CHAPTER 6: ACCOUNTING FOR MERCHANDISING ACTIVITIES

PART1: The following statement is true or false?

1. Sales revenue less cost of goods sold is called net profit. (F)
2. In a perpetual inventory system, a company records the cost of goods sold each time
a sale occurs. (T)
3. In a periodic inventory system, companies keep detailed inventory records of the
goods on hand throughout the period. (F)
4. FOB destination means that the seller places the goods free on board the common
carrier and the buyer pays the freight costs. (F)
5. Sales Returns and Allowances is a contra-revenue account to Sales and has a normal
debit balance. (T)
6. A merchandiser using a perpetual system will require one additional adjusting entry
to make the accounting records agree with the actual inventory on hand. (T)
7. Interest expense must be disclosed on the face of the income statement.. (T)
8. An income statement distinguishes between operating and non-operating activities.
(T)
9. 9. The Other Expenses category includes casualty losses, losses from the sale of
plant assets, and operating expenses. (F)
10. Companies must use a perpetual inventory system for GAAP, but are allowed to use
either the perpetual or periodic inventory system under IFRS. (F)
11. Under a periodic system, the company uses separate accounts to record freight costs,
returns, and discounts. (T)
12. The periodic method uses more accounts in which to record inventory related costs
than does the perpetual method. (T)
13. In a perpetual inventory system, a company determines the cost of goods sold each
time a sale occurs. (T)
14. FOB destination means that the seller places the goods free on board the common
carrier and the buyer pays the freight costs. (F)
15. Measuring net income for a merchandiser is conceptually different from measuring
net income for a service company. (T)
16. For a merchandiser, sales less cost of goods sold is called gross profit. (T)
17. For a merchandiser, the primary source of revenues is the sale of services. (F)
18. Interest is an example of an operating expense. (F)
19. The operating cycle of a merchandiser is the same as that of a service company. (F)
20. In a perpetual inventory system, detailed inventory records of goods on hand are
maintained. (T)
21. In a periodic inventory system, the cost of goods sold is determined only at the end
of the accounting period. (T)
22. A periodic inventory system provides better control over inventories than a perpetual
system. (T)

PART 2: Please the correct answer.

1.Gross profit will result if
A. operating expenses are less than net income.
B. sales revenues are greater than operating expenses.
C. sales revenues are greater than cost of goods sold.
D. operating expenses are greater than cost of goods sold.

2. Under a perpetual inventory system, when goods are purchased for resale by a
company: A. purchases on account are debited to Merchandise Inventory. B.
purchases on account are debited to Purchases.
C. purchase returns are debited to Purchase Returns and Allowances.
D. freight costs are debited to Freight-out.
( 3 đáp án còn lại dùng cho periodic)
3. The sales accounts that normally have a debit balance are:
A. Sales Discounts.
B. Sales Returns and Allowances.
C. both (a) and (b). (contra-revenues)
D. neither (a) nor (b).

4. A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is
granted on June 16. The amount received as payment in full on June 23 is:
A. $700.
B. $686. (750-50)- ((750-50)*2%) HOẶC 98%*(750-50)
C. $685.
D. $650.

5. Which of the following accounts will normally appear in the ledger of a

merchandising company that uses a perpetual inventory system? A.
Purchases.
B. Freight-in.
C. Cost of Goods
Sold.
D. Purchase
Discounts.
( 3 đáp án còn lại thuộc periodic)
6. If sales revenues are $400,000, cost of goods sold is $310,000, and operating
expenses are $60,000, the gross profit is:
A. $30,000.
B. $90,000.
C. $340,000.
D. $400,000.
Sale revenues – cost of goods sold = gross profit – operating expenses = net/ loss income 7.
In determining cost of goods sold:
A. purchase discounts are deducted from net purchases.
B. freight-out is added to net purchases.
C. purchase returns and allowances are deducted from net purchases.
D. freight-in is added to net purchases.

