct. 5 Accounts Receivable ............................................ 4,800

Sales Revenue ................................................. 4,800
(To record credit sales)

Cost of Goods Sold ............................................... 3,100

Inventory ......................................................... 3,100
(To record cost of goods sold on account)

Oct. 8 Sales Returns and Allowances ............................ 650

Accounts Receivable ...................................... 650
(To record credit granted for receipt
of returned goods)

Inventory ................................................................ 100

Cost of Goods Sold ........................................ 100
(To record fair value of goods returned)

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DO IT! 5-4

Dec. 31 Sales Revenue ....................................................... 156,000

Interest Revenue ................................................... 5,000
Income Summary ............................................. 161,000
(To close accounts with credit balances)

Income Summary ................................................... 128,400

Cost of Goods Sold ......................................... 92,400
Sales Returns and Allowances ....................... 4,000
Sales Discounts ............................................... 3,000
Freight-Out ....................................................... 1,800
Utilities Expense .............................................. 7,700
Salaries and Wages Expense.......................... 19,500
(To close accounts with debit balances)

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DO IT! 5-5

Account Financial Statement Classification

Accounts Payable Balance sheet Current liabilities
Accounts Receivable Balance sheet Current assets
Accumulated Depreciation— Balance sheet Property, plant, and
Buildings equipment
Cash Balance sheet Current assets
Casualty Loss from Income statement Other expenses and
Vandalism losses
Cost of Goods Sold Income statement Cost of goods sold
Depreciation Expense Income statement Operating expenses
Equipment Balance sheet Property, plant, and
equipment
Freight-Out Income statement Operating expenses
Insurance Expense Income statement Operating expenses
Interest Payable Balance sheet Current liabilities
Inventory Balance sheet Current assets
Land Balance sheet Property, plant, and
equipment
Notes Payable Balance sheet Long-term liabilities
(due in 5 years)
Owner’s Capital Owner’s equity Beginning balance
statement
Owner’s Drawings Owner’s equity Deduction section
statement
Property Taxes Payable Balance sheet Current liabilities
Salaries and Wages
Expense Income statement Operating expenses
Salaries and Wages Payable Balance sheet Current liabilities
Sales Returns and Income statement Sales revenues
Allowances
Sales Revenue Income statement Sales revenues
Unearned Rent Revenue Balance sheet Current liability
Utilities Expense Income statement Operating expenses

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 SOLUTIONS TO EXERCISES

EXERCISE 5-1

1. True.
2. False. For a merchandiser, sales less cost of goods sold is called
gross profit.
3. True.
4. True.
5. False. The operating cycle of a merchandiser differs from that of a
service company. The operating cycle of a merchandiser is ordinarily
longer.
6. False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
7. True.
8. False. A perpetual inventory system provides better control over inven-
tories than a periodic system.

EXERCISE 5-2

(a) (1) April 5 Inventory .......................................... 23,000

Accounts Payable .................... 23,000

(2) April 6 Inventory .......................................... 900

Cash .......................................... 900

(3) April 7 Equipment........................................ 26,000

Accounts Payable .................... 26,000

(4) April 8 Accounts Payable ........................... 3,000

Inventory .................................. 3,000

(5) April 15 Accounts Payable ........................... 20,000

($23,000 – $3,000)
Inventory
[($23,000 – $3,000) X 2%] ..... 400
Cash ($20,000 – $400) .............. 19,600

(b) May 4 Accounts Payable .................................... 20,000

Cash................................................... 20,000

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EXERCISE 5-3

Sept. 6 Inventory (90 X $22) ........................................ 1,980

Cash ......................................................... 1,980

9 Inventory ......................................................... 90
Cash ......................................................... 90

10 Accounts Payable ........................................... 69

Inventory .................................................. 69

12 Accounts Receivable (26 X $31) .................... 806

Sales Revenue ......................................... 806
Cost of Goods Sold (26 X $23) ....................... 598
Inventory .................................................. 598

14 Sales Returns and Allowances ..................... 31

Accounts Receivable ............................. 31
Inventory ........................................................ 23
Cost of Goods Sold ................................ 23

20 Accounts Receivable (30 X $32) ................... 960

Sales Revenue ........................................ 960
Cost of Goods Sold (30 X $23) ...................... 690
Inventory ................................................. 690

EXERCISE 5-4

(a) June 10 Inventory ................................................. 8,000

Accounts Payable ........................... 8,000

11 Inventory ................................................. 400

Cash ................................................. 400

12 Accounts Payable................................... 300

Inventory.......................................... 300

19 Accounts Payable ($8,000 – $300)......... 7,700

Inventory
($7,700 X 2%) ............................... 154
Cash ($7,700 – $154) ....................... 7,546

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EXERCISE 5-4 (Continued)

(b) June 10 Accounts Receivable ............................. 8,000

Sales Revenue ................................ 8,000
Cost of Goods Sold ............................... 4,800
Inventory ......................................... 4,800

12 Sales Returns and Allowances ............. 300

Accounts Receivable ..................... 300
Inventory ................................................ 70
Cost of Goods Sold ........................ 70

19 Cash ($7,700 – $154).............................. 7,546

Sales Discounts ($7,700 X 2%) ............. 154
Accounts Receivable
($8,000 – $300) ............................ 7,700

EXERCISE 5-5

(a) 1. Dec. 3 Accounts Receivable ...................... 570,000

Sales Revenue ......................... 570,000
Cost of Goods Sold ......................... 350,000
Inventory .................................. 350,000

2. Dec. 8 Sales Returns and Allowances ...... 20,000

Accounts Receivable .............. 20,000

3. Dec. 13 Cash ($550,000 – $5,500) ................ 544,500

Sales Discounts
[($570,000 – $20,000) X 1%] ........ 5,500
Accounts Receivable
($570,000 – $20,000) ............ 550,000

(b) Cash .......................................................................... 550,000

Accounts Receivable
($570,000 – $20,000) ..................................... 550,000

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EXERCISE 5-6

(a) SANG COMPANY

Income Statement (Partial)
For the Year Ended October 31, 2017

Sales revenues
Sales revenue ................................................. $820,000
Less: Sales returns and allowances ........... $25,000
Sales discounts.................................. 13,000 38,000
Net sales ......................................................... $782,000

Note: Freight-out is a selling expense.

(b) (1) Oct. 31 Sales Revenue ............................. 820,000

Income Summary ................. 820,000

(2) 31 Income Summary ......................... 38,000

Sales Returns and
Allowances ....................... 25,000
Sales Discounts.................... 13,000

EXERCISE 5-7

(a) Cost of Goods Sold .............................................. 1,400

Inventory ........................................................ 1,400

(b) Sales Revenue ...................................................... 115,000

Income Summary .......................................... 115,000

Income Summary .................................................. 93,300

Cost of Goods Sold ($60,000 + $1,400) ........ 61,400
Operating Expenses ..................................... 29,000
Sales Returns and Allowances .................... 1,700
Sales Discounts ............................................ 1,200

Income Summary ($115,000 – $93,300) ............... 21,700

Owner’s Capital ............................................. 21,700

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-21
EXERCISE 5-8

(a) Cost of Goods Sold .............................................. 600

Inventory ........................................................ 600

(b) Sales Revenue ...................................................... 380,000

Income Summary .......................................... 380,000
Income Summary .................................................. 335,600
Cost of Goods Sold ($218,000 + $600) ......... 218,600
Freight-Out..................................................... 7,000
Insurance Expense........................................ 12,000
Rent Expense ................................................ 20,000
Salaries and Wages Expense ....................... 55,000
Sales Discounts............................................. 10,000
Sales Returns and Allowances..................... 13,000

Income Summary ($380,000 – $335,600) ............. 44,400

Owner’s Capital ............................................. 44,400

EXERCISE 5-9

(a) KAILA COMPANY

Income Statement
For the Month Ended March 31, 2017

Sales revenues
Sales revenue ................................................... $380,000
Less: Sales returns and allowances .............. $13,000
Sales discounts .................................... 8,000 21,000
Net sales ........................................................... 359,000
Cost of goods sold ............................................... 215,000
Gross profit ........................................................... 144,000
Operating expenses
Salaries and wages expense ........................... 58,000
Rent expense .................................................... 30,000
Freight-out ........................................................ 7,000
Insurance expense ........................................... 6,000
Total operating expenses..................... 101,000
Net income........................................................ $ 43,000
(b) Gross profit rate = $144,000 ÷ $359,000 = 40.11%.

