Fundamental Accounting Principles
Fundamental Accounting Principles
24th Edition
ISBN: 9781259916960
Author: Wild, John J., Shaw, Ken W.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5BPSB
To determine

Concept Introduction:

Adjusting entries

Adjusting entries are prepared to complete the financial statement of the company and to reflect the accrual method of accounting. Adjusting entries are prepared before issuance of financial statement.

To prepare:

To prepare adjusting journal entry.

Expert Solution
Check Mark

Answer to Problem 5BPSB

    DateAccounts titles and ExplanationDebit ($)Credit ($)
    Jan.31
    Store supplies expense
    6,000
    Store supplies
    6,000
    (To record the store supplies available at year end)
    Jan.31
    Insurance Expense
    2,800
    Prepaid insurance
    2,800
    (To record expired insurance)
    Jan.31
    Depreciation expense - store equipment
    3,000
    Accumulated depreciation - store equipment
    3,000
    (To record the depreciation expense on store-Equipment)
    Jan.31
    Cost of goods sold
    2,700
    Merchandise inventory
    2,700
    (To record the cost of goods sold of inventory)

Explanation of Solution

Journal entries are explained as follows-

  1. In this entry, store supplies are available at the end. So to adjust this, store supplies are recorded as an expense and debited in the entry. Store supplies are current assets as they are decreasing so it gets credited.
  2.   Store supplies = Total balanceAvailable balance at the endStore supplies =$9,700$3,700Store supplies =$6,000

    1. In this entry, Expired insurance is recorded. Insurance is an expense for the company so it is debited and prepaid insurance are current assets as they are decreasing so it gets credited.
    2. In this entry, Depreciation expense is recorded. So it is debited. Assets gets reduced with such amount so accumulated depreciation is credited.
    3. In this entry cost of goods sold are recorded. So inventory will get reduced with such amount, so it is credited.

      Amount recorded= Merchandise inventory  Available balanceAmount recorded=24,00021,300Amount recorded=2,700

Conclusion:

Thus, the adjusting journal entries are prepared.

To determine

Concept Introduction:

Multiple-step Income statement

Multiple step income statement is one of the format of preparing income statement. Another format of preparing income statement is single step income statement.

Multiple step income statement provides more information than a single step income statement. It involves more than one deduction.

To prepare-

To prepare multiple step income statement.

Expert Solution
Check Mark

Answer to Problem 5BPSB

    Multiple step Income statement
    Nelson Co.



    ParticularsAmount ($)Amount ($)
    Sales revenue:
    Sales
    227,100
    Less: Sales discount
    1,000
    Less: Sales returns and allowances
    5,000
    Net sales
    221,100
    Less: Cost of goods sold (75,800+2,700)
    78,500
    Gross profit
    142,600
    Operating Expenses
    Selling expenses:
    Sales staff salaries
    31,500
    Advertising expense
    17,800
    Rent expense- selling space
    13,000
    Store supplies expense
    6,000
    Depreciation Expense- store equipment
    3,000
    71,300
    General and administrative expense:
    Office salaries expense
    31,500
    Rent expense-Office space
    13,000
    Insurance expense
    2,800
    47,300
    Total Operating expenses
    118,600
    Net income
    24,000

Explanation of Solution

Net Income is calculated as follows-
  Net income=Gross profitTotal operating expenses

Gross profit is calculated as follows

  Gross profit=Net sales  Cost of goods soldGross profit=$221,100$78,500Gross profit=$142,600

  Net sales = Sales revenue  Sales discounts Sales returns and allowanceNet sales =$227,100$1,000$5,000Net sales =$221,100

Total Operating expenses is calculated as follows

  Total Operating expenses= Selling expenses+General and administrative expensesTotal Operating expenses=(Sales staff salaries+ Advertising expense+ Rent expense selling space+ Store supplies expense+ Depreciation Expense store equipment) +(Office salaries expense+ Rent expenseOffice space+ Insurance expense)Total Operating expenses=31,500+17,800+13,000+6,000+3,000+31,500+13,000+2,800Total Operating expenses=71,300+47,300Total Operating expenses=118,600

  Net income = Gross profit  Total Operating expensesNet income =142,600118,600Net income =$24,000

Conclusion:

Thus, multiple-step income statement is prepared.

