Chapter 04 - Solutions to Exercises - Series B

Solution Manual for Fundamental Financial Accounting

Concepts 8th Edition by Edmonds ISBN 0078025362
9780078025365
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SOLUTIONS TO EXERCISES - SERIES B - CHAPTER 4

EXERCISE 4-1B
a.
Lewis CPAs
Income Statement
For the Year Ended December 31, 2013
Revenue
Service Revenue $60,000
Expenses
Salaries Expense (40,000)
Net Income $20,000

Lewis CPAs
Balance Sheet
As of December 31, 2013
Assets
Cash* $100,000
Total Assets $100,000

Liabilities
Notes Payable $80,000
Total Liabilities $80,000

Stockholders’ Equity
Retained Earnings $20,000
Total Stockholders’ Equity 20,000

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Chapter 04 - Solutions to Exercises - Series B

Total Liab. and Stockholders’ Equity $100,000

*$80,000 + $60,000  $40,000 = $100,000

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-1B a. (cont.)

Lewis CPAs
Statement of Cash Flows
For Year Ended December 31, 2013

Cash Flows From Operating Activities:

Inflow from Clients $60,000
Outflow for Salaries (40,000)
Net Cash Flow from Operating Activ. $20,000

Cash Flows From Investing Activities -0-

Cash Flows From Financing Activities:

Inflow from Loan $80,000
Net Cash Flow from Financing Activ. 80,000

Net Increase in Cash 100,000

Plus: Beginning Cash Balance -0-
Ending Cash Balance $100,000

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EXERCISE 4-1B a. (cont.)

Casual Clothing
Income Statement
For the Year Ended December 31, 2013
Net Sales Revenue $60,000
Cost of Goods Sold (32,000)
Gross Margin 28,000
Expenses
Operating Expenses (7,200)
Net Income $20,800

Casual Clothing
Balance Sheet
As of December 31, 2013
Assets
Cash* $82,800
Merchandise Inventory** 18,000
Total Assets $100,800

Liabilities
Notes Payable $80,000
Total Liabilities $ 80,000
Stockholders’ Equity
Retained Earnings $20,800
Total Stockholders’ Equity 20,800
Total Liab. and Stockholders’ Equity $100,800

*$80,000  $50,000 + $60,000  $7,200 = $82,800

**$50,000 – $32,000 = $18,000

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EXERCISE 4-1Ba. (cont.)

Casual Clothing
Statement of Cash Flows
For the Year Ended December 31, 2013
Cash Flows From Operating Activities:
Inflow from Customers 60,000
Outflow for Inventory (50,000)
Outflow for Expenses (7,200)
Net Cash Flow from Operating Activities $2,800

Cash Flows From Investing Activities -0-

Cash Flows From Financing Activities:

Inflow from Loan $80,000
Net Cash Flow from Financing Activities 80,000

Net Increase in Cash 82,800

Plus: Beginning Cash Balance -0-
Ending Cash Balance $82,800

b. Casual Clothing is a merchandising business and has inventory and

cost of goods sold -- product costs. Lewis is a service business and
does not have product costs.

c. Lewis is a service business and sells a service not a product.

Consequently, it does not have cost of goods sold or gross margin. It
only has selling and administrative expense (period expense).

d. The asset in common is cash. The only asset that Lewis has is cash.
Casual Clothing has cash but also has inventory. Lewis does not sell a
product and does not have any inventory. Casual Clothing sells
products and must carry inventory available for sale to customers.

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-2B
a.
John Tyler Merchandising
General Journal, 2014

Date Account Titles Debit Credit

1. Cash 20,000
Common Stock 20,000
2. Merchandise Inventory 15,000
Cash 15,000
3a. Cash 28,000
Sales Revenue 28,000
3b. Cost of Goods Sold 12,000
Merchandise Inventory 12,000

b.
T-Accounts
Assets = Stockholders’ Equity
Cash Common Stock
1. 20,000 2. 15,000 1. 20,000
3a. 28,000 Bal. 20,000
Bal. 33,000
Sales Revenue
Merchandise Inventory 3a. 28,000
2. 15,000 3b. 12,000 Bal. 28,000
Bal. 3,000
Cost of Goods Sold
3b. 12,000
Bal. 12,000

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EXERCISE 4-2B (cont.)

c.
John Tyler Merchandising
Income Statement
For the Year Ended December 31, 2014
Net Sales $28,000
Cost of Goods Sold (12,000)
Gross Margin 16,000
Operating Expenses -0-
Net Income $16,000

d.

Cash Flows From Operating Activities:

Inflow from Customers $28,000
Outflow for Inventory (15,000)
Net Cash Flow from Operating Act. $13,000

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EXERCISE 4-3B
a. NC = Net Change in Cash
King Merchandising Company Effect of Events on the Financial Statements
Balance Sheet Income Statement
Assets = Liab. + Stkholders’ Equity Rev.  Exp. = Net Inc. Statement of
Events Cash + A. Rec. + Inv. = A. Pay. + C. Stk. + Ret. Ear. Cash Flows
Beg. Bal. 18,000 + NA + NA = NA + 18,000 + NA NA  NA = NA NA
1. Pur. Inv. NA + NA + 30,000 = 30,000 + NA + NA NA  NA = NA NA
2a. Sold Inv. NA + 31,000 + NA = NA + NA + 31,000 31,000  NA = 31,000 NA
2b. Inv. Cost NA + NA + (22,500) = NA + NA + (22,500) NA  22,500 = (22,500) NA
3. Pd. AP (18,000) + NA + NA = (18,000) + NA + NA NA  NA = NA (18,000) OA
4. Coll. AR 22,000 + (22,000) + NA = NA + NA + NA NA  NA = NA 22,000 OA
5. Pd. Exp. (4,200) + NA + NA = NA + NA + (4,200) NA  4,200 = (4,200) (4,200) OA
End. Bal. 17,800 + 9,000 + 7,500 = 12,000 + 18,000 + 4,300 31,000  26,700 = 4,300 (200) NC

b. $9,000
c. $12,000
d. Sales $31,000
Cost of Goods Sold (22,500)
Gross Margin 8,500
Operating Exp. (4,200)
Net Income $ 4,300
e. Cash Flows From Operating Activities:
Inflow from Customers $22,000
Outflow for Inventory (18,000)
Outflow for Expenses (4,200)
Net Cash Flow from Operating Activities $ ( 200)

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EXERCISE 4-3B (cont.)

f. Ending retained earnings and net income are the same in this problem
because this is the first year of operations and no dividends were paid.
Ending Retained Earnings is calculated as follows: Beginning Retained
Earnings + Net Income  Dividends = Ending Retained Earnings.

