Week 3 Homework Template

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Save the file as follows: lastnamewk1.docx
Submit to the assignment box before the due date. (Late assignments will receive a late
penalty).
Remember to show your calculations where necessary! (Use empty space under the tables
to do so).
Exercise 5-2
(a) Journalize the transactions, including explanations. (Note, enter all accounts
in one box. The dates have been included to help with formatting).

Date
Sept.

10

12

12

14

14

20

Account Titles and Explanation

Inventory (Purchased calculators)
Accounts Payable

Debit

Credit

1650
1650

Inventory (Freight)
Accounts Payable

50

Accounts Payable
Inventory (Returned calculators)

66

Accounts Receivable (Sold Calculators)

Sales

690

Cost of Goods Sold

Inventory

520

Sales Return (Return Calculator)

Accounts Receivable

45

Inventory (Returned Calculator)

Cost of Goods Sold

34

Accounts Receivable (Sold Calculators)

760

50

66

690

520

45

34

Sales
20

Cost of Goods
Inventory

Exercise 5-6 is on the next page

760
570
570

Exercise 5-6
(a) Prepare an income statement using the format presented on page 245. Assume a
25% tax rate.
(b) Calculate the profit margin ratio and gross profit rate.
ZHOU COMPANY
Income Statement
For the Month Ended January 31, 2014
Sales Revenues
Sales
Less: Sales Returns and allowances
Sales Discounts
Net Sales
Cost of goods sold
Gross profit
Operating Expenses
Salaries and wages expense
Insurance Expense
Rent Expense
Freight Out
Total operating expenses
Income before income taxes
Income tax expense
Net Income
(b) Profit Margin Ratio
10,500/342,000
= 4.1% Profit Margin Ratio

Gross Profit Rate

130,000/342,000
= 38% Gross Profit Rate

370,000
20000
8000
342,000

28,000
212,000

130,000
60,000
12,000
32,000
7000
111,000
19,000
4,750
14250

PROBLEM 5-5B
Prepare a correct detailed multiple-step income statement. Assume a tax rate of 25%.
WRIGHT COMPANY
Income Statement
For the Month Ended December 31, 2014
Sales Revenues
Sales
Less sales returns and allowances
Sales Discounts
Net Sales
Cost of goods sold
Gross profit
Operating Expenses
Wages and Salaries Expense
Depreciation Expense
Advertising Expense
Utilities Expense
Interest Expense
Rent Expense
Dividends
Total operating expenses
Income from operations
Other revenues and gains
Interest Revenue
Other expenses and losses
Account title
Income before income taxes
Income tax expense
Net Income

$972,000
46,000
12,000
914,000
548,000
366,000
98,000
4,000
12,000
13,000
3000
20,000
54000
204,000
162,000
4000

162,000
40,500
$121,500

Problem 6-2B
(a) Determine the Cost of Goods Available for Sale
Date
June 1

Explanation
Beginning
Inventory

Units
1,200

Unit Cost
3

Total Cost
3,600

June 3

4000

12,000

June 18

7500

37,500

June 29

4,000

Total

16,700

24,000

77,100

(b) Determine the ending inventory and cost of goods sold under each of the assumed cost
flow methods. Prove the accuracy of the cost of goods sold under FIFO and LIFO.
FIFO
(1) Ending Inventory
Date
Units
June 18
June 29
Total

2200
4000
6200

Unit
Cost
5
6
Total

Total Cost
11000
24000
35000

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory
Cost of Goods Sold

77,100
35,000
42,100

Proof of Cost of Goods Sold (FIFO)

Date
Units
Unit
Total Cost
Cost
June 1
1200
3
3600
June 3
4000
3
12000
June 18
5300
5
26500
Total

10,500

42100

LIFO
(1) Ending Inventory
Date
Units
June 1
June 3
June 18
Total

1200
4000
1000
6200

Unit
Cost
3
3
5

Total Cost
3600
12000
5000
20,600

Proof of Cost of Goods Sold (LIFO)

Date
Units
Unit
Total Cost
Cost

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory

Cost of Goods Sold

77,100
20,600

56,500

June 18
June 29

6,500
4000

5
6

32,500
24,000

Total

10,500

Total

56,500

AVERAGE COST (Round to the nearest decimal, i.e., $1.01)

(1) Ending Inventory
Units

Total

6,200
6,200

Unit
Cost
4.62
4.62

Total Cost
28,644
28,644

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory
Cost of Goods Sold

77,100
28,644
48,456

(c) Which cost flow method results in (1) the highest inventory amount for the balance
sheet and (2) the highest cost of goods sold for the income statement?
1)FIFO results in the highest inventory amount for the balances sheet at $42,100
2)LIFO results in the highest cost of goods at $56,000

Problem 6-3B
(a) Determine the Cost of Goods Available for Sale
Date
Jan 1
Jan 24
April 12
Aug 19
Nov 30

Explanation
Beginning Inv.

