SOLUTIONS TO PROBLEMS

PC-1

1. 2001
Nov. 2 Cash 2,400
Sales Revenue 2,400
Made cash sales.

5 Purchases 800
Cash 800
Purchased merchandise for cash.

6 Cash 4,000
Gain on Sale of Land 350
Land 3,650
Sold land at a gain.

7 Prepaid Insurance 528

Cash 528
Purchased 2-year comprehensive
insurance policy.

9 Cash 100
Purchases Returns and Allowances 100
Returned defective merchandise.

12 Cash 1,320
Unearned Rent 1,320
Leased portion of building and received
6 months' rent at $220 per month.

13 Accounts Receivable 2,300

Sales Revenue 2,300
Made sales on account.

16 Cash 230
Notes Receivable 200
Interest Revenue 30
Collected monthly payment on customer's
note receivable plus accrued interest.

17 Purchases 1,600
Freight-in 60
Accounts Payable 1,600
Cash 60
Purchased merchandise on account
and paid freight charges.

19 Sales Returns and Allowances 200

Accounts Receivable 200
Customer returned defective
merchandise purchased on Nov. 13.
PC-1 (continued)
1. (continued)

Nov. 20 Land 8,000

Cash 2,000
Notes Payable 6,000
Purchased land by paying cash
and issuing a 12%, 90-day note.

23 Cash 2,058
Sales Discounts Taken 42
Accounts Receivable 2,100
Collected Nov. 13 accounts receivable
less Nov. 18 return and 2% discount.

26 Accounts Payable 1,600

Cash 1,584
Purchases Discounts Taken 16
Paid for merchandise purchased
on Nov. 17 less 1% discount.

27 Advertising Expense 420

Cash 420
Paid advertising expense.

30 Sales Salaries Expense 520

Office Salaries Expense 390
Cash 910
Paid sales salaries and office salaries.

2.

Cash Accounts Receivable

11/1 Bal 7,800|11/5 800 11/1 Bal 12,530|11/19 200
11/2 2,400|11/7 528 11/13 2,300|11/23 2,100
11/6 4,000|11/17 60 -----------------|------------------
11/9 100|11/20 2,000 11/30 Bal 12,530|
11/12 1,320|11/26 1,584
11/16 230|11/27 420
11/23 2,058|11/30 910
-------------------|------------------
11/30 Bal 11,606|

Allowance for Doubtful Accounts Notes Receivable

|11/1 Bal 740 11/1 Bal 6,000|11/16 200
-------------------|------------------- -----------------|-------------------
|11/30 Bal 740 11/30 Bal 5,800|
PC-1 (continued)
2. (continued)

Inventory Prepaid Insurance

11/1 Bal 25,670| 11/1 Bal 840|
-------------------|------------------- 11/7 528|
11/30 Bal 25,670| -----------------|-------------------
11/30 Bal 1,368|

Office Supplies Land

11/1 Bal 465| 11/1 Bal 74,350|11/6 3,650
-------------------|------------------- 11/20 8,000|
11/30 Bal 465| -----------------|-------------------
11/30 Bal 78,700|

Buildings Accumulated Depreciation-Buildings

11/1 Bal 66,580| |11/1 21,400
-------------------|------------------- -----------------|-------------------
11/30 Bal 66,580| |11/30 Bal 21,400

Equipment Accumulated Depreciation-Equipment

11/1 Bal 37,620| |11/1 Bal 11,480
-------------------|------------------- -----------------|-------------------
11/30 Bal 37,620| |11/30 Bal 11,480

Patents Accounts Payable

11/1 Bal 25,000| 11/26 1,600|11/1 Bal 38,750
-------------------|------------------- |11/17 1,600
11/30 Bal 25,000| -----------------|-------------------
|11/30 Bal 38,750

Notes Payable Unearned Rent

|11/1 Bal 2,400 |11/1 Bal 0
|11/20 6,000 |11/12 1,320
-------------------|------------------- -----------------|-------------------
|11/30 Bal 8,400 |11/30 Bal 1,320

Common Stock, No Par Retained Earnings

|11/1 Bal 165,000 |11/1 Bal 24,958
-------------------|------------------- ------------------|-------------------
|11/30 Bal 165,000 |11/30 Bal 24,958
PC-1 (continued)
2. (continued)

Sales Revenue Sales Discounts Taken

|11/1 Bal 38,400 11/1 Bal 725|
|11/2 2,400 11/23 42|
|11/13 2,300 -----------------|-------------------
-------------------|------------------- 11/30 Bal 767|
|11/30 Bal 43,100

Sales Returns and Allowances Gain on Sale of Land

11/1 Bal 842| |11/1 Bal 0
11/19 200| |11/6 350
-------------------|------------------- -----------------|-------------------
11/30 Bal 1,042| |11/30 Bal 350