EXERCISE 4-4B
a.
Hilo Clothing
General Journal for 2013

Date Account Titles Debit Credit

1. Cash 25,000
Common Stock 25,000
2. Merchandise Inventory 12,000
Cash 12,000
3a. Cash 15,000
Sales Revenue 15,000
3b. Cost of Goods Sold 8,000
Merchandise Inventory 8,000
4. Advertising Expense 1,200
Cash 1,200

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b.
T-Accounts
Assets = Stockholders’ Equity
Cash Common Stock Sales Revenue
1. 25,000 2. 12,000 1. 25,000 3a. 15,000
3a. 15,000 4. 1,200 Bal. 25,000 Bal. 15,000
Bal. 26,800
Cost of Goods Sold
Mdse. Inventory 3b. 8,000
2. 12,000 3b. 8,000 Bal. 8,000
Bal. 4,000
Advertising Expense
4. 1,200
Bal. 1,200

EXERCISE 4-4B (cont.)

c.
Hilo Clothing
Trial Balance
December 31, 2013
Account Titles Debit Credit
Cash $26,800
Merchandise Inventory 4,000
Common Stock $25,000
Sales Revenue 15,000
Cost of Goods Sold 8,000
Advertising Expense 1,200
Totals $40,000 $40,000

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EXERCISE 4-5B

a. FOB destination
b. FOB shipping point
c. FOB shipping point
d. FOB destination

EXERCISE 4-6B

a. & b.

Computation of Ending Inventory

Mona’s Dress Ben’s Boat
Shop Shop
Beginning balance in inventory $20,000 $ 8,000
Plus: Purchases 68,000 36,900
Less: Purchase Returns and (4,000) (1,200)
Allow.
Less: Purchases Discounts (640) (360)
Plus: Transportation-In Costs 1,200 900
Cost of Goods Available for Sale 84,560 44,240
Less: Cost of Goods Sold (65,800) (33,900)
Ending Inventory $18,760 $10,340

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EXERCISE 4-7B

a.
Austin’s Auto Shop
General Journal for 2013

Date Account Titles Debit Credit

1. Merchandise Inventory 12,000
Accounts Payable 12,000
2. Merchandise Inventory 800
Cash 800
3. Accounts Payable 2,600
Merchandise Inventory 2,600
4. Accounts Payable 1,100
Merchandise Inventory 1,100
5a. Cash 21,500
Sales Revenue 21,500
5b. Cost of Goods Sold 12,000
Merchandise Inventory 12,000
6. Transportation-out 500
Cash 500
7. Accounts Payable 8,000
Cash 8,000

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EXERCISE 4-7B (cont.)

b.
Austin’s Auto Shop
T-Accounts
Assets = Liabilities + Stockholders’ Equity
Cash Accounts Payable Common Stock
Bal. 14,000 3. 2,600 1. 12,000 Bal. 18,000
5a. 21,500 2. 800 4. 1,100
6. 500 7. 8,000 Retained Earnings
7. 8,000 Bal. 300 Bal. 3,000
Bal. 26,200
Sales Revenue
Mdse. Inventory 5a. 21,500
Bal. 7,000 Bal. 21,500
1. 12,000 3. 2,600
2. 800 4. 1,100 Cost of Goods Sold
5b. 12,000 5b. 12,000
Bal. 4,100 Bal. 12,000

Transportation-out
6. 500
Bal. 500

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EXERCISE 4-7B (cont.)

c.
Austin’s Auto Shop
Financial Statements

Income Statement
For the Year Ended December 31, 20131
Net Sales $21,500
Cost of Goods Sold (12,000)
Gross Margin 9,500
Operating Expenses
Transportation-out (500)
Net Income $ 9,000

Balance Sheet
As of December 31, 2013

Assets
Cash $26,200
Merchandise Inventory 4,100
Total Assets $30,300

Liabilities
Accounts Payable $ 300
Stockholders’ Equity
Common Stock $18,000
Retained Earnings 12,000
Total Stockholders’ Equity 30,000
Total Liab. and Stockholders’ Equity $30,300

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EXERCISE 4-7B c. (cont.)

Austin’s Auto Shop

Financial Statements
For the Year Ended December 31, 2013

Statement of Cash Flows

Cash Flows From Operating Activities:

Inflow from Customers $21,500
Outflow for Inventory ( 8,800)
Outflow for Expenses (500)
Net Cash Flow from Operating Activities $12,200
Cash Flows From Investing Activities -0-
Cash Flows From Financing Activities -0-
Net Change in Cash 12,200
Plus: Beginning Cash Balance 14,000
Ending Cash Balance $26,200

d. The difference between net income of $9,000 and cash flow from
operating activities of $12,200 is because not all of the inventory that
has been sold was paid for. The amount of inventory that was sold is
$12,000, but the amount of accounts payable paid for inventory was
only $8,800. This accounts for the $3,200 difference.

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-8B

Transaction Debited to Inventory

a. Purchase computer No
b. Purchase of inventory Yes
c. Allowance for damaged inventory No
d. Transportation-out No
e. Purchase discount No
f. Transportation-in Yes

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EXERCISE 4-9B
a.
Transaction Period Costs Product Costs Not
Applicable

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-9B (cont.)

b. NC = Net Change in Cash
The Sports Store Horizontal Statements Model for 2013

Balance Sheet Income Statement Statement of

Assets = Liab. + Stkholders’ Equity Rev.  Exp. = Net Inc. Cash Flows
Cash + A. Rec. + Inv. = A. Pay. + C. Stk. + Ret. Ear.

1. Stock 40,000 + NA + NA = NA + 40,000 + NA NA  NA = NA 40,000 FA

2. Pur Inv. NA + NA + 78,000 78,000 + NA + NA NA  NA = NA NA
3. Freight (900) + NA + 900 = NA + NA + NA NA  NA = NA (900) OA
4a. Sold Inv. NA + 72,000 + NA = NA + NA + 72,000 72,000  NA = 72,000 NA
4b. Cost NA + NA + (46,000) = NA + NA + (46,000) NA  46,000 = (46,000) NA
5. Pd. Frt. (560) + NA + NA = NA + NA + (560) NA  560 = (560) (560) OA
6a. Ret. Sale NA + (5,100) + NA = NA + NA + (5,100) (5,100)  NA = (5,100) NA
6b. Ret. Inv. NA + NA + 2,950 = NA + NA + 2,950 NA  (2,950) = 2,950 NA
7. Coll. AR 61,500 + (61,500) + NA = NA + NA + NA NA  NA = NA 61,500 OA
8. Pd. AP (66,100) + NA + NA = (66,100) + NA + NA NA  NA = NA (66,100) OA
9. Pd. Exp. (2,600) + NA + NA = NA + NA + (2,600) NA  2,600 = (2,600) (2,600) OA
10. Pd. Exp. (3,100) + NA + NA = NA + NA + (3,100) NA  3,100 = (3,100) (3,100) OA

