SOLUTIONS TO EXERCISES SET B

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1 SOLUTIONS TO EXERCISES SET B EXERCISE 5-1B 1 False. Measuring net income for a merchandiser is conceptually the same as measuring net income for a service company. 2. True. 3. False. For a merchandiser, the primary source of revenues is the sale of inventory. 4. False. Interest is an example of an other expense. 5. False. The operating cycle of a merchandising company differs from that that of a service company. The operating cycle of a merchandising company is ordinarily longer. 6. True. 7. True. 8. False. A perpetual inventory system provides better control over inventories than a periodic system. EXERCISE 5-2B (a) (1) April 5 Merchandise Inventory... 20,000 Accounts Payable... 20,000 (2) April 6 Merchandise Inventory Cash (3) April 7 Equipment... 29,000 Accounts Payable... 29,000 (4) April 8 Accounts Payable... 3,000 Merchandise Inventory... 3,000 (5) April 15 Accounts Payable... 17,000 ($20,000 $3,000) Merchandise Inventory ($17,000 X 2%) Cash ($17,000 $340)... 16,660 (b) May 4 Accounts Payable... 17,000 Cash... 17, For Instructor Use Only 5-1

2 EXERCISE 5-3B Sept. 6 Merchandise Inventory (70 X $20)... 1,400 Cash... 1,400 9 Merchandise Inventory Cash Accounts Payable Merchandise Inventory Accounts Receivable (40 X $34)... 1,360 Sales... 1,360 Cost of Goods Sold (40 X $18) Merchandise Inventory Sales Returns and Allowances Accounts Receivable Merchandise Inventory Cost of Goods Sold Accounts Receivable (30 X $35)... 1,050 Sales... 1,050 Cost of Goods Sold (30 X $21) Merchandise Inventory EXERCISE 5-4B (a) June 10 Merchandise Inventory... 9,000 Accounts Payable... 9, Merchandise Inventory Cash Accounts Payable Merchandise Inventory Accounts Payable ($9,000 $700)... 8,300 Merchandise Inventory ($8,300 X 2%) Cash ($8,300 $166)... 8, For Instructor Use Only 5-2

3 EXERCISE 5-4B (Continued) (b) June 10 Accounts Receivable... 9,000 Sales... 9,000 Cost of Goods Sold... 5,400 Merchandise Inventory... 5, Sales Returns and Allowances Accounts Receivable Merchandise Inventory Cost of Goods Sold Cash ($8,300 $166)... 8,134 Sales Discounts ($8,300 X 2%) Accounts Receivable... 8,300 ($9,000 $700) EXERCISE 5-5B (a) 1. Dec. 3 Accounts Receivable ,000 Sales ,000 Cost of Goods Sold ,000 Merchandise Inventory , Dec. 8 Sales Returns and Allowances... 20,000 Accounts Receivable... 20, Dec. 13 Cash ($380,000 $7,600) ,400 Sales Discounts ($380,000 X 2%)... 7,600 Accounts Receivable ,000 ($400,000 $20,000) (b) Cash ,000 Accounts Receivable ,000 ($400,000 $20,000) 2008 For Instructor Use Only 5-3

4 EXERCISE 5-6B (a) CONTRERAS COMPANY Income Statement (Partial) For the Year Ended October 31, 2008 Sales revenues Sales... $950,000 Less: Sales returns and allowances... $31,000 Sales discounts... 18,000 49,000 Net sales... $901,000 Note: Freight-out is a selling expense. (b) (1) Oct. 31 Sales ,000 Income Summary ,000 (2) 31 Income Summary... 49,000 Sales Returns and Allowances... 31,000 Sales Discounts... 18,000 EXERCISE 5-7B (a) Cost of Goods Sold... 1,200 Merchandise Inventory... 1,200 (b) Sales ,000 Income Summary ,000 Income Summary ,200 Cost of Goods Sold... 91,200 Operating Expenses... 44,000 Sales Returns and Allowances... 3,000 Sales Discounts... 2,000 Income Summary ($165,000 $140,200)... 24,800 Retained Earnings... 24, For Instructor Use Only 5-4