5-22 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-10

(a) ANHAD COMPANY

Income Statement
For the Year Ended December 31, 2017

Net sales .............................................. $2,200,000

Cost of goods sold ............................. 1,289,000
Gross profit ......................................... 911,000
Operating expenses ........................... 725,000
Income from operations ..................... 186,000
Other revenues and gains
Interest revenue .......................... $28,000
Other expenses and losses
Interest expense .......................... $70,000
Loss on disposal of plant
assets ........................................ 17,000 87,000 59,000
Net income .......................................... $ 127,000

(b) ANHAD COMPANY

Income Statement
For the Year Ended December 31, 2017

Revenues
Net sales .............................................. $2,200,000
Interest revenue .................................. 28,000
Total revenues ............................. 2,228,000
Expenses
Cost of goods sold .............................. $1,289,000
Operating expenses ............................ 725,000
Interest expense .................................. 70,000
Loss on disposal of plant assets ....... 17,000
Total expenses............................. 2,101,000
Net income .................................................. $ 127,000

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-23
EXERCISE 5-11

1. Sales Returns and Allowances ........................................ 210

Sales Revenue ........................................................... 210

2. Supplies ............................................................................. 180

Cash ................................................................................... 180
Accounts Payable ..................................................... 180
Inventory .................................................................... 180

3. Sales Discounts ................................................................ 215

Sales Revenue ........................................................... 215

4. Inventory ........................................................................... 20
Cash ................................................................................... 180
Freight-out ................................................................. 200

EXERCISE 5-12

(a) $900,000 – $522,000 = $378,000.

(b) $378,000/$900,000 = 42%. The gross profit rate is generally considered to
be more useful than the gross profit amount. The rate expresses a more
meaningful (qualitative) relationship between net sales and gross profit.
The gross profit rate tells how many cents of each sales dollar go to
gross profit. The trend of the gross profit rate is closely watched by
financial statement users, and is compared with rates of competitors
and with industry averages. Such comparisons provide information about
the effectiveness of a company’s purchasing function and the soundness
of its pricing policies.
(c) Income from operations is $153,000 ($378,000 – $225,000), and net income
is $142,000 ($153,000 – $11,000).
(d) The amount shown for net income is the same in a multiple-step income
statement and a single-step income statement. Both income statements
report the same revenues and expenses, but in different order. Therefore,
net income in Laquen’s single-step income statement is also $142,000.
(e) Inventory is reported as a current asset immediately below accounts
receivable.

5-24 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-13

(a) (*missing amount)

a. Sales revenue .............................................................. $ 92,000)

*Sales returns ............................................................... (5,000)
Net sales ...................................................................... $ 87,000)

b. Net sales ...................................................................... $ 87,000)

Cost of goods sold ...................................................... (56,000)
*Gross profit ................................................................. $ 31,000)

c. Gross profit .................................................................. $ 31,000)

Operating expenses .................................................... (15,000)
*Net income................................................................... $ 16,000)

d. *Sales revenue .............................................................. $107,000)

Sales returns ............................................................... (5,000)
Net sales ...................................................................... $102,000)

e. Net sales ...................................................................... $102,000)

*Cost of goods sold ...................................................... 60,500)
Gross profit .................................................................. $ 41,500)

f. Gross profit .................................................................. $ 41,500)

*Operating expenses .................................................... 23,500)
Net income ................................................................... $ 18,000)
)
(b) Summer Company
Gross profit ÷ Net sales = $31,000 ÷ $87,000 = 35.6%

Winter Company
Gross profit ÷ Net sales = $41,500 ÷ $102,000 = 40.7%

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-25
EXERCISE 5-14

(*Missing amount)

(a) Sales revenue ........................................................ $ 90,000

Sales returns and allowances .............................. 4,000*
Net sales ................................................................ $ 86,000

(b) Net sales ................................................................ $ 86,000

Cost of goods sold ................................................ 56,000
Gross profit ........................................................... $ 30,000*

(c) and (d)

Gross profit ........................................................... $ 30,000
Operating expenses .............................................. 15,000
Income from operations (c) .................................. $ 15,000*
Other expenses and losses .................................. 4,000
Net income (d) ....................................................... $ 11,000*

(e) Sales revenue ........................................................ $100,000*

Sales returns and allowances .............................. 5,000
Net sales ................................................................ $ 95,000

(f) Net sales ................................................................ $ 95,000

Cost of goods sold ................................................ 57,000*
Gross profit ........................................................... $ 38,000

(g) and (h)

Gross profit ........................................................... $ 38,000
Operating expenses (g) ........................................ 20,000*
Income from operations (h) .................................. $ 18,000*
Other expenses and losses .................................. 7,000
Net income............................................................. $ 11,000

(i) Sales revenue ........................................................ $122,000

Sales returns and allowances .............................. 12,000
Net sales ................................................................ $110,000*

(j) Net sales ................................................................ $110,000

Cost of goods sold ................................................ 86,000*
Gross profit ........................................................... $ 24,000

5-26 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
EXERCISE 5-14 (Continued)

(k) and (l)

Gross profit ........................................................... $24,000
Operating expenses .............................................. 18,000
Income from operations (k) .................................. $ 6,000*
Other expenses and losses (l) ............................. 1,000*
Net income ............................................................ $ 5,000

*EXERCISE 5-15

Adjusted Income Balance

Accounts Trial Balance Statement Sheet
Debit Credit Debit Credit Debit Credit
Cash 11,000 11,000
Inventory 76,000 76,000
Sales Revenue 480,000 480,000
Sales Returns and Allowances 10,000 10,000
Sales Discounts 9,000 9,000
Cost of Goods Sold 300,000 300,000

*EXERCISE 5-16

BALISTRERI COMPANY
Worksheet
For the Month Ended June 30, 2017
Adj. Trial Income
Account Titles Trial Balance Adjustments Balance Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 1,920 1,920 1,920
Accounts Receivable 2,440 2,440 2,440
Inventory 11,640 11,640 11,640
Accounts Payable 1,120 1,500 2,620 2,620
Owner’s Capital 3,500 3,500 3,500
Sales Revenue 42,500 42,500 42,500
Cost of Goods Sold 20,560 20,560 20,560
Operating Expenses 10,560 1,500 12,060 12,060
Totals 47,120 47,120 1,500 1,500 48,620 48,620 32,620 42,500 16,000 6,120
Net Income 9,880 9,880
Totals 42,500 42,500 16,000 16,000

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-27
*EXERCISE 5-17

Inventory, September 1, 2016 ....................................... $19,500

Purchases ...................................................................... $149,000
Less: Purchase returns and allowances..................... 2,000
Net Purchases ............................................................... 147,000
Add: Freight-in .............................................................. 5,000
Cost of goods purchased ............................................. 152,000
Cost of goods available for sale ................................... 171,500
Inventory, August 31, 2017 ........................................... 23,000
Cost of goods sold ................................................ $148,500

*EXERCISE 5-18

(a) Sales revenue ....................................... $840,000

Less: Sales returns and allowances .... $ 10,000
Sales discounts ......................... 5,000 15,000
Net sales ............................................... 825,000
Cost of goods sold
Inventory, January 1 ....................... 50,000
Purchases ....................................... $509,000
Less: Purch. rets. and alls. ........... 2,000
Purch. discounts ................. 6,000
Net purchases ................................. 501,000
Add: Freight-in ................................ 4,000
Cost of goods available for sale .... 555,000
Inventory, December 31 ................. 60,000
Cost of goods sold .................. 495,000
Gross profit ..................................... $330,000

(b) Gross profit $330,000 – Operating expenses = Net income $130,000.

