(10-15 min.) E 5-8

Northstar Auto Supply

Income Statement

Year Ended March 31, 20X2

Sales revenues ($233,000 + $6,100)

$239,100

  

Less: Sales discounts

2,000

  

Net sales revenue

  

$237,100

Cost of goods sold ($111,600 + $4,290)

  

115,890

Gross profit

  

121,210

Operating expenses:

    

Selling expenses ($21,050 + $5,200 + $1,200)

$ 27,450

  

General expenses ($10,500 + $3,400 + $2,250)

16,150

43,600

Operating income

  

77,610

Other expense:

    

Interest expense

  

2,750

Net income

  

$ 74,860

 

 

 

(10 min.) E 5-9

       

20X2

  

20X1
               

Gross profit percentage

=

Gross profit

=

$121,210

  

=

51%

48%

Net sales revenue

$237,100

  
               

Inventory turnover

=

Cost of goods sold

=

$115,890

=

3.72

3.16

Average inventory

($36,100 ! $4,290 + $30,500) / 2

The increase in the gross profit percentage, coupled with the increase in the rate of inventory turnover, suggests that Northstar’s profits are increasing.

(10-15 min.) E 5-10

Req. 1

(multi-step income statement)

Barringer Boats, Ltd.

Income Statement

Year Ended December 31, 20X0

Sales revenue

  

$204,000

  

Less: Sales discounts

$ 9,000

    

Sales returns

4,600

13,600

  

Net sales revenue

    

$190,400

Cost of goods sold

    

99,300

Gross profit

    

91,100

Operating expenses:

      

Selling expenses

  

$ 37,800

  

General expenses

  

23,500

61,300

Operating income

    

29,800

Other revenue:

      

Interest revenue

    

1,500

Net income

    

$ 31,300

 

Req. 2
       

Current year

Last year

Inventory turnover

=

Cost of goods sold

Average inventory

           

=

$99,300

($19,400 + $21,000) / 2

=

4.9

3.8

The increase in the inventory turnover ratio suggests improvement in inventory turnover.

(10-15 min.) E 5-11

Barringer Boats, Ltd.

Income Statement (single step)

Year Ended December 31, 20X0

Revenues:

  

Net sales revenue (net of sales discounts,

  

$9,000, and returns, $4,600)

$190,400

Interest revenue

1,500

Total revenues

191,900

Expenses:

  

Cost of goods sold

$ 99,300

Selling expenses

37,800

General expenses

23,500

Total expenses

160,600

Net income

$ 31,300

 

               

Current

year

Last

year

Gross

profit

percentage

=

Gross profit

Net sales revenue

=

Net sales revenue -

Cost of goods sold

Net sales revenue

=

$190,400 ! $99,300

$190,400

=

48%

50%

The decrease in gross profit percentage suggests slightly worse profitability this year versus last year.

(5-10 min.) E 5-12

General Motors data:

Billions

Sales $153

Cost of goods sold (127)

a. Gross profit $ 26

Cash collections from customers $152

Cash payments for inventory (123)

b. Excess of cash collections over cash payments $ 29

The excess of cash collections over cash payments was greater than the company’s gross profit.

 

 

 

(10 min.) E 5-13

Cost of goods sold:

Beginning inventory $ 21,000

+ Net purchases 93,600*

+ Freight in 4,100

= Cost of goods available for sale 118,700

= Cost of goods sold $ 99,300

__________

*Net purchases:

Purchases $98,600

= Net purchases $93,600

(10-15 min.) E 5-14

Sales

Sales

Discounts

Net

Sales

Beginning

Inventory

Net

Purchases

Ending

Inventory

Cost of

Goods Sold

Gross Profit
               

$98,300

(a)

$92,800

$32,500

$66,700

$39,400

(b)

$33,000

62,400

$2,100

(c)

27,450

43,000

(d)

$44,100

(e)

91,500

1,800

89,700

(f)

44,900

22,900

59,400

(g)

(h)

3,000

(i)

40,700

(j)

48,230

72,500

39,600

Computations:
    1. $98,300 ! $92,800 = $5,500.
    2. $92,800 ! $33,000 = $59,800.
    3. $62,400 ! $2,100 = $60,300.
    4. $27,450 + $43,000 ! $44,100 = $26,350.
    5. $60,300 ! $44,100 = $16,200.
    6. $22,900 + $59,400 ! $44,900 = $37,400.
    7. $89,700 ! $59,400 = $30,300.
    8. Must solve for (i) first. Then solve for (h). See below.
    9. $72,500 + $39,600 = $112,100.
    1. $3,000 + $112,100 = $115,100.
    1. $48,230 + $72,500 ! $40,700 = $80,030.

