Assignment Questions
I. 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.
3. 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.
4. 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.
Net income $145,000
Instructions
Prepare a correct detailed multiple-step income statement.
Journalize, post, and prepare adjusted trial balance and financial statements.
II. BAt 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.
(i) Tot. trial balance $10,759
(ii) Net income $470
(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.