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 3-3
Beginning inventory...........................................................................................................................................................
$27,000
Purchases............................................................................................................................................................................
78,000
Available for sale................................................................................................................................................................
Ending inventory................................................................................................................................................................
($31,000)
Cost of goods sold..............................................................................................................................................................
$74,000
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)
Problem 3-5
Depreciation. Each year for the next 5 years depreciation will be charged to income.

No income statement charge. Land is not depreciated.

Cost of goods sold. $3,500 charged to current year’s income. $3,500 charged to next year’s income.

Subscription expense. $36 charged to current year. $36 charged to next year. Alternatively, $72 charged to
current year on grounds $72 is immaterial.

Problem 3-6
Asset value:
October 1, 20X5 $30,000
December 31, 20X5 26,250
December 31, 20X6 11,250
December 31, 20X7 0
Expenses:
20X5 $3,750 ($1,250 x 3 months)
20X6 $15,000 ($1,250 x 12 months)
20X7 $11,250 ($1,250 x 9 months)

One month’s insurance charge is $1,250 ($30, 000 / 24 months)

Problem 3-7
QED ELECTRONICS COMPANY
Income Statement for the month of April, ----.
Sales............................................................................................................................................
$33,400
Expenses:
Bad debts................................................................................................................................
$ 645
Parts........................................................................................................................................
3,700
Interest....................................................................................................................................
880
Wages.....................................................................................................................................
10,000
Utilities...................................................................................................................................
800
Depreciation............................................................................................................................
2,700
Selling.....................................................................................................................................
1,900
Administrative........................................................................................................................
4,700 ______
25,325
Profit before taxes........................................................................................................................
8,075
Provision for taxes.......................................................................................................................
2,800.
Net income $5,275

Truck purchase has no income statement effect. It is an asset.

Sales are recorded as earned, not when cash is received. Bad debt provision of 5 percent related to
sales on credit ($33,400 - $20,500) must be recognized. Wages expense is recognized as incurred,
not when paid.

March’s utility bill is an expense of March when the obligation was incurred.

Income tax provision relates to pretax income. Must be matched with related income.