Problem 1: Multistep and common size income statements
The following information was drawn from the records of Harper Sales Company
|
2013 |
2014 |
| Net sales |
$200,000 |
$200,000 |
| Cost of goods sold |
(90,000) |
(80,000) |
| Operating expenses |
(60,000) |
(50,000) |
| Loss on the sale of land |
-0- |
(24,000) |
Required:
a. Prepare a multistep income statement for each year.
b. Prepare a common size income statement for each year.
c. At a recent meeting of the stockholders, Harper's president stated 2015 would be a very good year with net income rising significantly.
Write a brief memo explaining whether you agree or disagree with the president. Assume that the operating trends between 2013 and 2014 continue through 2015.
Problem 2:
Effect of purchase returns and allowances and freight costs on the -journal, ledger, and financial statements: Perpetual system
The trial balance for Austin's Auto Shop as of January 1, 2013, follows:
| Account Titles |
Debit |
Credit |
| Cash |
$14,000 |
|
| Inventory |
7000 |
|
| Common stock |
|
18000 |
| Retained earning |
|
3000 |
| Total |
$21,000 |
21000 |
The following events affected the company during the 2013 accounting period:
1. Purchased merchandise on account that cost $12,000.
2. The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash.
3. Returned $2,600 of damaged merchandise for credit on account.
4. Agreed to keep other damaged merchandise for which the company received an $1,100 allowance.
5. Sold merchandise that cost $12,000 for $21,500 cash.
6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash.
7. Paid $8,000 on the merchandise purchased in Event 1.
Required:
a. Record the events in general journal format.
b. Open general ledger T-accounts with the appropriate beginning balances, and post the journal entries to the T-accounts.
c. Prepare an income statement, balance sheet, and statement of cash flows. (Assume that closing entries have been made.)
d. Explain why a difference does or does not exist between net income and net cash flow from operating activities.