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# ch 5 - CHAPTER 5 Merchandising Operations and the...

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CHAPTER 5 Merchandising Operations and the Multiple-Step Income Statement SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 5-1 (a) Sales = \$181,500 (\$71,900 + \$109,600). (b) Cost of goods sold = \$32,200 (\$71,200 – \$39,000). (c) Gross profit = \$43,000 (\$108,000 – \$65,000). (d) Operating expenses = \$28,200 (\$39,000 – \$10,800). (e) Operating expenses = \$13,500 (\$43,000 – \$29,500). (f) Net income = \$63,400 (\$109,600 – \$46,200). BRIEF EXERCISE 5-2 Clare Company Merchandise Inventory. ...................................... 900 Accounts Payable. ....................................... 900 Muni Company Accounts Receivable. ......................................... 900 Sales. ............................................................ 900 Cost of Goods Sold. ............................................ 660 Merchandise Inventory. .............................. 660 BRIEF EXERCISE 5-5 MARQUETTE COMPANY Income Statement (Partial) For the Month Ended October 31, 2007 Sales revenues Sales (\$300,000 + \$130,000). ............................... \$430,000 Less: Sales returns and allowances. ................ \$22,000 Sales discounts. ....................................... 5,000 27,000 Net sales. .............................................................. \$403,000 5-1

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BRIEF EXERCISE 5-6 As the name suggests, numerous steps are required in determining net income in a multiple-step statement. Item Section Gain on sale of equipment Cost of goods sold Depreciation expense Sales returns and allow- ances Other revenues and gains Cost of goods sold Operating expenses Sales revenues BRIEF EXERCISE 5-9 (a) Profit margin ratio = \$87,500 ÷ \$250,000 = .35 The profit margin ratio measures the extent by which selling price covers all expenses. In this case 65% of sales revenues cover all exp- enses (cost of goods sold, operating expenses, and other costs) leav- ing 35% of revenues as net income. Or, for every dollar of net sales, the company earns \$0.35 in net income. (b) Gross profit rate = (\$250,000 – \$100,000) ÷ \$250,000 = .60 The gross profit rate measures the margin by which selling price ex- ceeds cost of goods sold. In this case, 60% of sales revenues remain (after deducting cost of goods sold) to cover all other expenses and produce net income. 5-2
SOLUTIONS TO EXERCISES EXERCISE 5-1 (a) (1) Dec. 3 Accounts Receivable. ................... 480,000 Sales. ...................................... 480,000 Cost of Goods Sold. ...................... 320,000 Merchandise Inventory. ........ 320,000 (2) Dec. 8 Sales Returns and Allowances. ... 28,000 Accounts Receivable. ........... 28,000 (3) Dec. 13

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ch 5 - CHAPTER 5 Merchandising Operations and the...

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