The following financial statement data for years ending December 31 for Edison Company are shown below.

The following financial statement data for years ending December 31 for Edison Company are shown below.


2014 2013
Net sales $1,884,000 $1,562,000
Total assets:
Beginning of year 770,000 650,000
End of year 800,000 770,000





a. Determine the ratio of net sales to assets for 2014 and 2013.

b. Does the change in the ratio of net sales to assets from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. 2014 2013
Ratio of net sales to assets 2.4* 2.2**
* $1,884,000 ÷ [($770,000 + $800,000) ÷ 2]
** $1,562,000 ÷ [($650,000 + $770,000) ÷ 2]
b. The change from 2.2 to 2.4 indicates a favorable trend in using assets to
generate sales.

The following financial statement data for years ending December 31 for Latchkey Company are shown below

The following financial statement data for years ending December 31 for Latchkey Company are shown below.


2014 2013
Net sales $1,734,000 $1,645,000
Total assets:
Beginning of year 480,000 460,000
End of year 540,000 480,000




a. Determine the ratio of net sales to assets for 2014 and 2013.

b. Does the change in the ratio of net sales to assets from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. 2014 2013
Ratio of net sales to assets 3.4* 3.5**
* $1,734,000 ÷ [($480,000 + $540,000) ÷ 2]
** $1,645,000 ÷ [($460,000 + $480,000) ÷ 2]
b. The change from 3.5 to 3.4 indicates an unfavorable trend in using assets to
generate sales.

Hahn Flooring Company’s perpetual inventory records indicate that $1,333,150 of merchandise should be on hand

Hahn Flooring Company’s perpetual inventory records indicate that $1,333,150 of merchandise should be on hand on December 31, 2014. The physical inventory indicates that $1,309,900 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Hahn Flooring Company for the year ended December 31, 2014. Assume that the inventory shrinkage is a normal amount.


Answer:

Dec. 31 Cost of Merchandise Sold 23,250
Merchandise Inventory 23,250
Inventory shrinkage ($1,333,150 – $1,309,900).

Modern Furnishings Company’s perpetual inventory records indicate that $890,000 of merchandise should

Modern Furnishings Company’s perpetual inventory records indicate that $890,000 of merchandise should be on hand on April 30, 2014. The physical inventory indicates that $876,250 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Modern Furnishings Company for the year ended April 30, 2014. Assume that the inventory shrinkage is a normal amount.


Answer:

Apr. 30 Cost of Merchandise Sold 13,750
Merchandise Inventory 13,750
Inventory shrinkage ($890,000 – $876,250)

Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30

Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30. The cost of the merchandise sold is $67,200. Shore Co. paid freight of $1,800 and later received the amount due within the discount period. Journalize Shore Co.’s and Blue Star Co.’s entries for the payment of the amount due.


Answer:

Shore Co. journal entries:
Cash ($112,000 – $2,240 + $1,800) 111,560
Sales Discounts ($112,000 × 2%) 2,240
Accounts Receivable—Blue Star Co. ($112,000 + $1,800) 113,800
Blue Star Co. journal entries:
Accounts Payable—Shore Co. ($112,000 + $1,800) 113,800
Merchandise Inventory ($112,000 × 2%) 2,240
Cash ($112,000 – $2,240 + $1,800) 111,560

Sundance Co. sold merchandise to Butterfield Co. on account, $16,800, terms 2/15, n/30

Sundance Co. sold merchandise to Butterfield Co. on account, $16,800, terms 2/15, n/30. The cost of the merchandise sold is $12,600. Sundance Co. issued a credit memo for $3,800 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was $2,850. Journalize Sundance Co.’s and Butterfield Co.’s entries for the payment of the amount due.