Operating expenses = $200,000.

5-28 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
*EXERCISE 5-19

(a) $1,580 ($1,620 – $40) (g) $6,500 ($290 + $6,210)

(b) $1,690 ($1,580 + $110) (h) $1,730 ($7,940 – $6,210)
(c) $1,620 ($1,870 – $250) (i) $8,940 ($1,000 + $7,940)
(d) $30 ($1,060 – $1,030) (j) $6,200 ($49,530 – $43,330 from (I))
(e) $250 ($1,280 – $1,030) (k) $2,500 ($43,590 – $41,090)
(f) $120 ($1,350 – $1,230) (l) $43,330 ($41,090 + $2,240)

*EXERCISE 5-20

(a) 1. April 5 Purchases ....................................... 25,000

Accounts Payable ..................... 25,000

2. April 6 Freight-in......................................... 900

Cash........................................... 900

3. April 7 Equipment....................................... 30,000

Accounts Payable ..................... 30,000

4. April 8 Accounts Payable .......................... 2,800

Purchase Returns and
Allowances ............................ 2,800

5. April 15 Accounts Payable

($25,000 – $2,800) ....................... 22,200
Purchase Discounts
[($25,000 – $2,800) X 2%)] ..... 444
Cash ($22,200 – $444)............... 21,756

(b) May 4 Accounts Payable

($25,000 – $2,800) ....................... 22,200
Cash........................................... 22,200

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-29
*EXERCISE 5-21

(a) 1. April 5 Purchases ....................................... 21,000

Accounts Payable ..................... 21,000

2. April 6 Freight-in ......................................... 800

Cash ........................................... 800

3. April 7 Equipment ....................................... 26,000

Accounts Payable ..................... 26,000

4. April 8 Accounts Payable........................... 4,000

Purchase Returns and
Allowances ............................ 4,000

5. April 15 Accounts Payable........................... 17,000

($21,000 – $4,000)
Purchase Discounts
[($21,000 – $4,000) X 2%)] ..... 340
Cash ($17,000 – $340) ............... 16,660

(b) May 4 Accounts Payable

($21,000 – $4,000)........................ 17,000
Cash ........................................... 17,000

*EXERCISE 5-22

Adjusted Income Balance

Accounts Trial Balance Statement Sheet
Debit Credit Debit Credit Debit Credit
Cash 9,000 9,000
Inventory 80,000 80,000 75,000 75,000
Purchases 240,000 240,000
Purchase Returns and
Allowances 30,000 30,000
Sales Revenue 450,000 450,000
Sales Returns and
Allowances 10,000 10,000
Sales Discounts 5,000 5,000
Rent Expense 42,000 42,000

5-30 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 5-1A

(a) June 1 Inventory...................................................... 1,600

Accounts Payable ............................... 1,600

3 Accounts Receivable .................................. 2,500

Sales Revenue ..................................... 2,500

Cost of Goods Sold..................................... 1,440

Inventory .............................................. 1,440

6 Accounts Payable ....................................... 100

Inventory .............................................. 100

9 Accounts Payable ($1,600 – $100) ............. 1,500

Inventory
($1,500 X .02).................................... 30
Cash ..................................................... 1,470

15 Cash ............................................................. 2,500

Accounts Receivable .......................... 2,500

17 Accounts Receivable .................................. 1,800

Sales Revenue ..................................... 1,800

Cost of Goods Sold..................................... 1,080

Inventory .............................................. 1,080

20 Inventory...................................................... 1,800
Accounts Payable ............................... 1,800

24 Cash ............................................................. 1,764

Sales Discounts ($1,800 X .02) ................... 36
Accounts Receivable .......................... 1,800

26 Accounts Payable ....................................... 1,800

Inventory
($1,800 X .02).................................... 36
Cash ..................................................... 1,764

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-31
PROBLEM 5-1A (Continued)

June 28 Accounts Receivable .................................. 1,600

Sales Revenue ..................................... 1,600

Cost of Goods Sold ..................................... 970

Inventory .............................................. 970

30 Sales Returns and Allowances .................. 120

Accounts Receivable........................... 120

Inventory ...................................................... 72
Cost of Goods Sold ............................. 72

5-32 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 5-2A

(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
May 1 Inventory .......................................... 120 4,200
Accounts Payable .................... 201 4,200

2 Accounts Receivable ....................... 112 2,100

Sales Revenue .......................... 401 2,100

Cost of Goods Sold ......................... 505 1,300

Inventory ................................... 120 1,300

5 Accounts Payable ............................ 201 300

Inventory ................................... 120 300

9 Cash ($2,100 – $21) .......................... 101 2,079

Sales Discounts ($2,100 X 1%) ....... 414 21
Accounts Receivable ............... 112 2,100

10 Accounts Payable ($4,200 – $300) ...... 201 3,900

Inventory ($3,900 X 2%) ........... 120 78
Cash .......................................... 101 3,822

11 Supplies............................................ 126 400

Cash .......................................... 101 400

12 Inventory .......................................... 120 1,400

Cash .......................................... 101 1,400

15 Cash .................................................. 101 150

Inventory ................................... 120 150

17 Inventory .......................................... 120 1,300

Accounts Payable .................... 201 1,300

19 Inventory .......................................... 120 130

Cash .......................................... 101 130

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-33
PROBLEM 5-2A (Continued)

General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
May 24 Cash .................................................... 101 3,200
Sales Revenue ............................ 401 3,200

Cost of Goods Sold ............................ 505 2,000

Inventory ..................................... 120 2,000

25 Inventory ............................................. 120 620

Accounts Payable ....................... 201 620

27 Accounts Payable .............................. 201 1,300

Inventory
($1,300 X 2%) ........................... 120 26
Cash............................................. 101 1,274

29 Sales Returns and Allowances.......... 412 70

Cash............................................. 101 70

Inventory ............................................. 120 30

Cost of Goods Sold .................... 505 30

31 Accounts Receivable ......................... 112 1,000

Sales Revenue ............................ 401 1,000

Cost of Goods Sold ............................ 505 560

Inventory ..................................... 120 560

5-34 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-2A (Continued)

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
May 1 Balance  5,000
9 J1 2,079 7,079
10 J1 3,822 3,257
11 J1 400 2,857
12 J1 1,400 1,457
15 J1 150 1,607
19 J1 130 1,477
24 J1 3,200 4,677
27 J1 1,274 3,403
29 J1 70 3,333

Accounts Receivable No. 112

Date Explanation Ref. Debit Credit Balance
May 2 J1 2,100 2,100
9 J1 2,100 0
31 J1 1,000 1,000

Inventory No. 120

Date Explanation Ref. Debit Credit Balance
May 1 J1 4,200 4,200
2 J1 1,300 2,900
5 J1 300 2,600
10 J1 78 2,522
12 J1 1,400 3,922
15 J1 150 3,772
17 J1 1,300 5,072
19 J1 130 5,202
24 J1 2,000 3,202
25 J1 620 3,822
27 J1 26 3,796
29 J1 30 3,826
31 J1 560 3,266

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-35
PROBLEM 5-2A (Continued)

