Acct 1211-Chapter 5

Question 1

(30 marks)

Nathan New started a business, Nothing New, a proprietorship, in 2016. Nothing New used the periodic inventory system. Nothing New’s accounts included the following at July 31, 2018:

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Accounts Payable

$ 60,000

Nathan New, Capital

$ 241,800

 

Accounts Receivable

110,000

Nathan New, Withdrawals

50,000

 

Accumulated Amortization, Furniture

80,000

Purchases

1,200,000

 

Bank Loan, Long Term

130,000

Salary Payable

15,000

 

Cash

20,000

Sales Discounts

30,000

 

Furniture

320,000

Sales Returns & Allowances

40,000

 

General Expenses

200,000

Sales Revenue

2,000,000

 

Interest Expense

8,000

Selling Expenses

400,000

 

Interest Payable

1,000

Supplies

20,000

 

Interest Revenue

200

Unearned Sales Revenue

10,000

 

Inventory, July 31, 2017

140,000

Required:

A. Prepare a single-step income statement for Nothing New at July 31, 2018 year end. Inventory was valued at $ 200,000 at July 31, 2018 based on a physical count.

B. Prepare the statement of owner’s equity for Nothing New at July 31, 2018.

C. Prepare a classified balance sheet for Nothing New at July 31, 2018.

Question 2

(20 marks)

Required:

A. Use the data from Question 1 to prepare a multi-step income statement for Nothing New at July 31, 2018 year end.

B. Owner, Nathan New, tries to achieve a gross margin of at least 40% and a net income of at least 15%. Keeping in mind that net income percentage is equal to net income/net sales revenue, has Nathan New achieved those results?

 

Question 3

(25 marks)

Toy Store and Toy Warehouse incurred the following transactions in November 2018:

· November 05: Toy Warehouse sold $ 75,000 toys to Toy Store. The sale had credit terms 2/10, n/30, FOB shipping.

· November 09: Toy Store returned $ 10,000 toys that it purchased on November 05. Toy Store received a credit memo for this.

· November 13: Toy Store paid $ 50,000 of the November 05 invoice amount that it owed to Toy Warehouse.

· November 19: Toy Store paid the remaining balance that it owed to Toy Warehouse.

Required:

A. Record these transactions on the accounting records of Toy Store. Explanations are not required when recording the journal entries.

B. Then, record these transactions on the accounting records of Toy Warehouse. Explanations are not required when recording the journal entries. Both businesses used the periodic inventory system. Discounts were permitted on particular payments.

Question 4

(25 marks)

Sammy’s Sportswear sells sport jerseys. It has a May 31, 2018 year end.

On February 28, 2018, Sammy’s Sportswear had in inventory of 40 jerseys that each cost $ 20. During the next 3 months, Sammy’s Sportswear purchased the following merchandise:

Units Unit Cost Total

March 50 $ 30 $ 1,500

April 100 $ 40 $ 4,000

May 150 $ 50 $ 7,500

During March, April, and May, Sammy’s Sportswear sold the following merchandise:

Units Unit Selling Price Total

March 60 $ 60 $ 3,600

April 40 $ 70 $ 2,800

May 90 $ 90 $ 8,100

Operating expenses for March, April, and May totalled $ 3,500. Sammy’s Sportswear used a perpetual inventory system. Assume that monthly purchases occurred on the first day of each month.

Required:

A. Calculate Sammy’s Sportswear’s ending inventory at May 31, 2018 using the moving-weighted-average costing method and the FIFO costing method.

B. Prepare Sammy’s Sportswear’s May 31, 2018 income statement for both the moving-weighted-average costing method and the FIFO costing method. Record the gross margin and operating income.