Study Guide 15. Part One Identifying Accounting Terms. Column II. Answers. Column I

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1 Study Guide 15 Name Identifying Accounting Terms Analyzing Acceptable Component Percentages Analyzing Financial Statements for a Merchandising Business Total Perfect Score 11 Pts. 8 Pts. 20 Pts. 39 Pts. Your Score Part One Identifying Accounting Terms Directions: Select the one term in Column I that best fits each definition in Column II. Print the letter identifying your choice in the Answers column. Column I A. cost of merchandise sold B. current liabilities C. earnings per share D. financial ratio E. gross profit on sales F. long-term liabilities G. net sales H. par value I. price-earnings ratio J. statement of stockholders equity K. supporting schedule Column II 1. Total sales less sales discount and sales returns and allowances. (p. 449) 2. The original price of all merchandise sold during a fiscal period. (p. 450) 3. The revenue remaining after cost of merchandise sold has been deducted. (p. 452) 4. A comparison between two items of financial information. (p. 459) 5. The amount of net income after federal income tax belonging to a single share of stock. (p. 459) 6. The relationship between the market value per share and earnings per share of a stock. (p. 459) 7. A financial statement that shows changes in a corporation s ownership for a fiscal period. (p. 461) 8. A value assigned to a share of stock and printed on the stock certificate. (p. 461) 9. Liabilities due within a short time, usually within a year. (p. 467) 10. Liabilities owed for more than a year. (p. 467) 11. A report prepared to give details about an item on a principal financial statement. (p. 470) Answers 1. G 2. A 3. E 4. D 5. C 6. I 7. J 8. H 9. B 10. F 11. K COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING Chapter

2 Part Two Analyzing Acceptable Component Percentages Directions: For each of the income statement component percentages given, write a U in the Answers column if it is Unacceptable and write an A in the Answers column if it is Acceptable. (pp ) Acceptable Component Percentages Sales 100% Cost of merchandise sold Not more than 48.6% Gross profit on sales Not less than 51.4% Total expenses Not more than 34.9% Net income Not less than 16.5% Answers 1. The component percentage for total expenses is 42.8% this year. 1. U 2. The component percentage for cost of merchandise sold is 51.0% this year. 2. U 3. The component percentage for gross profit on sales is 52.8% this year. 3. A 4. The component percentage for total expenses is 34.3% this year. 4. A 5. The component percentage for gross profit on sales is 51.4% this year. 5. A 6. The component percentage for net income is 17.0% this year. 6. A 7. The component percentage for cost of merchandise sold is 48.7% this year. 7. U 8. The component percentage for net income is 10.4% this year. 8. U 394 Working Papers CENTURY 21 ACCOUNTING, 9TH EDITION