Supplies No. 126

Date Explanation Ref. Debit Credit Balance
May 11 J1 400 400

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
May 1 J1 4,200 4,200
5 J1 300 3,900
10 J1 3,900 0
17 J1 1,300 1,300
25 J1 620 1,920
27 J1 1,300 620

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
May 1 Balance  5,000

Sales Revenue No. 401

Date Explanation Ref. Debit Credit Balance
May 2 J1 2,100 2,100
24 J1 3,200 5,300
31 J1 1,000 6,300

Sales Returns and Allowances No. 412

Date Explanation Ref. Debit Credit Balance
May 29 J1 70 70

Sales Discounts No. 414

Date Explanation Ref. Debit Credit Balance
May 9 J1 21 21

5-36 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-2A (Continued)

Cost of Goods Sold No. 505

Date Explanation Ref. Debit Credit Balance
May 2 J1 1,300 1,300
24 J1 2,000 3,300
29 J1 30 3,270
31 J1 560 3,830

(c) RENNER HARDWARE STORE

Income Statement (Partial)
For the Month Ended May 31, 2017

Sales revenues
Sales revenue ..................................................... $6,300
Less: Sales returns and allowances ................ $70
Sales discounts....................................... 21 91
Net sales ............................................................. 6,209
Cost of goods sold .................................................... 3,830
Gross profit ................................................................ $2,379

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-37
 PROBLEM 5-3A

(a) BIG BOX STORE

Income Statement
For the Year Ended November 30, 2017

Sales revenues
Sales revenue .................................... $720,000
Less: Sales returns & allowances ... 8,000
Net sales ............................................. 712,000
Cost of goods sold ................................... 518,000
Gross profit ............................................... 194,000
Operating expenses
Salaries and wages expense...... $96,000
Rent expense .............................. 15,000
Sales commissions expense ..... 11,000
Depreciation expense ................. 11,000
Utilities expense ......................... 8,500
Insurance expense ..................... 7,000
Freight-out ................................... 6,500
Property tax expense.................. 2,500
Total oper. expenses ........... 157,500
Income from operations ........................... 36,500
Other revenues and gains
Interest revenue ................................. 2,000
Other expenses and losses
Interest expense ................................ 6,400 (4,400)
Net income ................................................ $ 32,100

5-38 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3A (Continued)

BIG BOX STORE

Owner’s Equity Statement
For the Year Ended November 30, 2017

Owner’s Capital, December 1, 2016 ............................................... $101,700

Add: Net income ............................................................................ 32,100
133,800
Less: Drawings ............................................................................... 10,000
Owner’s Capital, November 30, 2017 ............................................. $123,800

BIG BOX STORE

Balance Sheet
November 30, 2017

Assets
Current assets
Cash................................................... $ 26,000
Accounts receivable ......................... 30,500
Inventory ........................................... 32,000
Prepaid insurance............................. 3,500
Total current assets .................. $ 92,000
Property, plant, and equipment
Equipment ......................................... $146,000
Less: Accumulated depreciation—
equipment .............................. 45,000
101,000
Total assets ............................... $193,000

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-39
PROBLEM 5-3A (Continued)

BIG BOX STORE

Balance Sheet (Continued)
November 30, 2017

Liabilities and Owner’s Equity

Current liabilities
Accounts payable ...................................................... $25,200
Sales commissions payable ..................................... 4,500
Property taxes payable .............................................. 2,500
Total current liabilities ....................................... $ 32,200
Long-term liabilities
Notes payable ............................................................ 37,000
Total liabilities .................................................... 69,200
Owner’s equity
Owner’s capital .......................................................... 123,800
Total liabilities and owner’s equity ................... $193,000

(b) Nov. 30 Depreciation Expense .............................. 11,000

Accumulated Depreciation—
Equipment ..................................... 11,000

Insurance Expense ................................... 7,000

Prepaid Insurance ............................. 7,000

Property Tax Expense .............................. 2,500

Property Taxes Payable.................... 2,500

Sales Commissions Expense .................. 4,500

Sales Commissions Payable ............ 4,500

5-40 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-3A (Continued)

(c) Nov. 30 Sales Revenue ........................................ 720,000

Interest Revenue .................................... 2,000
Income Summary ............................ 722,000

30 Income Summary ................................... 689,900

Sales Returns and
Allowances .................................. 8,000
Cost of Goods Sold ........................ 518,000
Salaries and Wages Expense ........ 96,000
Depreciation Expense .................... 11,000
Freight-Out ...................................... 6,500
Sales Commissions Expense ........ 11,000
Insurance Expense ......................... 7,000
Rent Expense .................................. 15,000
Property Tax Expense .................... 2,500
Utilities Expense ............................. 8,500
Interest Expense ............................. 6,400

30 Income Summary ................................... 32,100

Owner’s Capital .............................. 32,100

30 Owner’s Capital ...................................... 10,000

Owner’s Drawings .......................... 10,000

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-41
 PROBLEM 5-4A

(a)
General Journal J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 5 Inventory ............................................. 120 1,200
Accounts Payable ....................... 201 1,200

7 Inventory ............................................. 120 50

Cash............................................. 101 50

9 Accounts Payable .............................. 201 100

Inventory ..................................... 120 100

10 Accounts Receivable ......................... 112 900

Sales Revenue ............................ 401 900

Cost of Goods Sold ............................ 505 540

Inventory ..................................... 120 540

12 Inventory ............................................. 120 670

Accounts Payable ....................... 201 670

14 Accounts Payable ($1,200 – $100) .... 201 1,100

Inventory
($1,100 X 2%) ........................... 120 22
Cash............................................. 101 1,078

17 Accounts Payable .............................. 201 70

Inventory ..................................... 120 70

20 Accounts Receivable ......................... 112 610

Sales Revenue ............................ 401 610

Cost of Goods Sold ............................ 505 370

Inventory ..................................... 120 370

21 Accounts Payable ($670 – $70) ......... 201 600

Inventory
($600 X 1%) .............................. 120 6
Cash............................................. 101 594

5-42 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-4A (Continued)

J1
Date Account Titles and Explanation Ref. Debit Credit
Apr. 27 Sales Returns and Allowances ...... 412 20
Accounts Receivable .............. 112 20

30 Cash................................................. 101 900

Accounts Receivable .............. 112 900

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance  1,800
7 J1 50 1,750
14 J1 1,078 672
21 J1 594 78
30 J1 900 978

Accounts Receivable No. 112

Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 900 900
20 J1 610 1,510
27 J1 20 1,490
30 J1 900 590

Inventory No. 120

Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance  2,500
5 J1 1,200 3,700
7 J1 50 3,750
9 J1 100 3,650
10 J1 540 3,110
12 J1 670 3,780
14 J1 22 3,758
17 J1 70 3,688
20 J1 370 3,318
21 J1 6 3,312

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PROBLEM 5-4A (Continued)

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
Apr. 5 J1 1,200 1,200
9 J1 100 1,100
12 J1 670 1,770
14 J1 1,100 670
17 J1 70 600
21 J1 600 0

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
Apr. 1 Balance  4,300

Sales Revenue No. 401

Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 900 900
20 J1 610 1,510

Sales Returns and Allowances No. 412

Date Explanation Ref. Debit Credit Balance
Apr. 27 J1 20 20

Cost of Goods Sold No. 505

Date Explanation Ref. Debit Credit Balance
Apr. 10 J1 540 540
20 J1 370 910

5-44 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
PROBLEM 5-4A (Continued)

(c) YOLANDA’S DISCORAMA

Trial Balance
April 30, 2017

Debit Credit
Cash ....................................................................... $ 978
Accounts Receivable............................................. 590
Inventory ................................................................ 3,312
Owner’s Capital ..................................................... $4,300
Sales Revenue ....................................................... 1,510
Sales Returns and Allowances ............................. 20
Cost of Goods Sold ............................................... 910
$5,810 $5,810

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-45
 5-46

(a) GAOLEE FASHION CENTER

Copyright © 2015 John Wiley & Sons, Inc.

