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 15 393
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. 455 456) 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
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 15 395
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
Name Date Class 15-1 WORK TOGETHER, p. 454 Preparing an income statement for a merchandising business 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 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 1 2 3 4 1284800 30000 1843890 19848033 334158 424896 900000 1848638 3218407 Interstate Tires, Inc. Work Sheet For Year Ended December 31, 20 84729 948525 1848645 1610708 84000 52998 12395 184825 3200 21600 62000 3500 4000 220000 11000000 4659948 ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) 168000 948108 248699 294828 600000 426000 575000 260379 (Note: Work sheet is continued on next page.) 5 6 7 8 INCOME STATEMENT BALANCE SHEET 1284800 30000 1843890 18899925 85459 130068 300000 1848638 3218407 252729 1374525 2423645 1610708 260379 84000 52998 12395 184825 3 2 00 21600 62000 3 5 00 4 0 00 220000 11000000 4659948 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Chapter 15 Financial Statements for a Corporation 397
15-1 WORK TOGETHER (continued) 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 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, 20 1 2 3 4 5 6 7 8 TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET 880000 66169 351284 27845239 932000 527 945445 648000 931566 1800000 10257600 648789 1200000 76239441 54898925 184578 354865 76239441 (d) (f) (g) (c) (a) (b) (e) (h) 948108 426000 575000 600000 248699 294828 168000 260379 3521014 3521014 948108 66169 351284 27845239 932000 527 945445 426000 575000 600000 648000 931566 1800000 10257600 248699 294828 168000 648789 1460379 49147633 6290735 55438368 54898925 184578 354865 55438368 55438368 880000 28521187 28521187 22230452 6290735 28521187 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 398 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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 19848033 27845239 184578 354865 539443 27305796 47153829 18899925 932000 5 27 945445 426000 575000 600000 648000 931566 1800000 10257600 248699 294828 168000 648789 28253904 26227568 18476454 7751114 1460379 6290735 *% OF NET SALES 54898925 66169 351284 417453 54481472 100.0 51.9 48.1 33.9 14.2 *Rounded to the nearest 0.1% Chapter 15 Financial Statements for a Corporation 399
15-1 ON YOUR OWN, p. 454 Preparing an income statement for a merchandising business 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 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 1 2 3 4 1521825 25000 2248528 22818980 315815 381974 800000 2218308 4518498 Osborn Corporation Work Sheet For Year Ended December 31, 20 105205 848300 1125000 2215417 102500 75380 17629 248700 2 4 00 16200 80000 6 0 00 7 0 00 750000 20000000 1973506 ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) 172000 842400 274900 304335 720000 458000 489000 154119 (Note: Work sheet is continued on next page.) 5 6 7 8 INCOME STATEMENT BALANCE SHEET 1521825 25000 2248528 21976580 40915 77639 80000 2218308 4518498 277205 1306300 1614000 2215417 154119 102500 75380 17629 248700 2 4 00 16200 80000 6 0 00 7 0 00 750000 20000000 1973506 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 400 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
Name Date Class 15-1 ON YOUR OWN (continued) 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 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, 20 1 2 3 4 5 6 7 8 TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET 3000000 61525 478984 36948504 850000 933 1245822 748000 1313064 2400000 14589600 754805 1600000 98840165 70480954 305889 480085 98840165 (d) (f) (g) (c) (a) (b) (e) (h) 842400 458000 489000 720000 274900 304335 172000 154119 3414754 3414754 842400 61525 478984 36948504 850000 933 1245822 458000 489000 720000 748000 1313064 2400000 14589600 274900 304335 172000 754805 1754119 64405991 6860937 71266928 70480954 305889 480085 71266928 71266928 3000000 35707293 35707293 28846356 6860937 35707293 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Chapter 15 Financial Statements for a Corporation 401