3 Name Date Class Part Three Analyzing Financial Statements for a Merchandising Business Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false. 1. Financial statements provide the primary source of information needed by owners and managers to make decisions on the future activity of a business. (p. 446) 2. Reporting financial information the same way from one fiscal period to the next is an application of the accounting concept Adequate Disclosure. (p. 446) 3. An income statement is used to report a business s financial progress. (p. 448) 4. An income statement for a merchandising business has three main sections: revenue section, cost of merchandise sold section, and expenses section. (p. 448) 5. Cost of merchandise sold is also known as cost of goods sold. (p. 450) 6. Revenue less cost of merchandise sold equals net income. (p. 452) 7. Calculating a ratio between gross profit on sales and net sales enables management to compare its performance to prior fiscal periods. (p. 452) 8. Total expenses on an income statement are deducted from the gross profit on sales to find net income before federal income tax. (p. 453) 9. For a merchandising business, every sales dollar reported on the income statement includes only three components: gross profit on sales, total expenses, and net income. (p. 455) 10. When a business s expenses are less than the gross profit on sales, the difference is known as a net loss. (p. 457) 11. Increasing sales revenue while keeping cost of merchandise sold the same will increase gross profit on sales. (p. 458) 12. Most businesses correct an unacceptable component percentage for gross profit by simply increasing the markup on merchandise purchased for sale because an increased selling price will always increase profit. (p. 458) 13. Individual amounts reported on an income statement have little meaning without being compared to another amount. (p. 459) 14. A statement of stockholders equity contains two major sections: (1) capital stock and (2) retained earnings. (p. 461) 15. The beginning balance of the capital stock account is the amount of capital stock issued at the beginning of the year. (p. 461) 16. The amounts in the capital stock section of the statement of stockholders equity are obtained from the general ledger account, Capital Stock. (p. 461) 17. Net income is shown on the last line of a statement of stockholders equity. (p. 462) 18. Some income may be distributed as dividends to provide stockholders with a return on their investments. (p. 462) 19. Data needed to prepare the liabilities section of a balance sheet are obtained from a work sheet. (p. 467) 20. Ruled double lines across both amount columns below the Assets section and below the Stockholders Equity section show that the assets equal liabilities plus owners equity. (p. 468) Answers 1. T 2. F 3. T 4. T 5. T 6. F 7. T 8. T 9. F 10. F 11. T 12. F 13. T 14. T 15. T 16. T 17. F 18. T 19. T 20. T COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING Chapter

4 Study Skills Memory Hooks We learned a number of things we can do to improve our ability to remember. When we concentrate on several specific memory techniques, we call them memory hooks. Acronyms You may wish to remember a list of items from a textbook. One way to remember names or words is to use an acronym, a word formed by using the first letter or so of each of the words you want to remember. For example, you may want to remember the names of the five Great Lakes Huron, Ontario, Michigan, Erie, and Superior. The first letter of each of their names spells the word homes. By remembering this word, you will be able to remember the names of the lakes. You may also use the first letter or so of the word you want to remember as the first letter of each word in a phrase or sentence. For example, you might be required to remember the Seven Wonders of the Ancient World: the Pyramids, the Hanging Gardens, the statue of Zeus, the Mausoleum, the Colossus, the Temple of Diana, and the Lighthouse. It might be difficult to remember all of them, but you can probably recall them if you remember a short, absurd sentence: Please Hand Zeek My Cat s Dog License. The first letter of each word is the same as a key word in each of the seven wonders. Chaining You can use a memory technique called chaining to link isolated items. To chain, you should make a mental connection between the first item and the second, between the second item and the third, and so on. For example, you might want to remember to make an appointment with the doctor, schedule an auto repair, and buy tickets for the theater. To connect the first two, you could visualize your doctor operating on your car. To connect the second and third, you could visualize your car parked in the theater lobby. When you remember one item in the chain, the next item will be cued. Personalize Your Memory Hooks You may be able to use these techniques just as they are, or you may wish to change them or develop new ones to meet your own personal needs. Employ any device that makes remembering easier for you. It is fun, and it will help you in your work now and in the future. 396 Working Papers CENTURY 21 ACCOUNTING, 9TH EDITION

5 Name Date Class 15-1 WORK TOGETHER, p. 454 Preparing an income statement for a merchandising business TRIAL BALANCE ACCOUNT TITLE Cash Petty Cash Accounts Receivable Allow. for Uncoll. Accts. Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Office Equipment Acc. Depr. Office Equip. Store Equipment Acc. Depr. Store Equip. Accounts Payable Federal Income Tax Payable Emp. Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemploy. Tax Payable Fed. Unemploy. Tax Payable State Health Insur. Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Capital Stock Retained Earnings Interstate Tires, Inc. Work Sheet For Year Ended December 31, ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) (Note: Work sheet is continued on next page.) INCOME STATEMENT BALANCE SHEET Chapter 15 Financial Statements for a Corporation 397