Purchases Purchases Discounts Taken

11/1 Bal 32,000| |11/1 Bal 640
11/5 800| |11/26 16
11/17 1,600| -----------------|-------------------
-------------------|------------------- |11/30 Bal 656
11/30 Bal 34,400|

Purchases Returns and Allowances Freight-in

|11/1 Bal 1,042 11/1 Bal 1,133|
|11/9 100 11/17 60|
-------------------|------------------- -----------------|------------------- |11/30 Bal 1,142 11/30 Bal
1,193|

Sales Salaries Expense Office Salaries Expense

11/1 Bal 6,200| 11/1 Bal 4,300|
11/30 520| 11/30 390|
-------------------|------------------- -----------------|-------------------
11/30 Bal 6,720| 11/30 Bal 4,690|

Advertising Expense Utility Expense

11/1 Bal 1,250| 11/1 Bal 1,845|
11/27 420| -----------------|-------------------
-------------------|------------------- 11/30 Bal 1,845|
11/30 Bal 1,670|

Interest Revenue Interest Expense

|11/1 Bal 550 11/1 Bal 210|
|11/16 30 -----------------|-------------------
-------------------|------------------ 11/30 Bal 210|
|11/30 Bal 580
PC-1 (continued)

3. ZYLEC COMPANY
Trial Balance
November 30, 2001

Debit Credit

Cash $ 11,606
Accounts receivable 12,530
Allowance for doubtful accounts $ 740
Notes receivable 5,800
Inventory 25,670
Prepaid insurance 1,368
Office supplies 465
Land 78,700
Buildings 66,580
Accumulated depreciation: buildings 21,400
Equipment 37,620
Accumulated depreciation: equipment 11,480
Patents 25,000
Accounts payable 38,750
Notes payable 8,400
Unearned rent 1,320
Common stock, no par 165,000
Retained earnings 24,958
Sales revenue 43,100
Sales discounts taken 767
Sales returns and allowances 1,042
Gain on sale of land 350
Purchases 34,400
Purchases discounts taken 656
Purchases returns and allowances 1,142
Freight-in 1,193
Sales salaries expense 6,720
Office salaries expense 4,690
Advertising expense 1,670
Utility expense 1,845
Interest revenue 580
Interest expense 210
$317,876 $317,876
PC-2

1. STERN COMPANY
Income Statement
For Year Ended December 31, 2000

Sales revenue $30,000

Less: Sales returns (2,100)
Net sales $27,900
Cost of goods sold
Inventory, 1/1/2000 $ 5,100
Purchases 15,900
Purchases returns (1,240)
Freight-in 1,780
Cost of goods available for sale $21,540
Less: Inventory, 12/31/2000 (6,500)
Cost of goods sold (15,040)
Gross profit on sales $12,860
Operating expenses
Selling expenses $ 4,800
Administrative expenses 3,000
Total operating expenses (7,800)
Income from operations $ 5,060
Other items
Rent revenue $ 1,440
Interest expense (750) 690
Income before income taxes $ 5,750
Income tax expense (1,725)
Net Income $ 4,025

Earnings per share (1,500 shares) $ 2.68

2. STERN COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2000

Retained earnings, January 1, 2000 $ 6,770

Add: Net income for 2000 4,025
$10,795
Less: Dividends for 2000 (1,200)
Retained earnings, December 31, 2000 $ 9,595
PC-2 (continued)

3. STERN COMPANY
Balance Sheet
December 31, 2000

Assets
Current Assets
Cash $ 1,000
Accounts receivable $ 2,700
Less: Allowance for doubtful accounts (250) 2,450
Inventory 6,500
Prepaid insurance 800
Total current assets $10,750
Property and Equipment
Land $ 3,200
Buildings and equipment $31,000
Less: Accumulated depreciation (15,000) 16,000
Total property and equipment $19,200
Total Assets $29,950

Liabilities
Current Liabilities
Accounts payable $ 3,100
Salaries payable 420
Unearned rent 360
Income taxes payable 1,725
Total current liabilities $ 5,605
Long-Term Liabilities
Note payable (due 7/1/2004) $ 5,000
Interest payable (due 7/1/2004) 750
Total long-term liabilities $ 5,750
Total Liabilities $11,355

Stockholders' Equity
Contributed Capital
Capital stock (1,500 shares) $ 9,000
Retained Earnings 9,595
Total Stockholders' Equity 18,595
Total Liabilities and Stockholders' Equity $29,950
PC-2 (continued)

4. 2000
Dec. 31 Sales Revenues 30,000
Rent Revenue 1,440
Purchases Returns 1,240
Inventory (12/31/00) 6,500
Income Summary 39,180

