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CHAPTER 5

Accounting for Merchandising Operations


ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives

Questions

Brief
Exercises

A
Problems

B
Problems

*1.

Identify the differences


between service and
merchandising companies.

2, 3, 4

*2.

Explain the recording


of purchases under a
perpetual inventory
system.

6, 7, 8

2, 4

2, 3, 4, 11

1A, 2A, 4A

1B, 2B, 4B

*3.

Explain the recording


of sales revenues under
a perpetual inventory
system.

5, 9, 10, 11

2, 3

3, 4, 5, 11

1A, 2A, 4A

1B, 2B, 4B

*4.

Explain the steps in the


accounting cycle for a
merchandising company.

1, 12,
13, 14

5, 6

6, 7, 8

3A, 4A, 8A

3B, 4B

*5.

Prepare an income
statement for a
merchandiser.

15, 16, 17,


18

7, 8, 9, 11

6, 9, 10,
12, 13, 14

2A, 3A, 8A

2B, 3B

*6.

Explain the recording of


purchases and sales of
inventory under a periodic
inventory system.

19, 20

10, 11, 12

15, 16, 17,


18, 19

5A, 6A, 7A

5B, 6B, 7B

*7.

Prepare a worksheet for


a merchandising company.

21

13

20, 21

8A

Do It!

Exercises
1

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

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-1

ASSIGNMENT CHARACTERISTICS TABLE


Problem
Number

Description

Difficulty
Level

Time
Allotted (min.)

1A

Journalize purchase and sales transactions under


a perpetual inventory system.

Simple

2030

2A

Journalize, post, and prepare a partial income statement.

Simple

3040

3A

Prepare financial statements and adjusting and


closing entries.

Moderate

4050

4A

Journalize, post, and prepare a trial balance.

Simple

3040

*5A

Determine cost of goods sold and gross profit under


periodic approach.

Moderate

4050

*6A

Calculate missing amounts and assess profitability.

Moderate

2030

*7A

Journalize, post, and prepare trial balance and partial


income statement using periodic approach.

Simple

3040

*8A

Complete accounting cycle beginning with a worksheet.

Moderate

5060

1B

Journalize purchase and sales transactions under


a perpetual inventory system.

Simple

2030

2B

Journalize, post, and prepare a partial income statement.

Simple

3040

3B

Prepare financial statements and adjusting and


closing entries.

Moderate

4050

4B

Journalize, post, and prepare a trial balance.

Simple

3040

*5B

Determine cost of goods sold and gross profit under


periodic approach.

Moderate

4050

*6B

Calculate missing amounts and assess profitability.

Moderate

2030

*7B

Journalize, post, and prepare trial balance and partial


income statement using periodic approach.

Simple

3040

5-2

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

WEYGANDT FINANCIAL ACCOUNTING, IFRS Edition, 2e


CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
Number

LO

BT

Difficulty

Time (min.)

BE1

AP

Simple

46

BE2

2, 3

AP

Simple

24

BE3

AP

Simple

68

BE4

AP

Simple

68

BE5

AP

Simple

12

BE6

AP

Simple

24

BE7

AP

Simple

24

BE8

Simple

46

BE9

AP

Simple

46

BE10

AP

Simple

46

BE11

AP

Simple

46

BE12

AP

Simple

35

BE13

Simple

24

DI1

AP

Simple

24

DI2

AP

Simple

46

DI3

AP

Simple

46

DI4

AP

Simple

1012

EX1

Simple

35

EX2

AP

Simple

810

EX3

2, 3

AP

Simple

810

EX4

2, 3

AP

Simple

810

EX5

AP

Simple

810

EX6

4, 5

AP

Simple

68

EX7

AP

Simple

68

EX8

AP

Simple

810

EX9

AP

Simple

810

EX10

AP

Simple

810

EX11

2, 3

AN

Moderate

68

EX12

AP

Simple

810

EX13

AN

Simple

68

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-3

ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)


Number

LO

BT

Difficulty

Time (min.)

EX14

AN

Moderate

810

EX15

AP

Simple

68

EX16

AP

Simple

810

EX17

AN

Moderate

1012

EX18

AP

Simple

810

EX19

AP

Simple

810

EX20

AP

Simple

24

EX21

AP

Simple

810

P1A

2, 3

AP

Simple

2030

P2A

2, 3, 5

AP

Simple

3040

P3A

4, 5

AN

Moderate

4050

P4A

24

AP

Simple

3040

P5A

AP

Moderate

4050

P6A

AN

Moderate

2030

P7A

AP

Simple

3040

P8A

4, 5, 7

AP

Moderate

5060

P1B

2, 3

AP

Simple

2030

P2B

2, 3, 5

AP

Simple

3040

P3B

4, 5

AN

Moderate

4050

P4B

24

AP

Simple

3040

P5B

AP

Moderate

4050

P6B

AN

Moderate

2030

P7B

AP

Simple

3040

BYP1

AN, E

Simple

1015

BYP2

AN, E

Simple

1520

BYP3

AP

Simple

1015

BYP4

AN, S, E

Moderate

2030

BYP5

Simple

1015

BYP6

Simple

1015

5-4

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Explain the recording of


purchases and sales under
a periodic inventory system.

Prepare a worksheet for


a merchandising company.

4.

5.

*6.

*7.

Broadening Your Perspective

Explain the steps in the


accounting cycle for a
merchandising company.

Prepare an income statement Q5-18


for a merchandiser.

Q5-19

Explain the recording of


sales revenues under a
perpetual inventory system.

3.

Q5-21
BE5-13

Q5-5
Q5-10

Explain the recording of


purchases under a perpetual
inventory system.

2.

Q5-2

Identify the differences


between service and
merchandising companies.

Knowledge

1.

Learning Objective

E5-20
E5-21

Q5-20
BE5-10
BE5-11
BE5-12

Q5-15
Q5-16
BE5-7
BE5-9
BE5-11
E5-6
E5-9

Q5-13
BE5-5
BE5-6
DI5-3

Q5-11
BE5-2
BE5-3
DI5-2
E5-3

Q5-8
BE5-2
BE5-4
DI5-1
E5-2

E5-1 BE5-1

E5-14
P5-3A
P5-3B
P5-6A
P5-6B

E5-10
E5-12
E5-13
P5-2A

E5-15
E5-17
E5-18
E5-19

P5-8A P5-3A
P5-4B P5-3B

E5-6
E5-7
E5-8
P5-4A

P5-8A

Analysis

Synthesis

Evaluation

DecisionMaking Comparative Analysis


Financial Reporting
Across the
Financial Reporting
Comparative Analysis
DecisionMaking
DecisionMaking Across Organization
Across
the Organization
the Organization
Ethics Case

P5-5A E5-16
P5-5B P5-6A
P5-7A P5-6B
P5-7B

P5-2B
P5-5A
P5-5B
P5-8A

P5-1B Q5-9
P5-2B E5-11
P5-4B

P5-2B E5-11
P5-4A
P5-4B

E5-4
E5-5
P5-1A
P5-2A
P5-4A

E5-3
E5-4
P5-1A
P5-2A
P5-1B

Application

Communication RealWorld Focus

Q5-17
BE5-8
DI5-4

Q5-1
Q5-12
Q5-14

Q5-6
Q5-7

Q5-3
Q5-4

Comprehension

Correlation Chart between Blooms Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

BLOOMS TAXONOMY TABLE

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-5

ANSWERS TO QUESTIONS
1.

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

2.

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

3.

(a) The components of revenues and expenses differ as follows:


Merchandising
Revenues
Expenses

Service
Fees, Rents, etc.
Operating (only)

Sales
Cost of Goods Sold and Operating

(b) The income measurement process is as follows:


Sales
Revenue

Less

Cost of
Goods
Sold

Equals

Gross
Profit

Less

Operating
Expenses

Equals

Net
Income

4.

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

5.

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

6.

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

7.

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

8.

July 24

Accounts Payable ($2,500 $200) .................................................


Inventory ($2,300 X 2%) .........................................................
Cash ($2,300 $46) ...............................................................

2,300
46
2,254

9.

Agree. In accordance with the revenue recognition principle, companies record sales revenue
when the performance obligation is satisfied. The performance obligation is satisfied when the
goods transfer from the seller to the buyer; that is, when the exchange transaction occurs. The
earning of revenue is not dependent on the collection of credit sales.

10.

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

5-6

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Questions Chapter 5 (Continued)


(b) The entries are:
Debit
Cash sales

Credit sales

11.

July 19

Cash ...............................................................
Sales Revenue .......................................
Cost of Goods Sold ........................................
Inventory .................................................
Accounts Receivable ......................................
Sales Revenue .......................................
Cost of Goods Sold ........................................
Inventory .................................................

Cash ($600 $12).................................................................


Sales Discounts ($600 X 2%)................................................
Accounts Receivable ($700 $100) .............................

Credit

XX
XX
XX
XX
XX
XX
XX
XX
588
12
600

12.

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

13.

Two closing entries are required:


(1) Sales Revenue ...............................................................................
Income Summary ...................................................................

180,000

(2) Income Summary ...........................................................................


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

125,000

180,000
125,000

14.

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

15.

Sales revenue .........................................................................................................


Cost of goods sold...................................................................................................
Gross profit ..............................................................................................................

$109,000
70,000
$ 39,000

Gross profit rate: $39,000 $109,000 = 35.8%


16.

Gross profit ..............................................................................................................


Less: Net income....................................................................................................
Operating expenses ................................................................................................

17.

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

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

570,000
240,000
330,000

5-7

Questions Chapter 5 (Continued)


*18.

(a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
(b) The nonoperating activities part consists of two sections: other income and expense, and
interest expense.

*
*19.

*20.

*21.

5-8

Accounts

Added/Deducted

Purchase Returns and Allowances


Purchase Discounts
Freight-In

Deducted
Deducted
Added

July 24

Accounts Payable ($2,000 $200) .....................................................


Purchase Discounts ($1,800 X 2%) ............................................
Cash ($1,800 $36) ...................................................................

1,800
36
1,764

The columns are:


(a) InventoryTrial Balance (Dr.), Adjusted Trial Balance (Dr.), and Statement of Financial
Position (Dr.).
(b) Cost of Goods SoldTrial Balance (Dr.), Adjusted Trial Balance (Dr.), and Income
Statement (Dr.).

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

SOLUTIONS TO BRIEF EXERCISES


BRIEF EXERCISE 5-1
(a) Cost of goods sold = 45,000 (75,000 30,000).
Operating expenses = 19,200 (30,000 10,800).
(b) Gross profit = 53,000 (108,000 55,000).
Operating expenses = 23,500 (53,000 29,500).
(c) Sales revenue = 163,500 (83,900 + 79,600).
Net income = 40,100 (79,600 39,500).

BRIEF EXERCISE 5-2


Giovanni Company
Inventory...............................................................
Accounts Payable ........................................
Gordon Company
Accounts Receivable ...........................................
Sales Revenue ..............................................
Cost of Goods Sold .............................................
Inventory .......................................................

780
780
780
780
560
560

BRIEF EXERCISE 5-3


(a) Accounts Receivable ...........................................
Sales Revenue ..............................................
Cost of Goods Sold .............................................
Inventory .......................................................

800,000

(b) Sales Returns and Allowances ...........................


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

120,000

800,000
620,000
620,000
120,000
90,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

90,000

5-9

BRIEF EXERCISE 5-3 (Continued)


(c) Cash ($680,000 $13,600) ..................................
Sales Discounts ($680,000 X 2%) .......................
Accounts Receivable ..................................
($800,000 $120,000)

666,400
13,600
680,000

BRIEF EXERCISE 5-4


(a) Inventory ..............................................................
Accounts Payable........................................

800,000

(b) Accounts Payable ...............................................


Inventory ......................................................

120,000

(c) Accounts Payable ($800,000 $120,000) ..........


Inventory
($680,000 X 2%)........................................
Cash ($680,000 $13,600) ..........................

680,000

800,000
120,000

13,600
666,400

BRIEF EXERCISE 5-5


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

3,400
3,400

BRIEF EXERCISE 5-6


Sales Revenue.............................................................
Income Summary ................................................

192,000

Income Summary ........................................................


Cost of Goods Sold .............................................
Sales Discounts ..................................................