8. If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending

inventory is $50,000, cost of goods sold is:
A. $390,000. B.
$370,000. C.
$330,000.
D. $420,000.
(Cost of goods sold = beginning inventory + goods purchased – ending inventory)

9. In a perpetual inventory system, a return of defective merchandise by a purchaser is

recorded by crediting:
A. Purchases
B. Purchase Returns and Allowances
C. Purchase Discounts
D. Merchandise Inventory

10. Which of the following is not part of the journal entries made when merchandise is sold
on credit?
A. Credit the Cost of Goods Sold account.
B. Credit the Sales account.
C. Credit the Merchandise Inventory account.
D. Debit the Accounts Receivable account.

11. FOB shipping point means that the:

A. goods are placed free on board to the buyer's place of business.
B. buyer pays the freight.
C. seller pays the freight.
D. common carrier pays the freight.

12. In a perpetual inventory system, which of the following would be debited when
goods are purchased with the intent of being resold? A. Cost of Goods Sold.
B. Merchandise Inventory.
C. Purchases.
D. Accounts Payable.

13. Which of the following accounts is not closed to Income Summary?

A. Cost of Goods Sold.
B. Merchandise Inventory.
C. Sales.
D. Sales Discounts.
14. Gross profit is:
A. sales revenue less operating expenses.
B. sales revenue less cost of goods sold.
C. net income less operating expenses.
D. net income less cost of goods sold.

15. A company determines the cost of goods sold each time a sale occurs in:
A. a periodic inventory system only. B.
a perpetual inventory system only.
C. both a periodic and perpetual inventory system.
D. neither a periodic nor perpetual inventory system.

16. In a perpetual inventory system, a return of defective merchandise by a purchaser is

recorded by crediting:
A. Purchases
B. Purchase Returns and Allowances
C. Purchase Discounts
D. Merchandise Inventory

17. Which of the following is not part of the journal entries made when merchandise is
sold on credit?
A. Credit the Cost of Goods Sold account.
B. Credit the Sales account.
C. Credit the Merchandise Inventory account.
D. Debit the Accounts Receivable account.

18. FOB shipping point means that the:

A. goods are placed free on board to the buyer's place of business.
B. buyer pays the freight.
C. seller pays the freight.
D. goods are shipped 'freight on board' after the customer pays for
the goods.

19. What kind of account is Sales Discounts?

A. Revenue account
B. Contra-revenue account
C. Liability account
D. Expense account

20. Which of the following is the calculation of net sales?

A. Sales less cost of goods sold
B. Sales less sales discounts
C. Sales less sales returns and allowances
D. Sales less sales returns and allowances and sales discounts

21. Which of the following would not be reported in the operating expenses section of an
income statement?
A. Advertising expense
B. Interest expense
C. Freight-out
D. All of the above are operating expenses

22. Which of the following appears on the income statement for both merchandising and
service companies? A. Cost of goods sold
B. Gross profit
C. Operating expenses
D. Sales returns and allowances

23. In a perpetual inventory system, which one of the following accounts is debited when
goods are purchased for resale?
A. Cost of Goods Sold
B. Merchandise Inventory
C. Purchases
D. Accounts Payable

24. Which of the following items will not appear in the Other Income section of the
income statement?
A. Gain from the sale of property, plant, and equipment
B. Interest revenue
C. Dividend revenue
D. Sales revenue

25. Which of the following events would be included as a component of comprehensive

income?
A. Sale of merchandise to customers
B. Amounts resulting from adjusting recorded amounts to fair value
C. Interest revenue
D. Loss on sale of plant assets

26. All of the following items would be reported as other revenues and gains except:
A. gain on sale of equipment.
B. interest revenue.
C. rent revenue.
D. sales revenue.
27. Income from operations is:
A. net sales less cost of goods sold.
B. net sales less operating expenses.
C. gross profit less other expenses and losses.
D. gross profit less operating expenses.