Total

Units
200
800
400
600
350
2350

Unit Cost
6
7
8
9
10

Total Cost
1200
5600
3200
5400
3500
18,900

(b) Determine the ending inventory and the cost of goods sold under each of the assumed
cost flow methods (FIFO, LIFO and average-cost). Prove the accuracy of the cost of goods
sold under each method.
FIFO
(1) Ending Inventory
Date
Units
Aug 19
Nov 30
Total

100
350
450

Unit
Cost
9
10

Total Cost
900
3500
4400

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory
Cost of Goods Sold

18900
4400
14500

Proof of Cost of Goods Sold (FIFO)

Date
Units
Unit
Total Cost
Cost
Jan 1
200
6
1200
Jan 24
800
7
5600
April 12
400
8
3200
Aug 19
500
9
4500
Total
1900
14500
LIFO
(1) Ending Inventory
Date
Units
Jan 1
Total

200
250
450

Unit
Cost
6
7

Total Cost
1200
1750
2950

Proof of Cost of Goods Sold (LIFO)

Date
Units
Unit
Total Cost
Cost
Jan 24
550
7
3850
April 12
400
8
3200
Aug 19
600
9
5400
Nov 30
350
10
3500
Total
1900
15950

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory
Cost of Goods Sold

18900
2950
15,950

AVERAGE COST (Round to the nearest decimal, i.e., $1.01)

(1) Ending Inventory
Units

Total

450
450

Unit
Cost
8.04

Total Cost
3618
3618

(2) Cost of Goods Sold

Cost of goods available
for sale
Less: ending inventory
Cost of Goods Sold

18900
3618
15,282

(c) Which cost flow method results in the lowest inventory amount for the balance sheet?
The lowest cost of goods sold for the income statement?
1)FIFO results in the highest inventory amount for the balances sheet at $14,500
2)LIFO results in the highest cost of goods at $15,950

Week Three
Assignment #3
Week Three Homework Problems
Complete problems
E5-2,

EXERCISE 5-2
Sept. 6
9
10
12

Inventory ........................................................
Accounts Payable ..................................

1,650

Inventory ........................................................
Cash ........................................................

50

Accounts Payable .........................................

Inventory ................................................

66

Accounts Receivable ....................................

Sales Revenue .......................................

690

Cost of Goods Sold .......................................

Inventory ................................................

520

1,650
50
66
690
520

EXERCISE 5-2 (Continued)

Sept. 14
14

20

Sales Returns and Allowances .....................

Accounts Receivable..............................

45

Inventory ..........................................................
Cost of Goods Sold .................................

34

Accounts Receivable ......................................

Sales Revenue .........................................

760

Cost of Goods Sold .........................................

Inventory ..................................................

570

45
34

760

570

E5-6

EXERCISE 5-6
(a)

ZHOU Co.
Income Statement
For the Month Ended January 31, 2014
Sales
Sales revenue..............................................
Less: Sales returns and allowances ........
Sales discounts ...............................
Net sales..............................................................
Cost of goods sold .............................................
Gross profit .........................................................
Operating expenses
Salaries and wages expense .....................
Rent expense ..............................................
Insurance expense .....................................
Freight-out ...................................................
Total operating expenses ...................
Income before income taxes .............................
Income tax expense ...........................................
Net income ..........................................................

(b) Profit margin =

$14,250
= 4.2%
$342,000

$370,000
$20,000
8,000

28,000
342,000
212,000
130,000

60,000
32,000
12,000
7,000
111,000
19,000
4,750
$ 14,250

Gross profit rate =

$130,000
= 38.0%
$342,000
and P5-5B from Chapter 5 and

PROBLEM 5-5B

WRIGHT COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue .......................................
Less: Sales returns and
allowances .............................
Sales discounts .........................
Net sales .......................................................
Cost of goods sold.......................................
Gross profit...................................................
Operating expenses
Salaries and wages expense ...............
Freight-out ............................................
Rent expense ($20,000 $2,000) .........
Utilities expense ...................................
Advertising expense ............................
Depreciation expense ..........................
Total operating expenses ............
Income from operations ..............................
Other revenues and gains
Interest revenue ....................................
Other expenses and losses
Interest expense ...................................
Net income ....................................................
*($13,000 + $3,000)

