BRIEF EXERCISE 5-7

Beginning inventory...................................................
67,000
Add: Purchases........................................................
380,000
Cost of goods available for sale................................
Less: Ending inventory.............................................
50,000
Cost of goods sold.....................................................
$397,000

447,000

EXERCISE 5-8
(a)

MISRA COMPANY
Income Statement
For the Year Ended December 31, 2012

Net sales...............................................
$2,050,000
Cost of goods sold..............................
987,000
Gross profit..........................................
1,063,000
Operating expenses
Administrative expenses.............
Selling expenses..........................
Total operating expenses....
885,000
Income from operations......................
Other revenues and gains
Interest revenue...........................
Other expenses and losses
Loss on disposal of
plant assets...............................
Interest expense...........................
(89,500)
Income before income taxes..............
Income tax expense.............................
25,000
Net income...........................................
63,500
Earnings per share

$465,000
420,000
178,000
65,000
$83,500
71,000

(154,500)
88,500

$3.175

EXERCISE 5-9
(a)

THE CLOROX COMPANY

Income Statement
For the Year Ended June 30, 2009
(amounts in millions)
Net sales..............................................................
Cost of goods sold.............................................
Gross profit.........................................................
Operating expenses
Selling and administrative expenses.........
Advertising expense...................................
Research and development expense........
Total operating expenses....................
Income from operations.....................................
Other expenses and losses
Interest expense..........................................
Other expense.............................................
Income before income taxes..............................
Income tax expense............................................
Net income...........................................................

$5,450
3,104
2,346
$715
499
114

161
46

1,328
1,018
207
274
$ 537

EXERCISE 5-10
Inventory, September 1, 2011....................................
18,700
Purchases....................................................................
Less: Purchase returns and allowances.................
Net purchases.............................................................
Add: Freight-in.........................................................
Cost of goods purchased..........................................
157,000
Cost of goods available for sale................................
Inventory, August 31, 2012........................................
(21,000)
Cost of goods sold.............................................
$154,700

$154,000
5,000
149,000
8,000
175,700

PROBLEM 5-1B
(a)

General Journal

Date
Apr. 2

Account Titles
Inventory.............................................................
Accounts Payable.......................................

Debit
8,700

Accounts Receivable.........................................
Sales Revenue............................................

6,000

Cost of Goods Sold............................................

Inventory.....................................................

3,700

Freight-out..........................................................
Cash.............................................................

200

Accounts Payable..............................................
Inventory.....................................................

400

11

Accounts Payable ($8,700 $400)....................

Cash.............................................................
Inventory ($8,300 X 2%).............................

8,300

13

Cash....................................................................
Sales Discounts ($6,000 X 2%).........................
Accounts Receivable.................................

5,880
120

14

Inventory.............................................................
Cash.............................................................

4,700

16

Cash....................................................................
Inventory.....................................................

500

18

Inventory.............................................................
Accounts Payable.......................................

5,500

20

Inventory.............................................................
Cash.............................................................

180

Credit
8,700
6,000
3,700
200
400
8,134
166

6,000
4,700
500
5,500
180

PROBLEM 5-1B (Continued)

Date
Apr. 23

General Journal

Account Titles
Cash....................................................................
Sales Revenue............................................

Debit
8,300

Cost of Goods Sold............................................

Inventory.....................................................

5,580

26

Inventory.............................................................
Cash.............................................................

2,300

27

Accounts Payable..............................................
Cash.............................................................
Inventory ($5,500 X 2%).............................

5,500

29

Sales Returns and Allowances......................... 180

Cash.............................................................

30

Inventory.............................................................
Cost of Goods Sold....................................

120

Accounts Receivable.........................................
Sales Revenue............................................

3,980

Cost of Goods Sold............................................

Inventory.....................................................

2,500

Credit
8,300
5,580
2,300
5,390
110
180
120
3,980
2,500

PROBLEM 5-4B
(a)

PARKLAND DEPARTMENT STORE

Income Statement
For the Year Ended December 31, 2012

Sales revenues
Sales revenue........................................
$626,000
Less: Sales returns and
allowances..................................
8,000
Net sales................................................
618,000
Cost of goods sold.......................................
412,000
Gross profit...................................................
206,000
Operating expenses
Salaries and wages expense................ $111,000
Depreciation expense...........................
23,400
Utilities expense....................................
11,000
Insurance expense................................
8,400
Maintenance and repairs expense.......
6,200
Total operating expenses.............
160,000
Income from operations...............................
Other revenues and gains
Gain on disposal of plant assets.........
Other expenses and losses
Interest expense....................................
(2,700)
Income before income tax............................
Income tax expense......................................
15,000

46,000
$4,300
(7,000)
43,300

Net income....................................................
28,300
Earnings per share ......................................
($28,300 / 15,000 shares)

$1.887

PARKLAND DEPARTMENT STORE

Retained Earnings Statement
For the Year Ended December 31, 2012
Retained earnings, January 1...........................................................
................................................................................................$19,200
Add: Net income..............................................................................
28,300
Less: Dividends................................................................................
15,000
Retained earnings, December 31.....................................................
................................................................................................$32,500

47,500

PROBLEM 5-4B (Continued)

PARKLAND DEPARTMENT STORE
Balance Sheet
December 31, 2012
Assets

Current assets
Cash....................................................
Accounts receivable..........................
Inventory.............................................
Prepaid insurance..............................
Total current assets....................
$118,900
Property, plant, and equipment
Buildings.............................................
Less: Accumulated depreciation
buildings..................................
Equipment..........................................
Less: Accumulated depreciation
equipment................................
194,900
Total assets.................................
$313,800

$ 28,000
45,500
43,000
2,400

$190,000
52,500
100,000

137,500

42,600

57,400

Liabilities and Stockholders Equity

Current liabilities
Accounts payable..................................................
Mortgage payable..................................................
Salaries and wages payable.................................
Interest payable.....................................................
Total current liabilities...................................
$98,800
Long-term liabilities
Mortgage payable ($62,500 $20,000).................
42,500
Total liabilities................................................
141,300
Stockholders equity

$ 73,300
20,000
3,500
2,000

Common stock.......................................................
Retained earnings..................................................
Total stockholders equity.............................
172,500
Total liabilities and stockholders equity.....
$313,800

140,000
32,500

BYP 5-2

COMPARATIVE ANALYSIS PROBLEM

(a)

Tootsie Roll
Profit margin ratio
(1) (net income/net
sales)
(2) Gross profit (000s)
(net sales CGS)
Gross profit rate
(3) (gross profit/net
sales)

$53,475
$499,331

= 10.7%

$176,947 = ($495,592 $318,645)

$176,947
$495,592

= 35.7%

(4) Operating income

(000s)

$62,079

(5) Percent change in

operating income

$62,079 66,527
$66,527

Hershey Foods
$435,994
$5,298,668

= 8.2%

$2,053,137 = ($5,298,668 $3,245,531)

$2,053,137
$5,298,668

= 38.7%

$761,590

= 6.7%

$761,590 589,898
$589,898

= +29.1%

(b) Tootsie Rolls higher profit margin ratio suggests that it was
better at turning sales dollars into net income. Its gross profit
rate suggests that Hershey Foods can command a higher markup
on its goods or that it is better at controlling its cost of goods
sold. Tootsie Rolls operating income decreased 6.7% while
Hershey Foods increased by 29.1%. A major reason for Tootsie
Rolls decline in operating income was due to $14,000 recognized
for impairment charges. (Without this charge operating income
would have increased by 14% rather than the 6.7% decline.)