Worksheet
For the Year Ended November 30, 2017
Adjusted Income
Account Titles Trial Balance Adjustments Trial Balance Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 20,700 20,700 20,700
Accounts Receivable 30,700 30,700 30,700
Inventory 44,700 (d) 300 44,400 44,400
Supplies 6,200 (a) 3,600 2,600 2,600
Equipment 133,000 133,000 133,000
Accum. Depreciation—
Equipment 28,000 (b) 11,500 39,500 39,500
Notes Payable 60,000 60,000 60,000

*PROBLEM 5-5A
Weygandt, Accounting Principles, 12/e, Solutions Manual

Accounts Payable 48,500 48,500 48,500

Owner’s Capital 93,000 93,000 93,000
Owner’s Drawings 12,000 12,000 12,000
Sales Revenue 755,200 755,200 755,200
Sales Returns and
Allowances 8,800 8,800 8,800
Cost of Goods Sold 497,400 (d) 300 497,700 497,700
Salaries and Wages
Expense 140,000 140,000 140,000
Advertising Expense 24,400 24,400 24,400
Utilities Expense 14,000 14,000 14,000
Maintenance and Repairs
Expense 12,100 12,100 12,100
Freight-Out 16,700 16,700 16,700
Rent Expense 24,000 24,000 24,000
Totals 984,700 984,700
Supplies Expense (a) 3,600 3,600 3,600
Depreciation Expense (b) 11,500 11,500 11,500
Interest Expense (c) 3,800 3,800 3,800
Interest Payable (c) 3,800 3,800 3,800
(For Instructor Use Only)

Totals 19,200 19,200 1,000,000 1,000,000 756,600 755,200 243,400 244,800

Net Loss 1,400 1,400
Totals 756,600 756,600 244,800 244,800

Key: (a) Supplies used, (b) Depreciation expense—equipment, (c) Accrued interest payable, (d) Adjustment of inventory.

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*PROBLEM 5-5A (Continued)

(b) GAOLEE FASHION CENTER

Income Statement
For the Year Ended November 30, 2017

Sales revenues
Sales revenue ............................................. $755,200
Less: Sales returns and
allowances ....................................... 8,800
Net sales ..................................................... 746,400
Cost of goods sold ............................................ 497,700
Gross profit........................................................ 248,700
Operating expenses
Salaries and wages expense .............. $140,000
Advertising expense............................ 24,400
Rent expense ....................................... 24,000
Freight-out ........................................... 16,700
Utilities expense .................................. 14,000
Maintenance and repairs expense...... 12,100
Depreciation expense ......................... 11,500
Supplies expense ................................ 3,600
Total operating expenses ............. 246,300
Income from operations.................................... 2,400
Other expenses and losses
Interest expense ......................................... 3,800
Net loss .............................................................. $ (1,400)

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-47
*PROBLEM 5-5A (Continued)

GAOLEE FASHION CENTER

Owner’s Equity Statement
For the Year Ended November 30, 2017

Owner’s Capital, December 1, 2016 .......................... $93,000

Less: Net loss ............................................................ $ 1,400
Drawings .......................................................... 12,000 13,400
Owner’s Capital, November 30, 2017 ........................ $ 79,600

GAOLEE FASHION CENTER

Balance Sheet
November 30, 2017

Assets
Current assets
Cash .................................................. $ 20,700
Accounts receivable ........................ 30,700
Inventory .......................................... 44,400
Supplies ............................................ 2,600
Total current assets ................. $ 98,400
Property, plant, and equipment
Equipment ........................................ $133,000
Accumulated depreciation—
equipment..................................... 39,500 93,500
Total assets .............................. $191,900

5-48 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-5A (Continued)

GAOLEE FASHION CENTER

Balance Sheet (Continued)
November 30, 2017

Liabilities and Owner’s Equity

Current liabilities
Notes payable (due next year) ................................. $20,000
Accounts payable ..................................................... 48,500
Interest payable ........................................................ 3,800
Total current liabilities ...................................... $ 72,300
Long-term liabilities
Notes payable ........................................................... 40,000
Total liabilities ................................................... 112,300
Owner’s equity
Owner’s capital ......................................................... 79,600
Total liabilities and owner’s equity .................. $191,900

(c) Nov. 30 Supplies Expense..................................... 3,600

Supplies ............................................ 3,600

30 Depreciation Expense .............................. 11,500

Accumulated Depreciation—
Equipment ..................................... 11,500

30 Interest Expense ...................................... 3,800

Interest Payable ................................ 3,800

30 Cost of Goods Sold .................................. 300

Inventory ........................................... 300

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*PROBLEM 5-5A (Continued)

(d) Nov. 30 Sales Revenue ...................................... 755,200

Income Summary .......................... 755,200

30 Income Summary ................................. 756,600

Sales Returns and
Allowances ................................ 8,800
Cost of Goods Sold ...................... 497,700
Salaries and Wages Expense ....... 140,000
Advertising Expense .................... 24,400
Utilities Expense ........................... 14,000
Maintenance and Repairs
Expense ..................................... 12,100
Freight-Out .................................... 16,700
Rent Expense ................................ 24,000
Supplies Expense ......................... 3,600
Depreciation Expense .................. 11,500
Interest Expense ........................... 3,800

30 Owner’s Capital .................................... 1,400

Income Summary .......................... 1,400

30 Owner’s Capital .................................... 12,000

Owner’s Drawings......................... 12,000

5-50 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-5A (Continued)

(e) GAOLEE FASHION CENTER

Post-Closing Trial Balance
November 30, 2017

Debit Credit
Cash ................................................................ $ 20,700
Accounts Receivable...................................... 30,700
Inventory ......................................................... 44,400
Supplies .......................................................... 2,600
Equipment ....................................................... 133,000
Accumulated Depreciation—Equipment ....... $ 39,500
Notes Payable ................................................. 60,000
Accounts Payable ........................................... 48,500
Interest Payable .............................................. 3,800
Owner’s Capital .............................................. 79,600
$231,400 $231,400

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-51
 *PROBLEM 5-6A

DONALDSON DEPARTMENT STORE

Income Statement (Partial)
For the Year Ended November 30, 2017

Sales revenues
Sales revenue ........................... $1,000,000
Less: Sales returns and
allowances ..................... 20,000
Net sales .................................... 980,000
Cost of goods sold
Inventory, Dec. 1, 2016 ............. $ 40,000
Purchases ................................. $585,000
Less: Purchase returns
and allowances ............. $2,700
Purchase discounts ...... 6,300 9,000
Net purchases ........................... 576,000
Add: Freight-in ......................... 7,500
Cost of goods purchased......... 583,500
Cost of goods available
for sale ........................... 623,500
Inventory, Nov. 30, 2017 ........... 52,600
Cost of goods sold ....... 570,900
Gross profit ...................................... $ 409,100

5-52 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 *PROBLEM 5-7A

(1) (a) Cost of goods sold = Sales revenue – Gross profit

= $55,000 – $38,300 = $16,700
(b) Net income = Gross profit – Operating expenses
= $38,300 – $34,900 = $3,400
(c) Inventory = 2014 Inventory + Purchases – CGS
= $7,200 + $14,200 – $16,700 = $4,700
(d) Cash payments to suppliers = 2014 Accounts payable +
Purchases – 2015 Accounts payable
= $3,200 + $14,200 – $3,600 = $13,800
(e) Sales revenue = Cost of goods sold + Gross profit
= $14,800 + $35,200 = $50,000
(f) Operating expenses = Gross profit – Net income
= $35,200 – $2,500 = $32,700