$972,000
$ 46,000
12,000

58,000
914,000
548,000
366,000

152,000
20,000
18,000
16,000*
12,000
4,000
222,000
144,000
4,000
3,000
$145,000

Problems 6-2B and

PROBLEM 6-2B

(a)
Date
Cost
June

COST OF GOODS AVAILABLE FOR SALE

Explanation
Units
Unit Cost
1
3
18
29

Beginning inventory
1,200
Purchase
4,000
Purchase
7,500
Purchase
4,000
Total
16,700

(b)

$3
3
5
6

Total
$ 3,600
12,000
37,500
24,000
$77,100

FIFO
(1)

Ending Inventory
Unit
Total
Date
Units Cost
Cost
June 29 4,000
$6
$24,000
18 2,200
5
11,000
6,200*
$35,000
*16,700 10,500 = 6,200
Proof of Cost of Goods Sold
Unit
Total
Date
Units Cost
Cost
June 1 1,200
$3 $ 3,600
3 4,000
3
12,000
18 5,300
5
26,500
10,500
$42,100

(2)
Cost of Goods Sold
Cost of goods
available for sale
$77,100
Less: Ending
inventory
35,000
Cost of goods sold
$42,100

PROBLEM 6-2B (Continued)

LIFO
(1)

Ending Inventory
Unit
Total
Date
Units Cost
Cost
June 1 1,200
$3 $ 3,600
3 4,000
3
12,000
18 1,000
5
5,000
6,200
$20,600

(2)
Cost of Goods Sold
Cost of goods
available for sale
$77,100
Less: Ending
inventory
20,600
Cost of goods sold
$56,500

Proof of Cost of Goods Sold

Unit
Total
Date
Units Cost
Cost
June 29 4,000
$6 $24,000
18 6,500
5
32,500
10,500
$56,500

AVERAGE-COST
(1)
Ending Inventory
(2)
Cost of Goods Sold
Cost of goods
$77,100 16,700 = $4.617
available for sale
$77,100
Less: Ending
Unit
Total
inventory
28,625
Units
Cost
Cost
Cost of goods sold
$48,475
6,200
$4.617
$28,625*
*Rounded
(c) (1) As shown in (b), due to rising prices, FIFO produces the
highest inventory amount, $35,000.
(2) As shown in (b), due to rising prices, LIFO produces the
highest cost of goods sold, $56,500.
6-3B from Chapter 6

PROBLEM 6-3B

(a)

COST OF GOODS AVAILABLE FOR SALE

Date
Jan.
Jan.
Apr.
Aug.
Nov.

1
24
12
19
30

Explanation

Units

Beginning inventory
Purchase
Purchase
Purchase
Purchase
Total

200
800
400
600
350
2,350

(b)

Unit Cost Total Cost

$ 6
7
8
9
10

$ 1,200
5,600
3,200
5,400
3,500
$18,900

FIFO
(1)

Ending Inventory

Date

Units

Nov. 30
Aug. 19

350
100
450*

Unit
Cost

Total
Cost

(2)
Cost of Goods Sold
Cost of
goods available
for sale
$18,900

$10
9

$3,500
900
$4,400

Less: Ending
inventory
Cost of goods sold

*2,350 1,900 = 450

Proof of Cost of Goods Sold
Unit
Total
Date
Units
Cost
Cost
Jan.
Jan.
Apr.
Aug.

1
24
12
19

200
800
400
500
1,900

$6
7
8
9

$ 1,200
5,600
3,200
4,500
$14,500

4,400
$14,500

PROBLEM 6-3B (Continued)

LIFO
(1)

Ending Inventory

Date

Units

Jan. 1
Jan. 24

200
250
450

Unit
Cost

Total
Cost

(2)
Cost of Goods Sold
Cost of
goods available
for sale
$18,900

$6
7

$1,200
1,750
$2,950

Less: Ending
inventory
Cost of goods sold

2,950
$15,950

Proof of Cost of Goods Sold

Unit
Total
Date
Units
Cost
Cost
Nov.
Aug.
Apr.
Jan.

30
19
12
24

350
600
400
550
1,900

$10
9
8
7

$ 3,500
5,400
3,200
3,850
$15,950

AVERAGE-COST
(1)
Ending Inventory
(2)
Cost of Goods Sold
Cost of goods
$18,900 2,350 = $8.042
available for sale
$18,900
Less: Ending
Unit
Total
inventory
3,619
Units
Cost
Cost
Cost of goods sold
$15,281
450
$8.042
$3,619

(c) Due to rising prices, LIFO results in the lowest inventory amount
for the balance sheet, $2,950.
FIFO results in the lowest cost of goods sold for the income
statement $14,500.