ACCOUNTING

BUS 591 WEEK 3 HOMEWORK ASSIGNMENT – ashford univ.

E5-2 Assume that on September 1, Office Depot had an inventory that included a variety of calculators. The company uses a perpetual inventory system. During September, these transactions occurred.

Instructions

Journalize the September transactions.

Sept. 6 Purchased calculators from Dragoo Co. at a total cost of $1,650, terms n/30.

9 Paid freight of $50 on calculators purchased from Dragoo Co.

10 Returned calculators to Dragoo Co. for $66 credit because they did not meet specifications.

12 Sold calculators costing $520 for $690 to Fryer Book Store, terms n/30.

14 Granted credit of $45 to Fryer Book Store for the return of one calculator that was not ordered. The calculator cost $34.

20 Sold calculators costing $570 for $760 to Heasley Card Shop, terms n/30.

E5-6

Presented below is information for Zhou Co. for the month of January 2014.

Cost of goods sold $212,000 Rent expense $ 32,000

Freight-out 7,000 Sales discounts 8,000

Insurance expense 12,000 Sales returns and allowances 20,000

Salaries and wages expense 60,000 Sales revenue 370,000

Instructions

(a) Prepare an income statement using the format presented on page 245. Assume a 25% tax rate.

(b) Calculate the profit margin and the gross profit rate.

Prepare an income statement and calculate profitability ratios.

P5-5B

An inexperienced accountant prepared this condensed income statement for Wright Company, a retail firm that has been in business for a number of years.

WRIGHT COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales $952,000

Other revenues 16,000

968,000

Cost of goods sold 548,000

Gross profit 420,000

Operating expenses

Selling expenses 160,000

Administrative expenses 104,000

264,000

Net earnings $156,000

As an experienced, knowledgeable accountant, you review the statement and determine the following facts.

1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.

2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.

3. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equipment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales commissions $10,000. All compensation should be recorded as Salaries and Wages Expense.

4. Administrative expenses consist of office salaries $54,000;dividends $14,000; utilities $13,000; interest expense $3,000; and rent expense $20,000, which includes prepayments totaling $2,000 for the first month of 2015. The utilities represent utilities paid. At December 31, utility expense of $3,000 has been incurred but not paid.

Instructions

Prepare a correct detailed multiple-step income statement.

P6-2B

Lifetime Distribution markets classic children’s books. At the beginning of June, Lifetime had in beginning inventory 1,200 books with a unit cost of $3. During June, Life- time made the following purchases of books.

June 3 4,000 @ $3 June 29 4,000 @ $6

June 18 7,500 @ $5

During June, 10,500 books were sold. Lifetime 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, round 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?

P6-3B

Smythe Company Inc. had a beginning inventory of 200 units of Product ERV at a cost of $6 per unit. During the year, purchases were:

Jan 24 800 units at $7 Aug. 19 600 units at $9

Apr 12 400 units at $8 Nov. 30 350 units at $10

Smythe Company uses a periodic inventory system. Sales totaled 1,900 units.

Instructions

(a) Determine the cost of goods available for sale.

(b) Determine the ending inventory and 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. (Round average unit cost to three decimal places.)

(c) Which cost flow method results in the lowest inventory amount for the balance sheet?

The lowest cost of goods sold for the income statement?

Reference:

Kimmel, Paul D. Financial Accounting: Tools for Business Decision Making, 7th Edition. John Wiley & Sons, 09/2012. VitalBook file.

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