107,000

5-10

192,000
105,000
2,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

BRIEF EXERCISE 5-7


YANGTZE COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2014
Sales revenues
Sales revenue (280,000 + 100,000) ................
Less: Sales returns and allowances ................
Sales discounts .......................................
Net sales ..............................................................

380,000
18,000
5,000

23,000
357,000

BRIEF EXERCISE 5-8


The format of an income statement for a merchandising company is
designed to differentiate between various sources of income and expense.
Item
(a)
(b)
(c)
(d)
(e)

Gain on sale of equipment


Interest expense
Casualty loss from vandalism
Cost of goods sold
Depreciation expense

Section
Other income and expense
After other income and expenses
Other income and expense
Cost of goods sold
Operating expenses

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5-11

BRIEF EXERCISE 5-9


(a) Net sales = $506,000 $13,000 = $493,000.
(b) Gross profit = $493,000 $330,000 = $163,000.
(c) Income from operations = $163,000 $110,000 = $53,000.
(d) Gross profit rate = $163,000 $493,000 = 33.1%.
*BRIEF EXERCISE 5-10
Purchases .......................................................................
Less: Purchase returns and allowances ....................
Purchase discounts ...........................................
Net purchases ................................................................
Net purchases ................................................................
Add: Freight-in ..............................................................
Cost of goods purchased ..............................................

W430,000
W13,000
8,000

21,000
W409,000
W409,000
16,000
W425,000

*BRIEF EXERCISE 5-11


Net sales .........................................................................
W680,000
Beginning inventory ...................................................... W 60,000
Add: Cost of goods purchased* ..................................
425,000
Cost of goods available for sale ...................................
485,000
Less: Ending inventory .................................................
90,000
Cost of goods sold ........................................................
395,000
Gross profit ....................................................................
W285,000
*Information taken from Brief Exercise 5-10.

5-12

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*BRIEF EXERCISE 5-12


(a)

Purchases ..............................................................
Accounts Payable ..........................................

900,000

(b)

Accounts Payable .................................................


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

184,000

(c)

Accounts Payable ($900,000 $184,000) ............


Purchase Discounts ($716,000 X 2%) ...........
Cash ($716,000 $14,320) .............................

716,000

900,000
184,000
14,320
701,680

*BRIEF EXERCISE 5-13


(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Statement of financial position debit column.
(b) Inventory: Trial balance debit column; Adjusted trial balance debit
column; Statement of financial position debit column.
(c) Sales revenue: Trial balance credit column; Adjusted trial balance
credit column, Income statement credit column.
(d) Cost of goods sold: Trial balance debit column, Adjusted trial balance
debit column, Income statement debit column.
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 5-1
Oct. 5

Oct. 8

Inventory .................................................................
Accounts Payable ............................................
(To record goods purchased on account)

4,700

Accounts Payable...................................................
Inventory ...........................................................
(To record return of defective goods)

650

4,700

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650

5-13

DO IT! 5-2
Oct. 5

Oct. 8

Accounts Receivable .............................................


Sales Revenue..................................................
(To record credit sales)

4,700

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


Inventory ..........................................................
(To record cost of goods sold)

3,100

Sales Returns and Allowances ............................


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

650

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

160

4,700

3,100

650

160

DO IT! 5-3
Dec. 31 Sales Revenue........................................................ 156,000
Interest Revenue ...................................................
3,000
Income Summary .............................................
159,000
(To close accounts with credit balances)
Income Summary ................................................... 128,200
Cost of Goods Sold .........................................
Sales Returns and Allowances .......................
Sales Discounts ...............................................
Freight-Out .......................................................
Utilities Expense ..............................................
Salaries and Wages Expense .........................
(To close accounts with debit balances)

5-14

92,400
4,000
3,000
1,900
7,400
19,500

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

DO IT! 5-4
Account

Financial Statement

Classification

Accounts Payable

Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Income statement

Current liabilities

Accounts Receivable
Accumulated Depreciation
Buildings
Cash
Casualty Loss from
Vandalism
Cost of Goods Sold
Depreciation Expense
Dividends
Equipment
Freight-Out
Insurance Expense
Interest Payable
Inventory
Land
Notes Payable
(due in 5 years)
Property Taxes Payable
Salaries and Wages Expense
Salaries and Wages Payable
Sales Returns and
Allowances
Sales Revenue
Share CapitalOrdinary
Unearned Rent Revenue
Utilities Expense

Income statement
Income statement
Retained earnings
statement
Statement of
Financial Position
Income statement
Income statement
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Statement of
Financial Position
Income statement
Statement of
Financial Position
Income statement
Income statement
Statement of
Financial Position
Statement of
Financial Position
Income statement

Current assets
Property, plant, and
equipment
Current assets
Other income and
expense
Cost of goods sold
Operating expenses
Deduction section
Property, plant, and
equipment
Operating expenses
Operating expenses
Current liabilities
Current assets
Property, plant, and
equipment
Non-current liabilities
Current liabilities
Operating expenses
Current liabilities
Sales revenues
Sales revenues
Equity
Current liabilities
Operating expenses

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5-15

SOLUTIONS TO EXERCISES
EXERCISE 5-1
1.
2.
3.
4.
5.
6.
7.
8.

True.
False. For a merchandiser, sales less cost of goods sold is called
gross profit.
True.
True.
False. The operating cycle of a merchandiser differs from that of a
service company. The operating cycle of a merchandiser is ordinarily
longer.
False. In a periodic inventory system, no detailed inventory records of
goods on hand are maintained.
True.
False. A perpetual inventory system provides better control over inventories than a periodic system.

EXERCISE 5-2
(a) (1) April 5

Inventory ...........................................
Accounts Payable .....................

25,000

(2) April 6

Inventory ...........................................
Cash ...........................................

900

(3) April 7

Equipment .........................................
Accounts Payable .....................

26,000

(4) April 8

Accounts Payable ............................


Inventory ...................................

2,600

(5) April 15

Accounts Payable ............................


($25,000 $2,600)
Inventory
[($25,000 $2,600) X 2%] .....
Cash ($22,400 $448) ..............

22,400

Accounts Payable .....................................


Cash ....................................................

22,400

(b) May 4

5-16

25,000
900
26,000
2,600

448
21,952

22,400

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

EXERCISE 5-3
Sept. 6
9
10
12

14

20

Inventory (90 X 20) ........................................


Accounts Payable ...................................

1,800

Inventory..........................................................
Cash .........................................................

180

Accounts Payable ...........................................


Inventory ..................................................

66

Accounts Receivable (26 X 33) ....................


Sales Revenue .........................................
Cost of Goods Sold (26 X 22) ......................
Inventory ..................................................

858

1,800
180
66
858
572
572

Sales Returns and Allowances ......................


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

33

Accounts Receivable (40 X 32) ....................


Sales Revenue .........................................
Cost of Goods Sold (40 X 22) ......................
Inventory ..................................................

1,280

33
22
22
1,280
880
880

EXERCISE 5-4
(a) June 10
11
12
19

Inventory ..................................................
Accounts Payable ............................

7,600

Inventory ..................................................
Cash ..................................................

400

Accounts Payable ...................................


Inventory ..........................................

300

Accounts Payable ($7,600 $300) .........


Inventory
($7,300 X 2%) ................................
Cash ($7,300 $146) .......................

7,300

7,600
400
300

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146
7,154
5-17

EXERCISE 5-4 (Continued)


(b) June 10

12

19

Accounts Receivable .............................


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

7,600

Sales Returns and Allowances .............


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

300

Cash ($7,300 $146) ..............................


Sales Discounts ($7,300 X 2%) .............
Accounts Receivable
($7,600 $300) ............................

7,154
146

7,600
4,300
4,300
300
70
70

7,300

EXERCISE 5-5
(a) 1.

2.
3.

Dec. 3

Dec. 8
Dec. 13

Accounts Receivable ......................


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

570,000

Sales Returns and Allowances ......


Accounts Receivable ..............

20,000

Cash (HK$550,000 HK$5,500)......


Sales Discounts
[(HK$570,000 HK$20,000) X 1%]
Accounts Receivable
(HK$570,000 HK$20,000) ..

544,500

(b) Cash ..........................................................................


Accounts Receivable
( HK$570,000 HK$20,000) ..........................

5-18

570,000
364,800
364,800
20,000

5,500
550,000
550,000
550,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

EXERCISE 5-6
(a)

MENDOZA COMPANY
Income Statement (Partial)
For the Year Ended October 31, 2014
Sales revenues
Sales revenue ..................................................
Less: Sales returns and allowances ...........
Sales discounts ..................................
Net sales .........................................................

$820,000
$28,000
13,000

41,000
$779,000

Note: Freight-Out is a selling expense.


(b) (1) Oct. 31

Sales Revenue ..............................


Income Summary ..................

820,000

Income Summary ..........................


Sales Returns and
Allowances ........................
Sales Discounts ....................

41,000

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


Inventory .........................................................

1,400

(b) Sales Revenue .......................................................


Income Summary ...........................................

115,000

Income Summary ...................................................


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

93,400

Income Summary ($115,000 $93,400) ...............


Retained Earnings..........................................

21,600

(2)

31

820,000

28,000
13,000

EXERCISE 5-7

1,400
115,000
61,400
29,000
1,700
1,300

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21,600

5-19

EXERCISE 5-8
(a) Cost of Goods Sold ...............................................
Inventory ........................................................

600

(b) Sales Revenue .......................................................


Income Summary...........................................

378,000

Income Summary ..................................................


Cost of Goods Sold ($208,000 + $600).........
Freight-Out .....................................................
Insurance Expense ........................................
Rent Expense .................................................
Salaries and Wages Expense .......................
Sales Discounts .............................................
Sales Returns and Allowances ....................

327,600

Income Summary ($378,000 $327,600) .............


Retained Earnings .........................................

50,400

600
378,000
208,600
7,000
12,000
20,000
59,000
8,000
13,000
50,400

EXERCISE 5-9
(a)

BACH COMPANY
Income Statement
For the Month Ended March 31, 2014
Sales revenues
Sales revenue ...................................................
Less: Sales returns and allowances ..............
Sales discounts ....................................
Net sales ............................................................
Cost of goods sold ................................................
Gross profit ............................................................
Operating expenses
Salaries and wages expense ...........................
Rent expense ....................................................
Freight-out ........................................................
Insurance expense ...........................................
Total operating expenses ....................
Net income ........................................................

380,000
13,000
6,600

19,600
360,400
212,000
148,400

58,000
32,000
9,000
6,000
105,000
43,400

(b) Gross profit rate = 148,400 360,400 = 41.18%.


5-20

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

EXERCISE 5-10
(a)

MICHAEL COMPANY
Income Statement
For the Year Ended December 31, 2014
Net sales ..............................................
Cost of goods sold .............................
Gross profit .........................................
Operating expenses ...........................
Income from operations .....................
Other income and expense
Interest revenue ..........................
Loss on disposal of plant
assets ...................................
Interest expense .................................
Net income ..........................................

2,200,000
1,256,000
944,000
725,000
219,000
33,000
(17,000)

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

16,000
70,000
165,000

5-21

EXERCISE 5-11
1.
2.

3.
4.

Sales Returns and Allowances .........................................


Sales Revenue ............................................................

175

Supplies ..............................................................................
Cash ....................................................................................
Accounts Payable.......................................................
Inventory .....................................................................

150
150

Sales Discounts .................................................................


Sales Revenue ............................................................

215

Inventory .............................................................................
Cash ....................................................................................
Freight-Out ..................................................................

20
180

175

150
150
215

200

EXERCISE 5-12
(a) $860,000 $533,200 = $326,800.
(b) $326,800/$860,000 = 38%. 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 indicates what portion of each sales dollar goes 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 companys purchasing function and the soundness
of its pricing policies.
(c) Income from operations is $105,800 ($326,800 $221,000), and net income
is $98,800 ($105,800 $7,000).
(d) Inventory is reported as a current asset immediately below prepaid
expenses.

5-22

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

EXERCISE 5-13
(a) (*missing amount)
a.

Sales revenue ...............................................................


*Sales returns ................................................................
Net sales........................................................................

py 90,000)
(9,000)
py 81,000)

b.

