Problems

Problem 3-1
Not an expense for June - not incurred.
Expense for June
Expense for June
Expense for June
Expense for June
Not an expense for June - asset acquired.
Problem 3-2
Revenues$275,000
a. Expenses –

$164,000
Cost of goods sold ................................
Rent ................................................................
3,300
Salaries ................................ 27,400
Taxes ................................
1,375
Other ................................
50,240
246,315

Net income $28,685
Problem 3-3
$27,000
Beginning inventory ................................
Purchases ................................78,000
Available for sale................................
Ending inventory ................................
($31,000)
$74,000
Cost of goods sold ................................
Problem 3-4
a. (1)

Sales ................................ $85,000
Cost of goods sold................................
45,000
Gross margin ................................
$40,000

(2) 47 percent gross margin ($40,000 / $85,000)
(3) 11 percent profit margin (9000/85000)
The Woden Corporation had a tax rate of 40 percent ($6,000 / $15,000) on its pretax profit that
represented 17.7 percent of its sales ($15,000 / $85,000). The company’s operating expenses were 82.3
percent of sales ($70,000 / $85,000) and its cost of goods sold was 53 percent of sales. The company’s
gross margin was 47 percent of sales ($40,000 / $85,000).

.......700 Interest ....................275 Truck purchase has no income statement effect.... Each year for the next 5 years depreciation will be charged to income...................250 x 12 months) 20X7 $11.........400 Sales ..................000 Utilities ............... 4.... 880 Wages ................... Sales are recorded as earned.... $3..... ----..............500 charged to current year’s income.... $33..............075 Provision for taxes ............. Net income $5....... $3...................700 ______ 25...................... 1......500) must be recognized...... 20X6 December 31............... Cost of goods sold..250 ($30..................................................900 Administrative .......750 ($1.................. 20X5 December 31...250 ($1......... Subscription expense.... Parts ...... It is an asset.....250 0 Expenses: 20X5 $3.700 Selling.....800...250 x 3 months) 20X6 $15... 3.000 ($1.........Problem 3-5 Depreciation..................... $36 charged to next year. 800 Depreciation ...400 .......... ..... Problem 3-6 Asset value: October 1... 20X5 December 31..... Land is not depreciated..........250 x 9 months) One month’s insurance charge is $1......... Wages expense is recognized as incurred....... 8.......................500 charged to next year’s income..... No income statement charge.......... 2... not when paid....... not when cash is received.............. Bad debt provision of 5 percent related to sales on credit ($33... $72 charged to current year on grounds $72 is immaterial............... Alternatively.............. 000 / 24 months) Problem 3-7 QED ELECTRONICS COMPANY Income Statement for the month of April..............$20.. 20X7 $30..........................250 11... $36 charged to current year................ 2..000 26.....325 Profit before taxes . 10............... Expenses: $ 645 Bad debts .......

prepare balance sheet: Assets Current assets $ 80.....000 Gross margin ....................000 Beginning balance .182 Liabilities Current liabilities .....000) ....... $218.................. Income tax provision relates to pretax income........... $128......000) but in terms of the purchasing power of its cash it was worse off (LC 1. $218.............182 Total assets = Total liabilities and Owner’s equity...$50.....182 Total liabilities and owners’ equity ... Other assets ($218...........................................000 Long term debt 40.............182+ + Owners’ equity $120. 75............................. $35..000 $40..........000 x 1..............000 x (200 / 100)] December cash LC 600..818 If the gross margin percentage is 45 percent..000 versus LC 600.............182 ..45)) .666......30.000 versus LC 500........ 8....000 ($50.. Problem 3-8 First calculate sales: Sales ($45................ $ 50.... the cost of goods sold percentage must be 55 percent............... Once sales are determined.. Plus net income .................000......... Total available .....000 / (1 ..000 Purchases .....000....818+ Beginning inventory ... $81....... ... calculate net income: Net income ($81... 138..............$ 90.................182 Ending balance . $45........................................................818 x .........000 Total assets ............000..000 [LC 500.1) $8.000 Total liabilities ...................................000).................000 At year-end the company was more liquid in terms of nominal currency (LC 600... Problem 3-9 Sales LC 26...........6) ...................667 [LC 20.........000 x (200 / 150)] January cash LC 1.............. Must be matched with related income....... $36....000 Cost of goods sold .182 Next.March’s utility bill is an expense of March when the obligation was incurred.....000 Ending inventory ..........