6 15-1 WORK TOGETHER (continued) ACCOUNT TITLE Dividends Income Summary Sales Sales Discount Sales Returns and Allowances Purchases Purchases Discount Purch. Returns and Allowances Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Federal Income Tax Expense Net Income after Fed. Income Tax Interstate Tires, Inc. Work Sheet For Year Ended December 31, TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET (d) (f) (g) (c) (a) (b) (e) (h) Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

7 Name Date Class 15-1 WORK TOGETHER (concluded) 1., 2. Interstate Tires, Inc. Income Statement For Year Ended December 31, 20 Revenue: Sales Less: Sales Discount Sales Ret. and Allow. Net Sales Cost of Merchandise Sold: Merchandise Inventory, January 1, 20 Purchases Less: Purchases Discount Purch. Ret. and Allow. Net Purchases Total Cost of Mdse. Avail. for Sale Less Mdse. Inventory, Dec. 31, 20 Cost of Merchandise Sold Gross Profit on Sales Expenses: Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Total Expenses Net Income before Federal Income Tax Less Federal Income Tax Expense Net Income after Federal Income Tax *% OF NET SALES *Rounded to the nearest 0.1% Chapter 15 Financial Statements for a Corporation 399

8 15-1 ON YOUR OWN, p. 454 Preparing an income statement for a merchandising business TRIAL BALANCE ACCOUNT TITLE Cash Petty Cash Accounts Receivable Allow. for Uncoll. Accts. Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Office Equipment Acc. Depr. Office Equip. Store Equipment Acc. Depr. Store Equip. Accounts Payable Federal Income Tax Payable Emp. Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemploy. Tax Payable Fed. Unemploy. Tax Payable State Health Insur. Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Capital Stock Retained Earnings Osborn Corporation Work Sheet For Year Ended December 31, ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) (Note: Work sheet is continued on next page.) INCOME STATEMENT BALANCE SHEET Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

9 Name Date Class 15-1 ON YOUR OWN (continued) ACCOUNT TITLE Dividends Income Summary Sales Sales Discount Sales Returns and Allowances Purchases Purchases Discount Purch. Returns and Allowances Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Federal Income Tax Expense Net Income after Fed. Income Tax Osborn Corporation Work Sheet For Year Ended December 31, TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET (d) (f) (g) (c) (a) (b) (e) (h) Chapter 15 Financial Statements for a Corporation 401

10 15-1 ON YOUR OWN (concluded) 1., 2. Osborn Corporation Income Statement For Year Ended December 31, 20 Revenue: Sales Less: Sales Discount Sales Ret. and Allow. Net Sales Cost of Merchandise Sold: Merchandise Inventory, January 1, 20 Purchases Less: Purchases Discount Purch. Ret. and Allow. Net Purchases Total Cost of Mdse. Avail. for Sale Less Mdse. Inventory, Dec. 31, 20 Cost of Merchandise Sold Gross Profit on Sales Expenses: Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Total Expenses Net Income before Federal Income Tax Less Federal Income Tax Expense Net Income after Federal Income Tax *% OF NET SALES *Rounded to the nearest 0.1% 402 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

11 Name Date Class 15-2 WORK TOGETHER, p. 460 Analyzing an income statement 1., 2., 3. Component Cost of merchandise sold Gross profit on sales Acceptable Percentage Actual Percentage Acceptable Result Recommended Action Yes No If Needed No more than 53.0% 51.9% None No less than 47.0% 48.1% None Earnings per Share Net Income after Federal Income Tax Number of Shares Outstanding Earnings per Share $ 62, ,000 $ 0.57 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ $ Chapter 15 Financial Statements for a Corporation 403

12 15-2 ON YOUR OWN, p. 460 Analyzing an income statement 1., 2., 3. Component Total expenses Net income before federal income tax Acceptable Percentage No more than 30.0% 34.8% No less than 15.0% Actual Percentage 12.3% Acceptable Result Recommended Action Yes No If Needed Look at all expenses to determine which can be reduced. Reducing expenses will increase net income and this percentage. Earnings per Share Net Income after Federal Income Tax Number of Shares Outstanding Earnings per Share $ 68, ,000 $ 8.58 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ $ Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

