Chapter 5 journalize, post, prepare partial income statement, and

Chapter 5

Problems: Set B

P5-5B An inexperienced accountant prepared this condensed income statement for Wright Company, a retail firm that has been in business for a number of years.

WRIGHT COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales                               $952,000

Other revenues                          16,000

                                                   968,000

Cost of goods sold                     548,000

Gross profit                                 420,000

Operating expenses

Selling expenses                     160,000

Administrative expenses          104,000

                                                   264,000

Net earnings                              $156,000

As an experienced, knowledgeable accountant, you review the statement and determine the following facts.

1. Net sales consist of sales $972,000, less freight-out on merchandise sold $20,000.
2. Other revenues consist of sales discounts $12,000 and interest revenue $4,000.

1. Selling expenses consist of salespersons’ salaries $88,000; depreciation on equipment $4,000; sales returns and allowances $46,000; advertising $12,000; and sales commissions $10,000. All compensation should be recorded as Salaries and Wages Expense.
2. Administrative expenses consist of office salaries $54,000; dividends $14,000; utilities $13,000; interest expense $3,000; and rent expense $20,000, which includes prepayments totaling $2,000 for the first month of 2015. The utilities represent utilities paid. At December 31, utility expense of $3,000 has been incurred but not paid.

Instructions

Prepare a correct detailed multiple-step income statement.

*P5-9B At the beginning of the current season on November 1, the ledger of Winona Sports showed Cash $3,300, Inventory $4,700, and Common Stock $8,000. The following transactions occurred during November 2014.

Nov.    5     Purchased hockey sticks and pucks on account from Hi-Stick Co. $1,600, terms 2/10, n/60.

           7     Paid freight on Hi-Stick Co. purchases $90.

           9     Received credit from Hi-Stick Co. for merchandise returned $350.

         10     Sold merchandise on account for $1,000, terms n/30.

         12     Purchased gloves, socks, and other accessories on account from Twin City Sportswear $945, terms 1/10, n/30.

         14     Paid Hi-Stick Co. in full.

         17     Received credit from Twin City Sportswear for merchandise returned $45.

         20     Made sales on account for $1,330, terms n/30.

         21     Paid Twin City Sportswear in full.

         27      Granted credit to customers for clothing that did not fit properly $150.

         30      Received payments on account for $1,900.

The chart of accounts for Winona Sports includes Cash, Accounts Receivable, Inventory, Accounts Payable, Common Stock, Sales Revenue, Sales Returns and Allowances, Purchases, Purchase Returns and Allowances, Purchase Discounts, and Freight-In.

Instructions

(a)  Journalize the November transactions using a periodic inventory system.

(b)  Using T-accounts, enter the beginning balances in the ledger accounts and post the November transactions.

(c)  Prepare a trial balance on November 30, 2014.

(d)  Prepare an income statement through Gross profit, assuming inventory on hand at November 30 is $5,196.