28. Which of the following groups consists only of operating expenses?

A. Salaries expense, cost of goods sold, depreciation expense
B. Utilities expense, sales discounts, insurance expense
C. Rent expense, depreciation expense, merchandise inventory expense D.
Depreciation expense, rent expense, utilities expense

29. Appendix: In a periodic inventory system the entry to record the credit sale of
merchandise affects which of the following accounts?
A. Cost of Goods Sold
B. Purchases
C. Merchandise Inventory
D. Sales

30. Company A purchases $1,200 of merchandise from Company B on July 1 with credit
terms 2/10, n/30. Company A returns $200 of the merchandise on July 5. On July 11,
Company B received full payment from Company A. How much is the amount of the
payment on July 11?
A. $980 (1200-200)-((1200-200)*2%) = 98%*(1200-200)
B. $20
C. $1,176
D. $1,000

31. A company has the following account balances: Sales, $1,000,000; Sales Returns and
Allowances, $180,000; Sales Discounts, $20,000; and Cost of Goods Sold, $600,000. What
is the company's gross profit rate?
A. 20%
B. 25%
C. 38.8%
D. 40%

32. Appendix: Salad Sales Company had the following amounts related to its business:
Beginning Inventory, $12,000; Purchases, $42,000; Net Sales, $50,000; and Gross Profit,
$15,000. How much is the amount of ending inventory?
A. $54,000
B. $77,000
C. $19,000
D. $35,000
33. Appendix: The following amounts relate to Drisden Company for the current year:
Beginning Inventory, $20,000; Ending Inventory, $28,000; Purchases, $166,000; Purchase
Returns, $4,800; and Freight-Out, $6,000. How much is Cost of Goods Sold for the period?
A. $159,200
B. $169,200
C. $162,800
D. $153,200

PART 3: EXERCISES

Ex1. Information related to Pagnucci Co. is presented below.

1. On April 5, purchased merchandise from Steff Company for $20,000 terms 2/10, net/30,
FOB shipping point.
2. On April 6 paid freight costs of $700 on merchandise purchased from Bryant.
3. On April 7, purchased equipment on account for $29,000.
4. On April 8, returned damaged merchandise to Steff Company and was granted a $3,000
credit for returned merchandise.
5. On April 15 paid the amount due to Steff Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Pagnucci Co.
under a perpetual inventory system.
(b) Assume that Pagnucci Co. paid the balance due to Steff Company on May 4 instead of
April
15. Prepare the journal entry to record this payment.
a)
Date Account titles Debit Credit
5 April Merchandise inventory 20,000
Accounts payable 20,000
6 April Merchandise inventory Cash 700
700
7 April Equipment 29,000
Accounts payable 29,000
8 April Accounts payable 3,000
Merchandise inventory 3,000
15 April Accounts payable (20,000 – 3,000) 17,000
Inventory (17,000 * 2%) Cash 340
16,660

b)
4 May Accounts payable 17,000
 Cash 17,000

Ex2: This information relates to Jabenez Co.

1. On April 5 purchased merchandise from Cornerstone Company for $25,000, terms 2/10,
net/30, FOB shipping point.
2. On April 6 paid freight costs of $800 on merchandise purchased from Cornerstone
Company.
3. On April 7 purchased equipment on account for $37,000.
4. On April 8 returned some of April 5 merchandise to Cornerstone Company which cost
$3,000.
5. On April 15 paid the amount due to Cornerstone Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Jabanez
Co. using a perpetual inventory system.
(b) Assume that Jabanez Co. paid the balance due to Cornerstone Company on May 4
instead of April 15. Prepare the journal entry to record this payment. a)
Date Account titles Debit Credit
5 April Merchandise inventory 25,000
Accounts payable 25,000
6 April Merchandise inventory Cash 800
800
7 April Equipment 37,000
Accounts payable 37,000
8 April Accounts payable 3,000
Merchandise inventory 3,000
15 April Accounts payable 22,000
Inventory Cash 440
21,560

b)
4 May Accounts payable Cash 22,000
22,000

Ex4: On September 1, Jiggs Office Supply had an inventory of 40 calculators at a cost of