Net sales........................................................................
Cost of goods sold .......................................................
*Gross profit ..................................................................

py 81,000)
(56,000)
py 25,000)

c.

Gross profit ...................................................................


Operating expenses .....................................................
*Net income ....................................................................

py 25,000)
(12,000)
py 13,000)

d.

*Sales revenue ............................................................... py 103,000)


Sales returns.................................................................
(5,000)
Net sales........................................................................ py 98,000)

e.

Net sales........................................................................
*Cost of goods sold.......................................................
Gross profit ....................................................................

py 98,000)
60,500)
py 37,500)

f.

Gross profit ...................................................................


*Operating expenses .....................................................
Net income ....................................................................

py 37,500)
22,500)
py 15,000)

)
(b) Natasha Company
Gross profit Net sales = py 25,000 py 81,000 = 30.9%
Borus Company
Gross profit Net sales = py 37,500 py 98,000 = 38.3%

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-23

EXERCISE 5-14
(*Missing amount)
(a)

Sales revenue .........................................................


Sales returns and allowances ...............................
Net sales ..................................................................

$ 90,000
(4,000)*
$ 86,000

(b)

Net sales ..................................................................


Cost of goods sold .................................................
Gross profit .............................................................

$ 86,000
(56,000)
$ 30,000*

(c) and (d)


Gross profit .............................................................
Operating expenses ...............................................
Income from operations (c) ...................................
Other income and expense....................................
Net income (d).........................................................

$ 30,000
(15,000)
$ 15,000*
(4,000)
$ 11,000*

(e)

Sales revenue .........................................................


Sales returns and allowances ...............................
Net sales ..................................................................

$100,000*
(5,000)
$ 95,000

(f)

Net sales ..................................................................


Cost of goods sold .................................................
Gross profit .............................................................

$ 95,000
(73,000)*
$ 22,000

(g) and (h)


Gross profit .............................................................
Operating expenses (g)..........................................
Income from operations (h) ...................................
Other income and expense....................................
Net income ..............................................................

$ 22,000
(8,000)*
$ 14,000*
(3,000)
$ 11,000

(i)

Sales revenue .........................................................


Sales returns and allowances ...............................
Net sales ..................................................................

$122,000
(12,000)
$110,000*

(j)

Net sales ..................................................................


Cost of goods sold .................................................
Gross profit .............................................................

$110,000
(86,000)*
$ 24,000

5-24

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

EXERCISE 5-14 (Continued)


(k) and (l)
Gross profit ............................................................
Operating expenses ...............................................
Income from operations (k) ...................................
Other income and expense (l) ...............................
Net income ..............................................................

$24,000
18,000
$ 6,000*
1,000*
$ 5,000

EXERCISE 5-15
Inventory, September 1, 2013 ........................................
Purchases .......................................................................
Less: Purchase returns and allowances .....................
Net Purchases ................................................................
Add: Freight-in ...............................................................
Cost of goods purchased ..............................................
Cost of goods available for sale ...................................
Less: Inventory, August 31, 2014..................................
Cost of goods sold .................................................

Rp149,000
6,000
143,000
5,000

Rp17,200

148,000
165,200
14,000
Rp151,200

EXERCISE 5-16
(a)

(b)

Sales revenue .......................................


Less: Sales returns and allowances ....
Sales discounts ........................
Net sales ...............................................
Cost of goods sold
Inventory, January 1.......................
Purchases .......................................
Less: Purch. rets. and alls. ..........
Purch. discounts.................
Net purchases .................................
Add: Freight-in ................................
Cost of goods available for sale ...
Less: Inventory, December 31.......
Cost of goods sold ..................
Gross profit .....................................

$840,000
$ 11,000
7,000

18,000
822,000

50,000
$509,000
8,000
6,000
495,000
4,000
599,000
60,000
439,000
$383,000

Gross profit $383,000 Operating expenses = Net income $130,000.


Operating expenses = $253,000.

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-25

EXERCISE 5-17
(a)
(b)
(c)
(d)
(e)
(f)

$1,580
$1,675
$1,515
$30
$250
$90

($1,620 $40)
($1,580 + $95)
($1,825 $310)
($1,060 $1,030)
($1,280 $1,030)
($1,350 $1,260)

(g)
(h)
(i)
(j)
(k)
(l)

$6,500
$1,730
$8,940
$6,200
$2,500
$43,330

($290 + $6,210)
($7,940 $6,210)
($1,000 + $7,940)
($49,530 $43,330 from (I))
($43,590 $41,090)
($41,090 + $2,240)

*EXERCISE 5-18
(a) 1.
2.
3.
4.

5.

(b)

5-26

April 5
April 6
April 7
April 8

April 15

May

Purchases .......................................
Accounts Payable .....................

18,000

Freight-In .........................................
Cash ...........................................

820

Equipment .......................................
Accounts Payable .....................

30,000

Accounts Payable...........................
Purchase Returns and
Allowances ............................

2,800

Accounts Payable
(18,000 2,800)........................
Purchase Discounts
[(18,000 2,800) X 2%)].....
Cash (15,200 304)...............
Accounts Payable
(18,000 2,800)........................
Cash ...........................................

18,000
820
30,000

2,800
15,200
304
14,896
15,200
15,200

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*EXERCISE 5-19
(a) 1.
2.
3.
4.

5.

(b)

April 5
April 6
April 7
April 8

April 15

May

Purchases ........................................
Accounts Payable .....................

16,000

Freight-In .........................................
Cash ...........................................

800

Equipment .......................................
Accounts Payable .....................

27,000

Accounts Payable ...........................


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

4,000

Accounts Payable ...........................


($16,000 $4,000)
Purchase Discounts
[($16,000 $4,000) X 2%)] .....
Cash ($12,000 $240) ...............

12,000

Accounts Payable
($16,000 $4,000) ........................
Cash ...........................................

16,000
800
27,000

4,000

240
11,760
12,000

12,000

*EXERCISE 5-20

Accounts

Adjusted
Trial Balance
Debit

Cash
Inventory
Sales Revenue
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold

Credit

Income
Statement
Debit

Credit

9,000
76,000

Debit

Credit

9,000
76,000
460,000

10,000
9,000
288,000

Statement of
Financial
Position

460,000
10,000
9,000
288,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-27

*EXERCISE 5-21
BARBOSA COMPANY
Worksheet
For the Month Ended June 30, 2014
Account Titles
Cash
Accounts Receivable
Inventory
Accounts Payable
Share CapitalOrdinary
Sales Revenue
Cost of Goods Sold
Operating Expenses
Totals
Net Income
Totals

5-28

Trial Balance
Dr.
Cr.
2,120
2,440
11,640
1,120
4,000
42,500
20,560
10,860
47,620 47,620

Adjustments
Dr.
Cr.

1,500

1,500
1,500 1,500

Adj. Trial
Income
Statement of
Balance
Statement
Financial Position
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
2,120
2,120
2,440
2,440
11,640
11,640
2,620
2,620
4,000
4,000
42,500
42,500
20,560
20,560
12,360
12,360
49,120 49,120 32,920 42,500
16,200
6,620
9,580
9,580
42,500 42,500
16,200 16,200

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

SOLUTIONS TO PROBLEMS
PROBLEM 5-1A

July 1
3

12

17

18

20
21

Inventory ........................................................
Accounts Payable ..................................

1,500

Accounts Receivable ....................................


Sales Revenue .......................................

2,200

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


Inventory ................................................

1,400

Accounts Payable .........................................


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

1,500

Cash................................................................
Sales Discounts.............................................
Accounts Receivable.............................

2,178
22

Accounts Receivable ....................................


Sales Revenue .......................................

1,400

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


Inventory ................................................

1,010

Inventory ........................................................
Accounts Payable ..................................

1,900

Inventory ........................................................
Cash ........................................................

125

Accounts Payable .........................................


Inventory ................................................

300

Cash................................................................
Sales Discounts.............................................
Accounts Receivable.............................

1,386
14

1,500
2,200
1,400

30
1,470

2,200
1,400
1,010
1,900
125
300

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1,400
5-29

PROBLEM 5-1A (Continued)


July 22

30
31

5-30

Accounts Receivable .....................................


Sales Revenue ........................................

2,250

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


Inventory .................................................

1,350

Accounts Payable ..........................................


Cash ........................................................

1,600

Sales Returns and Allowances ......................


Accounts Receivable .............................

200

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

120

2,250
1,350
1,600
200
120

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2A

(a)
Date
Apr. 2
4

5
6
11

13

14
16
18
20

General Journal
Account Titles
Inventory .............................................
Accounts Payable ......................

Ref.
120
201

Debit
6,200

Accounts Receivable .........................


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

112
401
505
120

5,500

Freight-Out .........................................
Cash.............................................

644
101

240

Accounts Payable ..............................


Inventory .....................................

201
120

500

Accounts Payable (6,200 500)......


Inventory .....................................
(5,700 X 1%)
Cash.............................................

201
120

5,700

Cash ....................................................
Sales Discounts (5,500 X 1%) .........
Accounts Receivable .................

101
414
112

5,445
55

Inventory .............................................
Cash.............................................

120
101

3,800

Cash ....................................................
Inventory .....................................

101
120

500

Inventory .............................................
Accounts Payable ......................

120
201

4,500

Inventory .............................................
Cash.............................................

120
101

160

J1
Credit
6,200
5,500

3,400
3,400
240
500
57
5,643

101

5,500
3,800
500
4,500

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160

5-31

PROBLEM 5-2A (Continued)

Date
Apr. 23

26
27

29

30

5-32

General Journal
Account Titles
Cash .....................................................
Sales Revenue ............................
Cost of Goods Sold ............................
Inventory ......................................

Ref.
101
401
505
120

Debit
7,400

Inventory .............................................
Cash .............................................

120
101

2,300

Accounts Payable...............................
Inventory ......................................
(4,500 X 2%)
Cash .............................................

201
120

4,500

Sales Returns and Allowances .........


Cash .............................................
Inventory .............................................
Cost of Goods Sold ....................

412
101
120
505

90

Accounts Receivable .........................


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

112
401
505
120

3,400

J1
Credit
7,400

4,120
4,120
2,300
90

101

4,410
90
30
30
3,400
1,900
1,900

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2A (Continued)


(b)
Cash
Date
Apr.

No. 101
1
5
11
13
14
16
20
23
26
27
29

Explanation
Balance

Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1

Accounts Receivable
Date
Explanation
Apr. 4
13
30

Ref.
J1
J1
J1

Debit

Credit
240
5,643

5,445
3,800
500
160
7,400
2,300
4,410
90

Debit
5,500

Credit
5,500

3,400

Inventory
Date
Apr.

No. 112
Balance
5,500
0
3,400
No. 120

Explanation
2
4
6
11
14
16
18
20
23
26
27
29
30

Balance
8,000
7,760
2,117
7,562
3,762
4,262
4,102
11,502
9,202
4,792
4,702

Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1

Debit
6,200

Credit
3,400
500
57

3,800
500
4,500
160
4,120
2,300
90
30
1,900

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Balance
6,200
2,800
2,300
2,243
6,043
5,543
10,043
10,203
6,083
8,383
8,293
8,323
6,423
5-33

PROBLEM 5-2A (Continued)


Accounts Payable
Date
Apr.

Explanation
2
6
11
18
27

No. 201
Ref.
J1
J1
J1
J1
J1

Debit

Credit
6,200

500
5,700
4,500
4,500

Share CapitalOrdinary
Date
Apr.

Explanation
Balance

No. 311
Ref.

Debit

Credit

Sales Revenue
Date
Apr.

Explanation
4
23
30

Explanation

Ref.
J1
J1
J1

Debit

Credit
5,500
7,400
3,400

Explanation

Cost of Goods Sold


Date
Explanation
Apr. 4
23
29
30

5-34

Balance
5,500
12,900
16,300
No. 412

Ref.
J1

Debit
90

Credit

Sales Discounts
Date
Apr. 13

Balance
8,000
No. 401

Sales Returns and Allowances


Date
Apr. 29

Balance
6,200
5,700
0
4,500
0

Balance
90
No. 414

Ref.
J1

Ref.
J1
J1
J1
J1

Debit
55

Debit
3,400
4,120

Credit

Credit

30
1,900

Balance
55
No. 505
Balance
3,400
7,520
7,490
9,390

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2A (Continued)


Freight-Out
Date
Apr. 5

(c)

No. 644

Explanation

Ref.
J1

Debit
240

Credit

Balance
240

VREE DISTRIBUTING COMPANY


Income Statement (Partial)
For the Month Ended April 30, 2014
Sales revenues
Sales revenue .....................................................
Less: Sales returns and allowances ...............
Sales discounts ......................................
Net sales .............................................................
Cost of goods sold ....................................................
Gross profit ................................................................

