Answer to question E5.

a. 1 Dec 3

Dr Account Receivable 500,000

Cr Sales Revenue 500,000

Dr COGS 330,000

Inventory 330,000

a. 2 Dec 8

Dr Sales Return and Allowances 25,000

Cr Account Receivable 25,000

a. 3 Dec 13

Dr Cash (475,000 - 4,750) 470,250

Dr Sales Discount 4,750

Cr Accounts Receivable 475,000

b. Jan 2

Dr Cash 475,000

Cr Account Receivable 475,000

Answer to question E5.4

A. Books of Pais Company

June 10

Dr Merchandise Inventory 9,000

Cr Account Payable 9,000

June 11

Dr Merchandise Inventory 400

Cr Cash 400

June 12

Dr Account Payable 600

Cr Merchandise Inventory 600

June 19

Dr Account Payable 8,400

 Cr Cash 8,148

Cr Merchandise Inventory 252

B. Books of McGiver Company

June 10

Dr Accounts receivable 9,000

Cr Sales 9,000

Dr Cost of Goods Sold 5,000

Cr Merchandise inventory 5,000

On June 11

No entry

On June 12

Dr Sales returns & allowances 600

Cr Accounts receivable 600

Dr Merchandise inventory 310

Cr Cost of Goods Sold 310

On June 19

Dr Cash 8,148

Dr Sales discounts 252

Cr Accounts receivable 8,400

Answer to question E5.8

(a) DARREN COMPANY  

  Income Statement  
  For the Year Ended December 31, 2017  
  Sales        
       Sales revenue 2,210,000      
       Less: Sales discounts 160,000      
  Net Sales     2,050,000  
  Cost of goods sold     987,000  
  Gross profit     1,063,000  
  Operating expenses        
       Salaries and wages expense 465,000      
       Depreciation expense 310,000      
       Utilities expense 110,000      
  Total operating expenses     885,000  
  Income from operations     178,000  
  Other revenues and gains        
       Interest revenue     65,000  
  Other expenses and losses        
       Loss on disposal of plant assets 83,500      
       Interest expense 71,000   154,500  
  Income before income taxes     88,500  
  Income tax expense     25,000 28%
  Net income     63,500  
           
           
(b) Profit margin        
  Net income 63,500      
  Net Sales 2,050,000      
    3.10%      
           
  Gross profit rate        
  Gross profit 1,063,000      
  Net sales 2,050,000      
    51.90%      

c. The decline from 5% to 3.10% in 2017 is not huge, thus it can not be a huge concern for the
company. However, the company would be concerned about drop in profit margin in which
compared to last year either operating expenses increased, or net sales dropped. Herein,
company would concern to increase sales in next year or manage operating expenses to
achieve higher profit margin.