End. Bal. 28,240 + 5,400 + 35,850 = 11,900 + 40,000 + 17,590 66,900  49,310 = 17,590 28,240 NC

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EXERCISE 4-10B
a. Purchase $24,800
Less: return (2,400)
Gross due (subject to discount) 22,400
Discount percentage x 2%
Amount of discount $ 448

Gross amount due $22,400

Less: discount ( 448)
Net amount due $21,952

b.
Fashion Furnishings Effect of Events on the Financial Statements
Events Balance Sheet Income Statement Cash Flows
Assets = Liab. + Stkholders’ Rev.  Exp. = Net Inc.
Equity
Cash + Mdse. Inv. = A. Pay. + C. Stk. + Ret. Ear.

1. Pur. Inv. NA + 24,800 = 24,800 + NA + NA NA  NA = NA NA

2. Ret. Inv. NA + (2,400) = (2,400) + NA + NA NA  NA = NA NA
3. Disc. NA + (448) = (448) + NA + NA NA  NA = NA NA
4. Pd. AP (21,952) + NA = (21,952) + NA + NA NA – NA = NA (21,952) OA

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-10B (cont.)

c. $22,400; they would not be eligible for the discount.

d.
Fashion Furnishings Effect of Events on the Financial Statements
Events Balance Sheet Income Statement Cash Flows
Assets = Liab. + Stkholders’ Rev.  Exp. = Net Inc.
Equity
Cash + Mdse. Inv. = A. Pay. + C. Stk. + Ret. Ear.

3. Pd. AP (22,400) + NA = (22,400) + NA + NA NA  NA = NA (22,400) OA

e. Fashion Furnishings would be willing to pay within the discount period in order to take advantage
of the discount. Taking the discount will reduce the cost of the merchandise by $448. While this
does not seem like a large savings, if the rate is annualized the savings is considerable. A 2%
discount for paying within 10 days, or 35 days before the total amount would be due, amounts to a
savings of $12.80 per day ($448  35 days). Even if Fashion Furnishings borrowed the $21,952 at
an 8% interest rate, the cost of borrowing would only be $168.40 ($21,952 x 8% x 35/365) or $4.81
per day. Fashion Furnishings would still save $7.99 per day, even if the company had to borrow
the funds to pay early.

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EXERCISE 4-11B

Event Event
No. Type Assets = Liab. + S. Rev.  Exp. = Net Inc. Cash Flow
Equity

1. AS + + NA NA NA NA NA
2a. AS + NA + + NA + + OA
2b. AU  NA  NA +  NA
3. AE + NA NA NA NA NA  OA
4. AU   NA NA NA NA NA
5a. AS + NA + + NA + NA
5b. AU  NA  NA +  NA
6. AU    NA +   OA
7. AE + NA NA NA NA NA  OA
8. AU  NA  NA +   OA
9. AU  NA  NA +   OA
10. AE + NA NA NA NA NA + OA

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EXERCISE 4-12B

a.
York Company
Income Statement
For the year ended December 31, 2013

Sales Revenue $210,000

Cost of Goods Sold (120,000)
Gross Margin 90,000
Expenses
Operating Expenses (36,000)
Operating Income 54,000
Non-Operating Items
Gain on the Sale of Land 35,000
Net Income $89,000

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b.
York Company
Income Statement
For the year ended December 31, 2014

Sales Revenue $231,000

Cost of Goods Sold (132,000)
Gross Margin 99,000
Expenses
Operating Expenses (39,600)
Operating Income 59,400
Non-Operating Items -0-
Net Income $59,400

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EXERCISE 4-12B (cont.)

c. Net income decreased by 33%.

d. If the shareholders look at operating income, they will find that

operating income increased by 10% and this is expected because all
recurring line items increased by 10%. However, net income
decreased by 33%. Shareholders must be careful when only looking
at the net income amount.

EXERCISE 4-13B
a.
Foster Merchandisers
Gross Sales $31,500
Less: Sales Returns (1,350)
Less: Sales discounts (603)*
Net Sales $29,547
*($31,500  $1,350) x .02 = $603

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b.
Foster Merchandisers
Income Statement
For the Year Ended December 31, 2013
Net Sales $29,547
Cost of Goods Sold* (18,480)
Gross Margin 11,067
Operating Expenses
Selling and administrative expenses (4,700)
Operating Income 6,367
Nonoperating items
Interest Expense (420)
Gain sale of land 2,250
Net Income $ 8,197
*$19,400 – $920

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c. The interest expense would be reported in the operating activities

section of the statement of cash flows.

d. The full sales price of the land, $9,250, would be shown as a cash
inflow from investing activities on the statement of cash flows.

e. A gain occurs from activities that are not part of the normal recurring
operations of a business. Revenues are benefits that a business
receives as a result of its normal operations.

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EXERCISE 4-14B

a.
Power Buys
Financial Statements Model
Event + Accts. Common Retained Rev./ Cash
No. Cash Rec + Inv. + Land = Stock + Earnings Gain ─ Exp./Loss = Net Inc. Flow
Bal. 70,000 + NA + 12,000 + 10,000 = 50,000 + 42,000 n/a ─ n/a = n/a n/a
1 (60,000) + NA + 60,000 + NA = NA + NA NA ─ NA = NA OA (60,000)
2. no entry + NA + NA + NA = NA + NA NA ─ NA = NA NA
3a NA + 65,000 + NA + NA = NA + 65,000 65,000 ─ NA = 65,000 NA
3b NA + NA + (42,500) + NA = NA + (42,500) NA ─ 42,500 = (42,500) NA
4a NA + (1,900) + NA + NA = NA + (1,900) (1,900) ─ NA = (1,900) NA
4b NA NA 1,300 + NA NA 1,300 NA (1,300) 1,300 NA
5 (1,800) + NA + NA + NA = NA + (1,800) NA ─ 1,800 = (1,800) OA (1,800)
6a* NA + (631) + NA + NA = NA + (631) (631) ─ NA = (631) NA
6b 62,469 + (62,469) + NA + NA = NA + NA NA ─ NA = NA OA 62,469
7 (6,500) + NA + NA + NA = NA + (6,500) NA ─ 6,500 = (6,500) OA (6,500)
8 9,100 + NA + NA + (10,000) = NA + (900) NA ─ 900 = (900) IA 9,100
Bal. 73,269 + -0- + 30,800 + -0- = 50,000 + 54,069 62,469 ─ 50,400 = 12,069 NC 3,269