To determine

Concept Introduction:

Single-step Income statement

Single-step income statement is one of the format of preparing income statement. Another format of preparing income statement is multiple- step income statement.

In single step income statement, all the expenses included cost of goods sold is recorded in one column. Expenses are not divided into sub-categories.

To prepare-

To prepare single step income statement.

Expert Solution
Check Mark

Answer to Problem 5BPSB

    Single step Income statement
    Nelson Co.



    ParticularsAmount ($)Amount ($)
    Sales revenue:
    Sales
    227,100
    Less: Sales discount
    1,000
    Less: Sales returns and allowances
    5,000
    Net sales
    221,100
    Less: Expenses:
    Cost of goods sold
    78,500
    Sales staff salaries
    31,500
    Advertising expense
    17,800
    Rent expense- selling space
    13,000
    Store supplies expense
    6,000
    Depreciation Expense- store equipment
    3,000
    Office salaries expense
    31,500
    Rent expense-Office space
    13,000
    Insurance expense
    2,800
    Total expenses
    197,100
    Net income
    24,000

Explanation of Solution

Net Income is calculated as follows

  Net income=NetsalesTotal expenses

Net sales is calculated as follows-

  Net sales = Sales revenue  Sales discounts Sales returns and allowanceNet sales =$227,100$1,000$5,000Net sales =$221,100

Total expenses is calculated as follows

  Total expenses=Cost of goods sold+Sales staff salaries+ Advertising expense+ Rent expense selling space+ Store supplies expense+ Depreciation Expense store equipment+Office salaries expense+ Rent expenseOffice space+ Insurance expense)Total  expenses=78,500+31,500+17,800+13,000+6,000+3,000+31,500+13,000+2,800Total  expenses=197,100

  Net income = Netsales  Total expensesNet income =221,100197,100Net income =$24,000

Conclusion:

Thus, single-step income statement is prepared.

To determine

Concept Introduction:

Current ratio
Current ratio is a ratio which helps to measure the ability of company to pay the obligations of the company. It is calcuated by using following formula

  Current ratio = Current assets/ Current liabilities

Acid-test ratio
It is a ratio which measures the ability of company to use its short term cash to repay the liabilities immediately. It is calcuated by using following formula

  Acidtest ratio = Quick assets / Current liabilities

Gross margin ratio

Gross margin ratio assesses the profitability of the company by stating gross margin as a percenatge of sales. It is calculated by usimg following formula-

  Gross margin ratio= Gross marginNet sales   *100

To Calculate-

To compute current ratio, Acid test ratio, Gross margin ratio.

Expert Solution
Check Mark

Answer to Problem 5BPSB

  Current ratio = Current assets / Current liabilitiesCurrent ratio =36,200/18,000Current ratio =2.01

  Acid test ratio = Quick Assets / Current LiabilitiesAcid test ratio =7,400/18,000Acid test ratio =0.41

  Gross margin ratio = Gross marginNet sales *100Gross margin ratio =142,600221,100*100Gross margin ratio =64.50% 

Explanation of Solution

  1. Current ratio-
  2.   Current ratio = Current assets/ Current liabilities

      Current assets = Cash+Merchandise inventory+Store supplies+Prepaid insuranceCurrent assets =7,400+21,300+3,700+3,800Current assets =36,200

      Current liabilities = Accounts payableCurrent liabilities =18,000

      Current ratio = Current assets / Current liabilitiesCurrent ratio =36,200/18,000Current ratio =2.01