5 EXERCISE 5-8B (a) Cost of Goods Sold... 1,400 Merchandise Inventory... 1,400 (b) Sales ,000 Income Summary ,000 Income Summary ,400 Cost of goods sold ($327,000 + $1,400) ,400 Freight-out... 11,000 Insurance expense... 18,000 Rent expense... 29,000 Salary expense... 95,000 Sales discounts... 15,000 Sales returns and allowances... 19,000 Income Summary ($550,000 $515,400)... 34,600 Retained Earnings... 34, For Instructor Use Only 5-5

6 EXERCISE 5-9B (a) DUTHIE COMPANY Income Statement For the Year Ended December 31, 2008 Net sales... $1,620,000 Cost of goods sold ,000 Gross profit ,000 Operating expenses Selling expenses... $343,000 Administrative expenses ,000 Total operating expenses ,000 Income from operations... 71,000 Other revenues and gains Interest revenue... 20,000 Other expenses and losses Interest expense... $49,000 Loss on sale of equipment... 7,000 56,000 36,000 Net income... $ 35,000 (b) DUTHIE COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Net sales... $1,620,000 Interest revenue... 20,000 Total revenues... 1,640,000 Expenses Cost of goods sold... $902,000 Selling expenses ,000 Administrative expenses ,000 Interest expense... 49,000 Loss on sale of equipment... 7,000 Total expenses... 1,605,000 Net income... $ 35, For Instructor Use Only 5-6

7 EXERCISE 5-10B 1. Sales Returns and Allowances Sales Equipment Accounts Payable Cash Merchandise Inventory Sales Discounts Sales Returns and Allowances Merchandise Inventory Cash Freight-out EXERCISE 5-11B (a) $1,000,000 $650,000 = $350,000. (b) $350,000/$1,000,000 = 35%. 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 $150,000 ($350,000 $200,000), and net income is $140,000 ($150,000 $10,000). (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 Jones single-step income statement is also $140,000. (e) Merchandise inventory is reported as a current asset immediately below accounts receivable For Instructor Use Only 5-7

8 EXERCISE 5-12B (a) (*missing amount) a. Sales... $ 210,000) *Sales returns... (10,000) Net sales... $ 200,000) b. Net sales... $ 200,000) Cost of goods sold... (,000) *Gross profit... $ 80,000) c. Gross profit... $ 80,000) Operating expenses... (50,000) *Net income... $ 30,000) d. *Sales... $ 100,000) Sales returns... (5,000) Net sales... $ 95,000) e. Net sales... $ 95,000) *Cost of goods sold... 53,000) Gross profit... $ 42,000) f. Gross profit... $ 42,000) *Operating expenses... 22,000) Net income... $ 20,000) ) (b) Viet Company Gross profit Net sales = $80,000 $200,000 = 40% Naise Company Gross profit Net sales = $42,000 $95,000 = 44.2% 2008 For Instructor Use Only 5-8

9 EXERCISE 5-13B Inventory, September 1, $ 35,000 Purchases... $300,000 Less: Purchase returns and allowances... 4,000 Net Purchases ,000 Add: Freight-in... 8,500 Cost of goods purchased ,500 Cost of goods available for sale ,500 Inventory, August 31, ,000 Cost of goods sold... $294,500 EXERCISE 5-14B (a) Sales... $600,000 Less: Sales returns and allowances... $ 12,000 Sales discounts... 7,000 19,000 Net sales ,000 Cost of goods sold Inventory, January ,000 Purchases... $360,000 Less: Purch. rets. and alls.... (3,000) Purch. discounts... (8,000) 349,000 Add: Freight-in... 6,000 Cost of goods available for sale ,000 Inventory, December (41,000) Cost of goods sold ,000 Gross profit... $232,000 (b) Gross profit $232,000 Operating expenses = Net income $,000. Operating expenses = $112,000. EXERCISE 5-15B (a) $1,950 ($2,000 $50) (b) $2,020 ($1, ) (c) $1,920 ($2,220 $300) (d) $40 ($1,100 $1,060) (e) $60 ($1, $1,060) (f) $130 ($1,220 $1,090) (g) $3,250 ($150 + $3,100) (h) $150 ($3,250 $3,100) (i) $3,750 ($500 + $3,250) (j) $1,090 ($12,200 $11,110 from (I)) (k) $700 ($11,200 $10,500) (l) $11,110 ($10,500 + $610) 2008 For Instructor Use Only 5-9