*($65,000  $1,900) x .01 = $631

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EXERCISE 4-14B (cont.)

b.
Power Buys
Calculation of Net Sales
For the Year Ended December 31, 2013
Sales $65,000
Less: Sales Returns (1,900)
Less: Sales Discounts (631)
Net Sales $62,469

c.
Power Buys
Income Statement
For the Year Ended December 31, 2013
Net Sales $62,469 100.0%
Cost of Goods Sold* (41,200) 66.0
Gross Margin 21,269 34.0

Operating Expenses
Selling and Adm. Expenses (6,500) 10.4
Transportation-Out (1,800) 2.8
Total Operating Expenses (8,300) 13.2

Operating Income 12,969 20.8

Non-Operating Items
Loss on Sale of Land (900) 1.5
Net Income $12,069 19.3

*$42,500  $1,300 = $41,200

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EXERCISE 4-14B (cont.)

d. All other things being equal, the lower the return on sales ratio, the
higher the total expenses. It is assumed that there was not a
nonrecurring item in 2012 so that the return on sales ratio in 2012 was
based on net income that was the same amount as operating income.
Comparing operating income percentages for 2012 (12%) and 2013
(20.8%), and given that sales were approximately the same in both
years, then it is apparent that the increase in the operating income
percentage is caused by a decrease in expenses.

e. The term loss is used to alert the financial statement users to the fact
the Power Buy is not in the business of buying and selling land. The
loss from the sale of land is not likely to recur in the future.

EXERCISE 4-15B
Single-Step Income Statement:
Super Foods Market
Income Statement
For the Year Ended December 31, 2013
Net Sales Revenue $4,800
Expenses
Cost of Goods Sold $1,800
Advertising Expense 400
Interest Expense 280
Salaries Expense 520
Rent Expense 420
Total Cost and Expenses (3,420)
Gain on Sale of Land 150
Net Income (Loss) $1,530

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Multistep Income Statement:

Super Foods Market
Income Statement
For the Year Ended December 31, 2013
Net Sales $4,800
Cost of Goods Sold (1,800)
Gross Margin 3,000
Operating Expenses
Advertising Expense $400
Salaries Expense 520
Rent Expense 420
Total Operating Expenses (1,340)
Operating Income (Loss) 1,660
Non-operating Items
Interest Expense (280)
Gain on Sale of Land 150
Net Income (Loss) $1,530

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EXERCISE 4-16B
a.
Bullard Designs
T-Accounts for 2013
Assets = Stockholders’ Equity
Cash Common Stock Sales Revenue
1. 50,000 2. 32,000 1. 50,000 3a. 48,100
3a. 48,100 Bal. 50,000 Bal. 48,100
Bal. 66,100
Cost of Goods Sold
Mdse. Inventory 3b. 26,500
2. 32,000 3b. 26,500 4. 700
Bal. 5,500 Bal. 27,200
4. 700
Bal. 4,800

b.
Bullard Designs
Income Statement
For the Year Ended December 31, 2013
Net Sales $48,100
Cost of Goods Sold (27,200)
Gross Margin 20,900
Operating Expense -0-
Net Income $20,900

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EXERCISE 4-16B b. (cont.)

Bullard Designs
Balance Sheet
As of December 31, 2013
Assets
Cash 66,100
Merchandise Inventory 4,800
Total Assets $70,900

Liabilities $ -0-
Stockholders’ Equity
Common Stock $50,000
Retained Earnings 20,900
Total Stockholders’ Equity 70,900
Total Liab. and Stockholders’ Equity $70,900

c. Even though all of the purchases and cost of goods sold are recorded
when goods are purchased or sold, management still must take a
physical inventory to verify the book amount. When management
discovers differences in the book balance of the inventory and the
physical count of the inventory, adjusting entries are made to the
books to reduce the inventory account to its actual balance. For
control purposes, it is important for management to know the amount
of lost or damaged inventory. Also, any adjustment will reflect the
amount of lost, broken, or spoiled goods for the period.

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EXERCISE 4-17B
a.
Skruggs Company
General Journal for 2013

Date Account Titles Debit Credit

1a. Accounts Receivable 92,000
Sales Revenue 92,000
1b. Cost of Goods Sold 56,000
Merchandise Inventory 56,000
2. Transportation-out 800
Cash 800
3a. Sales Revenue 5,900
Accounts Receivable 5,900
3b. Merchandise Inventory 4,000
Cost of Goods Sold 4,000
4. Sales Revenue 3,000
Accounts Receivable 3,000
5. Cash 81,000
Accounts Receivable 81,000

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-17B (cont.)

b.
Skruggs Company
T-Accounts for 2013
Assets = Stockholders’ Equity
Cash Common Stock Retained Earnings
Bal. 20,000 Bal. 50,000 Bal. 46,000
5. 81,000 2. 800
Bal. 100,200 Sales Revenue
3a. 5,900 1a. 92,000
Accounts Receivable 4. 3,000
1a. 92,000 3a. 5,900 Bal. 83,100
4. 3,000
5. 81,000 Cost of Goods Sold
Bal. 2,100 1b. 56,000 3b. 4,000
Bal. 52,000
Mdse. Inventory
Bal. 76,000 1b. 56,000 Transportation-out
3b. 4,000 2. 800
Bal. 24,000 Bal. 800

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-17B (cont.)

c.
Skruggs Company
Financial Statements

Income Statement
For the Year Ended December 31, 2013
Net Sales $83,100
Cost of Goods Sold (52,000)
Gross Margin 31,100
Operating Expenses
Transportation-out (800)
Net Income $30,300

Balance Sheet
As of December 31, 2013

Assets
Cash $100,200
Accounts Receivable 2,100
Merchandise Inventory 24,000
Total Assets $126,300

Liabilities $ -0-
Stockholders’ Equity
Common Stock $50,000
Retained Earnings 76,300
Total Stockholders’ Equity 126,300
Total Liabilities and Stockholders’ $126,300
Equity

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-17B c. (cont.)

Skruggs Company
Financial Statements
For the Year Ended December 31, 2013

Statement of Cash Flows

Cash Flows From Operating Activities:

Inflow from Customers $81,000
Outflow for Expenses (800)
Net Cash Flow from Operating Activities $80,200
Cash Flows From Investing Activities -0-
Cash Flows From Financing Activities -0-
Net Change in Cash 80,200
Plus: Beginning Cash Balance 20,000
Ending Cash Balance $100,200

d. Mark’s may agree to keep the damaged goods for several reasons.
First, Mark’s already has the goods and, assuming the goods can be
sold, will not have to wait for another shipment. Also, Mark’s is getting
the goods at a reduced price. Skruggs benefits because they do not
have to pay for the shipping cost of the returned goods and any repair
cost in order to sell them to another customer. This arrangement can
benefit both buyer and seller.

