In: Accounting
Junker’s Stash started the Year 2 accounting period with the
balances given in the financial statements model shown below.
During Year 2, Junker’s Stash experienced the following business
events:
1. Paid cash to purchase $80,000 of merchandise inventory.
2. The goods that were purchased in Event 1 were delivered FOB
destination. Freight costs of $1,600 were paid in cash by the
responsible party.
3a. Sold merchandise for $87,000 under terms 1/10, n/30.
3b. Recognized $46,900 of cost of goods sold.
4a. Junker’s Stash customers returned merchandise that was sold for
$2,300.
4b. The merchandise returned in Event 4a had cost Junker’s Stash
$1,350.
5. The merchandise in Event 3a was sold to customers FOB
destination. Freight costs of $1,750 were paid in cash by the
responsible party.
6a. The customers paid for the merchandise sold in Event 3a within
the discount period. Recognized the sales discount.
6b. Collected the balance in the accounts receivable account.
7. Paid cash of $7,100 for selling and administrative
expenses.
8. Sold the land for $9,600 cash.
Required
a. Record the above transactions in a financial
statements model. The first event is recorded as an example.
b. Determine the amount of net sales.
c. Prepare a multistep income statement. Include
common size percentages on the income statement.
d. The return-on-sales ratio for Junker’s Stash
during the prior year was 12 percent. Based on the common size data
in the income statement, did the expenses for Junker’s Stash
increase or decrease in Year 2?
Date | Account Details | Debit | Credit |
1 | Inventory | 80000 | |
Cash | 80000 | ||
(To record cash purchase) | |||
2 | NO entry since the goods were purchased at FOB price | ||
3a | Account Receivables | 87000 | |
Sales | 87000 | ||
(To record purchase of sales) | |||
3b | Cost of goods sold | 46900 | |
Inventory | 46900 | ||
(To record the cost of goods sold) | |||
4a | Sales returns | 2300 | |
Account Receivables | 2300 | ||
(To record return of sales) | |||
4b | Inventory | 1350 | |
Cost of goods sold | 1350 | ||
(To record cost of goods returned) | |||
5 | Carriage outward | 1750 | |
Cash | 1750 | ||
(To record the Fob charges paid) | |||
6a | Discount(87000*1%) | 870 | |
Account Receivables | 870 | ||
(To record the discount given on payment within 10 days) | |||
6b | Cash | 86130 | |
Account Receivables | 86130 | ||
(To record collection from debtors) | |||
7 | Selling and administrative expense | 7100 | |
Cash | 7100 | ||
(To record selling expense) | |||
8 | Cash | 9600 | |
land | 9600 | ||
(To record sale of land) |
b) Net sales = 87000 - 2300 = $ 85,700
c)
Income Statement: | |||
Sales | 87000 | ||
Less: Returns | 2300 | ||
Net Sales | 84700 | ||
Less: Cost of goods sold ( 46900-1350) | 45550 | ||
Less: Carriage outward | 1750 | ||
Less: Sales discount | 870 | ||
Less: Selling and Administrative expense | 7100 | ||
Net income | 29430 |
Return on sales = 29430/84700 = 34.75%
The expense to sales = 100-34.75 % = 63.25%
d) Return on sale for previous year = 12%
Expense ration for previous year = 100- 12% = 88%
Since the expense ratio for the current year is less than the previous year, it decreased the expense.