10 *EXERCISE 5-16B (a) 1. April 5 Purchases... 25,000 Accounts Payable... 25, April 6 Freight-in Cash April 7 Equipment... 37,000 Accounts Payable... 37, April 8 Accounts Payable... 3,000 Purchase Returns and Allowances... 3, April 15 Accounts Payable... 22,000 ($25,000 $3,000) Purchase Discounts ($22,000 X 2%) Cash ($22,000 $440)... 21,560 (b) May 4 Accounts Payable... 22,000 ($25,000 $3,000) Cash... 22,000 *EXERCISE 5-17B (a) 1. April 5 Purchases... 35,000 Accounts Payable... 35, April 6 Freight-in... 1,000 Cash... 1, April 7 Equipment... 41,000 Accounts Payable... 41, April 8 Accounts Payable... 5,000 Purchase Returns and Allowances... 5, For Instructor Use Only 5-10

11 *EXERCISE 5-17B (Continued) 5. April 15 Accounts Payable... 30,000 ($35,000 $5,000) Purchase Discounts ($30,000 X 2%) Cash ($30,000 $600)... 29,400 (b) May 4 Accounts Payable... 30,000 ($35,000 $5,000) Cash... 30,000 *EXERCISE 5-18B Accounts Cash Merchandise Inventory Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold Adjusted Trial Balance Income Statement Balance Sheet Debit Credit Debit Credit Debit Credit 11,000 93,000 12,000 13, , ,000 12,000 13, , ,000 11,000 93,000 *EXERCISE 5-19B SMITH COMPANY Worksheet For the Month Ended June 30, 2008 Accounts Trial Balance Adjustments Adj. Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 4,500 4,500 4,500 Accounts Receivable 5,000 5,000 5,000 Merchandise Inventory 24,000 24,000 24,000 Accounts Payable 2,500 2,700 5,200 5,200 Common Stock 8,000 8,000 8,000 Sales 90,000 90,000 90,000 Cost of Goods Sold 42,000 42,000 42,000 Operating Expenses 25,000 2,700 27,700 27,700 Totals 100, ,500 2,700 2, , ,200 69,700 90,000 33,500 13,200 Net Income 20,300 20,300 Totals 90,000 90,000 33,500 33, For Instructor Use Only 5-11

12 SOLUTIONS TO PROBLEMS PROBLEM 5-1C (a) June 1 Merchandise Inventory (200 X $6)... 1,200 Accounts Payable... 1,200 3 Accounts Receivable (240 X $10)... 2,400 Sales... 2,400 Cost of Goods Sold (240 X $6)... 1,440 Merchandise Inventory... 1,440 6 Accounts Payable (20 X $6)... Merchandise Inventory... 9 Accounts Payable ($1,200 $)... 1, Merchandise Inventory ($1,080 X.02) Cash... 1, Cash... 2,400 Accounts Receivable... 2, Accounts Receivable (180 X $10)... 1,800 Sales... 1,800 Cost of Goods Sold (180 X $6)... 1,080 Merchandise Inventory... 1, Merchandise Inventory (250 X $6)... 1,500 Accounts Payable... 1, Cash... 1,764 Sales Discounts ($1,800 X.02) Accounts Receivable... 1, Accounts Payable... 1,500 Merchandise Inventory ($1,500 X.02) Cash... 1, For Instructor Use Only 5-12

13 PROBLEM 5-1C (Continued) June 28 Accounts Receivable (130 X $10)... 1,300 Sales... 1,300 Cost of Goods Sold (130 X $6) Merchandise Inventory Sales Returns and Allowances... (12 X $10) Accounts Receivable... Merchandise Inventory (12 X $6) Cost of Goods Sold For Instructor Use Only 5-13

14 PROBLEM 5-2C (a) General Journal Date Account Titles and Explanation Ref. Debit Credit May 1 Merchandise Inventory... 4,200 Accounts Payable ,200 2 Accounts Receivable... Sales ,100 2,100 Cost of Goods Sold... Merchandise Inventory ,300 1,300 5 Accounts Payable... Merchandise Inventory Cash ($2,100 $21)... Sales Discounts ($2,100 X 1%)... Accounts Receivable , , Accounts Payable ($4,200 $300)... Merchandise Inventory... ($3,900 X 2%) Cash , , Supplies... Cash Merchandise Inventory... Cash ,400 1, Cash... Merchandise Inventory Merchandise Inventory... Accounts Payable ,300 1, Merchandise Inventory... Cash For Instructor Use Only 5-14

