Question 1 - Stein Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Stein's Ledger shows Cash of $8,000 and Common Stock of $8,000.
1-May Purchased merchandise on account from Hilton Wholesale Supply for $8,000, terms 2.10, n/30.
2-May Sold merchandise on account for $4,400, terms 3/10, n/30. The cost of the merchandise sold was $3,400.
5-May Received credit from Hilton Wholesale supply for merchandise returned $200.
9-May Received collections in full, less discounts, from customers billed on May 2.
10-May Paid Hilton Wholesale Supply in full, less discount.
11-May Purchased supplies for cash $900
12-May Purchased merchandise for cash $2700
15-May Received $230 refund for return of poor-quality merchandise supplier on cash purchase.
17-May Purchased merchandise from Northern Distributors for $2500, terms 2/10, n/30.
19-May Purchased merchandise for cash $5400. The cost of the merchandise sold was $4,020.
24-May Sold merchandise for cash $5400. The cost of the merchandise sold was $4,020
25-May Purchased merchandise from Tool ware Inc. For $800, terms 3/10, n/30.
27-May Paid Northern Distributors in full, less discount.
29-May Made refunds to cash customers for returned merchandise $124. The returned merchandise had cost $90.
31-May Sold merchandise on accounts for $1280, terms n/30. The cost of the merchandise sold was $830.
Stein Hardware's chart of accounts includes Cash, Accounts Receivable, Merchandise, Inventory, Supplies, Accounts, Payable, Common Stock, Sales Returns, and Allowances, Sales Discounts, and Cost of Goods Sold.
Instructions:
a) Journalize the transactions using a perpetual inventory system
b) Post the transactions to T accounts. Be sure to enter the beginning cash and common stock balances
c) Prepare an income statement through gross profit for the month of May 2010.
d) Calculate the profit margin ratio and the gross profit rate. (Assume operating expenses were $1400.)
Question 2 - Lowry Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping center have been attracting business away from city areas. At the end of the company's fiscal year on November 30, 2010, these accounts appeared in its adjusted trail balance.
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Accounts Payables
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23,300.00
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Accounts Receivables
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17,200.00
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Accumulated Depreciations - Delivery Equipment
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20,000.00
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Accumulated Depreciation-Store Equipment
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38,000.00
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Cash
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8,000.00
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Common Stock
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35,000.00
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Cost of Goods Sold
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633,300.00
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Delivery Expense
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6,200.00
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Deliver Equipment
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57,000.00
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Depreciation Expense-Delivery Equipment
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4,000.00
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Depreciation Expense-Store Equipment
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9,500.00
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Dividends
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12,000.00
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Gain on Sales of Equipments
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2,000.00
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Income Tax Expense
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10,000.00
|
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Insurance Expense
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9,000.00
|
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Interest Expense
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5,000.00
|
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Merchandise Inventory
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26,200.00
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Notes Payable
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47,500.00
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Prepaid Insurance
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6,000.00
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Property Tax Expense
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3,500.00
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Property Tax Payable
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3,500.00
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Rent Expense
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34,000.00
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Retained Earnings
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14,200.00
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Salaries Expense
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117,000.00
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Sales
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904,000.00
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Salaries Payable
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6,000.00
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Sales Returns and Allowances
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20,000.00
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Store Equipment
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105,000.00
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Utilities Expense
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10,600.00
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Additional data: Notes payables are due in 2014.
Instructions:
a) Prepare a multiple -step income statement, a retained earnings statement, and a classified balance sheet.
b) Calculate the profit margin ratio and the gross profit rate.
c) The vice-president of marketing and the director of human resources have developed a proposal whereby the company compensate the sales force on a strictly commission basis using 20% of net sales. Given the increase incentives, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $37,605 an operating expense by $62,595. Compute the expected new net income. (Hint: You do not need to prepare an income statement). Then compute the revised profit margin ratio and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal.
Question 3 - Laramie Distribution market CDs of numerous performing artists. At the beginning of March, Laramie had in beginning inventory 2,500 CDs with a unit cost of $7. During March Laramine made the following purchase of CD's
5-Mar 2,000 @ $8
13-Mar 5,500 @ $9
21-Mar 4,000@$10
26-Mar 2,000@$11
During March 13,000 units were sold. Laramine uses a periodic inventory system.
Instructions:
a) Determine the cost of goods available for sale
b) Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average cost around cost per unit to three decimal places.)
c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?