(g) 2015 Inventory + Purchases – 2016 Inventory = CGS

Purchases = CGS – 2015 Inventory + 2016 Inventory
= $14,800 – $4,700 [from (c)] + $8,100
= $18,200
(h) Cash payments to suppliers = 2015 Accounts payable +
Purchases – 2016 Accounts Payable
= $3,600 + $18,200 [from (g)] – $2,500
= $19,300
(i) Gross profit = Sales revenue – CGS
= $47,000 – $14,300 = $32,700
(j) Net income = Gross profit – Operating expenses
= $32,700 [from (i)] – $28,800 = $3,900
(k) 2016 Inventory + Purchases – 2017 Inventory = CGS
Inventory = 2016 Inventory + Purchases – CGS
= $8,100 + $13,200 – $14,300 = $7,000

(I) Accounts payable = 2016 Accounts payable +

Purchases – Cash payments
= $2,500 + $13,200 – $13,600 = $2,100

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-53
*PROBLEM 5-7A (Continued)

(2) A decline in sales does not necessarily mean that profitability declined.
Profitability is affected by sales revenue, cost of goods sold, and
operating expenses. If cost of goods sold or operating expenses
decline more than sales revenue, profitability can increase even when
sales decline. In this particular case, the sales revenue decline was
offset by cost savings to improve profitability. Therefore, profitability
increased for Kayla, Inc. from 2015 to 2017.

2015 2016 2017

Gross profit rate $38,300 ÷ $55,000 $35,200 ÷ $50,000 $32,700 ÷
= 69.6% = 70.4% $47,000 = 69.6%

Profit margin $3,400 ÷ $55,000 $2,500 ÷ $50,000 $3,900 ÷ $47,000

= 6.2% = 5.0% = 8.3%

5-54 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 *PROBLEM 5-8A

(a)
General Journal
Date Account Titles and Explanation Debit Credit
Apr. 5 Purchases ..................................................... 1,200
Accounts Payable................................. 1,200

7 Freight-In ...................................................... 50
Cash ...................................................... 50

9 Accounts Payable ........................................ 100

Purchase Returns and Allowances ..... 100

10 Accounts Receivable ................................... 600

Sales Revenue ...................................... 600

12 Purchases ..................................................... 450

Accounts Payable................................. 450

14 Accounts Payable ($1,200 – $100) ............... 1,100

Purchase Discounts ($1,100 X 2%) ....... 22
Cash ($1,100 – $22) .............................. 1,078

17 Accounts Payable ........................................ 50

Purchase Returns and Allowances ....... 50

20 Accounts Receivable ................................... 600

Sales Revenue ...................................... 600

21 Accounts Payable ($450 – $50) ................... 400

Purchase Discounts
($400 X 1%) ...................................... 4
Cash ($400 – $4) ................................... 396

27 Sales Returns and Allowances ................... 35

Accounts Receivable ........................... 35

30 Cash .............................................................. 600

Accounts Receivable ........................... 600

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-55
*PROBLEM 5-8A (Continued)

(b)
Cash Sales Revenue
4/1 Bal. 3,000 4/7 50 4/10 600
4/30 600 4/14 1,078 4/20 600
4/21 396 4/30 Bal. 1,200
4/30 Bal. 2,076
Sales Returns and
Accounts Receivable Allowances
4/10 600 4/27 35 4/27 35
4/20 600 4/30 600 4/30 Bal. 35
4/30 Bal. 565
Purchases
Inventory 4/5 1,200
4/1 Bal. 4,000 4/12 450
4/30 Bal. 4,000 4/30 Bal. 1,650
Purchase
Accounts Payable Returns and Allowances
4/9 100 4/5 1,200 4/9 100
4/14 1,100 4/12 450 4/17 50
4/17 50 4/30 Bal. 150
4/21 400
4/30 Bal. 0 Purchase Discounts
4/14 22
Owner’s Capital 4/21 4
4/1 Bal. 7,000 4/30 Bal. 26
4/30 Bal. 7,000
Freight-In
4/7 50
4/30 Bal. 50

5-56 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 5-8A (Continued)

(c) GAGE PRO SHOP

Trial Balance
April 30, 2017

Debit Credit
Cash ...................................................................... $2,076
Accounts Receivable ........................................... 565
Inventory ............................................................... 4,000
Owner’s Capital .................................................... $7,000
Sales Revenue ...................................................... 1,200
Sales Returns and Allowances............................ 35
Purchases ............................................................. 1,650
Purchase Returns and Allowances ..................... 150
Purchase Discounts ............................................. 26
Freight-In............................................................... 50
$8,376 $8,376

(d) GAGE PRO SHOP

Income Statement (Partial)
For the Month Ended April 30, 2017

Sales revenues
Sales revenue ................................ $1,200
Less: Sales returns and
allowances.......................... 35
Net sales ........................................ 1,165
Cost of goods sold
Inventory, April 1 ........................... $4,000
Purchases ...................................... $1,650
Less: Purchase returns
and allowances .................. $150
Purchase discounts ........... 26 176
Net purchases................................ 1,474
Add: Freight-in .............................. 50
Cost of goods purchased ............... 1,524
Cost of goods available
for sale ........................................ 5,524
Inventory, April 30 ......................... 4,824
Cost of goods sold ................. 700
Gross profit........................................... $ 465

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 COMPREHENSIVE PROBLEM SOLUTION

(a) Dec. 6 Salaries and Wages Payable ....................... 1,000

Salaries and Wages Expense ...................... 600
Cash ...................................................... 1,600

8 Cash .............................................................. 2,200

Accounts Receivable............................ 2,200

10 Cash .............................................................. 6,300

Sales Revenue ...................................... 6,300

Cost of Goods Sold ...................................... 4,100

Inventory ............................................... 4,100

13 Inventory ....................................................... 9,000

Accounts Payable ................................. 9,000

15 Supplies ........................................................ 2,000

Cash ...................................................... 2,000

18 Accounts Receivable ................................... 15,000

Sales Revenue ...................................... 15,000

Cost of Goods Sold ...................................... 10,000

Inventory ............................................... 10,000

20 Salaries and Wages Expense ...................... 1,800

Cash ...................................................... 1,800

23 Accounts Payable ........................................ 9,000

Cash ...................................................... 8,820
Inventory ($9,000 X .02) ........................ 180

27 Cash .............................................................. 14,550

Sales Discounts ($15,000 X .03) .................. 450
Accounts Receivable............................ 15,000

5-58 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(c) Dec. 31 Salaries and Wages Expense ....................... 840

Salaries and Wages Payable ................ 840

Depreciation Expense................................... 200

Accumulated Depreciation—
Equipment ........................................... 200

Supplies Expense ......................................... 1,700

Supplies ($3,200 – $1,500) .................... 1,700

(b) & (c) General Ledger

Cash
12/1 Bal. 7,200 12/6 1,600 Equipment
12/8 2,200 12/15 2,000 12/1 Bal. 22,000
12/10 6,300 12/20 1,800 12/31 Bal. 22,000
12/27 14,550 12/23 8,820
12/31 Bal. 16,030 Accumulated Depr.—Equipment
12/1 Bal. 2,200
Accounts Receivable 12/31 200
12/1 Bal. 4,600 12/8 2,200 12/31 Bal. 2,400
12/18 15,000 12/27 15,000
12/31 Bal. 2,400 Accounts Payable
12/23 9,000 12/1 Bal. 4,500
Inventory 12/13 9,000
12/1 Bal. 12,000 12/10 4,100 12/31 Bal. 4,500
12/13 9,000 12/18 10,000
12/23 180 Salaries and Wages Payable
12/31 Bal. 6,720 12/6 1,000 12/1 Bal. 1,000
12/31 840
Supplies 12/31 Bal. 840
12/1 Bal. 1,200 12/31 1,700
12/15 2,000
12/31 Bal. 1,500