16,300
90
55

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145
16,155
9,390
6,765

5-35

PROBLEM 5-3A

(a)

STARZ DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2014

Sales revenues
Sales....................................................
Less: Sales returns and
allowances ..............................
Net sales .............................................
Cost of goods sold ...................................
Gross profit ...............................................
Operating expenses
Salaries and wages expense......
Depreciation expense .................
Sales commissions expense .....
Utilities expense ..........................
Insurance expense ......................
Property tax expense ..................
Total operating expenses ....
Income from operations ...........................
Other income and expense
Interest revenue .................................
Interest expense........................................
Net income.................................................

5-36

$724,000
8,000
716,000
412,700
303,300
$108,000
23,700
14,500
12,000
7,200
4,800

170,200
133,100
4,000
8,600
$ 128,500

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-3A (Continued)


STARZ DEPARTMENT STORE
Retained Earnings Statement
For the Year Ended December 31, 2014
Retained earnings, January 1........................................................
Add: Net income ...........................................................................
Less: Dividends .............................................................................
Retained earnings, December 31 ..................................................

$64,600
128,500
193,100
24,000
$169,100

STARZ DEPARTMENT STORE


Statement of Financial Position
December 31, 2014
Assets
Property, plant, and equipment
Buildings .............................................. $290,000
Less: Accumulated depreciation
buildings ...................................
52,500
Equipment ............................................ 110,000
Less: Accumulated depreciation
equipment .................................
42,900
Current assets
Prepaid insurance ................................
Inventory...............................................
Accounts receivable ............................
Cash .....................................................
Total assets ................................

$237,500
67,100
2,400
75,000
50,300
23,800

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

$304,600

151,500
$456,100

5-37

PROBLEM 5-3A (Continued)


STARZ DEPARTMENT STORE
Statement of Financial Position (Continued)
December 31, 2014
Equity and Liabilities
Equity
Share capitalordinary .......................................... $112,000
Retained earnings ................................................... 169,100
Non-current liabilities
Mortgage payable ....................................................
Current liabilities
Accounts payable ...................................................
80,300
Mortgage payable (due next year) .........................
16,000
Interest payable .......................................................
5,600
Property taxes payable ...........................................
4,800
Sales commissions payable...................................
4,300
Total equity and liabilities ..............................................
(b) Dec. 31

31
31
31

5-38

Depreciation Expense ...........................


Accumulated Depreciation
Buildings .....................................
Accumulated Depreciation
Equipment...................................

23,700

Insurance Expense ................................


Prepaid Insurance ..........................

7,200

Interest Expense ....................................


Interest Payable..............................

5,600

Property Tax Expense ...........................


Property Taxes Payable.................

4,800

$281,100
64,000

111,000
$456,100

10,400
13,300
7,200
5,600
4,800

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-3A (Continued)


31
31

(c) Dec. 31

31

31
31

Sales Commissions Expense ................


Sales Commissions Payable .........

4,300

Utilities Expense.....................................
Accounts Payable ...........................

1,000

Sales .......................................................
Interest Revenue ...................................
Income Summary ...........................

724,000
4,000

Income Summary ..................................


Sales Returns and Allowances ......
Cost of Goods Sold .......................
Salaries and Wages Expense .......
Sales Commissions Expense .......
Property Tax Expense ...................
Utilities Expense ............................
Depreciation Expense ...................
Insurance Expense ........................
Interest Expense ............................

599,500

Income Summary ..................................


Retained Earnings .........................

128,500

Retained Earnings .................................


Dividends .......................................

24,000

4,300
1,000

728,000
8,000
412,700
108,000
14,500
4,800
12,000
23,700
7,200
8,600
128,500

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

24,000

5-39

PROBLEM 5-4A
(a)
Date
Apr. 4
6
8

10
11
13

14
15
17
18

5-40

General Journal
Account Titles
Inventory ...............................................
Accounts Payable .........................

Ref.
120
201

Debit
760

Inventory ...............................................
Cash ...............................................

120
101

40

Accounts Receivable ...........................


Sales Revenue ..............................

112
401

1,150

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


Inventory........................................

505
120

790

Accounts Payable ................................


Inventory........................................

201
120

60

Inventory ...............................................
Cash ...............................................

120
101

420

Accounts Payable (760 60) ...........


Inventory........................................
(700 X 2%)
Cash ...............................................

201
120

700

Inventory ...............................................
Accounts Payable .........................

120
201

800

Cash .......................................................
Inventory........................................

101
120

50

Inventory ...............................................
Cash ...............................................

120
101

30

Accounts Receivable ...........................


Sales Revenue ..............................

112
401

980

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


Inventory........................................

505
120

520

J1
Credit
760
40
1,150
790
60
420
14

101

686
800
50
30
980
520

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-4A (Continued)

Date
Apr. 20
21

27
30

General Journal
Account Titles
Cash .....................................................
Accounts Receivable ..................

Ref.
101
112

Debit
600

Accounts Payable ...............................


Inventory (800 X 3%) .................
Cash ..............................................

201
120
101

800

Sales Returns and Allowances ..........


Accounts Receivable ..................

412
112

40

Cash .....................................................
Accounts Receivable ..................

101
112

820

J1
Credit
600
24
776
40
820

(b)
Cash
Date
Apr. 1
6
11
13
15
17
20
21
30

Explanation
Balance

Ref.
J1
J1
J1
J1
J1
J1
J1
J1

Debit

Credit
40
420
686

50
30
600
776
820

Accounts Receivable
Date
Apr. 8
18
20
27
30

Explanation

No. 101
Balance
2,200
2,160
1,740
1,054
1,104
1,074
1,674
898
1,718
No. 112

Ref.
J1
J1
J1
J1
J1

Debit
1,150
980

Credit

600
40
820

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Balance
1,150
2,130
1,530
1,490
670

5-41

PROBLEM 5-4A (Continued)


Inventory
Date
Apr. 1
4
6
8
10
11
13
14
15
17
18
21

No. 120
Explanation
Balance

Ref.

Debit

J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1

760
40

Credit

790
60
420
14
800
50
30
520
24

Accounts Payable
Date
Apr. 4
10
13
14
21

Explanation

No. 201
Ref.
J1
J1
J1
J1
J1

Debit

Credit
760

60
700
800
800

Share CapitalOrdinary
Date
Apr. 1

Explanation
Balance

5-42

Explanation

Balance
760
700
0
800
0

No. 311
Ref.

Debit

Credit

Sales Revenue
Date
Apr. 8
18

Balance
1,800
2,560
2,600
1,810
1,750
2,170
2,156
2,956
2,906
2,936
2,416
2,392

Balance
4,000

No. 401
Ref.
J1
J1

Debit

Credit
1,150
980

Balance
1,150
2,130

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-4A (Continued)


Sales Returns and Allowances
Date
Apr. 27

Explanation

Cost of Goods Sold


Date
Explanation
Apr. 8
18

(c)

No. 412
Ref.
J1

Ref.
J1
J1

Debit
40

Debit
790
520

Credit

Credit

Balance
40
No. 505
Balance
790
1,310

ZHENGS TENNIS SHOP


Trial Balance
April 30, 2014
Cash .........................................................................
Accounts Receivable .............................................
Inventory .................................................................
Share CapitalOrdinary ........................................
Sales Revenue ........................................................
Sales Returns and Allowances .............................
Cost of Goods Sold ................................................

Debit
1,718
670
2,392

Credit

4,000
2,130
40
1,310
6,130

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6,130

5-43

*PROBLEM 5-5A

APEX DEPARTMENT STORE


Income Statement (Partial)
For the Year Ended December 31, 2014
Sales revenues
Sales revenue ...........................
Less: Sales returns and
allowances ....................
Net sales ...................................
Cost of goods sold
Inventory, January 1 ................
Purchases .................................
Less: Purchase returns
and allowances .............
Purchase discounts .....
Net purchases ..........................
Add: Freight-in ........................
Cost of goods purchased .........
Cost of goods available
for sale ...............................
Less: Inventory, December 31
Cost of goods sold............
Gross profit .....................................

5-44

$718,000
18,000
700,000
$ 40,500
$442,000
$ 6,400
12,000

18,400
423,600
5,600
429,200
469,700
65,000
404,700
$295,300

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-6A
(a)
Cost of goods sold:
Beginning inventory
Plus: Purchases
Cost of goods available
Less: Ending inventory
Cost of goods sold
(b)
Sales revenue
Less: CGS
Gross profit
(c)
Beginning accounts payable
Plus: Purchases
Less: Payments to suppliers
Ending accounts payable

2012

2013

2014

$ 13,000
141,000
154,000
(11,300)
$142,700

$ 11,300
150,000
161,300
(14,700)
$146,600

$ 14,700
132,000
146,700
(12,200)
$134,500

2012
$225,700
142,700
$ 83,000

2013
$240,300
146,600
$ 93,700

2014
$235,000
134,500
$100,500

2012
$ 20,000
141,000
135,000
$ 26,000

2013
$ 26,000
150,000
161,000
$ 15,000

2014
$ 15,000
132,000
127,000
$ 20,000

(d) Gross profit rate

36.8%

$83,000
$225,700

39.0%

$93,700
$240,300

42.8%

$100,500
$235,000

No. Even though sales declined in 2014 from the prior year, the gross
profit rate increased. This means that cost of goods sold declined more
than sales did, reflecting better purchasing power or control of costs.
Therefore, in spite of declining sales, profitability, as measured by the
gross profit rate, actually improved.

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-45

*PROBLEM 5-7A
(a)

General Journal
Date
Account Titles
Apr. 4 Purchases .........................................................
Accounts Payable ....................................

5-46

Debit
860

6 Freight-In ..........................................................
Cash ..........................................................

74

8 Accounts Receivable .......................................


Sales Revenue ..........................................

900

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


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

60

11 Purchases .........................................................
Cash ..........................................................

300

13 Accounts Payable (CHF860 CHF60)............


Purchase Discounts (CHF800 X 3%) ......
Cash ..........................................................

800

14 Purchases .........................................................
Accounts Payable ....................................

700

15 Cash ..................................................................
Purchase Returns and Allowances ........

50

17 Freight-In ..........................................................
Cash ..........................................................

30

18 Accounts Receivable .......................................


Sales Revenue ..........................................

1,200

20 Cash ..................................................................
Accounts Receivable ...............................

500

21 Accounts Payable ............................................


Purchase Discounts (CHF700 X 2%) ......
Cash ..........................................................

700

Credit
860
74
900
60
300
24
776
700
50
30
1,200
500
14
686

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-7A (Continued)


Date
Account Titles
Apr. 27 Sales Returns and Allowances ...................
Accounts Receivable ...........................

Debit
25

30 Cash ..............................................................
Accounts Receivable ...........................

620

(b)

Cash
4/1 Bal. 2,500 4/6
4/15
50 4/11
4/20
500 4/13
4/30
620 4/17
4/21
4/30 Bal. 1,804

74
300
776
30
686

Accounts Receivable
4/8
900 4/20
500
4/18
1,200 4/27
25
4/30
620
4/30 Bal.
955
Inventory
4/1 Bal. 1,700
4/30 Bal. 1,700
Sales Returns and Allowances
4/27
25
4/30 Bal.
25
Purchases
4/4
860
4/11
300
4/14
700
4/30 Bal. 1,860

4/10
4/13
4/21

Accounts Payable
60 4/4
800 4/14
700
4/30 Bal.

Credit
25
620

860
700
0

Share CapitalOrdinary
4/1 Bal.
4,200
4/30 Bal.
4,200
Sales Revenue
4/8
4/18
4/30 Bal.
Purchase Discounts
4/13
4/21
4/30 Bal.
4/6
4/17
4/30 Bal.

