Chapter 6

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 Chapter 6, P 1.

1. Income statement prepared

Alan Accessories, Inc.

Income Statement
For the Year Ended August 31, 20x2

Net Sales
Gross Sales
Less Sales Returns and Allowances
Net Sales $ —
Cost of Goods Sold
Gross Margin $ —
Operating Expenses
Selling Expenses
Store Salaries Expense
Advertising Expense
Store Supplies Expense
Depreciation Expense,
Store Equipment
Total Selling Expenses $ —
General and Administrative Expenses
Office Salaries Expense
Rent Expense
Insurance Expense
Utilities Expense
Office Supplies Expense
Depreciation Expense,
Office Equipment
Total General and Administrative
Expenses —
Total Operating Expenses —
Income Before Income Taxes $ —
Income Taxes
Net Income $ —

(Note: Cost of Goods Sold includes Freight In.)

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P1-1

 Chapter 6, P 1. (Continued)

2. Income statement discussed

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P1-2

 Chapter 6, P 2.

20xx
Oct. 7 Accounts Receivable
Sales
Sold merchandise to Lina Ortiz,
terms n/30, FOB shipping point

7 Cost of Goods Sold

Merchandise Inventory
To transfer cost of merchandise
sold to Cost of Goods Sold account

8 Merchandise Inventory
Accounts Payable
Purchased merchandise from
Ruff Company, terms n/30, FOB
shipping point

9 Freight In
Cash
Paid shipping charges to Curry
Company for Oct. 8 purchase

10 Merchandise Inventory
Freight In
Accounts Payable
Purchased merchandise from
Sewall Company, terms n/30, FOB
shipping point; Sewall Company
paid freight costs

13 Office Supplies
Accounts Payable
Purchased office supplies from
Door Company, terms n/30
14 Accounts Receivable
Sales
Sold merchandise to Peter Watts,
terms n/30, FOB shipping point

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P2-1

 Chapter 6, P 2. (Continued)

20xx
Oct. 14 Cost of Goods Sold
Merchandise Inventory
To transfer cost of merchandise sold
to Cost of Goods Sold account

14 Accounts Payable
Merchandise Inventory
Returned damaged merchandise
to Ruff Company for credit

17 Cash
Accounts Receivable
Received payment on account
from Lina Ortiz

18 Accounts Payable
Office Supplies
Returned office supplies (not
merchandise) to Door Company
for credit

19 Cash
Sales
Sold merchandise for cash

19 Cost of Goods Sold

Merchandise Inventory
To transfer cost of merchandise sold
to Cost of Goods Sold account

20 Accounts Payable
Cash
Made payment on account to
Sewall Company for purchase of
Oct. 10

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P2-2

 Chapter 6, P 2. (Continued)

20xx
Oct. 21 Accounts Payable —
Cash —
Made payment on account to
Ruff Company for purchase
of Oct. 8 net of return on Oct. 14
$— – $ — = $—

24 Sales Returns and Allowances

Accounts Receivable
Accepted return from Peter Watts

24 Merchandise Inventory
Cost of Goods Sold
To transfer cost of merchandise
returned to Merchandise Inventory
account

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P2-3

 Chapter 6, P 3.

1. Income statement prepared

Carol's Kitchen Shop, Inc.

Income Statement
For the Year Ended March 31, 20x4

Net Sales
Gross Sales
Less Sales Returns and Allowances
Net Sales $ —
Cost of Goods Sold
Merchandise Inventory, Mar. 31, 20x3
Purchases
Less Purchases Returns and Allowances
Net Purchases $ —
Freight In
Net Cost of Purchases —
Goods Available for Sale $ —
Less Merchandise Inventory,
Mar. 31, 20x4
Cost of Goods Sold —
Gross Margin $ —
Operating Expenses
Selling Expenses
Store Salaries Expense
Advertising Expense
Store Supplies Expense
Depreciation Expense,
Store Equipment
Total Selling Expenses $ —
General and Administrative Expenses
Office Salaries Expense
Rent Expense
Insurance Expense
Utilities Expense
Office Supplies Expense
Depreciation Expense,
Office Equipment
Total General and Administrative
Expenses —
Total Operating Expenses —
Income Before Income Taxes $ —
Income Taxes
Net Income $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P3-1

 Chapter 6, P 3. (Continued)

2. Income statement discussed

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P3-2

Chapter 6, P 4.

