ACCT 2100 - Homework Problems (Ch3)
Gross Margin Percentage
(Gross Margin / Net Sales) * 100
Why would Prentise agree to keep the damaged goods?
- Get goods at reduced cost. - Can resell the damaged goods. - Repair the damaged goods. NOT - Retain the damaged goods.
Ballard Company uses the perpetual inventory system. The company purchased $9,700 of merchandise from Andes Company under the terms 3/10, net/30. Ballard paid for the merchandise within 10 days and also paid $420 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $18,400 cash. The amount of gross margin for this merchandise is:
1. Gross Margin = Net Sales - COGS 2. Net Sales = Revenue = 18400 3. COGS 9700 - (9700 * 0.03) = 9409 9409 + 420 = 9829 4. GM = 18400 - 9829 = 8571 *Add freight costs AFTER discount!*
Assume the perpetual inventory method is used. 1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,200 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,800 cash. The amount of gross margin from the four transactions is:
1. Gross margin = net sales - COGS 2. Net sales = Revenue 3. Revenue = 18800 4. COGS = 11074 How: 12500 - 1200 = 11300 11300 * 0.02 = 226 11300 - 226 = 11074 5. Gross margin = 18800 - 11074 = 7726 *REMEMBER: Apply discount AFTER goods are returned!*
Operating expenses?
1. Identify Op. Exp. type - Transportation-in (Event 2) Operating Expenses = $900
COGS?
1. Look at expenses Exp = 58,000 + 900 - 4,000 2. Identify which expenses were the cost of goods sold 58,000 and -4,000 3. Sum 58,000 + (-4,000) = 54,000 COGS = $54,000
Net sales?
1. Loot at Revenue 99,500 - 5,900 - 3,000 = 90,600 Net sales = $90,600
Question 1 Powell Company began the 2018 accounting period with $40,000 cash, $86,000 inventory, $60,000 common stock, and $66,000 retained earnings.
==Balance Sheet== Cash = *40,000* + AR + Inv. = *86,000* = CS = *60,000* + RE = *66,000* ==Income Statement== Rev - Exp = NI ==Statement of Cash Flows==
Question 1 1a. Sold merchandise costing $58,000 for $99,500 on account to Prentise Furniture Store.
==Balance Sheet== Cash = 40000 AR = *99,500* Inv. = 86000 = CS = 60000 RE = 66000 + *99,500* ==Income Statement== Rev = *99,500* Exp = NI = *99,500* ==Statement of Cash Flows==
Question 1 1b. Sold merchandise costing $58,000 for $99,500 on account to Prentise Furniture Store.
==Balance Sheet== Cash = 40000 AR = 99,500 Inv. = 86000 - *58,000* = CS = 60000 RE = 66000 + 99,500 - *58,000* ==Income Statement== Rev = 99,500 Exp = *85,000* = NI = 99,500 - *85,000* ==Statement of Cash Flows==
Question 1 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $900 cash.
==Balance Sheet== Cash = 40000 - *900* AR = 99,500 Inv. = 86000 - 58,000 = CS = 60000 RE = 66000 + 99,500 - 58,000 - *900* ==Income Statement== Rev = 99,500 Exp = 58,000 + *900* = NI = 99,500 - 58,000 - *900* ==Statement of Cash Flows== *-900* OA
Question 1 3a. Received returned goods from Prentise. The goods cost Powell $4,000 and were sold to Prentise for $5,900
==Balance Sheet== Cash = 40000 - 900 AR = 99,500 - *5,900* Inv. = 86000 - 58,000 = CS = 60000 RE = 66000 + 99,500 - 58,000 - 900 - *5,900* ==Income Statement== Rev = 99,500 - *5,900* Exp = 58,000 + 900 = NI = 99,500 - 58,000 - 900 - *5,900* ==Statement of Cash Flows== -900 OA
Question 1 3b. Received returned goods from Prentise. The goods cost Powell $4,000 and were sold to Prentise for $5,900
==Balance Sheet== Cash = 40000 - 900 AR = 99,500 - 5,900 Inv. = 86000 - 58,000 + *4,000* = CS = 60000 RE = 66000 + 99,500 - 58,000 - 900 - 5,900 + *4,000* ==Income Statement== Rev = 99,500 - 5,900 Exp = 58,000 + 900 - *4,000* = NI = 99,500 - 58,000 - 900 - 5,900 + *4,000* ==Statement of Cash Flows== -900 OA
Question 1 4. Granted Prentise a $3,000 allowance for damaged goods that Prentise agreed to keep.
==Balance Sheet== Cash = 40000 - 900 AR = 99,500 - 5,900 - *3,000* Inv. = 86000 - 58,000 + 4,000 = CS = 60000 RE = 66000 + 99,500 - 58,000 - 900 - 5,900 + 4,000 - *3,000* ==Income Statement== Rev = 99,500 - 5,900 - *3,000* Exp = 58,000 + 900 - 4,000 = NI = 99,500 - 58,000 - 900 - 5,900 + 4,000 - *3,000* ==Statement of Cash Flows== -900 OA
Question 1 5. Collected partial payment of $81,000 cash from accounts receivable
==Balance Sheet== Cash = 40000 - 900 + *81,000* AR = 99,500 - 5,900 - 3,000 - *81,000* Inv. = 86000 - 58,000 + 4,000 = CS = 60000 RE = 66000 + 99,500 - 58,000 - 900 - 5,900 + 4,000 - 3,000 ==Income Statement== Rev = 99,500 - 5,900 - 3,000 Exp = 58,000 + 900 - 4,000 = NI = 99,500 - 58,000 - 900 - 5,900 + 4,000 - 3,000 ==Statement of Cash Flows== -900 OA *+81,000* OA
Net Income
Gross Margin - Operating Expenses Gross margin = 36,600 Operating Expenses = $900 Net Income = $35,700
Abbott Company purchased $7,400 of merchandise inventory on account. Abbott uses the perpetual inventory method. How does this transaction affect the financial statements?
Increase inventory and increase accounts payable.
Assume the perpetual inventory method is used. 1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,200 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,800 cash. What effect will the return of merchandise to the supplier have on the accounting equation?
Less inventory (assets) Less liability Do not apply discount! Assets and liabilities are reduced by $1,200. The purchase return will decrease assets (merchandise inventory) and decrease liabilities (accounts payable) by $1,200, the full invoiced amount of the merchandise returned.
Gross margin?
Net sales - COGS Net sales = $90,600 COGS = $54,000 Gross margin = $90,600 - $54,000 = 36,600
Multi-Step Income Statement
Sales Revenue Less: - Sales Discount - Sales Returns/Allowances = NET SALES - Cost of Good Sold = GROSS MARGIN Less: (Expenses) - Salaries and Wage Expense - Rent Expense - Utility Expense = INCOME FROM OPERATIONS - Income expense = INCOME BEFORE INCOME TAX EXPENSE - Income Tax Expense = NET INCOME
SX Company sold merchandise on account for $15,700. The merchandise had cost the company $8,600. What is the effect of the sale on the income statement?
Selling merchandise on account will increase revenue by $15,700. It will increase expenses by $8,600 and increase net income by $7,100. Revenue - Expenses = Net income. $15,700 − $8,600 = $7,100.
The Wilson Company purchased $38,000 of merchandise from the Poole Wholesale Company. Wilson also paid $3,100 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.
Total increases to the inventory account would be $41,100. When the perpetual system is used, the inventory account is increased when inventory is purchased; that account is also increased when the company (as the buyer of the merchandise) pays the transportation costs.