5 - Note to Instructors In this chapter the term"net sales...

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Note to Instructors:  In this chapter the term “net sales” is used in the  income statement for all exercises and problems using the perpetual  method since any sales discounts and returns and allowances will be  reflected in the balance to the Sales Revenue account. SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 5 EXERCISE 5-1A a. Markin Consulting Income Statement For the Year Ended 2007 Revenue Consulting Revenue $15,000 Expenses Salaries Expense (9,600) Net Income $5,400 Markin Consulting  Balance Sheet As of the End of the Year 2007 Assets Cash* $25,400 Total Assets $25,400 Liabilities Notes Payable $20,000 Total Liabilities $20,000 5-6
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Stockholders’ Equity Retained Earnings 5,400 Total Stockholders’ Equity 5,400 Total Liab. and Stockholders’ Equity $25,400 *$20,000 + $15,000  -  $9,600 = $25,400 5-7
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EXERCISE 5-1A a. (cont.) Markin Consulting Statement of Cash Flows For Year Ended 2007 Cash Flows From Operating Activities: Inflow from Revenue $15,000 Outflow for Salaries (9,600) Net Cash Flow from Operating Activ. $ 5,400 Cash Flows From Investing Activities -0- Cash Flows From Financing Activities: Inflow from Loan 20,000 Net Cash Flow from Financing Activ. 20,000 Net Increase in Cash 25,400 Plus: Beginning Cash Balance -0- Ending Cash Balance $25,400 5-8
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EXERCISE 5-1A a. (cont.) College Book Mart Income Statement For the Year Ended 2007 Net Sales $15,000 Cost of Goods Sold (8,400) Gross Margin 6,600 Expenses Operating Expenses (1,200) Net Income $5,400 College Book Mart Balance Sheet As of the End of the Year 2007 Assets Cash* $24,300 Merchandise Inventory** 1,100 Total Assets $25,400 Liabilities Notes Payable $20,000 Total Liabilities $20,000 Stockholders’ Equity Retained Earnings 5,400 Total Stockholders’ Equity 5,400 5-9
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Total Liab. and Stockholders’ Equity $25,400 *$20,000 - $9,500 + $15,000 - $1,200 = $24,300 **$9,500 - $8,400 = $1,100 5-10
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EXERCISE 5-1A a. (cont.) College Book Mart Statement of Cash Flows For Year Ended 2007 Cash Flows From Operating Activities: Inflow from Revenue $15,000 Outflow for Inventory (9,500) Outflow for Operating Expenses (1,200) Net Cash Flow from Operating Activities $  4,300 Cash Flows From Investing Activities -0- Cash Flows From Financing Activities: Inflow from Loan 20,000 Net Cash Flow from Financing Activities 20,000 Net Increase in Cash 24,300 Plus: Beginning Cash Balance -0- Ending Cash Balance $24,300 b. Markin Consulting is a service business and has service revenue and  expenses.  Notice that College Book Mart is a merchandising business  and has sales, cost of goods sold (with the calculation of gross margin),  and operating expenses.  c. The only difference in the balance sheets of the two businesses is in the  type of assets each owns.  Markin’s only asset is cash, while College  Book Mart has both cash and inventory.
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