20xx
Oct. 7 Accounts Receivable
Sales
Sold merchandise to Lina Ortiz,
terms n/30, FOB shipping point

8 Purchases
Accounts Payable
Purchased merchandise from
Ruff Company, terms n/30, FOB
shipping point

9 Freight In
Cash
Paid shipping charges to Curry
Company for Oct. 8 purchase

10 Purchases
Freight In
Accounts Payable
Purchased merchandise from
Sewall Company, terms n/30, FOB
shipping point; Sewall Company
paid freight costs

13 Office Supplies
Accounts Payable
Purchased office supplies from
Door Company, terms n/30

14 Accounts Receivable
Sales
Sold merchandise to Peter Watts,
terms n/30, FOB shipping point

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P4-1

Chapter 6, P 4. (Continued)

20xx
Oct. 14 Accounts Payable
Purchases Returns and Allowances
Returned damaged merchandise
to Ruff Company for credit
17 Cash
Accounts Receivable
Received payment on account
from Lina Ortiz

18 Accounts Payable
Office Supplies
Returned office supplies (not
merchandise) to Door Company
for credit

19 Cash
Sales
Sold merchandise for cash

20 Accounts Payable
Cash
Made payment on account to
Sewall Company for purchase of
Oct. 10

21 Accounts Payable —
Cash —
Made payment on account to
Ruff Company for purchase of
Oct. 8 net of return on Oct. 14
$— – $ — = $—
24 Sales Returns and Allowances
Accounts Receivable
Accepted return from Peter Watts

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P4-2

 Chapter 6, P 5.

Authorization

Recording transactions

Documents and records

Physical controls

Periodic check

Separation of duties

Sound personnel procedures

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P5-1

 Chapter 6, P 6.

20xx
Mar. 1 Accounts Receivable
Sales
Sold merchandise on credit to
M. Gaberman, terms 2/10, n/60,
FOB shipping point

3 Purchases
Accounts Payable
Purchased merchandise on credit
from King Company, terms 2/10,
n/30, FOB shipping point
4 Freight In
Accounts Payable
Received freight bill for March 3
shipment

6 Cash
Sales
Sold merchandise for cash

7 Accounts Receivable
Sales
Sold merchandise on credit to
B. Gomez, terms 2/10, n/60

9 Purchases
Freight In
Accounts Payable
Purchased merchandise on credit
from Armstrong Company, terms
1/10, n/30, FOB shipping point;
freight paid by supplier
10 Accounts Receivable
Sales
Sold merchandise on credit to
G. Horn, terms 2/10, n/20
10 Cash
Sales Discounts
Accounts Receivable —
Received payment in full from
M. Gaberman for sale of March 1;
2% discount allowed
x = $—
Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P6-1
 Chapter 6, P 6. (Continued)

20xx
Mar. 11 Purchases
Accounts Payable
Purchased merchandise on credit
from King Company, terms 2/10,
n/30, FOB shipping point

12 Freight In
Accounts Payable
Received freight bill for March 11
shipment

13 Accounts Payable
Purchases Discounts —
Cash
Paid for purchase of March 3 from
King Company; 2% discount taken
x = $—

14 Accounts Payable
Purchaes Returns and Allowances
Returned unsatisfactory merchan-
dise to Armstrong Company
16 Sales Returns and Allowances
Accounts Receivable
G. Horn returned merchandise
received for credit

17 Cash
Sales Discounts
Accounts Receivable —
Received payment from B. Gomez
for half of March 7 sale; 2% discount
taken
x $— = $—

18 Accounts Payable —
Purchases Discounts —
Cash
Paid for purchase of March 9 less
return for March 14; 1% discount
taken (on merchandise only)
x $— = $—
20 Accounts Payable
Purchases
Overcharge of March 11 purchase
from King Company

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P6-2

Chapter 6, P 6. (Continued)

20xx
Mar. 21 Accounts Payable
Cash
Paid freight charges for March

23 Cleaning Supplies
Accounts Payable
Purchased cleaning supplies on
credit from Moon Company,
terms n/5

24 Accounts Payable
Cleaning Supplies
Returned cleaning supplies
(not merchandise) for credit

25 Cash
Sales
Sold merchandise for cash

27 Accounts Payable
Cash
Paid Moon Company balance due

28 Cash
Accounts Receivable
Received payment in full from
G. Horn, no discount allowed

29 Accounts Payable
Cash
Paid for purchase of March 11
less adjustment of March 20;
no discount taken

31 Cash
Accounts Receivable
Received balance of B. Gomez
account; no discount allowed

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P6-3

Chapter 6, P 7.

1. Multistep income statement prepared

Hans' Video Store, Inc.

Income Statement
For the Year Ended June 30, 20x3

Net Sales
Gross Sales
Less Sales Returns and Allowances
Net Sales $ —
Cost of Goods Sold — *
Gross Margin $ —
Operating Expenses
Selling Expenses
Store Salaries Expense
Advertising Expense
Store Supplies Expense
Depreciation Expense,
Store Equipment
Total Selling Expenses $ —
General and Administrative Expenses
Office Salaries Expense
Rent Expense
Insurance Expense
Utilities Expense
Office Supplies Expense
Depreciation Expense,
Office Equipment
Total General and Administrative
Expenses —
Total Operating Expenses —
Income Before Income Taxes $ —
Income Taxes
Net Income $ —

*Cost of Goods Sold includes Freight In ( + ).