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COMPREHENSIVE PROBLEM SOLUTION (Continued)

Owner’s Capital Depreciation Expense

12/1 Bal. 39,300 12/31 200
12/31 Bal. 39,300 12/31 Bal. 200

Sales Revenue Salaries and Wages Expense

12/10 6,300 12/6 600
12/18 15,000 12/20 1,800
12/31 Bal. 21,300 12/31 840
12/31 Bal. 3,240

Sales Discounts Supplies Expense

12/27 450 12/31 1,700
12/31 Bal. 450 12/31 Bal. 1,700

Cost of Goods Sold

12/10 4,100
12/18 10,000
12/31 Bal. 14,100

5-60 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(d) RODRIGUEZ DISTRIBUTING COMPANY

Adjusted Trial Balance
December 31, 2017

DR. CR.
Cash ................................................................... $16,030
Accounts Receivable ........................................ 2,400
Inventory ............................................................ 6,720
Supplies ............................................................. 1,500
Equipment ......................................................... 22,000
Accumulated Depreciation—Equipment ......... $ 2,400
Accounts Payable ............................................. 4,500
Salaries and Wages Payable ............................ 840
Owner’s Capital ................................................. 39,300
Sales Revenue ................................................... 21,300
Sales Discounts ................................................ 450
Cost of Goods Sold ........................................... 14,100
Depreciation Expense ....................................... 200
Salaries and Wages Expense ........................... 3,240
Supplies Expense ............................................. 1,700
$68,340 $68,340

(e) RODRIGUEZ DISTRIBUTING COMPANY

Income Statement
For the Month Ending December 31, 2017

Sales revenue.................................................... $21,300

Less: Sales discounts ..................................... 450
Net sales ............................................................ 20,850
Cost of goods sold ........................................... 14,100
Gross profit ....................................................... 6,750
Operating expenses
Salaries and wages expense .................... $3,240
Supplies expense ...................................... 1,700
Depreciation expense ............................... 200 5,140
Net income ........................................................ $ 1,610

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COMPREHENSIVE PROBLEM SOLUTION (Continued)

RODRIGUEZ DISTRIBUTING COMPANY

Owner’s Equity Statement
For the Month Ended December 31, 2017

Owner’s Capital, Dec. 1 ................................................. $39,300

Add: Net income........................................................... 1,610
Owner’s Capital, Dec. 31 ............................................... $40,910

RODRIGUEZ DISTRIBUTING COMPANY

Balance Sheet
December 31, 2017

Assets
Current assets
Cash............................................................ $16,030
Accounts receivable .................................. 2,400
Inventory .................................................... 6,720
Supplies ..................................................... 1,500
Total current assets ............................. $26,650

Property, plant, and equipment

Equipment .................................................. 22,000
Less: Accumulated depreciation ............. 2,400 19,600
Total assets ....................................................... $46,250
Liabilities and Owner’s Equity
Current liabilities
Accounts payable ...................................... $4,500
Salaries and wages payable ..................... 840
Total current liabilities ......................... $ 5,340

Owner’s equity
Owner’s capital .......................................... 40,910
Total liabilities and owner’s equity .................. $46,250

5-62 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 BYP 5-1 FINANCIAL REPORTING PROBLEM

2012 2013
(a) (1) Percentage change in sales:
($156,508 – $108,249) ÷ $108,249 44.6% increase
($170,910 – $156,508) ÷ $156,508 14.9% increase

(2) Percentage change in net income:

($41,733 – $25,922) ÷ $25,922 61.0% increase
($37,037 – $41,733) ÷ $41,733 11.3% decrease

(b) Gross profit rate:

2011 ($108,249 – $64,431) ÷ $108,249 40.5%
2012 ($156,508 – $87,846) ÷ $156,508 43.9%
2013 ($170,910 – $106,606) ÷ $170,910 37.6%

(c) Percentage of net income to sales:

2011 ($25,922 ÷ $108,249) 23.9%
2012 ($41,733 ÷ $156,508) 26.7%
2013 ($37,037 ÷ $170,910) 21.7%

Comment

The percentage of net income to sales increased 11.7% from 2011 to 2012
(23.9% to 26.7%) and decreased 18.7% from 2012 to 2013 (26.7% to 21.7%).
The gross profit rate shows a similar pattern during this time.

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-63
 BYP 5-2 COMPARATIVE ANALYSIS PROBLEM

PepsiCo Coca-Cola
(a) (1) 2013 Gross profit $35,1721 $28,4332

(2) 2013 Gross profit rate 53.0%3 60.7%4

(3) 2013 Operating income $9,705 $10,228

(4) Percent change in operating 6.5%5 5.1%6

income, 2012 to 2013 increase decrease
1
$66,415 – $31,243 2
($46,854 – $18,421) 3
$35,172 ÷ $66,415
4
$28,433 ÷ $46,854 5
($9,705 – $9,112) ÷ $9,112
6
($10,228 – $10,779) ÷ $10,779

(b) PepsiCo has a higher gross profit but a lower gross profit rate than
Coca-Cola. This can be explained by PepsiCo’s higher sales.

Coca-Cola had a larger operating income because its selling, general,

and administrative expenses were much smaller than PepsiCo’s.

5-64 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 BYP 5-3 COMPARATIVE ANALYSIS PROBLEM

Amazon Wal-Mart
(a) (1) 2013 Gross profit $6,7221 $115,0072

(2) 2013 Gross profit rate 11.0%3 24.3%4

(3) 2013 Operating income $745 $26,872

(4) Percent change in operating 10.2%5 3.1%6

income, 2012 to 2013 decrease increase
1
$60,903 – $54,181 2
($473,076 – $358,069) 3
$6,722 ÷ $60,903
4
$115,007 ÷ $473,076 5
($745 – $676) ÷ $676
6
($26,872 – $27,725) ÷ $27,725

(b) Wal-Mart has a much higher gross profit and gross profit rate than
Amazon. This can be explained by Wal-Mart’s higher markup.

Wal-Mart’s operating income decreased 3.1% while Amazon’s

increased by more than 10%. Amazon’s sales revenue increased 18%
during 2013 causing its operating income to increase significantly.

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-65
 BYP 5-4 REAL-WORLD FOCUS

The answers to this assignment will be dependent upon the articles

selected from the Internet by the student.

5-66 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 BYP 5-5 DECISION MAKING ACROSS THE ORGANIZATION

(a) (1) FAMILY DEPARTMENT STORE

Income Statement
For the Year Ended December 31, 2017

Net sales [$700,000 + ($700,000 X 6%)] ...... $742,000

Cost of goods sold ($742,000 X 76%)* ........ 563,920
Gross profit ($742,000 X 24%) ..................... 178,080
Operating expenses
Selling expenses .................................. $100,000
Administrative expenses ..................... 20,000
Total operating expenses ............. 120,000
Net income.................................................... $ 58,080

**Alternatively: Net sales, $742,000 – gross profit, $178,080.

(2) FAMILY DEPARTMENT STORE

Income Statement
For the Year Ended December 31, 2017

Net sales ....................................................... $700,000

Cost of goods sold ....................................... 553,000
Gross profit .................................................. 147,000
Operating expenses
Selling expenses .................................. $72,000*
Administrative expenses ..................... 20,000* 92,000
Net income.................................................... $ 55,000

*$100,000 – $30,000 + ($700,000 X 2%) – ($30,000 X 40%) = $72,000.

(b) Amy’s proposed changes will increase net income by $31,080. Jacob’s
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Amy’s plan and Jacob’s plan, Amy’s plan should be adopted.
While Jacob’s plan will increase net income, it may also have an adverse
effect on sales personnel. Under Jacob’s plan, sales personnel will be
taking a cut of $16,000 in compensation [$60,000 – ($30,000 + $14,000)].