  3. Acid-test ratio-
  4.   Acidtest ratio = Quick assets / Current liabilities

      Quick assets = CashQuick assets =7,400

      Current liabilities = Accounts payableCurrent liabilities =18,000

      Acid test ratio = Quick Assets / Current LiabilitiesAcid test ratio =7,400/18,000Acid test ratio =0.41

  5. Gross-margin ratio-
  6.   Gross margin ratio= Gross marginNet sales   *100

    Gross margin = 142,600 (Calculated in part 2)

    Net sales = 221,100 (Calculated in part 2)

      Gross margin ratio = Gross marginNet sales *100Gross margin ratio =142,600221,100*100Gross margin ratio =64.50% 

Conclusion:

Thus, ratios are calculated.

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Chapter 5 Solutions

Fundamental Accounting Principles

Ch. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Refer to the income statement of Samsung in...Ch. 5 - Prob. 15DQCh. 5 - Applying merchandising terms C1 P1 Enter the...Ch. 5 - Identifying inventory costs C2 Costs of $5.000...Ch. 5 - Merchandise accounts and computations C2 Use the...Ch. 5 - Computing net invoice amounts P1 Compute the...Ch. 5 - Recording purchases, returns, and discounts taken...Ch. 5 - Recording purchases and discounts taken P1 Prepare...Ch. 5 - Recording purchases and discounts missed Pl...Ch. 5 - Recording sales, returns, and discounts taken P2...Ch. 5 - Accounting for shrinkage—perpetual system P3...Ch. 5 - Closing entries P3 Refer to QS 5-9 and prepare...Ch. 5 - Multiple-step income statement P4 For each item...Ch. 5 - Preparing a multiple-step income statement P4...Ch. 5 - Exercise 5-13 Physical count error and profits A2...Ch. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Recording purchases, returns, and...Ch. 5 - Recording sales. returns, and discounts—periodic &...Ch. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - QS 5-23 Sales transactions P2 Prepare journal...Ch. 5 - Exercise 5-1 Computing revenues, expenses, and...Ch. 5 - Prob. 2ECh. 5 - Exercise 5-3 Recording purchases, purchases...Ch. 5 - Exercise 5-4 Recording sales, sales returns, and...Ch. 5 - Exercise 5.5 Recording purchases, purchases...Ch. 5 - Exercise 5-6 Recording sales, purchases, and cash...Ch. 5 - Exercise 5-7 Recording sales, purchases, shipping,...Ch. 5 - Exercise 5-8 Inventory and cost of sales...Ch. 5 - Exercise 5-9 Recording purchases, sales, returns,...Ch. 5 - Exercise 5-10 Preparing adjusting and closing...Ch. 5 - Prob. 11ECh. 5 - Exercise 5-12 Impacts of inventory error on key...Ch. 5 - Exercise 5-13 Physical count error and profits...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Prob. 20ECh. 5 - Prob. 21ECh. 5 - Prob. 22ECh. 5 - Prob. 23ECh. 5 - Prob. 24ECh. 5 - Prob. 25ECh. 5 - Problem 5-1A Preparing journal entries for...Ch. 5 - Problem 5-2A Preparing journal entries for...Ch. 5 - Problem 5-3A Computing merchandising amounts and...Ch. 5 - Problem 5-4A Preparing closing entries and...Ch. 5 - Prob. 5APSACh. 5 - Problem 5-1 B Preparing journal entries for...Ch. 5 - Problem 5-2B Preparing journal entries for...Ch. 5 - Problem 5-3B Computing merchandising amounts and...Ch. 5 - Problem 5-4B Preparing closing entries and...Ch. 5 - Problem 5-5B Preparing adjusting entries and...Ch. 5 - SP 5 Santana Rey created Business Solutions on...Ch. 5 - Prob. 1GLPCh. 5 - Prob. 2GLPCh. 5 - Prob. 3GLPCh. 5 - Prob. 1AACh. 5 - Key comparative figures for Apple and Google...Ch. 5 - Prob. 3AACh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - Prob. 6BTN
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