Answer:

Sundance Co. journal entries:
Cash ($16,800 – $3,800 – $260) 12,740
Sales Discounts [($16,800 – $3,800) × 2%] 260
Accounts Receivable—Butterfield Co. ($16,800 – $3,800) 13,000
Butterfield Co. journal entries:
Accounts Payable—Sundance Co. ($16,800 – $3,800) 13,000
Merchandise Inventory [($16,800 – $3,800) × 2%] 260
Cash ($16,800 – $3,800 – $260) 12,740

Determine the amount to be paid in full settlement of each of two invoices

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.



Merchandise
Freight
Paid by Seller Freight Terms
Returns and
Allowances
a. $36,000 $800 FOB destination, 1/10, n/30 $4,000
b. 44,900 375 FOB shipping point, 2/10, n/30 2,40

Answer:
a.
$31,680. Purchase of $36,000 less return of $4,000 less the discount of $320 [($36,000 – $4,000) × 1%].

b.
$42,025. Purchase of $44,900 less return of $2,400 less the discount of $850 [($44,900 – $2,400) × 2%] plus $375 of shipping.

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.


Merchandise
Freight
Paid by Seller Freight Terms
Returns and
Allowances
a. $180,000 $3,000 FOB shipping point, 1/10, n/30 $20,000
b. 88,000 1,250 FOB destination, 2/10, n/30 9,000


Answer:
a.
$161,400. Purchase of $180,000 less return of $20,000 less the discount of $1,600 [($180,000 – $20,000) × 1%] plus $3,000 of shipping.

b.
$77,420. Purchase of $88,000 less return of $9,000 less the discount of $1,580 [($88,000 – $9,000) × 2%].

Journalize the following merchandise transactions: a. Sold merchandise on account, $92,500 with terms 1/10, n/30

Journalize the following merchandise transactions:

a. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the merchandise sold was $55,500.

b. Received payment less the discount.


Answer:

Accounts Receivable 92,500
Sales 92,500
Cost of Merchandise Sold 55,500
Merchandise Inventory 55,500
Cash 91,575
Sales Discounts 925
Accounts Receivable 92,500

Journalize the following merchandise transactions: a. Sold merchandise on account, $41,100 with terms 2/10, n/30

Journalize the following merchandise transactions:

a. Sold merchandise on account, $41,100 with terms 2/10, n/30. The cost of the merchandise sold was $26,750.

b. Received payment less the discount.


Answer:

Accounts Receivable 41,100
Sales 41,100
Cost of Merchandise Sold 26,750
Merchandise Inventory 26,750
Cash 40,278
Sales Discounts 822
Accounts Receivable 41,100

Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30

Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30. Hoffman Company returned $7,500 of the merchandise and received
full credit.

a. If Hoffman Company pays the invoice within the discount period, what is the amount of cash required for the payment?

b. What account is debited by Hoffman Company to record the return?


Answer:
a. $56,925. Purchase of $65,000 less the return of $7,500 less the discount of $575 [($65,000 – $7,500) × 1%].

b. Accounts Payable

Xanadu Company purchased merchandise on account from a supplier for $12,650, terms 2/10, n/30

Xanadu Company purchased merchandise on account from a supplier for $12,650, terms 2/10, n/30. Xanadu Company returned $3,950 of the merchandise and received full credit.

a. If Xanadu Company pays the invoice within the discount period, what is the amount of cash required for the payment?


b. What account is credited by Xanadu Company to record the return?


Answer:
a. $8,526. Purchase of $12,650 less the return of $3,950 less the discount of $174 [($12,650 – $3,950) × 2%)].

b. Merchandise Inventory

During the current year, merchandise is sold for $18,300 cash and $295,700 on account

During the current year, merchandise is sold for $18,300 cash and $295,700 on account. The cost of the merchandise sold is $188,000. What is the amount of the gross profit?


Answer:
a. $126,000 ($18,300 + $295,700 – $188,000)

During the current year, merchandise is sold for $450,000 cash and $1,350,000 on account

During the current year, merchandise is sold for $450,000 cash and $1,350,000 on account. The cost of the merchandise sold is $1,100,000. What is the amount of the gross profit?


Answer:
a. $700,000 ($450,000 + $1,350,000 – $1,100,000)