31 Income Summary 35,155

Sales Returns 2,100
Purchases 15,900
Freight-in 1,780
Selling Expenses 4,800
Administrative Expenses 3,000
Interest Expense 750
Income Tax Expense 1,725
Inventory (1/1/00) 5,100

31 Income Summary 4,025

Retained Earnings 4,025

31 Retained Earnings 1,200

Dividends Distributed 1,200
PC-3

1. LETSKY COMPANY
Income Statement
For Year Ended December 31, 2001

Sales revenue $59,800

Less: Sales discounts taken $ 1,200
Sales returns and allowances 3,700 (4,900)
Net sales $54,900
Cost of goods sold
Inventory, 1/1/2001 $10,200
Purchases 27,000
Purchases discounts taken (900)
Purchases returns and allowances (1,600)
Freight-in 3,500
Cost of goods available for sale $38,200
Less: Inventory, 12/31/2001 (10,800)
Cost of goods sold (27,400)
Gross profit on sales $27,500
Operating expenses
Administrative expenses $ 6,500
Selling expenses 9,700
Total operating expenses (16,200)
Income from operations $11,300
Other items
Rent revenue $ 2,800
Interest expense (650) 2,150
Income before income taxes $13,450
Income tax expense (4,035)
Net Income $ 9,415

Earnings per share (4,000 shares) $ 2.35

2. LETSKY COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2001

Retained earnings, January 1, 2001 $14,500

Add: Net income for 2001 9,415
$23,915
Less: Dividends for 2001 (2,400)
Retained earnings, December 31, 2001 $21,515
PC-3 (continued)

3. LETSKY COMPANY
Balance Sheet
December 31, 2001

Assets
Current Assets
Cash $ 5,000
Accounts receivable $ 5,700
Less: Allowance for doubtful accounts (600) 5,100
Inventory 10,800
Unexpired insurance 1,600
Total current assets $22,500
Property and Equipment
Land $ 6,800
Buildings $42,000
Less: Accumulated depreciation (19,000) 23,000
Equipment $22,000
Less: Accumulated depreciation (11,000) 11,000
Total property and equipment 40,800
Total Assets $63,300

Liabilities
Current Liabilities
Accounts payable $ 6,400
Current income taxes payable 4,035
Interest payable (due July 1, 2002) 650
Wages payable 1,000
Unearned rent 700
Total current liabilities $12,785
Long-Term Liabilities
Notes payable (due July 1, 2005) 10,000
Total Liabilities $22,785

Stockholders' Equity
Contributed Capital
Capital stock, $1 par $ 4,000
Additional paid-in capital 15,000
Retained Earnings 21,515
Total Stockholders' Equity 40,515
Total Liabilities and Stockholders' Equity $63,300
PC-3 (continued)

4. 2001
Dec. 31 Sales Revenue 59,800
Purchases Discounts Taken 900
Purchases Returns and Allowances 1,600
Rent Revenue 2,800
Inventory (12/31/01) 10,800
Income Summary 75,900

31 Income Summary 66,485

Sales Discounts Taken 1,200
Sales Returns and Allowances 3,700
Purchases 27,000
Freight-in 3,500
Inventory (1/1/2001) 10,200
Administrative Expenses 6,500
Selling Expenses 9,700
Interest Expense 650
Income Tax Expense 4,035

31 Income Summary 9,415

Retained Earnings 9,415

31 Retained Earnings 2,400

Dividends Distributed 2,400

PC-4

2000
Dec. 31 Salaries Expense 1,750
Salaries Payable 1,750
To record accrued salaries.

31 Utility Expense 247

Utilities Payable 247
To record accrued utility expense.

31 Depreciation Expense 6,260

Accumulated Depreciation: Buildings 2,760
Accumulated Depreciation: Equipment 3,500
To record depreciation expense
Depreciation on buildings:
$(78,000 - 9,000) 25
Depreciation on equipment:
$(44,000 - 2,000) 12.

31 Supplies Expense 525

Store Supplies 128
Office Supplies 397
To record supplies used.
PC-4 (continued)

Dec. 31 Interest Receivable 180

Interest Revenue 180
To record interest earned
($6,000 x 12% x 3/12).

31 Bad Debts Expense 650

Allowance for Doubtful Accounts 650
To record estimated bad debts expense
($65,000 x 1%).

31 Insurance Expense 528

Prepaid Insurance 528
To record expired insurance.

31 Advance to Sales Personnel 310

Travel Expenses 310
To record unused travel advance
to sales personnel.

31 Income Tax Expense 1,440

Income Taxes Payable 1,440
To record income tax liability
on current earnings ($14,270 - 1,750 -
247 - 6,260 - 525 + 180 - 650 - 528 +
310 = $4,800 x 30% = $1,440).