$18 each.The company uses a perpetual inventory system. During September, the
following transactions occurred.
Sept. 6 Purchased 70 calculators at $20 each from Billy Jack Co. for cash.
9 Paid freight of $68 on calculators purchased from Billy Jack Co.
10 Returned 2 calculators to Billy Jack Co. for $40 credit because they did not meet
specifications.
12 Sold 40 calculators costing $18 for $34 each to Kerry Book Store, terms n/30. 14
Granted credit of $34 to Kerry Book Store for the return of one calculator that was
not ordered.
20 Sold 30 calculators costing $21 (including freight) for $35 each to Sayer’s Card Shop,
terms n/30.
Instructions: Journalize the September transactions.

Date Account titles Debit Credit

6 Sep Merchandise inventory Cash 1,400
1,400
9 Sep Merchandise inventory Cash 68
68
10 Sep Accounts payable 40
Merchandise inventory 40
12 Sep Accounts receivable 1,360
Sale revenue 1,360
Cost of goods sold 720
Inventory 720
14 Sep Sale return and allowance 34
Accounts receivable 34
Inventory 18
Cost of goods sold 18
20 Sep Accounts receivable 1,050
Slae revenue 1,050
Cost of goods sold 630
Inventory 630

Ex6: Presented below are transactions related to Winkler Company.

1. On December 3,Winkler Company sold $400,000 of merchandise to Mark Co., terms
2/10, n/30, FOB shipping point.The cost of the merchandise sold was $240,000.
2. On December 8, Mark Co. was granted an allowance of $20,000 for merchandise
purchased on December 3.
3. On December 13,Winkler Company received the balance due from Mark Co.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Winkler
Company using a perpetual inventory system.
(b) Assume that Winkler Company received the balance due from Mark Co. on January
2 of the following year instead of December 13. Prepare the journal entry to record the
receipt of payment on January 2. a)
3 Dec Accounts receivable Sale 400,000
revenue 400,000
 Cost of goods sold Inventory 240,000
240,000
8 Dec Sale return and allowance 20,000
Accounts receivable 20,000
13 Dec Cash 372,400
Sale discount 7,600
Accounts receivable 380,000
b)
2 Jan Cash 380,000
Accounts receivable 380,000

Ex 9: Presented is information related to Hammerstein Co. for the month of January 2008

Instructions
(a) Prepare the necessary adjusting entry for inventory.
(b) Prepare the necessary closing entries.

a)

Debit Credit
Cost of goods sold 1,400
Merchandise inventory 1,400
b)
Sales 550,000
Income summary 550,000
Income summary 514000
Cost of goods sold 327,000
Salaries expense 95,000
Insurance expense 18,000
Rent expense 29,000
Sale returns and allowance 19,000
Sale discount 15,000
Freight - out 11,000
 Income summary 36,000
Retained earnings 36,000

