Chapter 5

# Chapter 5 - CHAPTER 5 CHAPTER 5 BRIEF EXERCISE 5-4 Gross...

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CHAPTER 5 CHAPTER 5 BRIEF EXERCISE 5-4 Gross profit ratio: (\$50,000 – \$30,000)/\$50,000 = 40% BRIEF EXERCISE 5-6 Ending Inventory: FIFO: 500 × \$6 = \$3,000 LIFO: 500 × \$5 = \$2,500 EXERCISE 5-5 Case 1: (a) Beginning inventory: cost of goods available for sale – cost of goods purchased = \$7,110 – (\$6,230 – \$470 – \$200 + \$150) = \$7,110 – \$5,710 = \$1,400 (b) Ending inventory: cost of goods available for sale – cost of goods sold = \$7,110 – \$5,220 = \$1,890 Case 2: (must first solve d, then c) (d) Cost of goods available for sale: cost of goods sold + ending inventory = \$5,570 + \$1,750 = \$7,320 (c) Purchase discounts: 1. Cost of goods available for sale – beginning inventory = cost of goods purchased = \$7,320 – \$2,350 = \$4,970 2. Gross purchases – purchase returns and allowances – purchase discounts + transportation-in = cost of goods purchased; \$5,720 – \$800 – purchase discounts + \$500 = \$4,970; purchase discounts = \$5,420 – \$4,970 = \$450 Case 3: (e) Gross purchases: 1. Cost of goods purchased = cost of goods available for sale – beginning inventory = \$8,790 – \$1,890 = \$6,900 2. Gross purchases – purchase returns and allowances – purchase discounts + transportation-in = cost of goods purchased; gross purchases – \$550 – \$310 + \$420 = \$6,900; gross purchases = \$6,900 + \$550 + \$310 – \$420 = \$7,340 1

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CHAPTER 5 (f) Cost of goods sold = cost of goods available for sale – ending inventory = \$8,790 – \$1,200 = \$7,590 EXERCISE 5-6 July 3 Purchases 3,500 Accounts Payable 3,500 To record purchases of merchandise on credit. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Accounts Payable 3,500 (3,500) Purchases 3,500 (3,500) July 6 Purchases 7,000 Accounts Payable 7,000 To record the purchase of merchandise on credit. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Accounts Payable 7,000 (7,000) Purchases 7,000 (7,000) July 12 Accounts Payable 3,500 Cash 3,465 Purchase Discounts 35 To record payment on account: \$3,500 – 0.01(\$3,500) = \$3,465. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Cash (3,465) Accounts Payable (3,500) 35 Purchases Discounts* (35) 35 *The Purchase Discounts account has increased. It is shown as a decrease because it is a contra-purchases account and causes expenses to decrease. 2
CHAPTER 5 EXERCISE 5-6 CONTINUED Aug. 5 Accounts Payable 7,000 Cash 7,000 To record payment on account. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Cash (7,000) Accounts Payable (7,000) EXERCISE 5-7 Mar. 3 Purchases 2,500 Accounts Payable 2,500 To record purchases on credit. Balance Sheet

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Chapter 5 - CHAPTER 5 CHAPTER 5 BRIEF EXERCISE 5-4 Gross...

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