15 PROBLEM 5-2C (Continued) General Journal Date Account Titles and Explanation Ref. Debit Credit May 24 Cash... Sales ,200 3,200 Cost of Goods Sold... Merchandise Inventory ,000 2, Merchandise Inventory... Accounts Payable Accounts Payable... Merchandise Inventory... ($1,300 X 2%) Cash , , Sales Returns and Allowances... Cash Merchandise Inventory... Cost of Goods Sold Accounts Receivable... Sales Cost of Goods Sold... Merchandise Inventory For Instructor Use Only 5-15

16 PROBLEM 5-2C (Continued) (b) Cash No. 101 May 1 Balance 5, ,079 7, , ,400 3,257 2,857 1, , , ,200 4, , ,403 3,343 Accounts Receivable No. 112 May 2 2,100 2, , Merchandise Inventory No. May 1 4,200 4, , ,900 2,600 2, ,400 3, , , ,072 5, ,000 3, , , , , For Instructor Use Only 5-16

17 PROBLEM 5-2C (Continued) Supplies No. 126 May Accounts Payable No. 201 May 1 4,200 4, ,900 3, , ,300 1, , Common Stock No. 311 May 1 Balance 5,000 Sales No. 401 May ,100 3, ,100 5,300 6,200 Sales Returns and Allowances No. 412 May Sales Discounts No. 414 May For Instructor Use Only 5-17

18 PROBLEM 5-2C (Continued) Cost of Goods Sold No. 505 May ,300 2,000 1,300 3, , ,850 (c) NEWMAN HARDWARE STORE Income Statement (Partial) For the Month Ended May 31, 2008 Sales revenues Sales... $6,200 Less: Sales returns and allowances... $60 Sales discounts Net sales... 6,119 Cost of goods sold... 3,850 Gross profit... $2, For Instructor Use Only 5-18

19 PROBLEM 5-3C (a) TARP DEPARTMENT STORE Income Statement For the Year Ended November 30, 2008 Sales revenues Sales... $680,000 Less: Sales returns & allowances... 8,000 Net sales ,000 Cost of goods sold ,000 Gross profit ,000 Operating expenses Selling expenses Salaries expense... $72,000 ($96,000 X 75%) Sales commissions expense... 11,200 Depreciation expense store equipment... 8,000 Delivery expense... 6,500 Depreciation expense delivery equipment... 5,000 Insurance expense... 3,500 ($7,000 X 50%) Total selling expenses... $106,200 Administrative expenses Salaries expense... 24,000 ($96,000 X 25%) Rent expense... 15,000 Utilities expense... 8,500 Insurance expense... 3,500 ($7,000 X 50%) Property tax expense... 2,800 Total admin. expenses... 53,800 Total oper. expenses ,000 Income from operations... 5,000 Other revenues and gains Interest revenue... 8,000 Other expenses and losses Interest expense... 6,400 1,600 Net income... $ 6, For Instructor Use Only 5-19

20 PROBLEM 5-3C (Continued) TARP DEPARTMENT STORE Retained Earnings Statement For the Year Ended November 30, 2008 Retained earnings, December 1, $21,700 Add: Net income... 6,600 28,300 Less: Dividends... 10,000 Retained earnings, November 30, $18,300 TARP DEPARTMENT STORE Balance Sheet November 30, 2008 Assets Current assets Cash... $ 6,000 Accounts receivable... 30,500 Merchandise inventory... 29,000 Prepaid insurance... 3,500 Total current assets... $ 69,000 Property, plant, and equipment Store equipment... $100,000 Less: Accumulated depreciation store equipment... 32,000 68,000 Delivery equipment... 46,000 Less: Accumulated depreciation delivery equipment... 15,000 31,000 99,000 Total assets... $168, For Instructor Use Only 5-20

21 PROBLEM 5-3C (Continued) TARP DEPARTMENT STORE Balance Sheet (Continued) November 30, 2008 Liabilities and Stockholders Equity Current liabilities Accounts payable... $25,200 Sales commissions payable... 4,700 Property taxes payable... 2,800 Total current liabilities... $ 32,700 Long-term liabilities Notes payable due ,000 Total liabilities... 69,700 Stockholders equity Common stock... $80,000 Retained earnings... 18,300 98,300 Total liabilities and stockholders equity... $168,000 (b) Nov. 30 Depr. Expense Delivery Equip.... 5,000 Accumulated Depreciation Delivery Equipment... 5,000 Depr. Expense Store Equip.... 8,000 Accumulated Depreciation Store Equipment... 8,000 Insurance Expense... 7,000 Prepaid Insurance... 7,000 Property Tax Expense... 2,800 Property Taxes Payable... 2,800 Sales Commissions Expense... 4,700 Sales Commissions Payable... 4, For Instructor Use Only 5-21