900
1,200
2,100
24
14
38

Freight-In
74
30
104

Purchase
Returns and Allowances
4/10
60
4/15
50
4/30 Bal.
110

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-47

*PROBLEM 5-7A (Continued)


(c)

VILLAGE TENNIS SHOP


Trial Balance
April 30, 2014
Debit
Cash ........................................................................ CHF1,804
955
Accounts Receivable .............................................
1,700
Inventory .................................................................
Share CapitalOrdinary........................................
Sales Revenue ........................................................
25
Sales Returns and Allowances .............................
1,860
Purchases ...............................................................
Purchase Returns and Allowances ......................
Purchase Discounts...............................................
104
Freight-In.................................................................
CHF 6,448

Credit

CHF4,200
2,100
110
38
CHF 6,448

VILLAGE TENNIS SHOP


Income Statement (Partial)
For the Month Ended April 30, 2014
Sales revenues
Sales revenue ..............................
CHF2,100
Less: Sales returns and
allowances .......................
25
Net sales ......................................
2,075
Cost of goods sold
Inventory, April 1 .........................
CHF1,700
Purchases ....................................
CHF1,860
Less: Purchase returns
and allowances ................ CHF110
148
Purchase discounts ........
38
Net purchases .............................
1,712
Add: Freight-in ...........................
104
Cost of goods purchased ...........
1,816
Cost of goods available
for sale ..................................
3,516
Less: Inventory, April 30 ............
2,296
Cost of goods sold...............
1,220
Gross profit ........................................
CHF 855
5-48

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Account Titles

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)
(a)
(b)
(c)

19,780

4,100
11,500
4,000
(c)

4,000
19,780

11,500

180
4,100

12,800
497,580

8,000

8,700
27,700
44,520
2,100
133,000

Dr.

981,200

4,100
11,500
4,000

12,100
16,700
24,000

180

(b)

(d)
(a)

Cr.

12,100
16,700
24,000
965,700

(d)

Dr.

4,000
981,200

755,200

34,500
51,000
48,500
50,000
38,000

Cr.

Adjusted
Trial Balance

136,000
24,400
14,000

965,700

755,200

23,000
51,000
48,500
50,000
38,000

Cr.

Adjustments

136,000
24,400
14,000

12,800
497,400

8,000

8,700
27,700
44,700
6,200
133,000

Dr.

Trial Balance

MR. ROSIAK FASHION CENTER


Worksheet
For the Year Ended November 30, 2014

757,180

757,180

4,100
11,500
4,000

12,100
16,700
24,000

136,000
24,400
14,000

12,800
497,580

Dr.

755,200
1,980
757,180

755,200

Cr.

Income
Statement

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

Cash
Accounts Receivable
Inventory
Supplies
Equipment
Accum. Depreciation
Equipment
Notes Payable
Accounts Payable
Share CapitalOrdinary
Retained Earnings
Dividends
Sales Revenue
Sales Returns and
Allowances
Cost of Goods Sold
Salaries and Wages
Expense
Advertising Expense
Utilities Expense
Maintenance and Repairs
Expense
Freight-Out
Rent Expense
Totals
Supplies Expense
Depreciation Expense
Interest Expense
Interest Payable
Totals
Net Loss
Totals

(a)

224,020
1,980
226,000

8,000

8,700
27,700
44,520
2,100
133,000

Dr.

226,000

4,000
226,000

34,500
51,000
48,500
50,000
38,000

Cr.

Statement of
Financial Position

*PROBLEM 5-8A

5-49

*PROBLEM 5-8A (Continued)


(b)

MR. ROSIAK FASHION CENTER


Income Statement
For the Year Ended November 30, 2014

Sales revenues
Sales revenue ..............................................
Less: Sales returns and
allowances .......................................
Net sales ......................................................
Cost of goods sold ............................................
Gross profit ........................................................
Operating expenses
Salaries and wages expense...............
Advertising expense ............................
Rent expense ........................................
Freight-out ............................................
Utilities expense ...................................
Maintenance and repairs expense......
Depreciation expense ..........................
Supplies expense .................................
Total operating expenses .............
Income from operations ....................................
Interest expense.................................................
Net loss ...............................................................

5-50

$755,200
12,800
742,400
497,580
244,820
$136,000
24,400
24,000
16,700
14,000
12,100
11,500
4,100

242,800
2,020
4,000
$ (1,980)

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-8A (Continued)


MR. ROSIAK FASHION CENTER
Retained Earnings Statement
For the Year Ended November 30, 2014
Retained Earnings, December 1, 2013.......................
Less: Net loss .............................................................
Dividends ..........................................................
Retained Earnings, November 30, 2014 ....................

$38,000
$ 1,980
8,000

9,980
$ 28,020

MR. ROSIAK FASHION CENTER


Statement of Financial Position
November 30, 2014
Assets
Property, plant, and equipment
Equipment ........................................
Accumulated depreciation
equipment....................................
Current assets
Supplies ............................................
Inventory...........................................
Accounts receivable ........................
Cash ..................................................
Total assets ..............................

$133,000
34,500
2,100
44,520
27,700
8,700

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

$98,500

83,020
$181,520

5-51

*PROBLEM 5-8A (Continued)


MR. ROSIAK FASHION CENTER
Statement of Financial Position (Continued)
November 30, 2014
Equity and Liabilities
Equity
Share capitalordinary .............................................
Retained earnings ......................................................
Non-current liabilities
Notes payable .............................................................
Current liabilities
Notes payable (due next year) ..................................
Accounts payable ......................................................
Interest payable ..........................................................
Total equity and liabilities ................................................

(c) Nov. 30
30

30
30

5-52

$50,000
28,020 $ 78,020
45,000
6,000
48,500
4,000

Supplies Expense .....................................


Supplies .............................................

4,100

Depreciation Expense ..............................


Accumulated Depreciation
Equipment ....................................

11,500

Interest Expense .......................................


Interest Payable ................................

4,000

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


Inventory ............................................

180

58,500
$181,520

4,100

11,500
4,000
180

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-8A (Continued)


(d) Nov. 30
30

30
30

Sales Revenue .......................................


Income Summary ..........................

755,200

Income Summary ..................................


Sales Returns and
Allowances .................................
Cost of Goods Sold .......................
Salaries and Wages Expense .......
Advertising Expense .....................
Utilities Expense ............................
Maintenance and Repairs
Expense......................................
Freight-Out .....................................
Rent Expense .................................
Supplies Expense ..........................
Depreciation Expense ...................
Interest Expense ............................

757,180

Retained Earnings.................................
Income Summary ..........................

1,980

Retained Earnings.................................
Dividends .......................................

8,000

755,200

12,800
497,580
136,000
24,400
14,000
12,100
16,700
24,000
4,100
11,500
4,000
1,980

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

8,000

5-53

*PROBLEM 5-8A (Continued)


(e)

MR. ROSIAK FASHION CENTER


Post-Closing Trial Balance
November 30, 2014
Cash .................................................................
Accounts Receivable ......................................
Inventory ..........................................................
Supplies ...........................................................
Equipment........................................................
Accumulated DepreciationEquipment .......
Notes Payable..................................................
Accounts Payable ...........................................
Interest Payable...............................................
Share CapitalOrdinary.................................
Retained Earnings...........................................

Debit
$ 8,700
27,700
44,520
2,100
133,000

$216,020

5-54

Credit

$ 34,500
51,000
48,500
4,000
50,000
28,020
$216,020

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-1B

(a) June 1

Inventory .......................................................
Accounts Payable ................................

1,850

Accounts Receivable ...................................


Sales Revenue ......................................

2,500

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


Inventory ...............................................

1,440

Accounts Payable ........................................


Inventory ...............................................

150

Accounts Payable (1,850 150)..............


Inventory
(1,700 X .02) ....................................
Cash ......................................................

1,700

15

Cash ..............................................................
Accounts Receivable ...........................

2,500

17

Accounts Receivable ...................................


Sales Revenue ......................................

1,800

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


Inventory ...............................................

1,020

20

Inventory .......................................................
Accounts Payable ................................

1,500

24

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

1,764
36

Accounts Payable ........................................


Inventory
(1,500 X .02) ....................................
Cash ......................................................

1,500

26

1,850
2,500
1,440
150

34
1,666

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

2,500
1,800
1,020
1,500

1,800

30
1,470

5-55

PROBLEM 5-1B (Continued)


June 28

30

5-56

Accounts Receivable ...................................


Sales Revenue ......................................

1,300

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


Inventory ...............................................

850

Sales Returns and Allowances ...................


Accounts Receivable ...........................

120

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

72

1,300
850
120
72

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2B
(a)
Date
May 1
2

5
9

10

11
12
15
17
19

General Journal
Account Titles
Inventory............................................
Accounts Payable .....................

Ref.
120
201

Debit
4,200

Accounts Receivable........................
Sales Revenue ...........................

112
401

2,300

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


Inventory ....................................

505
120

1,300

Accounts Payable.............................
Inventory ....................................

201
120

500

Cash ($2,300 $23)...........................


Sales Discounts ($2,300 X 1%) ........
Accounts Receivable ................

101
414
112

2,277
23

Accounts Payable ($4,200 $500) ......


Inventory ($3,700 X 2%) ............
Cash ...........................................

201
120
101

3,700

Supplies .............................................
Cash ...........................................

126
101

400

Inventory............................................
Cash ...........................................

120
101

1,400

Cash ...................................................
Inventory ....................................

101
120

150

Inventory............................................
Accounts Payable .....................

120
201

1,300

Inventory............................................
Cash ...........................................

120
101

130

J1
Credit
4,200
2,300
1,300
500

2,300
74
3,626
400
1,400
150
1,300

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

130

5-57

PROBLEM 5-2B (Continued)

Date
May 24

25
27

29

31

5-58

General Journal
Account Titles
Cash .....................................................
Sales Revenue ............................

Ref.
101
401

Debit
3,200

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


Inventory ......................................

505
120

2,000

Inventory .............................................
Accounts Payable .......................

120
201

620

Accounts Payable...............................
Inventory
($1,300 X 2%) ...........................
Cash .............................................

201

1,300

Sales Returns and Allowances .........


Cash .............................................

412
101

90

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

120
505

40

Accounts Receivable .........................


Sales Revenue ............................

112
401

1,000

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


Inventory ......................................

505
120

560

J1
Credit
3,200
2,000
620

120
101

26
1,274
90
40
1,000
560

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2B (Continued)


(b)
Cash
Date
May

No. 101
1
9
10
11
12
15
19
24
27
29

Explanation
Balance

Ref.

Debit

J1
J1
J1
J1
J1
J1
J1
J1
J1

2,277

Credit

3,626
400
1,400
150
130
3,200
1,274
90

Accounts Receivable
Date
May

Explanation
2
9
31

No. 112
Ref.
J1
J1
J1

Debit
2,300

Credit
2,300

1,000

Inventory
Date
May

Balance
2,300
0
1,000
No. 120

Explanation
1
2
5
10
12
15
17
19
24
25
27
29
31

Balance
5,000
7,277
3,651
3,251
1,851
2,001
1,871
5,071
3,797
3,707

Ref.
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1

Debit
4,200

Credit
1,300
500
74

1,400
150
1,300
130
2,000
620
26
40
560

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Balance
4,200
2,900
2,400
2,326
3,726
3,576
4,876
5,006
3,006
3,626
3,600
3,640
3,080

5-59

PROBLEM 5-2B (Continued)


Supplies

No. 126

Date
Explanation
May 11
Accounts Payable
Date
Explanation
May
1
5
10
17
25
27
Share CapitalOrdinary
Date
Explanation
May
1 Balance

Ref.
J1

Ref.
J1
J1
J1
J1
J1
J1

Ref.

