Question

Junker’s Stash started the 2016 accounting period with the balances given in the financial statements model shown below. During 2016 Junker’s Stash experienced the following business events:

   

1.	Paid cash to purchase $84,000 of merchandise inventory.
2.	The goods that were purchased in Event 1 were delivered FOB destination. Freight costs of $1,680 were paid in cash by the responsible party.
3a.	Sold merchandise for $93,000 under terms 1/10, n/30.
3b.	Recognized $48,900 of cost of goods sold.
4a.	Junker’s Stash customers returned merchandise that was sold for $2,380.
4b.	The merchandise returned in Event 4a had cost Junker’s Stash $1,390.
5.	The merchandise in Event 3a was sold to customers FOB destination. Freight costs of $1,790 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 $7,200 for selling and administrative expenses.
8.	Sold the land for $9,800 cash.

Required
a.	Record the above transactions in a financial statements model. The first event is recorded as an example. (In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, NC for net change in cash and NA to indicate the element is not affected by the event. Enter any decreases to account balances and cash outflows with a minus sign.)

b.	Determine the amount of net sales. (Round your answer to 1 decimal place.)

c.	Prepare a multistep income statement. Include common size percentages on the income statement. (Round your answers to 1 decimal place.)

d.	Junker’s Stash return on sales ratio in 2015 was 12 percent. Based on the common size data in the income statement, did Junker’s Stash expenses increase or decrease in 2016?

Answer 1

Part-a											Part-b
	Assets			=	Liabilities and Equity		Income statement				Income Statement:
	Cash +	Mer.Inv. +	AR	=			Sales -	-Expenses	+ sale of land		Particular	Amount	Amount
1	-$84,000	$84,000		=							Sales	$93,000
2	-$1,680	$1,680		=							Less: Sales return	-$2,380
3a			$93,000	=			$93,000				Less: Trade discount	-$930	$89,690
3b		-$48,900		=				$48,900			Less: Expenses:
4a			-$2,380	=			-$2,380				COGS ($48900 - 1390)	$47,510
4b		$1,390		=				-$1,390			Selling and Admin	$7,200	$54,710
5	$0	$0	$0	=	$0		$0	$0			Net Operating Income		$34,980
6a			-$930	=			-$930				Add: Sale of Land		$9,800
6b	$89,690		-$89,690	=							Income Income before tax		$44,780
7	-$7,200			=				$7,200
8	$9,800			=					$9,800
Total	$6,610	$38,170	$0	=	$0		$89,690	$54,710	$9,800
Part-b: The Amount of Net Sales is $89690
Part-e: The term loss is used to describe the results due to the sale of land because there is no value of land to be sold off. Nothing we can put against the revenue or sale of land.