EXERCISE 4-18B

a. Gross Margin Percentages:

Rocky: 28% ($26,800 ÷ $95,700)

Sandy: 40% ($20,900 ÷ $52,300)

Return-on-Sales Ratios:

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Chapter 04 - Solutions to Exercises - Series B

Rocky: 5% ($4,800 ÷ $95,700)

Sandy: 4% ($2,100 ÷ $52,300)

Based on the gross margin percentages Sandy is the “high-end

retailer.” Sandy is obviously marking up the price of merchandise
by a greater percentage than Rocky.

b. Return-on-Equity Ratios:

Rocky: 12% ($4,800  $40,000)

Sandy: 10% ($2,100  $21,000)

From the viewpoint of the owners, Rocky was more profitable.

EXERCISE 4-19B

a.
Common Size Income Statements

Fargo % Huston %

Sales $2,000,000 100.0 $2,000,000 100.0

Cost of Goods Sold (1,600,000) (80.0) (1,200,000) (60.0)
Gross Margin 400,000 20.0 800,000 40.0

Operating Expenses (300,000) (15.0) (640,000) (32.0)

Net Income $ 100,000 5.0 $ 160,000 8.0

b. Fargo Company:

Return on assets: $100,000 ÷ $2,500,000 = 4.0%

Return on equity: $100,000 ÷ $ 700,000 = 14.3%

Huston Company:

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Chapter 04 - Solutions to Exercises - Series B

Return on assets: $160,000 ÷ $2,500,000 = 6.4%

Return on equity: $160,000 ÷ $1,500,000 = 10.7%

c. Fargo Co., because it has the higher return-on-equity percentage.

d. Huston Co. appears to be the high-end retailer because it has the

higher gross margin percentage. Fargo Co. appears to be the
discounter because it has the lower gross margin percentage.

EXERCISE 4-20B (Appendix)

Beginning Mdse. Inventory $16,000

Plus: Merchandise Purchased 65,000
Total Available for Sale 81,000
Less: Ending Mdse. Inventory (26,300)
Cost of Goods Sold $54,700

a. Goods Available for Sale $81,000

b. Cost of Goods Sold $54,700

c. Merchandise Inventory on year-end balance sheet $26,300

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-21B (Appendix)

a.
Belk Antiques
Schedule of Cost of Goods Sold
For the Year Ended December 31, 2013
Beginning Merchandise Inventory $ 42,000
Plus: Purchases 128,000
Plus: Transportation-in 1,000
Less: Purchase Returns and Allowances (12,000)
Cost of Goods Available for Sale 159,000
Less: Ending Merchandise Inventory (26,000)
Cost of Goods Sold $133,000

b.
Belk Antiques
Income Statement
For the Year Ended December 31, 2013
Net Sales Revenue* $516,100
Cost of Goods Sold (133,000)
Gross Margin 383,100
Operating Expenses (130,000)
Net Income $253,100

*Sales, $520,000  Sales Returns and Allow., $3,900 = Net Sales,

$516,100

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B (Appendix)

a.
Sue’s Specialties Shop
General Journal for 2014
Date Account Titles Debit Credit
1. Cash 35,000
Common Stock 35,000
2. Merchandise Inventory 9,600
Common Stock 9,600
3. Purchases 85,000
Accounts Payable 85,000
4. Advertising Expense 2,800
Cash 2,800
5. Cash 165,000
Sales Revenue 165,000
6. Salaries Expense 28,000
Cash 28,000
7. Accounts Payable 65,000
Cash 65,000
8. (adj.) Cost of Goods Sold* 66,100
Merchandise Inventory (Ending) 28,500
Purchases 85,000
Merchandise Inventory (owner 9,600
contribution)

*Cost of Goods Sold Calculation:

Beginning Merchandise Inventory $ -0-
Owner Contribution 9,600
Purchases 85,000
Goods Available for Sale 94,600
Less: Ending Merchandise Inventory (28,500)
Cost of Goods Sold $ 66,100

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B (cont.) (Appendix)

b.
Sue’s Specialties Shop
T-Accounts for 2014
Assets = Liabilities + Stockholders’ Equity
Cash Accounts Payable Common Stock
1. 35,000 4. 2,800 7. 65,000 3. 85,000 1. 35,000
5. 165,000 6. 28,000 Bal. 20,000 2. 9,600
7. 65,000 Bal. 44,600
Bal. 104,200
Sales Revenue
Merchandise Inventory 5. 165,000
2. 9,600 8. 9,600 Bal. 165,000
8. 28,500
Bal. 28,500 Cost of Goods Sold
8. 66,100
Bal. 66,100

Purchases
3. 85,000 8. 85,000
Bal. -0-

Advertising Expense
4. 2,800
Bal. 2,800

Salaries Expense
6. 28,000
Bal. 28,000

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B (cont.) (Appendix)

c.
Sue’s Specialties Shop
Financial Statements
For the Year Ended December 31, 2014

Income Statement

Net Sales $165,000

Cost of Goods Sold (66,100)
Gross Margin 98,900
Operating Expenses
Advertising Expense $ 2,800
Salaries Expense 28,000
Total Operating Expenses (30,800)
Net Income $ 68,100

Statement of Changes in Stockholders’ Equity

Beginning Common Stock $ -0-

Plus: Stock Issued 44,600
Ending Common Stock $ 44,600
Beginning Retained Earnings $ -0-
Plus: Net Income 68,100
Ending Retained Earnings 68,100
Total Stockholders’ Equity $112,700

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B c. (cont.) (Appendix)

Sue’s Specialties Shop

Financial Statements

Balance Sheet
As of December 31, 2014

Assets
Cash $104,200
Merchandise Inventory 28,500
Total Assets $132,700

Liabilities
Accounts Payable $20,000

Stockholders’ Equity
Common Stock $ 44,600
Retained Earnings 68,100
Total Stockholders’ Equity 112,700

Total Liabilities and Stockholders’ Equity $132,700

Statement of Cash Flows

For the Year Ended December 31, 2014

Cash Flows From Operating Activities:

Inflow from Customers $165,000
Outflow for Inventory (65,000)
Outflow for Expenses (30,800)
Net Cash Flow from Operating Activities $ 69,200