Debit
400

Debit

Credit

Credit
4,200

500
3,700
1,300
620
1,300

Debit

Credit

Sales Revenue
Date
May

Explanation
2
24
31

Explanation

Ref.
J1
J1
J1

Debit

Credit
2,300
3,200
1,000

5-60

Explanation
9

No. 311
Balance
5,000

Balance
2,300
5,500
6,500
No. 412

Ref.
J1

Debit
90

Credit

Sales Discounts
Date
May

No. 201
Balance
4,200
3,700
0
1,300
1,920
620

No. 401

Sales Returns and Allowances


Date
May 29

Balance
400

Balance
90
No. 414

Ref.
J1

Debit
23

Credit

Balance
23

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-2B (Continued)


Cost of Goods Sold
Date
May

(c)

No. 505

Explanation
2
24
29
31

Ref.
J1
J1
J1
J1

Debit
1,300
2,000

Credit

40
560

Balance
1,300
3,300
3,260
3,820

COPPLE HARDWARE STORE


Income Statement (Partial)
For the Month Ended May 31, 2014
Sales revenues
Sales revenue .....................................................
Less: Sales returns and allowances ...............
Sales discounts ......................................
Net sales .............................................................
Cost of goods sold ....................................................
Gross profit ................................................................

$6,500
$90
23

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

113
6,387
3,820
$2,567

5-61

PROBLEM 5-3B

(a)

THE MOULTON STORE


Income Statement
For the Year Ended November 30, 2014

Sales revenues
Sales....................................................
Less: Sales returns & allowances ...
Net sales .............................................
Cost of goods sold ...................................
Gross profit ...............................................
Operating expenses
Salaries and wages expense......
Rent expense ...............................
Sales commissions expense .....
Depreciation expense .................
Utilities expense ..........................
Insurance expense ......................
Freightout ..................................
Property tax expense ..................
Total oper. expenses ...........
Income from operations ...........................
Other income and expense
Interest revenue .................................
Interest expense........................................
Net income.................................................

5-62

706,000
9,000
697,000
507,000
190,000
96,000
15,000
13,500
11,000
8,500
7,000
6,500
3,500

161,000
29,000
8,000
6,100
30,900

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-3B (Continued)


THE MOULTON STORE
Retained Earnings Statement
For the Year Ended November 30, 2014
Retained earnings, December 1, 2013 ............................................
Add: Net income .............................................................................
Less: Dividends ...............................................................................
Retained earnings, November 30, 2014 ..........................................

61,700
30,900
92,600
8,000
84,600

THE MOULTON STORE


Statement of Financial Position
November 30, 2014
Assets
Property, plant, and equipment
Equipment ..........................................
Less: Accumulated depreciation
equipment ...............................
Current assets
Prepaid insurance ..............................
Inventory.............................................
Accounts receivable ..........................
Cash ....................................................
Total assets ................................

154,300
33,000
3,500
26,000
30,500
26,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

121,300

86,000
207,300

5-63

PROBLEM 5-3B (Continued)


THE MOULTON STORE
Statement of Financial Position (Continued)
November 30, 2014
Equity and Liabilities
Equity
Share capitalordinary .............................................. 50,000
Retained earnings ....................................................... 84,600 134,600
Non-current liabilities
Notes payable ..............................................................
37,000
Current liabilities
Accounts payable .......................................................
25,200
Sales commissions payable.......................................
7,000
Property taxes payable ...............................................
3,500
35,700
Total equity and liabilities .................................................
207,300

(b) Nov. 30

30
30
30

5-64

Depr. Expense............................................
Accumulated Depreciation
Equipment .....................................

11,000

Insurance Expense ....................................


Prepaid Insurance ..............................

7,000

Property Tax Expense ...............................


Property Taxes Payable ....................

3,500

Sales Commissions Expense ...................


Sales Commissions Payable ............

7,000

11,000
7,000
3,500
7,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-3B (Continued)


(c) Nov. 30

30

30
30

Sales Revenue ........................................


Interest Revenue .....................................
Income Summary ............................

706,000
8,000

Income Summary ....................................


Sales Returns and
Allowances ...................................
Cost of Goods Sold .........................
Salaries and Wages Expense .........
Depreciation Expense .....................
FreightOut ......................................
Sales Commissions Expense .........
Insurance Expense ..........................
Rent Expense ...................................
Property Tax Expense .....................
Utilities Expense ..............................
Interest Expense ..............................

683,100

Income Summary ....................................


Retained Earnings ...........................

30,900

Retained Earnings...................................
Dividends .........................................

8,000

714,000

9,000
507,000
96,000
11,000
6,500
13,500
7,000
15,000
3,500
8,500
6,100
30,900

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

8,000

5-65

PROBLEM 5-4B

(a)
General Journal
Account Titles
Inventory .............................................
Accounts Payable .......................

Ref.
120
201

Debit
1,200

Inventory .............................................
Cash .............................................

120
101

75

Accounts Payable...............................
Inventory ......................................

201
120

100

10

Accounts Receivable .........................


Sales Revenue ............................

112
401

930

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


Inventory ......................................

505
120

540

12

Inventory .............................................
Accounts Payable .......................

120
201

720

14

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


Inventory
($1,100 X 2%) ...........................
Cash .............................................

201

1,100

17

Accounts Payable...............................
Inventory ......................................

201
120

120

20

Accounts Receivable .........................


Sales Revenue ............................

112
401

610

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


Inventory ......................................

505
120

370

Accounts Payable ($720 $120) .......


Inventory
($600 X 1%) ..............................
Cash .............................................

201

600

Date
Apr. 5

21

5-66

120
101

120
101

J1
Credit
1,200
75
100
930
540
720

22
1,078
120
610
370

6
594

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-4B (Continued)

Date
Apr. 27
30

Account Titles
Sales Returns and Allowances......
Accounts Receivable ..............

Ref.
412
112

Debit
20

Cash .................................................
Accounts Receivable ..............

101
112

960

J1
Credit
20
960

(b)
Cash
Date
Apr.

No. 101
1
7
14
21
30

Explanation
Balance

Ref.
J1
J1
J1
J1

Debit

Credit
75
1,078
594

960

Accounts Receivable
Date
Apr. 10
20
27
30

Explanation

Inventory
Date
Explanation
Apr. 1 Balance
5
7
9
10
12
14
17
20
21

Balance
1,850
1,775
697
103
1,063
No. 112

Ref.
J1
J1
J1
J1

Debit
930
610

Credit

20
960

Ref.

Debit

J1
J1
J1
J1
J1
J1
J1
J1
J1

1,200
75

Credit

100
540
720
22
120
370
6

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

Balance
930
1,540
1,520
560
No. 120
Balance
2,150
3,350
3,425
3,325
2,785
3,505
3,483
3,363
2,993
2,987

5-67

PROBLEM 5-4B (Continued)


Accounts Payable
Date
Explanation
Apr. 5
9
12
14
17
21

No. 201
Ref.
J1
J1
J1
J1
J1
J1

Debit

Credit
1,200

100
720
1,100
120
600

Share CapitalOrdinary
Date
Apr.

Explanation
1 Balance

Sales Revenue
Date
Explanation
Apr. 10
20

No. 311
Ref.

Ref.
J1
J1

Debit

Debit

Credit

Credit
930
610

Sales Returns and Allowances


Date
Explanation
Apr. 27

Cost of Goods Sold


Date
Explanation
Apr. 10
20

5-68

Balance
1,200
1,100
1,820
720
600
0

Balance
4,000

No. 401
Balance
930
1,540

No. 412
Ref.
J1

Ref.
J1
J1

Debit
20

Debit
540
370

Credit

Credit

Balance
20

No. 505
Balance
540
910

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

PROBLEM 5-4B (Continued)


(c)

BILL'S DISCORAMA
Trial Balance
April 30, 2014
Cash .........................................................................
Accounts Receivable..............................................
Inventory .................................................................
Share CapitalOrdinary ........................................
Sales Revenue ........................................................
Sales Returns and Allowances..............................
Cost of Goods Sold ................................................

Debit
$ 1,063
560
2,987

Credit

$4,000
1,540
20
910
$5,540

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

$5,540

5-69

*PROBLEM 5-5B
ILHAN DEPARTMENT STORE
Income Statement (Partial)
For the Year Ended November 30, 2014
Sales revenues
Sales revenue .........................
Less: Sales returns and
allowances...................
Net sales .................................
Cost of goods sold
Inventory, Dec. 1, 2013...........
Purchases ...............................
Less: Purchase returns
and allowances........... $2,900
Purchase discounts ...
5,300
Net purchases ........................
Add: Freight-in ......................
Cost of goods purchased ......
Cost of goods available
for sale ........................
Less: Inventory, Nov. 30,
2014 ..........................
Cost of goods sold.....
Gross profit ...................................

5-70

$1,000,000
28,000
972,000
$585,000
8,200
576,800
7,500

$40,000

584,300
624,300
54,600

569,700
$402,300

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-6B
(1)

(a)

Cost of goods sold = Sales Gross profit


= $53,000 $38,300 = $14,700

(b)

Net income = Gross profit Operating expenses


= $38,300 $35,900 = $2,400

(c)

Inventory = 2011 Inventory + Purchases CGS


= $7,200 + $14,200 $14,700 = $6,700

(d)

Cash payments to suppliers = 2011 Accounts payable +


Purchases 2012 Accounts payable
= $3,200 + $14,200 $3,400 = $14,000

(e)

Sales revenue = Cost of goods sold + Gross profit


= $13,800 + $35,200 = $49,000

(f)

Operating expenses = Gross profit Net income


= $35,200 $2,500 = $32,700

(g)

2012 Inventory + Purchases 2013 Inventory = CGS


Purchases = CGS 2012 Inventory + 2013 Inventory
= $13,800 $6,700 [from (c)] + $8,100
= $15,200

(h)

Cash payments to suppliers = 2012 Accounts payable +


Purchases 2013 Accounts Payable
= $3,400 + $15,200 [from (g)]
$2,500
= $16,100

(i)

Gross profit = Sales CGS


= $46,000 $14,300 = $31,700

(j)

Net income = Gross profit Operating expenses


= $31,700 [from (i)] $28,600 = $3,100

(k)

2013 Inventory + Purchases 2014 Inventory = CGS


Inventory = 2013 Inventory + Purchases CGS
= $8,100 + $13,200 $14,300 = $7,000

(I)

Accounts payable = 2013 Accounts payable +


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

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

5-71

*PROBLEM 5-6B (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. In this
particular case, the sales decline was offset by cost savings to improve
profitability. Therefore, profitability increased for Psang Inc. from 2012
to 2014.
2012
Gross profit rate

2014

$38,300 $53,000 $35,200 $49,000 $31,700 $46,000


= 72.3%
= 71.8%
= 68.9%

Profit margin ratio $2,400 $53,000


= 4.5%

5-72

2013

$2,500 $49,000
= 5.1%

$3,100 $46,000
= 6.7%

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-7B
(a)
Date
Apr. 5
7
9
10
12
14

17
20
21

27
30

General Journal
Account Titles
Purchases ......................................................
Accounts Payable .................................

Debit
1,300

Credit
1,300

Freight-In .......................................................
Cash........................................................

70

Accounts Payable .........................................


Purchase Returns and Allowances .....

100

Accounts Receivable ....................................


Sales Revenue .......................................

670

Purchases ......................................................
Accounts Payable .................................

450

Accounts Payable (1,300 100) ...............


Purchase Discounts (1,200 X 2%) .......
Cash (1,200 24) ...............................

1,200

Accounts Payable .........................................


Purchase Returns and Allowances .......

50

Accounts Receivable ....................................


Sales Revenue .......................................

600

Accounts Payable (450 50)....................


Purchase Discounts
(400 X 1%) .......................................
Cash (400 4) ....................................

400

Sales Returns and Allowances ....................


Accounts Receivable ............................

55

Cash ...............................................................
Accounts Receivable ............................

630

70
100
670
450
24
1,176
50
600

4
396
55

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

630

5-73

*PROBLEM 5-7B (Continued)


(b)
4/1 Bal.
4/30
4/30 Bal.

Cash
3,000 4/7
630 4/14
4/21
1,988

Accounts Receivable
4/10
670 4/27
4/20
600 4/30
4/30 Bal.
585
4/1 Bal.
4/30 Bal.
4/9
4/14
4/17
4/21

70
1,176
396

Sales Revenue
4/10
4/20
4/30 Bal.

55
630

670
600
1,270

Sales Returns and Allowances


4/27
55
4/30 Bal.
55

Inventory
4,000
4,000

Accounts Payable
100 4/5
1,200 4/12
50
400
4/30 Bal.

Share CapitalOrdinary
4/1 Bal.
7,000
4/30 Bal. 7,000

1,300
450
0

4/5
4/12
4/30 Bal.

Purchases
1,300
450
1,750

4/7
4/30 Bal.

