WORKING PAPERS F/ FUND ACCOUNTING
WORKING PAPERS F/ FUND ACCOUNTING
22nd Edition
ISBN: 9781308868394
Author: Wild
Publisher: MCG CUSTOM
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 5, Problem 4APSA

Requirement-1.1:

To determine

To prepare:

The closing entries of the Valley Company for the fiscal year August 31st, 2015.

Requirement-1.1:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

a. To record the Sales of Valley Company for the year ended August 31 2015:

    DateGeneral JournalDebit ($)Credit ($)
    Aug 31

    Sales

    225,600





    Income Summary



    225,600

Explanation of Solution

Given,

Sales: $225,600

Sales account is debited with the sale amount of $225,600 and income summary is credited with the same amount of $225,600 to close the temporary accounts with credit balances.

b. To record the total expenses, discounts and allowances of Sales of Valley Company for the year ended August 31st, 2015.

    DateGeneral JournalDebit ($)Credit ($)
    Aug 31

    Income Summary

    175,750





    Sales discounts



    2,250



    Sales returns & allowances



    12,000



    Cost of goods sold



    74,500



    Sales Salaries expense



    32,000



    Rent expense-Selling space



    8,000



    Stores supplies expense



    1,500



    Advertising expense



    13,000



    Office salaries expense



    28,500



    Rent expense-Office space



    3,600



    Office Supplies expense



    400

Income summary is debited with the total sales expenses, discounts and allowances of $175,750 and credited with corresponding amounts of sales expenses, discounts and allowances related to sales as given in the trial balance of Valley Company for the year ended August 31st, 2015.

c. To record the net income or retained earnings determined from the income statement for the year ended August 31st, 2015.

    DateGeneral JournalDebit ($)Credit ($)
    Aug 31

    Income summary

    49,850





    Retained earnings



    49,850

Income summary is debited with the net income of $49,850 ($225,600-$175,750) i.e. Sales-Total expenses, discounts and allowances of Sales and retained earnings is credited with the percentage of net earnings made by the company not paid out as dividends which is $49,850.

Conclusion

Hence the closing entries are recorded for the income summary for the year ended August 31st, 2015.

Requirement-1.2:

To determine

To analyse:

The cash management system of Valley Company to accomplish the goal by taking all available purchase discounts of 3%.

Requirement-1.2:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

No, the company’s cash management system does not accomplish the goal by taking all available discounts on purchase.

Explanation of Solution

Calculation of Purchase discount if payment is made in agreed time for credit terms:

    ParticularsAmount in $
    Invoice Cost of merchandise purchases

    92,000

    Less: Purchase Returns & Allowances

    4,500

    Net Purchases

    87,500

    Discount 3% on net purchases

    87,500*3%

    Purchase Discount, if payment made in agreed time$2,625

The purchase discount computed in the above table for 3% if payment is made on agreed time is $2,625 whereas as per the supplementary records, Valley Company has received only $2,000 for the year ended August 31st, 2015.

Therefore, the above statement indicates that the Valley Company failed to pay cash on their credit purchases to suppliers within allowed time to avail purchase discount of 3% due to lack of cash balance. If the Valley Company has paid within allowed time then the company would have got full discount of $2,625.

Conclusion

Hence from analysing the payment made on credit purchases and the discount received by the Valley Company, it is clear that the company does not have efficient cash management.

Requirement-1.3:

To determine

To analyse:

The comparison of percentage of returns and allowances on sales of the Valley Company between the prior years and the current year 2015.

Requirement-1.3:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

The Valley Company’s current year percentage rate of sales returns and allowance is increased to 5.3% compared to prior year’s rate of 4% of its gross sales that were eventually returned outright or caused the company to grant allowances to customers. The increase in current year rate on returns and allowances to 5.3% indicates that company has inefficient sales system in meeting the specifications of the customer that made the company to grant more returns and allowances compared to prior year’s that had only 4% of sales returns and allowances on gross sales.

Explanation of Solution

Given,

Sales for the year August 31st, 2015: $225,600

Sales returns and allowances for August 31st, 2015: $12,000

Percentage of sales returns and allowances on Sales: $12,000/$225,600*100=5.3%

Conclusion

Hence from the above analysis, the sales returns and allowances for the current year ended 2015 is increased to 5.3% when comparing to prior year’s rate of 4%.

Requirement-2.1:

To determine

To Compute:

The net sales of Valley Company for the year August 31st, 2015 after discounts and returns allowed.