Cash Flows From Investing Activities -0-

Cash Flows From Financing Activities

Inflow from Stock Issue 35,000

Net Change in Cash 104,200

Plus: Beginning Cash Balance -0-
Ending Cash Balance $104,200

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B (cont.) (Appendix)

d.
Sue’s Specialties Shop
General Journal

Date Account Titles Debit Credit

Closing Entries
cl Sales Revenue 165,000
Retained Earnings 165,000
cl Retained Earnings 96,900
Cost of Goods Sold 66,100
Advertising Expense 2,800
Salaries Expense 28,000

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B d. (cont.) (Appendix)

Sue’s Specialties Shop

T-Accounts
Assets = Liabilities + Stockholders’ Equity
Cash Accounts Payable Common Stock
Bal. 104,200 Bal. 20,000 Bal. 44,600

Retained Earnings
Merchandise Inventory cl 96,900 cl 165,000
Bal. 28,500 Bal. 68,100

Sales Revenue
Bal. 165,000
cl 165,000
Bal. -0-

Cost of Goods Sold

Bal. 66,100
cl 66,100
Bal. -0-

Advertising Expense
Bal. 2,800
cl 2,800
Bal. -0-

Salaries Expense
Bal. 28,000
cl 28,000
Bal. -0-

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Chapter 04 - Solutions to Exercises - Series B

EXERCISE 4-22B (cont.) (Appendix)

e.
Sue’s Specialties Shop
Post-Closing Trial Balance
As of December 31, 2014
Account Titles Debit Credit
Cash $104,200
Merchandise Inventory 28,500
Accounts Payable $ 20,000
Common Stock 44,600
Retained Earnings 68,100
Totals $132,700 $132,700

f. A business that may use the periodic method would be a small retailer
that does not have the necessary computer equipment to be able to
record the cost of goods as they are sold. Also, it may be more cost
effective for a business with small amounts of inventory to use the
periodic method. Most large retailers now use the perpetual inventory
system. The use of computer systems that track inventory make the
use of the perpetual method possible. Inventory items are scanned into
inventory when received and scanned out of inventory when sold. For
example, most large grocery stores use the perpetual system of
recording inventory.

g. Owners may contribute many types of assets to a business in

exchange for stock in the business. For instance, an owner may
contribute automobiles, office equipment, land, building, or other
similar assets that are personally owned in exchange for stock in a
corporation.

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Chapter 04 - Solutions to Exercises - Series B

SOLUTIONS TO PROBLEMS - SERIES B - CHAPTER 4

PROBLEM 4-23B
T-accounts are provided for the instructor’s use:
Amber’s Flower Company
T-Accounts 2013, 2014, and 2015
Assets = Stockholders’ Equity
Cash Common Stock Retained Earnings
2013 80,000 40,000 2013 80,000 cl 67,000 2013 cl 75,000
75,000 29,000 Bal. 8,000
Bal. 86,000 cl 84,000 2014 cl 88,000
2014 88,000 55,000 Bal. 12,000
35,000 cl 124,000 2015 cl 146,000
Bal. 84,000 Bal. 34,000
2015 146,000 95,000
42,000 Sales Revenue
Bal. 93,000 cl 75,000 2013 75,000
Bal. -0-
Merchandise Inv. cl 88,000 2014 88,000
2013 40,000 38,000 Bal. -0-
Bal. 2,000 cl 146,000 2015 146,000
2014 55,000 49,000 Bal. -0-
Bal. 8,000
2015 95,000 82,000
Bal. 21,000 Cost of Goods Sold
2013 38,000 cl 38,000
Bal. -0-
2014 49,000 cl 49,000
Bal. -0-
2015 82,000 cl 82,000
Bal. -0-

Selling and Adm. Exp.

2013 29,000 cl 29,000
Bal. -0-
2014 35,000 cl 35,000
Bal. -0-
2015 42,000 cl 42,000
Bal. -0-

PROBLEM 4-23B (cont.)

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Chapter 04 - Solutions to Exercises - Series B

Amber’s Flower Company

Financial Statements

Income Statements for the Year Ended December 31

2013 2014 2015
Net Sales $75,000 $88,000 $146,000
Cost of Goods Sold (38,000) (49,000) (82,000)
Gross Margin 37,000 39,000 64,000
Operating Expenses
Selling and Admin. Expense (29,000) (35,000) (42,000)
Net Income $ 8,000 $ 4,000 $22,000

Balance Sheets at December 31

Assets
Cash $86,000 $84,000 $ 93,000
Merchandise Inventory 2,000 8,000 21,000
Total Assets $88,000 $92,000 $114,000

Liabilities $ -0- $ -0- $ -0-

Stockholders’ Equity
Common Stock 80,000 80,000 80,000
Retained Earnings 8,000 12,000 34,000
Total Stockholders’ Equity 88,000 92,000 114,000
Total Liab. and Stkholders’ Equity $88,000 $92,000 $114,000

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-24B

Event Freight Costs Paid Period/Product

a. $520 Product

b. $-0- NA

c. $-0- NA

d. $750 Period

PROBLEM 4-25B

Event Product Costs Period Costs

a. 

b. 

c. 

d. 

e. 

f. 

g. 

h. 

i. 

j. 

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-26B

a. & b.
Harper Sales Company
Income Statement
For the Years Ended December 31, 2013 and 2014

2013 2014
Net Sales $200,000 100% $200,000 100%
Cost of Goods Sold (90,000) 45 (80,000) 40
Gross Margin 110,000 55 120,000 60
Operating Expenses (60,000) 30 (50,000) 25
Operating Income 50,000 25 70,000 35
Loss on Sale of Land -0- (24,000) 12
Net Income $50,000 25% $46,000 23%

c. Sales have remained flat while expenses (cost of goods sold and
operating expenses) have declined. The loss by definition is not
expected to recur. If the operating trends continue, net income will
definitely rise in 2015.