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 22818980 36948504 305889 480085 785974 36162530 58981510 21976580 850000 9 33 1245822 458000 489000 720000 748000 1313064 2400000 14589600 274900 304335 172000 754805 37004930 32935515 24320459 8615056 1754119 6860937 *% OF NET SALES 70480954 61525 478984 540509 69940445 100.0 52.9 47.1 34.8 12.3 *Rounded to the nearest 0.1% 402 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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 $ 62,907.35 110,000 $ 0.57 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ 13.75 $ 0.57 24.1 Chapter 15 Financial Statements for a Corporation 403
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 $ 68,609.37 8,000 $ 8.58 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ 104.50 $ 8.58 12.2 404 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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, 20 10000000 1000000 11000000 4659948 6290735 880000 5410735 10070683 21070683 Chapter 15 Financial Statements for a Corporation 405
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, 20 18750000 1250000 20000000 1973506 6860937 3000000 3860937 5834443 25834443 406 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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 1284800 30000 1843890 252729 1591161 18899925 85459 130068 300000 22321413 1848638 1374525 474113 3218407 2423645 794762 1268875 23590288 1610708 260379 84000 52998 12395 184825 3 2 00 21600 62000 3 5 00 4 0 00 220000 2519605 11000000 10070683 21070683 23590288 Chapter 15 Financial Statements for a Corporation 407
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 1521825 25000 2248528 277205 1971323 21976580 40915 77639 80000 25693282 2218308 1306300 912008 4518498 1614000 2904498 3816506 29509788 2215417 154119 102500 75380 17629 248700 2 4 00 16200 80000 6 0 00 7 0 00 750000 3675345 20000000 5834443 25834443 29509788 408 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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, 20 1 2 3 4 5 6 7 8 ADJUSTMENTS INCOME STATEMENT BALANCE SHEET 5 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 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 20118425 118425 415288 30152580 1250000 288 842825 745000 941525 2400000 10848225 715822 2600000 81913192 61525825 215181 415008 81913192 (f) (g) (c) (a) (b) (e) (h) (d) 2 451500 281500 800000 148225 301828 172000 138302 2548180 2548180 254825 19863600 118425 415288 30152580 1250000 2 88 842825 451500 281500 800000 745000 941525 2400000 10848225 148225 301828 172000 715822 2738302 53578158 8577856 62156014 61525825 215181 415008 62156014 62156014 29378336 29378336 29378336 20800480 8577856 29378336 5 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Chapter 15 Financial Statements for a Corporation 409
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 20118425 30152580 215181 415008 630189 29522391 49640816 19863600 1250000 2 88 842825 451500 281500 800000 745000 941525 2400000 10848225 148225 301828 172000 715822 29777216 31214896 19898738 11316158 2738302 8577856 *% OF NET SALES 61525825 118425 415288 533713 60992112 100.0 48.8 51.2 32.6 18.6 *Rounded to the nearest 0.1% 410 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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 20118425 33125825 415825 241829 657654 32468171 52586596 19863600 5240000 1248288 348500 845000 1200000 1418429 2148227 3600000 20148280 248105 608180 584000 840809 32722996 57994566 38477818 19516748 5936532 13580216 *% OF NET SALES 91548215 215828 614825 830653 90717562 100.0 36.1 63.9 42.4 21.5 *Rounded to the nearest 0.1% Chapter 15 Financial Statements for a Corporation 411
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 $ 135,802.16 110,000 $ 1.23 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ 13.75 $ 1.23 11.2 412 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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, 20 25000000 5000000 30000000 5948550 11063534 6600000 4463534 10412084 40412084 Chapter 15 Financial Statements for a Corporation 413