22 PROBLEM 5-3C (Continued) (c) Nov. 30 Sales ,000 Interest Revenue... 8,000 Income Summary , Income Summary ,400 Sales Returns and Allowances... 8,000 Cost of Goods Sold ,000 Salaries Expense... 96,000 Depreciation Expense Delivery Equipment... 5,000 Delivery Expense... 6,500 Sales Commissions Expense... 11,200 Depreciation Expense Store Equipment... 8,000 Insurance Expense... 7,000 Rent Expense... 15,000 Property Tax Expense... 2,800 Utilities Expense... 8,500 Interest Expense... 6, Income Summary... 6,600 Retained Earnings... 6, Retained Earnings... 10,000 Dividends... 10, For Instructor Use Only 5-22

23 PROBLEM 5-4C (a) General Journal Date Account Titles and Explanation Ref. Debit Credit Apr. 5 Merchandise Inventory... 1,200 Accounts Payable ,200 7 Merchandise Inventory... Cash Accounts Payable... Merchandise Inventory Accounts Receivable... Sales Cost of Goods Sold... Merchandise Inventory Merchandise Inventory... Accounts Payable Accounts Payable ($1,200 $100)... Merchandise Inventory... ($1,100 X 2%) Cash , , Accounts Payable... Merchandise Inventory Accounts Receivable... Sales Cost of Goods Sold... Merchandise Inventory Accounts Payable ($670 $70)... Merchandise Inventory... ($600 X 1%) Cash For Instructor Use Only 5-23

24 PROBLEM 5-4C (Continued) Date Account Titles and Explanation Ref. Debit Credit Apr. 27 Sales Returns and Allowances Accounts Receivable Cash... Accounts Receivable (b) Cash No. 101 Apr. 1 Balance 1, , , Accounts Receivable No. 112 Apr , , Merchandise Inventory No. Apr. 1 Balance 2, , ,700 3, ,650 3, , ,758 3,688 3,348 3, For Instructor Use Only 5-24

25 PROBLEM 5-4C (Continued) Accounts Payable No. 201 Apr , , ,200 1,100 1, Common Stock No. 311 Apr. 1 Balance 4,300 Sales No. 401 Apr ,460 Sales Returns and Allowances No. 412 Apr Cost of Goods Sold No. 505 Apr For Instructor Use Only 5-25

26 PROBLEM 5-4C (Continued) (c) CALEB S DISCORAMA Trial Balance April 30, 2008 Cash... Accounts Receivable... Merchandise Inventory... Common Stock... Sales... Sales Returns and Allowances... Cost of Goods Sold... Debit $ , $5,760 Credit $4,300 1,460 $5, For Instructor Use Only 5-26

27 PROBLEM 5-5C DUCKWORTH DEPARTMENT STORE Income Statement (Partial) For the Year Ended November 30, 2008 Sales revenues Sales... $810,000 Less: Sales returns and allowances... 18,000 Net sales ,000 Cost of goods sold Inventory, Dec. 1, $ 40,000 Purchases... $585,000 Less: Purchase returns and allowances... $2,700 Purchase discounts... 6,300 9,000 Net purchases ,000 Add: Freight-in... 4,500 Cost of goods purchased ,500 Cost of goods available for sale ,500 Inventory, Nov. 30, ,600 Cost of goods sold ,900 Gross profit... $204, For Instructor Use Only 5-27