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P7-1

 Chapter 6, P 7. (Continued)

2. Income statement discussed

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P7-2

Chapter 6, P 8.

20xx
July 1 Accounts Receivable
Sales
Sold merchandise to Su Long,
terms n/30, FOB shipping point

1 Cost of Goods Sold

Merchandise Inventory
To transfer cost of merchandise
sold to Cost of Goods Sold account

3 Merchandise Inventory
Accounts Payable
Purchased merchandise from
Angier Company, terms n/30, FOB
shipping point

5 Freight In
Cash
Paid freight charges to Mix Freight

6 Store Supplies
Accounts Payable
Purchased store supplies from
Exto Supply Company, terms n/20

8 Merchandise Inventory
Freight In
Accounts Payable
Purchased merchandise from Ginn
Company, terms n/30, FOB ship-
ping point; freight paid by supplier

12 Accounts Payable
Merchandise Inventory
Returned some of merchandise
purchased from Angier Company

15 Accounts Receivable
Sales
Sold merchandise to Pete Smith,
terms n/30, FOB shipping point

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P8-1

Chapter 6, P 8. (Continued)

20xx
July 15 Cost of Goods Sold
Merchandise Inventory
To transfer cost of merchandise sold
to Cost of Goods Sold account

16 Accounts Payable
Store Supplies
Returned some of store supplies
(not merchandise) purchased on
July 6 for credit

17 Cash
Sales
Sold merchandise for cash

17 Cost of Goods Sold

Merchandise Inventory
To transfer cost of merchandise sold
to Cost of Goods Sold account

18 Sales Returns and Allowances

Accounts Receivable
Accepted return of merchandise for
credit from Su Long

18 Merchandise Inventory
Cost of Goods Sold
To transfer cost of merchandise
returned to Merchandise Inventory
account

24 Accounts Payable —
Cash —
Made payment on account to
Angier Company
– = $—

25 Cash —
Accounts Receivable —
Received payment on account
from Su Long
– = $—

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P8-2

 Chapter 6, P 9.

1. Income statement prepared

Dan's Sports Equipment, Inc.

Income Statement
For the Year Ended September 30, 20x5

Net Sales
Gross Sales
Less Sales Returns and Allowances
Net Sales $ —
Cost of Goods Sold
Merchandise Inventory, Sept. 30, 20x4
Purchases
Less Purchases Returns and Allowances
Net Purchases $ —
Freight In
Net Cost of Purchases —
Goods Available for Sale $ —
Less Merchandise Inventory,
Sept. 30, 20x5
Cost of Goods Sold —
Gross Margin $ —
Operating Expenses
Selling Expenses
Store Salaries Expense
Advertising Expense
Store Supplies Expense
Depreciation Expense,
Store Equipment
Total Selling Expenses $ —
General and Administrative Expenses
Office Salaries Expense
Rent Expense
Insurance Expense
Utilities Expense
Office Supplies Expense
Depreciation Expense,
Office Equipment
Total General and Administrative
Expenses —
Total Operating Expenses —
Income Before Income Taxes $ —
Income Taxes
Net Income $ —

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P9-1

 Chapter 6, P 9. (Continued)

2. Income statement discussed

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P9-2

 Chapter 6, P 10.

20xx
July 1 Accounts Receivable
Sales
Sold merchandise to Su Long,
terms n/30, FOB shipping point

3 Purchases
Accounts Payable
Purchased merchandise from
Angier Company, terms n/30, FOB
shipping point

5 Freight In
Cash
Paid shipping charges to Mix Freight

6 Store Supplies
Accounts Payable
Purchased store supplies from
Exto Supply Company, terms n/20

8 Purchases
Freight In
Accounts Payable
Purchased merchandise from Ginn
Company, terms n/30, FOB shipping
point; freight paid by supplier

12 Accounts Payable
Purchases Returns and Allowances
Returned some of merchandise
purchased from Angier Company

15 Accounts Receivable
Sales
Sold merchandise to Pete Smith,
terms n/30, FOB shipping point

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P10-1

 Chapter 6, P 10. (Continued)

20xx
July 16 Accounts Payable
Store Supplies
Returned some of store supplies
(not merchandise) purchased on
July 6 for credit

17 Cash
Sales
Sold merchandise for cash

18 Sales Returns and Allowances

Accounts Receivable
Accepted return of merchandise
for credit from Su Long

24 Accounts Payable —
Cash —
Made payment on account to
Angier Company
– = $—

25 Cash —
Accounts Receivable —
Received payment on account from
Su Long
– = $—

Copyright ã Houghton Mifflin Company. All rights reserved. Ch.6--P10-2