Freight-In
70
70

Purchase
Returns and Allowances
4/9
100
4/17
50
4/30 Bal.
150
Purchase Discounts
4/14
4/21
4/30 Bal.

5-74

24
4
28

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

*PROBLEM 5-7B (Continued)


(c)

OOSTHUIZEN PRO SHOP


Trial Balance
April 30, 2014
Cash .......................................................................
Accounts Receivable ...........................................
Inventory ...............................................................
Share CapitalOrdinary ......................................
Sales Revenue ......................................................
Sales Returns and Allowances ...........................
Purchases .............................................................
Purchase Returns and Allowances.....................
Purchase Discounts .............................................
Freight-In ...............................................................

(d)

Debit
1,988
585
4,000

Credit

7,000
1,270
55
1,750
150
28
70
8,448

8,448

OOSTHUIZEN PRO SHOP


Income Statement (Partial)
For the Month Ended April 30, 2014

Sales revenues
Sales revenue ................................
Less: Sales returns and
allowances ..........................
Net sales .........................................
Cost of goods sold
Inventory, April 1 ...........................
Purchases ......................................
Less: Purchase returns
and allowances ..................
Purchase discounts ...........
Net purchases ................................
Add: Freight-in ..............................
Cost of goods purchased ...............
Cost of goods available
for sale ........................................
Less: Inventory, April 30 ...............
Cost of goods sold .................
Gross profit ...........................................

1,270
55
1,215
1,750
150
28

178
1,572
70

4,000

1,642
5,642
4,824

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

818
397
5-75

COMPREHENSIVE PROBLEM SOLUTION

(a)

Dec. 6

8
10

13
15
18

20
23

27

5-76

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


Salaries and Wages Expense ....................
Cash .....................................................

1,000
600

Cash ............................................................
Accounts Receivable .........................

2,100

Cash ............................................................
Sales Revenue ....................................

6,600

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


Inventory .............................................

4,100

Inventory .....................................................
Accounts Payable...............................

9,000

Supplies ......................................................
Cash .....................................................

2,000

Accounts Receivable .................................


Sales Revenue ....................................

12,000

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


Inventory .............................................

8,400

Salaries and Wages Expense....................


Cash .....................................................

1,800

Accounts Payable ......................................


Cash .....................................................
Inventory ($9,000 X .02) ......................

9,000

Cash ............................................................
Sales Discounts ($12,000 X .03) ................
Accounts Receivable .........................

11,640
360

1,600
2,100
6,600
4,100
9,000
2,000
12,000
8,400
1,800
8,820
180

12,000

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

COMPREHENSIVE PROBLEM SOLUTION (Continued)


(c)

Dec. 31

Salaries and Wages Expense ....................


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

800

Depreciation Expense ................................


Accumulated Depreciation
Equipment.........................................

200

Supplies Expense .......................................


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

1,500

(b) & (c)


Cash
12/1 Bal. 7,200 12/6
12/8
2,100 12/15
12/10
6,600 12/20
12/27
11,640 12/23
12/31 Bal. 13,320

Supplies
12/1 Bal. 1,200 12/31
12/15
2,000
12/31 Bal. 1,700

200
1,500

General Ledger
1,600
2,000
1,800
8,820

Accounts Receivable
12/1 Bal. 4,600 12/8
2,100
12/18
12,000 12/27
12,000
12/31 Bal. 2,500
Inventory
12/1 Bal. 12,000 12/10
12/13
9,000 12/18
12/23
12/31 Bal. 8,320

800

Equipment
12/1 Bal. 22,000
12/31 Bal.22,000
Accumulated Depr.Equipment
12/1 Bal. 2,200
12/31
200
12/31 Bal. 2,400

12/23
4,100
8,400
180

1,500

Accounts Payable
9,000 12/1 Bal. 4,500
12/13
9,000
12/31 Bal. 4,500

Salaries and Wages Payable


12/6
1,000 12/1 Bal. 1,000
12/31
800
12/31 Bal. 800

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5-77

COMPREHENSIVE PROBLEM SOLUTION (Continued)


Share CapitalOrdinary
12/1 Bal. 30,000
12/31 Bal. 30,000
Retained Earnings
12/1 Bal. 9,300
12/31 Bal. 9,300
Sales Revenue
12/10
6,600
12/18
12,000
12/31 Bal. 18,600

Depreciation Expense
12/31
200
12/31 Bal. 200
Salaries and Wages Expense
12/6
600
12/20
1,800
12/31
800
12/31 Bal. 3,200
Supplies Expense
12/31
1,500
12/31 Bal. 1,500

Sales Discounts
12/27
360
12/31 Bal. 360
Cost of Goods Sold
12/10
4,100
12/18
8,400
12/31 Bal. 12,500

5-78

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COMPREHENSIVE PROBLEM SOLUTION (Continued)


(d)

JURCZYK DISTRIBUTING COMPANY


Adjusted Trial Balance
December 31, 2014
Cash ................................................................
Accounts Receivable .....................................
Inventory .........................................................
Supplies ..........................................................
Equipment.......................................................
Accumulated DepreciationEquipment......
Accounts Payable ..........................................
Salaries and Wages Payable.........................
Share CapitalOrdinary................................
Retained Earnings ..........................................
Sales Revenue ................................................
Sales Discounts .............................................
Cost of Goods Sold........................................
Depreciation Expense....................................
Salaries and Wages Expense........................
Supplies Expense ..........................................

(e)

DR.
$13,320
2,500
8,320
1,700
22,000

360
12,500
200
3,200
1,500
$65,600

CR.

$ 2,400
4,500
800
30,000
9,300
18,600

$65,600

JURCZYK DISTRIBUTING COMPANY


Income Statement
For the Month Ending December 31, 2014
Sales revenue .................................................
Less: Sales discounts ..................................
Net sales .........................................................
Cost of goods sold ........................................
Gross profit ....................................................
Operating expenses
Salaries and wages expense .................
Supplies expense ...................................
Depreciation expense ............................
Net income......................................................

$18,600
360
18,240
12,500
5,740
$3,200
1,500
200

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4,900
$ 840

5-79

COMPREHENSIVE PROBLEM SOLUTION (Continued)


JURCZYK DISTRIBUTING COMPANY
Retained Earnings Statement
For the Month Ended December 31, 2014
Retained Earnings, Dec. 1 .............................................
Add: Net income ...........................................................
Retained Earnings, Dec. 31 ...........................................

$9,300
840
$10,140

JURCZYK DISTRIBUTING COMPANY


Statement of Financial Position
December 31, 2014
Assets
Property, plant, and equipment
Equipment .................................................
Less: Accumulated depreciation............
Current assets
Supplies .....................................................
Inventory ....................................................
Accounts receivable .................................
Cash ...........................................................
Total assets .........................................

$ 22,000
2,400
1,700
8,320
2,500
13,320

$19,600

25,840
$45,440

Equity and Liabilities Equity


Equity
Share CapitalOrdinary ..........................
Retained earnings .....................................
Current liabilities
Accounts payable .....................................
Salaries and wages payable ....................
Total equity and liabilities ...............................

5-80

$ 30,000
10,140
$4,500
800

$40,140
5,300
$45,440

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

CCC5

CONTINUING COOKIE CHRONICLE

(a) Responses to Natalies questions


1. The mixers should be classified as inventory as they are for resale.
2. A perpetual inventory system will provide better control over
inventory. Because you are dealing with high-value items you
should use the perpetual system.
3. You still need to count inventory to ensure that your records are
accurate and that the inventory that is supposed to be on hand is
actually there. I suggest you should count the inventory once a
month.
(b)
GENERAL JOURNAL
J1
Date
Account Titles
Debit
Credit
Jan. 4
6
7
8
12
12

Inventory .......................................................
Accounts Payable ....................................

2,875

Inventory .......................................................
Cash ..........................................................

100

Accounts Payable [($2,875 5) + $20] ........


Inventory ...................................................

595

Cash ...............................................................
Accounts Receivable ...............................

375

Accounts Receivable ...................................


Sales Revenue..........................................

3,450

Cost of Goods Sold ($595 X 3) ....................


Inventory ...................................................

1,785

2,875
100
595
375
3,450

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1,785

5-81

CCC5 (Continued)
(b) (Continued)
Jan. 14
14
17
18
20
20
28

28
30

31

31

5-82

Freight-Out ...........................................
Cash..................................................

75

Inventory ...............................................
Accounts Payable ...........................

2,300

Cash ......................................................
Share CapitalOrdinary .................

1,000

Inventory ...............................................
Cash..................................................

80

Cash ......................................................
Sales Revenue .................................

2,300

Cost of Goods Sold ($595 X 2) ............


Inventory ..........................................

1,190

Salaries and Wages Expense .............


Salaries and Wages Payable ..............
Cash..................................................

160
56

Cash ......................................................
Accounts Receivable ......................

3,450

Accounts Payable ................................


Utilities Expense ..................................
Cash..................................................

75
70

Accounts Payable
($2,875 $595 + $2,300)....................
Cash..................................................
Dividends ..............................................
Cash..................................................

75
2,300
1,000
80
2,300
1,190

216
3,450

145
4,580
4,580
750
750

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CCC5 (Continued)
(b) and (d)

Date

Explanation

Jan. 1 Balance
6
8
14
17
18
20
28
28
30
31
31

Date

Explanation

Jan. 1 Balance
8
12
28

Date
Jan. 4
6
7
12
14
18
20

Explanation

Cash
Ref.
9
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1
J1

Debit

145
4,580
750

1,180
1,080
1,455
1,380
2,380
2,300
4,600
4,384
7,834
7,689
3,109
2,359

Credit

Balance

375
75
1,000
80
2,300
216
3,450

3,450

875
500
3,950
500

Credit

Balance

375
3,450

Inventory
Ref.
Debit
J1
J1
J1
J1
J1
J1
J1

Balance

100

Accounts Receivable
Ref.
Debit
9
J1
J1
J1

Credit

2,875
100
595
1,785
2,300
80
1,190

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

2,875
2,975
2,380
595
2,895
2,975
1,785

5-83

CCC5 (Continued)
(b) and (d) (Continued)
Explanation
Date
Jan. 1 Balance

Supplies
Ref.
Debit
9

Prepaid Insurance
Explanation
Date
Ref.
Debit
Jan. 1 Balance
9
31
Adjusting entry
J2

Date
Explanation
Jan. 1 Balance

Equipment
Ref.
Debit
9

Credit

Balance
350

Credit

Balance
1,210
1,100

110

Credit

Accumulated DepreciationEquipment
Date
Explanation
Ref.
Debit
Credit
Jan. 1 Balance
9
31
Adjusting entry
J2
20

Explanation
Date
Jan. 1 Balance
4
7
14
30
31

5-84

Accounts Payable
Ref.
Debit
9
J1
J1
595
J1
J1
75
J1
4,580

Credit
2,875
2,300

Balance
1,200

Balance
40
60

Balance
75
2,950
2,355
4,655
4,580
0

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

CCC5 (Continued)
(b) and (d) (Continued)
Date
Jan. 1
28

Date
Jan. 1

Date

Explanation

Salaries and Wages Payable


Ref.
Debit

Balance
J1

Explanation

Explanation

Jan. 1
Balance
31 Adjusting entry

Date
Jan. 1

Date
Jan. 1
17

Date
Jan. 31

Explanation

Interest Payable
Ref.
Debit

Credit

Balance
300

Credit

Balance
15
25

9
J2

10

Notes Payable
Ref.
Debit

Credit

Balance
2,000

9
Share CapitalOrdinary
Ref.
Debit

Balance

Explanation

56
0

Balance

Explanation

Balance

9
56

Unearned Service Revenue


Ref.
Debit

Balance

Credit

Dividends
Ref.

Credit

Balance

9
J1

1,000

2,329
3,329

Debit

Credit

J1

750

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Balance
750

5-85

CCC5 (Continued)
(b) and (d) (Continued)
Date

Sales Revenue
Ref.