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-27B
a.
Bradley Company
Effect of Events on the Financial Statements for 2013
Event Event Balance Sheet Income Statement Statement of
No. Type Assets = Liab. + S. Equity Rev.  Exp. = Net Inc. Cash Flows
1a. AS + + NA NA NA NA NA
1b. AE + NA NA NA NA NA  OA
2. AU   NA NA NA NA NA
3a. Disc. AU   NA NA NA NA NA
3b. Pay. AU   NA NA NA NA  OA
4a. Sale AS + NA + + NA + NA
4b. Cost AU  NA  NA +  NA
5a. Ret AU  NA   NA   OA
5b. Ret. AS + NA + NA  + NA
6. Frt. AU  NA  NA +   OA
7a. Disc. AU  NA   NA  NA
7b. Coll. AE + NA NA NA NA NA + OA
8. Land AE + NA NA + NA + + IA
9. Int. AS + NA + + NA + NA
10. Adj. AU  NA  NA +  NA

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Chapter 04 - Solutions to Exercises - Series B
PROBLEM 4-27B (cont.)
b.
Bradley Company General Journal

Date Account Titles Debit Credit

1a. Merchandise Inventory 4,400
Accounts Payable 4,400
1b. Merchandise Inventory 190
Cash 190
2. Accounts Payable 400
Merchandise Inventory 400
3a. Accounts Payable [($4,400 – $400) x .01] 40
Merchandise Inventory 40
3b. Accounts Payable ($4,400 – $400 – $40) 3,960
Cash 3,960
4a. Accounts Receivable 11,000
Sales Revenue 11,000
4b. Cost of Goods Sold 6,000
Merchandise Inventory 6,000
5a. Sales Revenue 1,450
Cash 1,450
5b. Merchandise Inventory 800
Cost of Goods Sold 800
6. Transportation-out 120
Cash 120
7a. Sales Revenue 220
Accounts Receivable ($11,000 x .02) 220
7b. Cash 10,780
Accounts Receivable ($11,000 – $220) 10,780

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Chapter 04 - Solutions to Exercises - Series B
PROBLEM 4-27B b. (cont.)

Bradley Company General Journal

Date Account Titles Debit Credit

8. Cash 8,500
Land 5,000
Gain on the Sale of Land 3,500
9. Interest Receivable 900
Interest Revenue 900
10. Cost of Goods Sold (Inventory Loss) 1,450
Merchandise Inventory 1,450

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Chapter 04 - Solutions to Exercises - Series B
PROBLEM 4-27B (cont.) c.
Bradley Company
T-Accounts for 2013

Assets = Liabilities + Stockholders’ Equity

Cash Accounts Payable Common Stock

Bal 8,600 190 2. 400 1a 4,400 20,000
. 1b. . Bal
.
7b. 10,780 3,960 3a. 40
3b.
8. 8,500 5a. 1,450 3b. 3,960 Retained Earnings
6. 120 Bal -0- 11,600
. Bal.
Bal 22,160 cl. 4,400
.
cl 6,770 cl 9,330
18,560
Bal.
Mdse. Inventory
Bal 18,000 Sales Revenue
.
1a. 4,400 2. 400 5a. 1,450 4a. 11,000
1b. 190 3a. 40 7a. 220
5b. 800 6,000 9,330
4b. Bal
.
Bal 16,950 cl 9,330
.
10. 1,450 -0-
Bal
.
Bal 15,500
.
Cost of Goods Sold
4b. 6,000
Accounts Receivable 10. 1,450 5b. 800
4a. 11,000 7a. 220 Bal. 6,650
7b. 10,780 cl 6,650
Bal -0- Bal. -0-
.

Interest Receivable Transportation-out

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Chapter 04 - Solutions to Exercises - Series B
9. 900 6. 120
Bal 900 Bal. 120
.
cl 120
Land Bal. -0-
Bal 5,000 8. 5,000
.
Bal -0- Interest Revenue
.
9. 900
cl. 900
Bal -0-
.

Gain on Sale of Land

8. 3,500
cl. 3,500
Bal -0-
.
PROBLEM 4-27B (Cont.)
d.
Bradley Company
Financial Statements
For the Year Ended December 31, 2013

Income Statement
Net Sales $9,330
Cost of Goods Sold (6,650)
Gross Margin 2,680
Operating Expenses
Transportation-out (120)
Operating Income 2,560
Nonoperating Items
Interest Revenue 900
Gain on Sale of Land 3,500
Net Income 6,960

Statement of Changes in Stockholders’ Equity

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Chapter 04 - Solutions to Exercises - Series B

Beginning Common Stock $20,000

Plus: Stock Issued -0-
Ending Common Stock $20,000
Beginning Retained Earnings $11,600
Plus: Net Income 6,960
Ending Retained Earnings 18,560
Total Stockholders’ Equity $38,560

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-27B d. (cont.)

Bradley Company
Financial Statements

Balance Sheet
As of December 31, 2013

Assets
Cash $22,160
Merchandise Inventory 15,500
Interest Receivable 900
Total Assets $38,560

Liabilities $ -0-
Stockholders’ Equity
Common Stock $20,000
Retained Earnings 18,560
Total Stockholders’ Equity 38,560
Total Liabilities and Stockholders’ Equity $38,560

Statement of Cash Flows

For the Year Ended December 31, 2013

Cash Flows From Operating Activities:

Inflow from Customers* $9,330
Outflow for Inventory** (4,150)
Outflow for Expenses (120)
Net Cash Flow from Operating Activities $5,060
Cash Flows From Investing Activities
Inflow from Sale of Land 8,500
Cash Flows From Financing Activities -0-
Net Change in Cash 13,560
Plus: Beginning Cash Balance 8,600
Ending Cash Balance $22,160

*(7b)10,780 – (5a) $1,450 = $9,330

**(1b) $190 + (3b) $3,960 = $4,150

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-27B (cont.)

e.
Date Account Titles Debit Credit

Closing Entries
Dec. 31 Sales Revenue 9,330
Retained Earnings 9,330
Dec. 31 Retained Earnings 6,770
Cost of Goods Sold 6,650
Transportation-out 120
Dec. 31 Interest Revenue 900
Gain from Sale of Land 3,500
Retained Earnings 4,400

See T-Accounts in part c. for closing entries.

Bradley Company
Post Closing Trial Balance
December 31, 2013

Account Titles Debit Credit

Cash $22,160
Merchandise Inventory 15,500
Interest Receivable 900
Common Stock $20,000
Retained Earnings 18,560
Totals $38,560 $38,560

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-28B (Appendix)

a.
Omar Farm Co.
Schedule of Cost of Goods Sold
For the Year Ended December 31, 2013

Beginning Merchandise Inventory $12,400

Purchases 84,000
Purchase Returns and Allowances (2,500)
Transportation-in 3,450
Cost of Goods Available for Sale 97,350
Less: Ending Merchandise Inventory (8,100)
Cost of Goods Sold $89,250

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-28B (cont.) (Appendix)

b.
Omar Farm Co.
Income Statement
For the Year Ended December 31, 2013
Sales
Sales Revenue $139,500
Sales Returns and Allowances (6,500)
Net Sales $133,000
Cost of Goods Sold (89,250)
Gross Margin 43,750
Operating Expenses
Miscellaneous Expense 800
Transportation-out 1,400
Advertising Expense 5,500
Salaries Expense 17,000
Rent Expense 10,000
Utilities Expense 1,420
Total Operating Expenses (36,120)
Operating Income 7,630
Non-Operating Items
Interest Expense (720)
Loss on Sale of Land (6,800)
Net Income $ 110

