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Chapter 7-solutions of assigned problems

# Chapter 7-solutions of assigned problems - Chapter 7...

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Chapter 7 Reporting and Interpreting Sales Revenue, Receivables, and Cash E7–3 Sales revenue (\$1,000 + \$5,000 +\$3,000) ................................. \$9,000 Less: Sales discount (\$5,000 collected from Steven x 2%) ...... 100 Credit card discount (\$1,000 from Rami x 2%) ................ 20 Net sales ..................................................................................... \$8,880 E7–5 Income from Transaction Net Sales Gross Profit Operations July 12 + + + July 15 + + + July 20 NE NE July 21 E7–7 Req. 1 SLATE, INC. Income Statement For the Year Ended December 31, 2006 Percentage Amount Analysis Gross sales (\$220,000 + \$32,000) ..................... \$252,000 Less sales returns and allowances .................... 7,000 Net sales revenue ............................................... 245,000 100% Cost of goods sold .............................................. 147,000 60 % Gross margin on sales ....................................... 98,000 40% Operating expenses: Administrative expense .................................... \$19,000 Selling expense ................................................ 40,200 Bad debt expense (\$32,000 x 2.5%) ................ 800 60,000 24 % Income before income tax .................................. 38,000 16% Income tax expense (\$38,000 x 30%) .............. 11,400 5 % Net income ......................................................... \$ 26,600 11 %

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Earnings per share (\$26,600 ÷ 5,000 shares) \$5.32 In this case Income from operations is the same as Income before income tax. Req. 2 Gross profit (gross margin): \$245,000 – \$147,000 = \$98,000 . Gross profit percentage = \$98,000 ÷ \$245,000 = .40 (or 40%). Gross profit (or gross margin) in dollars is the difference between the sales prices and the costs of purchasing or manufacturing all goods that were sold during the period (sometimes called the markup); that is, net revenue minus only one of the expenses – cost of goods sold. The gross profit ratio is the amount of each net sales dollar that was gross profit during the period. For this company, the rate was 40%, which means that \$.40 of each net sales dollar was gross profit (alternatively, 40% of each sales dollar was gross profit for the period). E7–10 Req. 1 Bad debt expense (E) (\$650,000 x 0.02) ................... 13,000 Allowance for doubtful accounts (XA) ................ 13,000 To record estimated bad debt expense. Req. 2 Allowance for doubtful accounts (XA) ....................... 1,600 Accounts receivable (A) ..................................... 1,600 To write off a specific bad debt. Income from Transaction Net Sales Gross Profit Operations a. NE NE b. NE NE NE E7–11 (Journal entry amounts are in millions of Euro) Req. 1 Bad debt expense (E) .............................................................. 49 Allowance for doubtful accounts (XA) ........................... 49 To record estimated bad debt expense. Allowance for doubtful accounts (XA) ...................................... 160 Accounts receivable (A) ................................................ 160 To write off specific bad debts.
Req. 2 It would have no effect because the asset “Accounts receivable” and contra- asset “Allowance for doubtful accounts” would both decline by €10 million.

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