Ex11: P5-2C Newman Hardware Store completed the following merchandising

transactions in the month of May. At the beginning of May, the ledger of Newman showed
Cash of $5,000 and Common Stock of $5,000.
May 1 Purchased merchandise on account from Jerry’s Wholesale Supply $4,200, terms
2/10,n/30.
2 Sold merchandise on account $2,100, terms 1/10, n/30.The cost of the merchandise sold
was $1,300.
5 Received credit from Jerry’s Wholesale Supply for merchandise returned $300. 9
Received collections in full, less discounts, from customers billed on sales of $2,100
on May 2.
10 Paid Jerry’s Wholesale Supply in full, less
discount. 11 Purchased supplies for cash $400.
12 Purchased merchandise for cash $1,400.
15 Received refund for poor quality merchandise from supplier on cash purchase $150. 17
Purchased merchandise from Cosmo Distributors $1,300, FOB shipping point, terms 2/10,
n/30.
19 Paid freight on May 17 purchase $130.
24 Sold merchandise for cash $3,200.The merchandise sold had a cost of $2,000.
25 Purchased merchandise from Costanza, Inc. $550, FOB destination, terms 2/10, n/30.
27 Paid Cosmo Distributors in full, less discount.
29 Made refunds to cash customers for defective merchandise $60. The returned
merchandise had a scrap value of $10.
31 Sold merchandise on account $900, terms n/30.The cost of the merchandise sold was
$560. Newman Hardware’s chart of accounts includes the following: No. 101 Cash, No.
112 Accounts Receivable, No. 120 Merchandise Inventory, No. 126 Supplies, No. 201
Accounts Payable, No. 311 Common Stock, No. 401 Sales, No. 412 Sales Returns and
Allowances, No. 414 Sales Discounts, No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the transactions using a perpetual inventory system.
(b) Enter the beginning cash and common stock balances and post the transactions. (Use J1
for the journal reference.)
(c) Prepare an income statement through gross profit for the month of May 2008.

a)
Newman Hardware Store Journal
Entries
Date Account titles Debit Credit
1 May Merchandise inventory 4,200
Accounts payable 4,200
 2 May Accounts receivable 2,100
Sale 2,100
Cost of goods sold 1,300
Merchandise inventory 1,300
5 May Accounts payable 300
Merchandise inventory 300
9 May
10 May Accounts payable 3,900
Invemtory Cash 78
3,822
11 May Supplies Cash 400
400
12 May Merchandise inventory Cash 1,400
1,400
15 May Cash 150
Merchandise inventory 150
17 May Merchandise inventory Accounts 1,300
payable 1,300
19 May Merchandise inventory Cash 130
130
24 May Accounts receivable 3,200
Sale 3,200
Cost of goods sold 2,000
Merchandise inventory 2,000
25 May Merchandise inventory Accounts 550
payable 550
27 May Accounts payable 550
Inventory Cash 11
539
29 May
31 May Accounts receivable 900
Sale 900
Cost of goods sold 560
Merchandise inventory 560
b)
CASH

Date Dr Cr Balance
1 May 5,000 5,000
9 May 2,097 7,079
 10 May 3,822 3,257
11 May 400 2,857
12 May 1,400 1,457
15 May 150 1,607
19 May 130 1,477
24 May 3,200 4,677
27 May 1,274 3,403

COMMON STOCK

1 May 5,000 5,000

c)
Newman Hardware Store
Income statement
For the month ended May 2008
Sale revenue
Sales 6,300
Less
Sales returns and allowance (60)
Sales discounts (21)
Net sales 6,219
Less
Cost of goods sold (3,850)
Gross profit 2,369
EX 1

Prepare the adjusting entries that must have been recorded

- DR insurance expense 300
CR prepaid insurance 300
- Dr rent expense 500
Cr prepaid rent 500
- Dr dep.expense truck 1500
Cr Acc.dep truck 1500
- Dr unearned revenue 600
 Cr rent earned 600
- Dr interest expense 400
Cr interest payable 400
- Dr salaries expense 1000
Cr salaries payable 1000
EX 2
The unadjusted trial balance of Lukas Films Corporation includes the following account balances
at December 31, 2016, its fiscal year-end. Assume all accounts have normal debit or credit
balances as applicable.

The following information applies at December 31:

a. A physical count of supplies indicates that $300 of supplies have not yet been used at
December 31. -> supplies used: 600 – 300 = 300
Dr. supplies expense: 300
Cr. Supplies: 300
b. A $75 telephone bill for December has been received but not recorded.
DR. Telephone expense: 75
Cr. Telephone Payable/ Accounts Payable: 75
c. One day of wages amounting to $125 remains unpaid and unrecorded at December 31; the
amount will be included with the first Friday payment in January.
Dr. salaries expense: 125
Cr. Salaries payable: 125
d. The equipment was purchased December 1; it is expected to last 2 years. No depreciation has
yet been recorded. --> 2400/24 months = 100/month
Dr. Depreciation expense: 100
CR. Acc. Depreciation: 100
e. The prepaid rent is for December 2016, and January and February 2017; rent is $500 per
month.
DR. rent expense: 500 (December 2016)
Cr. Prepaid rent: 500
f. Half of the advertizing revenue has been earned at December 31.
Dr. unearned revenue: 1,000/2 =500
CR. Advertising revenue: 500
g. The $900 amount in Prepaid Insurance is for a one-year policy, effective July 1, 2016.
DR Insurance expense 450
CR Prepaid insurance 450 EX3