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PROBLEM 4-28B (cont.) (Appendix)

c.
Omar Farm Co.
Income Statement
For the Year Ended December 31, 2013
Sales
Sales Revenue $139,500
Sales Returns and Allowances (6,500)
Net Sales $133,000
Operating Expenses
Cost of Goods Sold 89,250
Miscellaneous Expense 800
Transportation-out 1,400
Advertising Expense 5,500
Salaries Expense 17,000
Rent Expense 10,000
Utilities Expense 1,420
Total Expenses (125,370)
Nonoperating Items
Interest Expense 720
Loss on Sale of Land 6,800 (7,520)
Net Income $ 110

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PROBLEM 4-29B (Appendix)

a.
Cal’s Grocery
General Journal, 2013

Event Account Titles Debit Credit

1. Land 40,000
Cash 40,000
2. Purchases 252,000
Accounts Payable 252,000
3. Transportation-in 2,000
Cash 2,000
4. Accounts Payable 7,200
Purchase Returns and Allow. 7,200
5. Cash 172,000
Sales Revenue 172,000
6. Accounts Receivable 240,000
Sales Revenue 240,000
7a. Accounts Payable [($252,000 – $7,200) x .01] 2,448
Purchase Discounts 2,448
7b. Accounts Payable ($252,000 – $7,200 – $2,448) 242,352
Cash 242,352
8. Selling Expenses 23,200
Cash 23,200
9a. Sales Discounts ($95,000 x 2%) 1,900
Accounts Receivable 1,900
9b. Cash ($95,000  $1,900) 93,100
Accounts Receivable 93,100

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PROBLEM 4-29B a. (cont.)

Cal’s Grocery
General Journal, 2013

Event Account Titles Debit Credit

10. Cash 62,000
Accounts Receivable 62,000
11. Operating Expense 13,200
Cash 13,200
12. Cost of Goods Sold1 291,252
Merchandise Inventory (Ending) 53,100
Purchase Discounts 2,448
Purchase Returns and Allowances 7,200
Purchases 252,000
Transportation-in 2,000
Merchandise Inventory (Beginning) 100,000

1
Cost of Goods Sold:
Beginning Merchandise Inventory $100,000
Purchases 252,000
Transportation-in 2,000
Purchase Ret. and Allow. (7,200)
Purchase Discounts (2,448)
Cost of Goods Available 344,352
Less: Ending Merchandise Inventory (53,100)
Cost of Goods Sold $291,252

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PROBLEM 4-29B (cont.) b.

Cal’s Grocery
Cash Accounts Payable Common Stock
Bal. 52,000 1a. 40,000 4. 7,200 Bal. 8,000 Bal. 86,000
5. 172,000 3. 2,000 7a. 2,448 2. 252,000
9b. 93,100 7b. 242,352 7b. 242,352 Retained Earnings
10. 62,000 8. 23,200 Bal. 8,000 Bal. 66,000
11. 13,200
Bal. 58,348 Sales Revenue
5. 172,000
6. 240,000
Bal. 412,000
Accounts Receivable
Bal. 8,000 9a. 1,900 Sales Discounts
6. 240,000 9b. 93,100 9a. 1,900
10. 62,000
Bal. 91,000
Purchases
Merchandise Inventory 2. 252,000 12. 252,000
Bal. 100,000 12. 100,000 Bal. -0-
12. 53,100
Bal. 53,100 Purchase Returns & Allow.
12. 7,200 4. 7,200
Land Bal. -0-
1a. 40,000
Bal. 40,000 Purchase Discounts
12. 2,448 7a. 2,448
Bal. -0-

Transportation-in
3. 2,000 12. 2,000
Bal. -0-

Cost of Goods Sold

12. 291,252

Other Operating Expense

11. 13,200

Selling Expenses
8. 23,200

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-29 (cont.)

c.
Cal’s Grocery
Schedule of Cost of Goods Sold

Beginning Inventory 1/1/2013 $100,000

Purchases 252,000
Purchase Discounts (2,448)
Purchase Returns and Allow. (7,200)
Transportation-in 2,000
Cost of Goods Available for Sale $344,352
Ending Merchandise Inventory (53,100)
Cost of Goods Sold $291,252

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-29B c. (cont.)

Cal’s Grocery
Financial Statements
For the Year Ended December 31, 2013

Income Statement

Revenue
Sales Revenue $412,000
Sales Discounts (1,900)
Net Sales $410,100
Cost of Goods Sold (291,252)
Gross Margin 118,848
Operating Expenses
Selling Expenses $ 23,200
Other Operating Expense 13,200
Total Operating Expense (36,400)
Net Income $ 82,448

Statement of Changes in Stockholders’ Equity

Beginning Common Stock $ 86,000
Plus: Stock Issued -0-
Ending Common Stock $ 86,000
Beginning Retained Earnings $ 66,000
Plus: Net Income 82,448
Ending Retained Earnings 148,448
Total Stockholders’ Equity $234,448

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-29B c. (cont.)

Cal’s Grocery
Balance Sheet
As of December 31, 2013
Assets
Cash $ 58,348
Accounts Receivable 91,000
Merchandise Inventory 53,100
Land 40,000
Total Assets $242,448

Liabilities
Accounts Payable $ 8,000
Total Liabilities $ 8,000
Stockholders’ Equity
Common Stock 86,000
Retained Earnings 148,448
Total Stockholders’ Equity 234,448
Total Liab. and Stockholders’ Equity $242,448

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Chapter 04 - Solutions to Exercises - Series B

PROBLEM 4-29B c. (cont.)

Cal’s Grocery
Statement of Cash Flows
For the Year Ended December 31, 2013
Cash Flows From Operating Activities:
Inflow from Customers1 $327,100
Outflow for Inventory2 (244,352)
Outflow for Expenses3 (36,400)
Net Cash Flow from Operating Activities $46,348
Cash Flows From Investing Activities:
Outflow for Land (40,000)
Net Cash Flow from Investing Activities (40,000)
Cash Flows From Financing Activities:
Net Cash Flow from Financing Activities -0-
Net Change in Cash 6,348
Plus: Beginning Cash Balance 52,000
Ending Cash Balance $58,348
1(5) $172,000 + (9b) $93,100 + (10) $62,000 = $327,100
2(3) $2,000 + (7b) $242,352 = $244,352
3(8) $23,200 +(11) $13,200 = $36,400

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