13 Name Date Class 15-3 WORK TOGETHER, p. 463 Preparing a statement of stockholders equity 1. Interstate Tires, Inc. Statement of Stockholders' Equity For Year Ended December 31, 20 Capital Stock: $1.00 Per Share January 1, 20, 100,000 Shares Issued Issued during Current Year, 10,000 Shares Balance, December 31, 20, 110,000 Shares Issued Retained Earnings: Balance, January 1, 20 Net Income after Federal Income Tax for 20 Less Dividends Declared during 20 Net Increase during 20 Balance, December 31, 20 Total Stockholders' Equity, December 31, Chapter 15 Financial Statements for a Corporation 405

14 15-3 ON YOUR OWN, p. 463 Preparing a statement of stockholders equity 1. Osborn Corporation Statement of Stockholders' Equity For Year Ended December 31, 20 Capital Stock: $25.00 Per Share January 1, 20, 7,500 Shares Issued Issued during Current Year, 500 Shares Balance, December 31, 20, 8,000 Shares Issued Retained Earnings: Balance, January 1, 20 Net Income after Federal Income Tax for 20 Less Dividends Declared during 20 Net Increase during 20 Balance, December 31, 20 Total Stockholders' Equity, December 31, Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

15 Name Date Class 15-4 WORK TOGETHER, p. 471 Preparing a balance sheet for a corporation 1. Interstate Tires, Inc. Balance Sheet December 31, 20 Assets Current Assets: Cash Petty Cash Accounts Receivable Less Allowance for Uncollectible Accounts Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Total Current Assets Plant Assets: Office Equipment Less Accumulated Depreciation Office Equipment Store Equipment Less Accumulated Depreciation Store Equipment Total Plant Assets Total Assets Liabilities Current Liabilities: Accounts Payable Federal Income Tax Payable Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemployment Tax Payable Federal Unemployment Tax Payable State Health Insurance Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Total Liabilities Stockholders Equity Capital Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Chapter 15 Financial Statements for a Corporation 407

16 15-4 ON YOUR OWN, p. 471 Preparing a balance sheet for a corporation 1. Osborn Corporation Balance Sheet December 31, 20 Assets Current Assets: Cash Petty Cash Accounts Receivable Less Allowance for Uncollectible Accounts Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Total Current Assets Plant Assets: Office Equipment Less Accumulated Depreciation Office Equipment Store Equipment Less Accumulated Depreciation Store Equipment Total Plant Assets Total Assets Liabilities Current Liabilities: Accounts Payable Federal Income Tax Payable Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemployment Tax Payable Federal Unemployment Tax Payable State Health Insurance Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Total Liabilities Stockholders Equity Capital Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

17 Name Date Class 15-1 APPLICATION PROBLEM, p. 473 Preparing an income statement for a merchandising business TRIAL BALANCE ACCOUNT TITLE Historic Doors, Inc. Work Sheet For Year Ended December 31, ADJUSTMENTS INCOME STATEMENT BALANCE SHEET Merchandise Inventory Sales Sales Discount Sales Returns and Allowances Purchases Purchases Discount Purch. Returns and Allowances Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Federal Income Tax Expense Net Income after Fed. Income Tax (f) (g) (c) (a) (b) (e) (h) (d) Chapter 15 Financial Statements for a Corporation 409

18 15-1 APPLICATION PROBLEM (concluded) 1., 2. Historic Doors, Inc. Income Statement For Year Ended December 31, 20 Revenue: Sales Less: Sales Discount Sales Ret. and Allow. Net Sales Cost of Merchandise Sold: Merchandise Inventory, January 1, 20 Purchases Less: Purchases Discount Purch. Ret. and Allow. Net Purchases Total Cost of Mdse. Avail. for Sale Less Mdse. Inventory, Dec. 31, 20 Cost of Merchandise Sold Gross Profit on Sales Expenses: Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Total Expenses Net Income before Federal Income Tax Less Federal Income Tax Expense Net Income after Federal Income Tax *% OF NET SALES *Rounded to the nearest 0.1% 410 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