The following additional information is available:

a. Prepaid insurance at December 31 amounts to $600.
b. A physical count indicates that $300 of supplies is still on hand at December 31.
c. The truck was purchased on July 1; it has an estimated useful life of 4 years.
d. One day of salaries for December 31 is unpaid; the unpaid amount of $200 will be included in
the first Friday payment in January.
e. The balance in the Unearned Rent Revenue account represents six months rental of
warehouse space, effective October 1.
f. A $100 bill for December telephone charges has not yet been recorded.
g. Income taxes expense for the year is $300. This amount will be paid in the next fiscal year.
Required:
1. Prepare all necessary adjusting entries at December 31, 2016. Descriptions are not needed.
- Dr. Insurance expense 600
Cr. Prepaid insurance 600

- Dr. Supplies expense 200

Cr. Supplies 200
- Dr. Dep expense truck 1000
Cr. Acc.dep truck 1000
- Dr. Salaries expense 200
Cr. Salaries payable 200
- Dr. Unearned revenue 1200
Cr. Rent revenue 1200
- Dr. Telephone expense 100
Cr. Telephone payable 100
- Dr. Taxes expense 300
Cr. Taxes payable 300
2. Prepare an adjusted trial balance at December 31, 2016.
Accounting titles DR CR
Cash 3300
Account receivable 4000
Prepaid insurance 600
Unused supplies 300
Truck 8000
Acc.dep truck 1000
Account payable 5100
Salaries payable 200
Unearned rent revenue 1200
Income taxes payable 300
Share capital 7000
Dividends 1000
Commissions earned 16100
Rent earned 1200
Advertising expense 200
Commissions expense 1000
Dep. Expense truck 1000
Insurance expense 600
Interest expense 400
Rent expense 3600
Salaries expense 7200
Supplies expense 200
Telephone expense 400
Income taxes expense 300
Total 32,100 32,100

3. Prepare an income statement, statement of changes in equity, and balance sheet.

Income statement
For the year ended December 31, 2016
Revenue:
Commission revenue
16,100 1,200
Rent revenue
Total 17,300
 Expense:
Advertising expense 200
Commissions expense 1,000
Depreciation expense 1,000
Insurance expense 600 400
Interest expense
Rent expense 3,600
Salaries expense 7,200
Supplies expense 200 400 14,900
Telephone expense 300
Income taxes expense
Total
Net income 2,400

CHAPTER 5
Exercise 1: Kimmie Meissner Company had the following adjusted trial balance.

Instructions
(a) Prepare closing entries at June 30, 2008 and a post-closing trial balance.
1. Close revenue account
Dr. Revenue: 5,360
Cr. Income summary: 5,360
2. Close expense accounts:
Dr. Income summary: 5,050
 Cr. Salaries expense: 1,650
Cr. M.expense: 350
Cr. S.expense: 3,050
3. Close income summary:
Dr. Income summary: 5,360-5,050=310
Cr. Retained earnings: 310
4. Close dividend accounts:
Dr. Retained earnings: 400
Cr. Dividends: 400
Posting closing trial balance
Account titles Debit Credit
Cash 4,650
AR 5,200
Supplies 640
AP 2,500
Salaries payable 600
Unearned revenue (liab.) 200
Common stock 5,000
Retained earnings 2,280+310-400=2,190
Total 10,490 10,490