Explanation

Jan. 12
20

Date

J1
J1
Cost of Goods Sold
Ref.
Debit

Explanation

Jan. 12
20

Date

J1
J1

J1

Jan. 30

J1

Explanation

Jan. 31

Adjusting entry

Date

Explanation

Jan. 31

Adjusting entry

5-86

J2

3,450
5,750

Credit

Balance
1,785
2,975

Credit

110

Balance
160

Credit

Balance
70

Credit

20

Insurance Expense
Ref.
Debit
J2

3,450
2,300

70

Depreciation Expense
Ref.
Debit

Date

Balance

160

Utilities Expense
Ref.
Debit

Explanation

Credit

1,785
1,190

Salaries and Wages Expense


Explanation
Ref.
Debit

Jan. 28

Date

Debit

Balance
20

Credit

Balance
110

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

CCC5 (Continued)
(b) and (d) (Continued)
Date

Explanation

Jan. 14
Date
Jan. 31

Freight-Out
Ref.
Debit
J1

Explanation
Adjusting entry

Balance

75

Interest Expense
Ref.
Debit
J2

Credit

75
Credit

Balance

10

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10

5-87

CCC5 (Continued)
(c)
Cookie Creations
Trial Balance
January 31, 2014
Cash ............................................................................
Accounts Receivable .................................................
Inventory ....................................................................
Supplies ......................................................................
Prepaid Insurance ......................................................
Equipment ..................................................................
Accumulated DepreciationEquipment .................
Accounts Payable......................................................
Salaries and Wages Payable ....................................
Unearned Service Revenue.......................................
Interest Payable .........................................................
Notes Payable ............................................................
Share CapitalOrdinary ...........................................
Dividends ....................................................................
Sales Revenue............................................................
Cost of Goods Sold ...................................................
Salaries and Wages Expense ...................................
Utilities Expense ........................................................
Depreciation Expense ...............................................
Insurance Expense ....................................................
Freight-Out .................................................................
Interest Expense ........................................................

Debit
$ 2,359
500
1,785
350
1,210
1,200

40
300
15
2,000
3,329

750
5,750
2,975
160
70
75
$11,434

5-88

Credit

$11,434

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CCC5 (Continued)
(d)
Date

GENERAL JOURNAL
Account Titles

Debit

Jan. 31 Depreciation Expense ...............................


Accumulated Depreciation
Equipment ($1,200 60 months) .....

20

31 Interest Expense ........................................


Interest Payable ....................................
($2,000 X 6% X 1/12)

10

31 Insurance Expense ....................................


Prepaid Insurance .................................

110

J2
Credit

20
10

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110

5-89

CCC5 (Continued)
(e)
Cookie Creations
Adjusted Trial Balance
January 31, 2014
Cash ...........................................................................
Accounts Receivable ................................................
Inventory ....................................................................
Supplies .....................................................................
Prepaid Insurance .....................................................
Equipment .................................................................
Accumulated DepreciationEquipment.................
Accounts Payable.....................................................
Salaries and Wages Payable....................................
Unearned Service Revenue......................................
Interest Payable ........................................................
Notes Payable ...........................................................
Share CapitalOrdinary ..........................................
Dividends ...................................................................
Sales Revenue...........................................................
Cost of Goods Sold ..................................................
Salaries and Wages Expense ..................................
Utilities Expense .......................................................
Depreciation Expense ..............................................
Insurance Expense ...................................................
Freight-Out ................................................................
Interest Expense .......................................................

5-90

Debit
$ 2,359
500
1,785
350
1,100
1,200

750
2,975
160
70
20
110
75
10
$11,464

Credit

60
300
25
2,000
3,329
5,750

$11,464

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CCC5 (Continued)
(f)
COOKIE CREATIONS
Income Statement
For the Month Ended January 31, 2014
Sales revenue ...................................................................
Cost of goods sold ...........................................................
Gross profit .......................................................................
Operating expenses
Salaries and wages expense ......................................
Insurance expense ......................................................
Freight-out ....................................................................
Utilities expense ..........................................................
Depreciation expense ..................................................
Total operating expenses .......................................
Income from operations...................................................
Interest expense ...............................................................
Net income ........................................................................

$5,750
2,975
2,775
$160
110
75
70
20

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435
2,340
10
$2,330

5-91

BYP 5-1

FINANCIAL REPORTING PROBLEM

2009
(a)

(1)

(2)

(b)

(c)

2010

Percentage change in sales:


(W154,630,328 W136,323,670)
W136,323,670

13.4% increase

Percentage change in net income:


(W16,146,525 W9,760,550)
W9,760,550

65.4% increase

Gross profit rate:


W41,728,807 W136,323,670
W51,963,504 W154,630,328

30.6%

Percentage of net income to sales:


W9,760,550 W136,323,670
W16,146,525 W154,630,328

7.2%

33.6%

10.4%

Comment
The percentage of net income to sales increased 44.4% from 2009 to 2010
(7.2% to 10.4%). The gross profit rate increased 9.8% during this time. (30.6%
to 33.6%)
This indicates the company did a significantly better job of controlling
operating expenses in 2010 than in 2009.

5-92

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

BYP 5-2

(a) (1)

COMPARATIVE ANALYSIS PROBLEM

Gross profit

Zetar
( 000)

Nestl
(CHF in Millions)

27,321

CHF63,8731

(2)

Gross profit rate

20.2%2

58.2%3

(3)

Operating income

6,733

CHF16,194

(4)

Percent change in operating


income

0.1%4
increase

3.2%5
increase

CHF109,722 CHF45,849
CHF63,873 CHF109,722

27,321 134,998
(6,733 6,726) 6,726

(CHF16,194 CHF15,699) CHF15,699

(b) Because the companies report using different currencies, direct comparisons of total gross profit, or total operating income are difficult.
Comparisons of ratios and percentages can be performed. Nestl
reported a significantly higher gross profit rate, and a much bigger
percentage increase in operating income.

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5-93

BYP 5-3

REAL-WORLD FOCUS

The answers to this assignment will be dependent upon the articles selected
from the Internet by the student.

5-94

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

BYP 5-4

(a) (1)

DECISION MAKING ACROSS THE ORGANIZATION

FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2014
Net sales [$700,000 + ($700,000 X 5%)] ......
Cost of goods sold ($735,000 X 76%)* .......
Gross profit ($735,000 X 24%) .....................
Operating expenses
Selling expenses ..................................
Administrative expenses .....................
Total operating expenses ............
Net income ....................................................

$735,000
558,600
176,400
$100,000
20,000
120,000
$ 56,400

**Alternatively: Net sales, $735,000 gross profit, $176,400.


(2)

FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2014
Net sales .......................................................
Cost of goods sold.......................................
Gross profit...................................................
Operating expenses
Selling expenses ..................................
Administrative expenses .....................
Net income ....................................................

$700,000
553,000
147,000
$72,000*
20,000*

92,000
$ 55,000

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


(b) Debbies proposed changes will increase net income by $29,400. Mikes
proposed changes will reduce operating expenses by $28,000 and
result in a corresponding increase in net income. Thus, if the choice is
between Debbies plan and Mikes plan, Debbies plan should be
adopted. While Mikes plan will increase net income, it may also have an
adverse effect on sales personnel. Under Mikes plan, sales personnel
will be taking a cut of $16,000 in compensation [$60,000 ($30,000 +
$14,000)].
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5-95

BYP 5-4 (Continued)


(c)

FAMILY DEPARTMENT STORE


Income Statement
For the Year Ended December 31, 2014
Net sales .............................................................
Cost of goods sold .............................................
Gross profit .........................................................
Operating expenses
Selling expenses ........................................
Administrative expenses ...........................
Total operating expenses...................
Net income ..........................................................

$735,000
558,600
176,400
$72,700*
20,000*
92,700
$ 83,700

*$72,000 + [2% X ($735,000 $700,000)] = $72,700.


If both plans are implemented, net income will be $56,700 ($83,700
$27,000) higher than the 2013 results. This is an increase of over 200%.
Given the size of the increase, Mikes plan to compensate sales personnel might be modified so that they would not have to take a pay cut.
For example, if sales commissions were 3%, the compensation cut would
be reduced to $8,650 [$16,000 (from (b)) $735,000 X (3% 2%)].

5-96

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

BYP 5-5

COMMUNICATION ACTIVITY

(a), (b)
President
Boardin Co.
Dear Sir:
As you know, the financial statements for Boardin USA Co. are prepared in
accordance with IFRS. One of these principles is the revenue recognition
principle, which provides that revenues should be recognized when the
performance obligation is satisfied.
Typically, sales revenues are recognized when the goods are transferred to
the buyer from the seller. At this point, the sales transaction is completed
and the sales price is established. Thus, in the typical situation, revenue on
the surfboard ordered by Dexter is earned at event No. 8, when Dexter
picks up the surfboard.
The circumstances pertaining to this sale may seem to you to be atypical
because Dexter has ordered a specific kind of surfboard. From an
accounting standpoint, this would be true only if you could not reasonably
expect to sell this surfboard to another customer. In such case, it would be
proper under IFRS to recognize sales revenue when you have completed
the surfboard for Dexter.
Whether Dexter makes a down payment with the purchase order is
irrelevant in recognizing sales revenue because at this time, the
performance obligation has not been satisfied. A down payment may be an
indication of Dexters good faith. However, its effect on your financial
statements is limited entirely to recognizing the down payment as unearned
revenue.
If you have further questions about the accounting for this sale, please let
me know.
Sincerely,

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5-97

BYP 5-6

ETHICS CASE

(a) Anita Zurbrugg, as a new employee, is placed in a position of responsibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
undeserved cash discounts. Her dilemma is either follow her bosss
unethical instructions or offend her boss and maybe lose the job she
just assumed.
(b) The stakeholders (affected parties) are:
Anita Zurbrugg, the assistant treasurer.
Chris Dadian, the treasurer.
Yorktown Stores, the company.
Creditors of Yorktown Stores (suppliers).
Mail room employees (those assigned the blame).
(c) Anitas alternatives:
1. Tell the treasurer (her boss) that she will attempt to take every allowable cash discount by preparing and mailing checks within the
discount periodthe ethical thing to do. This will offend her boss
and may jeopardize her continued employment.
2. Join the team and continue the unethical practice of taking undeserved
cash discounts.
3. Go over her bosss head and take the chance of receiving just and
reasonable treatment from an officer superior to Chris. The company
may not condone this practice. Anita definitely has a choice, but
probably not without consequence. To continue the practice is
definitely unethical. If Anita submits to this request, she may be
asked to perform other unethical tasks. If Anita stands her ground
and refuses to participate in this unethical practice, she probably
wont be asked to do other unethical thingsif she isnt fired.
Maybe nobody has ever challenged Chriss unethical behavior and
his reaction may be one of respect rather than anger and retribution.
Being ethically compromised is no way to start a new job.

5-98

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

GAAP EXERCISES

GAAP 5-1
Expenses may be classified by nature or by function. The nature-ofexpense classification organizes expenses by type of expense, such as
salaries, depreciation, rent, or supplies. The function-of-expense classification presents expenses by type of business activity. Examples would include
cost of goods sold, selling, administrative, operating, and non-operating.
GAAP5-2
By function
By nature
By nature
By function
By nature
By nature
By function

Cost of goods sold


Depreciation expense
Salaries and wages expense
Selling expenses
Utilities expense
Delivery expense
General and administrative expenses

GAAP5-3
ATLANTIS COMPANY
Comprehensive Income Statement
For the Year Ended 2014
(in thousands of dollars)
Net income ................................................................................
Unrealized gain related to revaluation of buildings ..............
Unrealized loss on available for sale securities ....................
Comprehensive income ..................................................

$150
$10
(35)

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)

(25)
$125

5-99

GAAP FINANCIAL REPORTING PROBLEM

GAAP 5-4
(a) Percentage change in
(1) Total revenue
($499,331 $496,016) $496,016
($521,448 $499,331) $499,331
(2) Net Income
($53,878 $39,315) $39,315
($53,714 $53,878) $53,878
(b) Gross profit rate
$161,781 $496,016
$179,834 $499,331
$172,047 $521,448
(c) Percentage of net income
to total revenue
$39,315 $496,016
$53,878 $499,331
$53,714 $521,448

5-100

2008 to 2009

2009 to 2010

0.7%
4.4%
37.0%
(0.3)%
2008
32.6%

2009

2010

36.0%
33.0%

7.9%
10.8%
10.3%

Copyright 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solutions Manual (For Instructor Use Only)