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BYP 5-5 (Continued)

(c) FAMILY DEPARTMENT STORE

Income Statement
For the Year Ended December 31, 2017

Net sales ............................................................. $742,000

Cost of goods sold ............................................ 563,920
Gross profit ........................................................ 178,080
Operating expenses
Selling expenses ........................................ $72,840*
Administrative expenses ........................... 20,000*
Total operating expenses................... 92,840
Net income ......................................................... $ 85,240

*$72,000 + [2% X ($742,000 – $700,000)] = $72,840.

If both plans are implemented, net income will be $58,240 ($85,240 –

$27,000) higher than the 2016 results. This is an increase of over 200%.
Given the size of the increase, Jacob’s plan to compensate sales
personnel might be modified so that they would not have to take a pay
cut. For example, if sales commissions were 3%, the compensation cut
would be reduced to $8,580 [$16,000 (from (b)) – $742,000 X (3% – 2%)].

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 BYP 5-6 COMMUNICATION ACTIVITY

(a), (b)

President
Surfing USA Co.

Dear Sir:

As you know, the financial statements for Surfing USA Co. are prepared in
accordance with generally accepted accounting principles. One of these
principles is the revenue recognition principle, which provides that revenues
should be recognized when they are earned.

Typically, sales revenues are earned when the goods are transferred to the
buyer from the seller. At this point, the sales transaction is completed and
the sales price is established. Thus, in the typical situation, revenue on the
surfboard ordered by Parker is earned at event No. 8, when Parker picks up
the surfboard.

The circumstances pertaining to this sale may seem to you to be atypical

because Parker has ordered a specific kind of surfboard. From an
accounting standpoint, this would be true only if you could not reasonably
expect to sell this surfboard to another customer. In such case, it would be
proper under generally accepted accounting principles to recognize sales
revenue when you have completed the surfboard for Parker.

Whether Parker makes a down payment with the purchase order is

irrelevant in recognizing sales revenue because at this time, you have not
done anything to earn the revenue. A down payment may be an indication
of Parker’s “good faith.” However, its effect on your financial statements is
limited entirely to recognizing the down payment as unearned revenue.

If you have further questions about the accounting for this sale, please let
me know.

Sincerely,

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-69
 BYP 5-7 ETHICS CASE

(a) Tiffany Lyons, as a new employee, is placed in a position of res-

ponsibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
undeserved cash discounts. Her dilemma is either follow her boss’s
unethical instructions or offend her boss and maybe lose the job she
just assumed.

(b) The stakeholders (affected parties) are:

• Tiffany Lyons, the assistant treasurer.
• Jay Barnes, the treasurer.
• Key West, the company.
• Creditors of Key West Stores (suppliers).
• Mail room employees (those assigned the blame).

(c) Tiffany’s alternatives:

1. Tell the treasurer (her boss) that she will attempt to take every allow-
able cash discount by preparing and mailing checks within the
discount period—the ethical thing to do. This will offend her boss
and may jeopardize her continued employment.

2. Join the team and continue the unethical practice of taking undeserved
cash discounts.

3. Go over her boss’s head and take the chance of receiving just and
reasonable treatment from an officer superior to Jay. The company
may not condone this practice. Tiffany definitely has a choice, but
probably not without consequence. To continue the practice is
definitely unethical. If Tiffany submits to this request, she may be
asked to perform other unethical tasks. If Tiffany stands her
ground and refuses to participate in this unethical practice, she
probably won’t be asked to do other unethical things—if she isn’t
fired. Maybe nobody has ever challenged Jay’s unethical behavior
and his reaction may be one of respect rather than anger and
retribution. Being ethically compromised is no way to start a new
job.

5-70 Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only)
 BYP 5-8 ALL ABOUT YOU

In order for revenue to be recognized the performance obligation must be

satisfied. In this case Impact has an obligation to provide goods with a
value equal to the gift card. That obligation is not fulfilled until one of two
things happens: either the customer redeems the card for goods, or the card
expires. Until either of those events occurs Impact cannot record revenue.

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-71
 BYP 5-9 FASB CODIFICATION ACTIVITY

(a) (1) Inventory is the aggregate of those items of tangible personal

property that have any of the following characteristics:
a. Held for sale in the ordinary course of business
b. In process of production for such sale
c. To be currently consumed in the production of goods or services
to be available for sale.

The term inventory embraces goods awaiting sale (the merchandise of

a trading concern and the finished goods of a manufacturer), goods
in the course of production (work in process), and goods to be
consumed directly or indirectly in production (raw materials and
supplies). This definition of inventories excludes long-term assets
subject to depreciation accounting, or goods which, when put into
use, will be so classified. The fact that a depreciable asset is retired
from regular use and held for sale does not indicate that the item
should be classified as part of the inventory. Raw materials and
supplies purchased for production may be used or consumed for
the construction of long-term assets or other purposes not related
to production, but the fact that inventory items representing a small
portion of the total may not be absorbed ultimately in the production
process does not require separate classification. By trade practice,
operating materials and supplies of certain types of entities such as
oil producers are usually treated as inventory.

(2) A customer is a reseller or a consumer, either an individual or a

business that purchases a vendor’s products or services for end use
rather than for resale. This definition is consistent with paragraph
280-10-50-42, which states that a group of entities known to a
reporting entity to be under common control shall be considered as
a single customer, and the federal government, a state government,
a local government (for example, a county or municipality), or a
foreign government each shall be considered as a single customer.
Customer includes any purchaser of the vendor’s products at any
point along the distribution chain, regardless of whether the
purchaser acquires the vendor’s products directly or indirectly (for
example, from a distributor) from the vendor. For example, a vendor
may sell its products to a distributor who in turn resells the products
to a retailer. The retailer in that example is a customer of the vendor.

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BYP 5-9 (Continued)

(b) 330-10-35-15 Only in exceptional cases may inventories properly be

stated above cost. For example, precious metals having a fixed monetary
value with no substantial cost of marketing may be stated at such
monetary value; any other exceptions must be justifiable by inability to
determine appropriate approximate costs, immediate marketability at
quoted market price, and the characteristic of unit interchangeability.

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-73
 IFRS EXERCISES

IFRS5-1

Expenses may be classified by “nature” or by “function”. The “nature-of-

expense” classification organizes expenses by type of expense, such as
salaries, depreciation, rent, or supplies. The “function-of-expense” classifica-
tion presents expenses by type of business activity. Examples would include
cost of goods sold, selling, administrative, operating, and non-operating.

IFRS5-2

By function Cost of goods sold

By nature Depreciation expense
By nature Salaries and wages expense
By function Selling expenses
By nature Utilities expense
By nature Delivery expense
By function General and administrative expenses

IFRS5-3

MATILDA COMPANY
Comprehensive Income Statement
For the Year Ended 2017

(in thousands of euros)

Net income ............................................................................... €150
Unrealized gain related to revaluation of buildings .............. € 10
Unrealized loss related to investment securities .................. (35)
Items not recognized on the income statement .................... (25)
Total comprehensive income ........................................ €125

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 INTERNATIONAL FINANCIAL REPORTING PROBLEM

IFRS5-4

(a) Vuitton uses a multiple step format. The income statement isolates
gross margin, profit from recurring operations and operating profit
rather than simply showing total revenues less total expenses to arrive
at net income.

(b) Vuitton uses Cost of Net Financial Debt rather than Interest Expense on
its income statement.

(c) Inventory is composed of:

Wines and eaux-de-vie in process of aging
Other raw materials and work in process
Goods purchased for resale
Finished products
Amount of inventory (gross) before impairment is €9,650M

Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Solutions Manual (For Instructor Use Only) 5-75