19 Name Date Class 15-2 APPLICATION PROBLEM, p. 473 Analyzing component percentages and financial ratios Custom Jewelry, Inc. Income Statement For Year Ended December 31, 20 Revenue: Sales Less: Sales Discount Sales Ret. and Allow. Net Sales Cost of Merchandise Sold: Merchandise Inventory, January 1, 20 Purchases Less: Purchases Discount Purch. Ret. and Allow. Net Purchases Total Cost of Mdse. Avail. for Sale Less Mdse. Inventory, Dec. 31, 20 Cost of Merchandise Sold Gross Profit on Sales Expenses: Advertising Expense Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Total Expenses Net Income before Federal Income Tax Less Federal Income Tax Expense Net Income after Federal Income Tax *% OF NET SALES *Rounded to the nearest 0.1% Chapter 15 Financial Statements for a Corporation 411

20 15-2 APPLICATION PROBLEM (concluded) 1. Component Cost of merchandise sold Gross profit on sales Acceptable Percentage No more than 35.0% 36.1% No less than 65.0% Actual Percentage 63.9% Acceptable Result Recommended Action Yes No If Needed Review purchasing practices. Consider purchasing in larger quantities or from different vendors to reduce costs. Try to increase sales revenue. Consider increasing the markup on merchandise purchased for sale. Total expenses No more than 40.0% 42.4% Review all expense account balances to determine which have increased since prior fiscal periods. Plan ways to reduce expenses that have had major increases. Net income before federal income tax No less than 25.0% 21.5% If the component percentages for the first three items become acceptable, net income before federal tax will also be acceptable. 2. Earnings per Share Net Income after Federal Income Tax Number of Shares Outstanding Earnings per Share $ 135, ,000 $ 1.23 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ $ Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

21 Name Date Class 15-3 APPLICATION PROBLEM, p. 473 Preparing a statement of stockholders equity Classic Interiors, Inc. Statement of Stockholders' Equity For Year Ended December 31, 20 Capital Stock: $5.00 Per Share January 1, 20, 50,000 Shares Issued Issued during Current Year, 10,000 Shares Balance, December 31, 20, 60,000 Shares Issued Retained Earnings: Balance, January 1, 20 Net Income after Federal Income Tax for 20 Less Dividends Declared during 20 Net Increase during 20 Balance, December 31, 20 Total Stockholders' Equity, December 31, Chapter 15 Financial Statements for a Corporation 413

22 15-4 APPLICATION PROBLEM, p. 474 Preparing a balance sheet for a corporation TRIAL BALANCE ACCOUNT TITLE Cash Petty Cash Accounts Receivable Allow. for Uncoll. Accts. Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Office Equipment Acc. Depr. Office Equip. Store Equipment Acc. Depr. Store Equip. Accounts Payable Federal Income Tax Payable Emp. Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemploy. Tax Payable Fed. Unemploy. Tax Payable State Health Insur. Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Capital Stock Retained Earnings Dividends Income Summary Henderson Corporation Work Sheet For Year Ended December 31, (d) ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) INCOME STATEMENT BALANCE SHEET Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

23 Name Date Class 15-4 APPLICATION PROBLEM (concluded) Henderson Corporation Balance Sheet December 31, 20 Assets Current Assets: Cash Petty Cash Accounts Receivable Less Allowance for Uncollectible Accounts Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Total Current Assets Plant Assets: Office Equipment Less Accumulated Depreciation Office Equipment Store Equipment Less Accumulated Depreciation Store Equipment Total Plant Assets Total Assets Liabilities Current Liabilities: Accounts Payable Federal Income Tax Payable Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemployment Tax Payable Federal Unemployment Tax Payable State Health Insurance Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Total Liabilities Stockholders Equity Capital Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Chapter 15 Financial Statements for a Corporation 415