Requirement-2.1:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

    ParticularsAmount in $
    Sales

    225,600

    Less: Sales discounts

    2,250

    Less: Sales returns & allowances

    12,000

    Net sales for the year 211,350

Explanation of Solution



The net sales is computed using the formula:

  Net sales=SalesSales discountsSales Returns and allowances

  Net Sales=$225,6002,25012,000

  Net Sales=$211,350

Conclusion

Hence the net sales of Valley Company for the year 2015 is $211,350.

Requirement-2.2:

To determine

To Compute:

The total cost of merchandise purchased by the Valley Company for the year 2015.

Requirement-2.2:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

    ParticularsAmount in $Amount in $
    Invoice Cost of Merchandise

    92,000

    Add: Cost of transportation

    4,600

    96,600

    Less: Purchase discounts

    (2,000)

    Less: Purchase returns & allowances

    (4,500)

    (6,500)

    Cost of Merchandise Purchased

    90,100

Explanation of Solution



The cost of merchandise is computed by using the formula:

  Cost of Merchandise=Cost of merchandise purchase + Transportation CostPurchase DiscountsPurchase Returns & Allowances

Cost of Merchandise =$92,000+$4,600$2,000$4,500

Cost of Merchandise =$90,100

Conclusion

Hence the cost of Merchandise of Valley Company for the year 2015 is $90,100.

Requirement-2.3:

To determine

To Prepare:

The multi-step income statement of Valley Company for the year ended August 31st, 2015 to determine the net income of the company.

Requirement-2.3:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

    Valley Company Income Statement for the year ended August 31st,2015
    ParticularsAmount in $Amount in $
    Revenues:



    Sales

    225,600



    Less: Sales discounts

    2,250



    Less: Sales returns & allowances

    12,000



    Net Sales



    211,350

    Cost of goods sold



    74,500

    Gross Profit

    136,850
    Expenses:



    Selling Expenses:



    Advertising Expense

    13,000



    Sales salaries expense

    32,000



    Rent expense-Selling space

    8,000



    Store supplies expense

    1,500



    Total Selling expenses54,500

    General & administrative expenses:



    Office Supplies expense

    400



    Office salaries expense

    28,500



    Rent expense-Office space

    3,600



    Total General & administrative expenses32,500
    Total expenses

    87,000
    Net income

    49,850

Explanation of Solution

Computation of Gross Profit: The formula used to compute gross profit is:

  Gross Profit=Net SalesCost of goods sold

Gross Profit= $211,350$74,500

Gross Profit=$136,850

Computation of Net income: The formula used to compute net income is:

  Net income=RevenuesExpenses

Revenues: $136,850 (Gross Profit)

Expenses: $87,000

Net income= $136,850$87,000

Net income=$49,850

Conclusion

Hence the net income of Valley Company for the year 2015 is $49,850.

Requirement-2.4:

To determine

To prepare:

The single-step income statement for Valley Company for the year ended August 31st, 2015 to determine the net income of the company.

Requirement-2.4:

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

    Valley Company Income Statement for the year ended August 31st,2015

    ParticularsAmount in $Amount in $
    Net Sales



    211,350

    Expenses:





    Cost of goods sold

    74,500



    Selling Expenses

    54,500



    General & Administrative Expenses

    32,500



    Total Expenses



    161,500

    Net Income

    49,850

Explanation of Solution

Computation of Net sales: The formula for computing net sales is:

  Net Sales=SalesSales discountsSales returns and allowances

Net Sales= $225,600$2,250$12,000

Net Sales=$211,350

Computation of total expenses:

Total expenses is derived by adding cost of goods sold, selling expenses and general & administrative expenses.

Cost of goods sold: $74,500

Selling Expenses: Advertising expense ($13,000) + Sales Salaries Expense ($32,000) + Rent expense (Selling Space) ($8,000) + Stores supplies expense ($1,500) = $54,500

General and Administrative Expenses: Office Supplies expense ($400) + Office Salaries expense ($28,500) + Rent expense (office space) ($3,600) = $32,500

Therefore total expenses for the year is $74,500+$54,500+$32,500=$161,500

Computation of Net income:

The formula used to compute net income is:

  Net income=RevenuesExpenses

Revenues: $211,350 (Net Sales)

Expenses: $161,500

Net income=  $211,350$161,500

Net income=$49,850

Conclusion

Hence the net income of Valley Company for the year 2015 is $49,850.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

WORKING PAPERS F/ FUND ACCOUNTING

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License