15-4 APPLICATION PROBLEM, p. 474 Preparing a balance sheet for a corporation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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 1 2 3 4 2215400 30000 3515825 25101880 421589 518469 1400000 1948528 3848150 2800000 Henderson Corporation Work Sheet For Year Ended December 31, 20 9 1 25 418500 1215800 2315450 154800 81530 19068 315420 3 3 60 22680 75000 10000 7 0 00 900000 20000000 5796671 (d) ADJUSTMENTS 154825 (e) (d) (a) (b) (c) (f) (g) (h) 415000 154825 381804 481877 1200000 426000 575000 88117 5 6 7 8 INCOME STATEMENT BALANCE SHEET 2215400 30000 3515825 24947055 39785 36592 200000 1948528 3848150 2800000 154825 424125 844500 1790800 2315450 88117 154800 81530 19068 315420 3 3 60 22680 75000 10000 7 0 00 900000 20000000 5796671 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 414 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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 2215400 30000 3515825 424125 3091700 24947055 39785 36592 200000 30560532 1948528 844500 1104028 3848150 1790800 2057350 3161378 33721910 2315450 88117 154800 81530 19068 315420 3 3 60 22680 75000 10000 7 0 00 900000 3992425 20000000 9729485 29729485 33721910 Chapter 15 Financial Statements for a Corporation 415
15-5 MASTERY PROBLEM, p. 474 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 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 1 2 3 4 1425800 50000 2231825 21924825 351015 482819 1200000 2318500 4618400 Lighting Center, Inc. Work Sheet For Year Ended December 31, 20 108880 845000 1228000 2415820 105500 74760 17484 224825 2 5 60 17280 75000 10000 7 0 00 1000000 10000000 10724692 ADJUSTMENTS (e) (d) (a) (b) (c) (f) (g) (h) 152500 215425 301512 381532 1000000 405000 602500 5286 (Note: Work sheet is continued on next page.) 5 6 7 8 INCOME STATEMENT BALANCE SHEET 1425800 50000 2231825 21709400 49503 101287 200000 2318500 4618400 261380 1250000 1830500 2415820 5 2 86 105500 74760 17484 224825 2 5 60 17280 75000 10000 7 0 00 1000000 10000000 10724692 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 416 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
Name Date Class 15-5 MASTERY PROBLEM (continued) 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 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, 20 1 2 3 4 5 6 7 8 TRIAL BALANCE ADJUSTMENTS INCOME STATEMENT BALANCE SHEET 4000000 115425 348125 36848222 1251000 1 4 02 918222 1214000 1548298 3600000 13915847 815203 2800000 1019 78928 74582450 154800 384877 1019 78928 (d) (f) (g) (c) (a) (b) (e) (h) 215425 405000 602500 1000000 301512 381532 152500 5 2 86 3063755 3063755 215425 115425 348125 36848222 1251000 1 4 02 918222 405000 602500 1000000 1214000 1548298 3600000 13915847 301512 381532 152500 815203 2805286 66439499 8682628 75122127 74582450 154800 384877 75122127 75122127 4000000 36704715 36704715 28022087 8682628 36704715 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Chapter 15 Financial Statements for a Corporation 417
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 21924825 36848222 154800 384877 539677 36308545 58233370 21709400 1251000 1 4 02 918222 405000 602500 1000000 1214000 1548298 3600000 13915847 301512 381532 152500 815203 36523970 37594930 26107016 11487914 2805286 8682628 *% OF NET SALES 74582450 115425 348125 463550 74118900 100.0 49.3 50.7 35.2 15.5 418 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING
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, 20 9000000 1000000 10000000 10724692 8682628 4000000 4682628 15407320 25407320 4. Earnings per Share Net Income after Federal Income Tax Number of Shares Outstanding Earnings per Share $ 86,826.28 100,000 $ 0.87 Price-Earnings Ratio Market Price per Share Earnings per Share Price-Earnings Ratio $ 28.50 $ 0.87 32.8 Chapter 15 Financial Statements for a Corporation 419
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 1425800 50000 2231825 261380 1970445 21709400 49503 101287 200000 25506435 2318500 1250000 1068500 4618400 1830500 2787900 3856400 29362835 2415820 5 2 86 105500 74760 17484 224825 2 5 60 17280 75000 10000 7 0 00 1000000 3955515 10000000 15407320 25407320 29362835 420 Working Papers COPYRIGHT SOUTH-WESTERN CENGAGE LEARNING