28 PROBLEM 5-6C (1) (a) Cost of goods sold = Sales Gross profit = $53,300 $38,300 = $15,000 (b) (c) Net income = Gross profit Operating expenses = $38,300 $34,900 = $3,400 Merchandise inventory = 2005 Inventory + Purchases CGS = $7,200 + $14,200 $15,000 = $6,400 (d) Cash payments to suppliers = 2005 Accounts payable + Purchases 2006 Accounts payable = $3,200 + $14,200 $3,600 = $13,800 (e) (f) (g) Sales = Cost of goods sold + Gross profit = $13,800 + $33,800 = $47,600 Operating expenses = Gross profit Net income = $33,800 $2,500 = $31, Inventory + Purchases 2007 Inventory = CGS Purchases = CGS 2006 Inventory Inventory = $13,800 $6,400 [from (c)] + $8,100 = $15,500 (h) Cash payments to suppliers = 2006 Accounts payable + Purchases 2007 Accounts Payable = $3,600 + $15,500 [from (g)] $2,500 = $16,600 (i) (j) (k) Gross profit = Sales CGS = $45,200 $14,300 = $30,900 Net income = Gross profit Operating expenses = $30,900 [from (i)] $28,600 = $2, Inventory + Purchases 2008 Inventory = CGS Merchandise inventory = 2007 Inventory + Purchases CGS = $8,100 + $13,200 $14,300 = $7,000 (I) Accounts payable = 2007 Accounts payable + Purchases Cash payments = $2,500 + $13,200 $13,600 = $2, For Instructor Use Only 5-28

29 PROBLEM 5-6C (Continued) (2) A decline in sales does not necessarily mean that profitability declined. Profitability is affected by sales, cost of goods sold, and operating expenses. If cost of goods sold or operating expenses decline more than sales, profitability can increase even when sales decline. However, in this particular case, sales declined with insufficient offsetting cost savings to improve profitability. Therefore, profitability declined for Howit Inc. Gross profit rate $38,300 $53,300 = 72% $33,800 $47,600 = 71% $30,900 $45,200 = 68% Profit margin ratio $3,400 $53,300 = 6.4% $2,500 $47,600 = 5.3% $2,300 $45,200 = 5.1% 2008 For Instructor Use Only 5-29

30 *PROBLEM 5-7C (a) General Journal Date Account Titles and Explanation Debit Credit Apr. 5 Purchases... 1,200 Accounts Payable... 1,200 7 Freight-in... Cash... 9 Accounts Payable... Purchase Returns and Allowances Accounts Receivable... Sales Purchases... Accounts Payable Accounts Payable ($1,200 $100)... Purchase Discounts ($1,100 X 2%)... Cash ($1,100 $22) Accounts Payable... Purchase Returns and Allowances Accounts Receivable... Sales Accounts Payable ($340 $40)... Purchase Discounts... ($300 X 1%) Cash ($300 $3) Sales Returns and Allowances... Accounts Receivable Cash... Accounts Receivable , , For Instructor Use Only 5-30

31 *PROBLEM 5-7C (Continued) (b) Cash 4/1 Bal. 3,000 4/ /7 50 4/14 1,078 4/ Common Stock 4/1 Bal. 7,000 4/30 Bal. 7,000 4/30 Bal. 2,225 Sales 4/ Accounts Receivable 4/ / / /30 Bal. 1,200 4/ / /30 Bal. 515 Sales Returns and Allowances 4/27 35 Merchandise Inventory 4/30 Bal. 35 4/1 Bal. 4,000 4/30 Bal. 4,000 Purchases 4/5 1,200 4/ /30 Bal. 1,540 Accounts Payable 4/ /5 1,200 4/14 1,100 4/ /17 40 Freight-in 4/ /7 50 4/30 Bal. 0 4/30 Bal. 50 Purchase Returns and Allowances 4/ / /30 Bal. 140 Purchase Discounts 4/ /21 3 4/30 Bal For Instructor Use Only 5-31

32 *PROBLEM 5-7C (Continued) (c) FIVE PINES PRO SHOP Trial Balance April 30, 2008 Cash... Accounts Receivable... Merchandise Inventory... Common Stock... Sales... Sales Returns and Allowances... Purchases... Purchase Returns and Allowances... Purchase Discounts... Freight-in... Debit $2, , , $8,365 Credit $7,000 1, $8,365 FIVE PINES PRO SHOP Income Statement (Partial) For the Month Ended April 30, 2008 Sales revenues Sales... $1,200 Less: Sales returns and allowances Net sales... 1,165 Cost of goods sold Inventory, April 1... $4,000 Purchases... $1,540 Less: Purchase returns and allowances... $140 Purchase discounts Net purchases... 1,375 Add: Freight-in Cost of goods purchased... 1,425 Cost of goods available for sale... 5,425 Inventory, April ,726 Cost of goods sold Gross profit... $ For Instructor Use Only 5-32

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