Exercise 2: Commanche Company ended its fiscal year on July 31, 2008. The company’s adjusted trial
balance as of the end of its fiscal year is as shown below.
Instructions
(a) Prepare the closing entries.
(b) Post to Retained Earnings and No. 350 Income Summary accounts.
(c) Prepare a post-closing trial balance at July 31.
(d) Prepare an income statement and a retained earnings statement for the year.
(e) Prepare a classified balance sheet at July 31.
a) Closing entries
Date Account titles Debit Credit
st
July 31 Commission revenue 42,400
Rent revenue 5,100
Income summanry 47,500
July 31st Income summary 49,900
Depreciation expense 2,700
Salaries expense 37,100
Utilities expense 10,100
July 31st Retained earnings 2,400
Income summary 2,400
Net loss
July 31st Retained earnings 11,000
Dividends 11,000

b) Retained earnings
 COMMANCHE COMPANY
July 31, 2008
Retained earnings
Date Account titles Debit Credit Balance
July 31 Balance 20,700 20,700
Closing entry 2,400 18,300
Cloing entry 11,000 7,300

COMMANCHE COMPANY
July 31, 2008
Income summary No.350
Date Account titles Debit Credit Balance
July 31 Closing entry 47,500 47,500
Closing entry 49,900 (2,400)
Cloing entry 2,400 -0-

c) Post-closing trial-balance
Account titles Debit Credit
Cash 9,900
Account receivable 6,200
Equipment 10,600
Accumulated depreciation 5,400
Account payable 2,800
Unearned rent revenue 1,200
Common stock 10,000
Retained earnings 7,300
Total 26,700 26,700

d)

Income statement
For the year ended July 31, 2008
Revenue:
Commission revenue 42,400
Rent revenue 5,100
Total 47,500
Expense
Depreciation expense 2,700
Salaries expense 37,100
Utilities expense 10,100
 Total 49,900
Loss income (2,400)

Statement of retained earnings

For the year ended July 31, 2008
Reatained earnings statement 20,700
Loss income (2,400)
Dividends 11,000
Reatained earnings statement 7,300

e)
Classified balance sheet
Asset
Current assets
Cash 9,900
Accounts receivable 6,200
Total: 16,100
Property, plant & equipment
Equipment 10,600
Less: Accum.Depre Equipment (5,400)
Total long-term assets: 5,200
Total assets 21,300

.
Exercise 4: Jenny Company has an inexperienced accountant. During the first 2 weeks on the job, the
accountant made the following errors in journalizing transactions. All entries were posted as made.
1. A payment on account of $720 to a creditor was debited to Accounts Payable $270 and credited to Cash
$270.
2. The purchase of supplies for $650 cash was debited to Inventory $65 and credited to Cash $65.
3. A $500 cash dividend was debited to Salaries Expense $500 and credited to Cash $500. Instructions:
Prepare the correcting entries.
Accounting titles Debit Credit
Accounts payable (720-270=450) 450
Cash 450
Supplies 650
Inventory 65
Accounts payable (650-65=585) 585
Dividend 500
Salaaries expense 500

Exercise 6: The following items were taken from the financial statements of Cat Company. (All
dollars are in thousands.)
 Instructions: Prepare a classified balance sheet in good form as of December 31, 2008.

Classified balance sheet

Assets Liab & owners’ equity
Current assets: Current liab:
Cash 1,800 Accounts payable 1,010
Accounts receivable 1,100 Notes payable (2019) 340
Short-term investment 2,500 Total: 1,350
Inventories 880 Non-current liab:
Prepaid expense 620 Notes payable after 2019 250
Total: 6,900 Long-term debt 660
Non-current assets: Total: 910
Long-term investment 185 Owners’ equity:
Property, plant & equipment 8,100 Common stock 7,000
Less: Accu.depre (4,000) Retained earnings 1,925
Total: 4.285 Total: 8.925
Total assets 11,185 Total liab. & equity 11,185