 

 

 

(5-10 min.) E 5-15

Beginning inventory + Net purchases ! Ending inventory = Cost of goods sold

Net purchases = Cost of goods sold ! Beginning inventory + Ending inventory

= $154 million ! $103 million + $129 million

= $180 million

CONTINUING EXERCISE

(15-20 min.) E 5-16

Reqs. 1 and 2

Cash

  

Accounts Receivable

Jan. 2

7,200

Jan. 2

1,500

  

Jan. 18

1,100

    

28

600

16

1,400

  

19

900

    
   

21

2,000

  

Bal.

2,000

    
   

24

300

          

Bal.

2,600

              

 

Accounting Software Inventory

  

Prepaid Rent

Jan. 7

4,000

Jan. 18

700

  

Jan. 2

1,500

Jan. 31

500
   

28

400

  

Bal.

1,000

    

Bal.

2,900

              

 

Accumulated Depreciation

  

Accounts Payable
   

Jan. 31

200

  

Jan. 21

2,000

Jan. 7

4,000
             

Bal.

2,000

 

Salary Payable

  

Amos Faraday, Capital
   

Jan. 31

1,400

      

Clo.

4,900

 

Income Summary

  

Service Revenue

Clo.

4,900

Clo.

9,800

      

Jan. 2

7,200

Clo.

4,900

Bal.

4,900

      

19

900
         

Clo.

8,100

Bal.

8,100

(continued) E 5-16

Reqs. 1 and 2

Sales Revenue

  

Cost of Goods Sold
   

Jan. 18

1,100

  

Jan. 18

700

    
   

28

600

  

28

400

    

Clo.

1,700

Bal.

1,700

  

Bal.

1,100

Clo.

1,100

 

Salary Expense

  

Rent Expense

Jan. 16

1,400

      

Jan. 31

500

Clo.

500

31

1,400

              

Bal.

2,800

Clo.

2,800

          

 

Utilities Expense

  

Depreciation Expense

Jan. 24

300

Clo.

300

  

Jan. 31

200

Clo.

200

(continued) E 5-16

Req. 2

Journal

DATE

ACCOUNTS AND EXPLANATIONS

POST.

REF.

DEBIT

CREDIT

Jan.

2

Cash

  

7,200

  
   

Service Revenue

    

7,200
           
 

2

Prepaid Rent

  

1,500

  
   

Cash

    

1,500
           
 

7

Accounting Software Inventory

  

4,000

  
   

Accounts Payable

    

4,000
           
 

16

Salary Expense

  

1,400

  
   

Cash

    

1,400
           
 

18

Accounts Receivable

 

1,100

  
   

Sales Revenue

    

1,100
           
 

18

Cost of Goods Sold

  

700

  
   

Accounting Software Inventory

    

700
           
 

19

Accounts Receivable

  

900

  
   

Service Revenue

    

900
           
 

21

Accounts Payable

  

2,000

  
   

Cash

    

2,000
           
 

24

Utilities Expense

  

300

  
   

Cash

    

300
           
 

28

Cash

  

600

  
   

Sales Revenue

    

600
           
 

28

Cost of Goods Sold

  

400

  
   

Accounting Software Inventory

    

400

(continued) E 5-16

Req. 2

DATE

ACCOUNTS AND EXPLANATIONS

POST.

REF.

DEBIT

CREDIT
   

Adjusting Entries

      

Jan.

31

Salary Expense

  

1,400

  
   

Salary Payable

    

1,400
           
 

31

Rent Expense ($1,500 ´ 1/3)

  

500

  
   

Prepaid Rent

    

500
           
 

31

Depreciation Expense

  

200

  
   

Accumulated Depreciation

    

200
           
   

Closing Entries

      

Jan.

31

Service Revenue

 

8,100

  
   

Sales Revenue

  

1,700

  
   

Income Summary

    

9,800
           
 

31

Income Summary

  

4,900

  
   

Cost of Goods Sold

    

1,100
   

Salary Expense

    

2,800
   

Rent Expense

    

500
   

Utilities Expense

    

300
   

Depreciation Expense

    

200
           
 

31

Income Summary ($9,800 ! $4,900)

  

4,900

  
   

Amos Faraday, Capital

    

4,900

After Closing

Total debits in the ledger....... $8,500

Total credits in the ledger...... 8,500

(continued) E 5-16

Req. 3

Amos Faraday, Consultant

Income Statement

Month Ended January 31, 20XX

Revenues:

    

Service revenue

  

$8,100

Sales revenue

  

1,700

Expenses:

  

9,800

Cost of goods sold

$1,100

  

Salary expense

2,800

  

Rent expense

500

  

Utilities expense

300

  

Depreciation expense

200

4,900

Net income

  

$4,900

 

 

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