24 15-5 MASTERY PROBLEM, p Preparing financial statements TRIAL BALANCE ACCOUNT TITLE Cash Petty Cash Accounts Receivable Allow. for Uncoll. Accts. Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Office Equipment Acc. Depr. Office Equip. Store Equipment Acc. Depr. Store Equip. Accounts Payable Federal Income Tax Payable Emp. Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemploy. Tax Payable Fed. Unemploy. Tax Payable State Health Insur. Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Capital Stock Retained Earnings Lighting Center, Inc. Work Sheet For Year Ended December 31, ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) (Note: Work sheet is continued on next page.) INCOME STATEMENT BALANCE SHEET Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

25 Name Date Class 15-5 MASTERY PROBLEM (continued) ACCOUNT TITLE Dividends Income Summary Sales Sales Discount Sales Returns and Allowances Purchases Purchases Discount Purch. Returns and Allowances Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Federal Income Tax Expense Net Income after Fed. Income Tax Lighting Center, Inc. Work Sheet For Year Ended December 31, TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET (d) (f) (g) (c) (a) (b) (e) (h) Chapter 15 Financial Statements for a Corporation 417

26 15-5 MASTERY PROBLEM (continued) 1. Lighting Center, Inc. Income Statement For Year Ended December 31, 20 Revenue: Sales Less: Sales Discount Sales Ret. and Allow. Net Sales Cost of Merchandise Sold: Merchandise Inventory, January 1, 20 Purchases Less: Purchases Discount Purch. Ret. and Allow. Net Purchases Total Cost of Mdse. Avail. for Sale Less Mdse. Inventory, Dec. 31, 20 Cost of Merchandise Sold Gross Profit on Sales Expenses: Advertising Expense Cash Short and Over Credit Card Fee Expense Depr. Exp. Office Equipment Depr. Exp. Store Equipment Insurance Expense Miscellaneous Expense Payroll Taxes Expense Rent Expense Salary Expense Supplies Expense Office Supplies Expense Store Uncollectible Accounts Expense Utilities Expense Total Expenses Net Income before Federal Income Tax Less Federal Income Tax Expense Net Income after Federal Income Tax *% OF NET SALES Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING

27 Name Date Class 15-5 MASTERY PROBLEM (continued) 2. Lighting Center, Inc. Statement of Stockholders' Equity For Year Ended December 31, 20 Captial Stock: $1.00 Per Share January 1, 20, 90,000 Shares Issued Issued during Current Year, 10,000 Shares Balance, December 31, 20, 100,000 Shares Issued Retained Earnings: Balance, January 1, 20 Net Income after Federal Income Tax for 20 Less Dividends Declared during 20 Net Increase during 20 Balance, December 31, 20 Total Stockholders' Equity, December 31, Earnings per Share Net Income after Federal Income Tax Number of Shares Outstanding Earnings per Share $ 86, ,000 $ 0.87 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ $ Chapter 15 Financial Statements for a Corporation 419

28 15-5 MASTERY PROBLEM (concluded) 3. Lighting Center, Inc. Balance Sheet December 31, 20 Assets Current Assets: Cash Petty Cash Accounts Receivable Less Allowance for Uncollectible Accounts Merchandise Inventory Supplies Office Supplies Store Prepaid Insurance Total Current Assets Plant Assets: Office Equipment Less Accumulated Depreciation Office Equipment Store Equipment Less Accumulated Depreciation Store Equipment Total Plant Assets Total Assets Liabilities Current Liabilities: Accounts Payable Federal Income Tax Payable Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Sales Tax Payable Unemployment Tax Payable Federal Unemployment Tax Payable State Health Insurance Premiums Payable U.S. Savings Bonds Payable United Way Donations Payable Dividends Payable Total Liabilities Stockholders Equity Capital Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING