Question 1
(30 marks)
Nathan New started a business, Nothing New, a proprietorship, in 2016. Nothing New used the periodic inventory system. Nothing New’s accounts included the following at July 31, 2018:
Accounts Payable
$ 60,000
Nathan New, Capital
$ 241,800
Accounts Receivable
110,000
Nathan New, Withdrawals
50,000
Accumulated Amortization, Furniture
80,000
Purchases
1,200,000
Bank Loan, Long Term
130,000
Salary Payable
15,000
Cash
20,000
Sales Discounts
30,000
Furniture
320,000
Sales Returns & Allowances
40,000
General Expenses
200,000
Sales Revenue
2,000,000
Interest Expense
8,000
Selling Expenses
400,000
Interest Payable
1,000
Supplies
20,000
Interest Revenue
200
Unearned Sales Revenue
10,000
Inventory, July 31, 2017
140,000
Required:
A. Prepare a single-step income statement for Nothing New at July 31, 2018 year end. Inventory was valued at $ 200,000 at July 31, 2018 based on a physical count.
B. Prepare the statement of owner’s equity for Nothing New at July 31, 2018.
C. Prepare a classified balance sheet for Nothing New at July 31, 2018.
Question 2
(20 marks)
Required:
A. Use the data from Question 1 to prepare a multi-step income statement for Nothing New at July 31, 2018 year end.
B. Owner, Nathan New, tries to achieve a gross margin of at least 40% and a net income of at least 15%. Keeping in mind that net income percentage is equal to net income/net sales revenue, has Nathan New achieved those results?
Question 3
(25 marks)
Toy Store and Toy Warehouse incurred the following transactions in November 2018:
· November 05: Toy Warehouse sold $ 75,000 toys to Toy Store. The sale had credit terms 2/10, n/30, FOB shipping.
· November 09: Toy Store returned $ 10,000 toys that it purchased on November 05. Toy Store received a credit memo for this.
· November 13: Toy Store paid $ 50,000 of the November 05 invoice amount that it owed to Toy Warehouse.
· November 19: Toy Store paid the remaining balance that it owed to Toy Warehouse.
Required:
A. Record these transactions on the accounting records of Toy Store. Explanations are not required when recording the journal entries.
B. Then, record these transactions on the accounting records of Toy Warehouse. Explanations are not required when recording the journal entries. Both businesses used the periodic inventory system. Discounts were permitted on particular payments.
Question 4
(25 marks)
Sammy’s Sportswear sells sport jerseys. It has a May 31, 2018 year end.
On February 28, 2018, Sammy’s Sportswear had in inventory of 40 jerseys that each cost $ 20. During the next 3 months, Sammy’s Sportswear purchased the following merchandise:
Units Unit Cost Total
March 50 $ 30 $ 1,500
April 100 $ 40 $ 4,000
May 150 $ 50 $ 7,500
During March, April, and May, Sammy’s Sportswear sold the following merchandise:
Units Unit Selling Price Total
March 60 $ 60 $ 3,600
April 40 $ 70 $ 2,800
May 90 $ 90 $ 8,100
Operating expenses for March, April, and May totalled $ 3,500. Sammy’s Sportswear used a perpetual inventory system. Assume that monthly purchases occurred on the first day of each month.
Required:
A. Calculate Sammy’s Sportswear’s ending inventory at May 31, 2018 using the moving-weighted-average costing method and the FIFO costing method.
B. Prepare Sammy’s Sportswear’s May 31, 2018 income statement for both the moving-weighted-average costing method and the FIFO costing method. Record the gross margin and operating income.
