Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077632991
Author: Wild
Publisher: MCG
Question
Book Icon
Chapter 5, Problem 4BPSB

Requirement-1.1:

To determine

To prepare:

The closing entries of the Barkley Company for the fiscal year March 31st, 2015.

Requirement-1.1:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

a. To record the Sales of Barkley Company for the year ended March 31 2015:

    DateGeneral JournalDebit ($)Credit ($)
    Mar 31

    Sales

    332,650





    Income Summary



    332,650

Explanation of Solution

Given,

Sales: $332,650

Sales account is debited with the sale amount of $332,650 and income summary is credited with the same amount of $332,650 to close the temporary accounts with credit balances.

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

    DateGeneral JournalDebit ($)Credit ($)
    Mar 31

    Income Summary

    277,475





    Sales discounts



    5,875



    Sales returns & allowances



    20,000



    Cost of goods sold



    115,600



    Sales Salaries expense



    44,500



    Rent expense-Selling space



    16,000



    Stores supplies expense



    3,850



    Advertising

    expense



    26,000



    Office salaries expense



    40,750



    Rent expense-Office space



    3,800



    Office Supplies expense



    1,100

Income summary is debited with the total sales expenses, discounts and allowances of $277,475 and credited with corresponding amounts of sales expenses, discounts and allowances related to sales as given in the trial balance of Barkley Company for the year ended March 31st, 2015.

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

    DateGeneral JournalDebit ($)Credit ($)
    Mar 31

    Income summary

    55,175





    Retained earnings



    55,175

Income summary is debited with the net income of $55,175 ($332,650-$277,475) 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 $55,175.

Computation of Net Income:

Conclusion

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

Requirement-1.2:

To determine

To analyse:

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

Requirement-1.2:

Expert Solution
Check Mark

Answer to Problem 4BPSB

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

    138,500

    Less: Purchase Returns & Allowances

    6,700

    Net Purchases

    131.800

    Discount 3% on net purchases

    131,800*3%

    Purchase Discount, if payment made in agreed time$3,954

The purchase discount computed in the above table for 3% if payment is made on agreed time is $3,954 whereas as per the supplementary records, Barkley Company has received only $2,950 for the year ended March 31st, 2015.

Therefore, the above statement indicates that the Barkley 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 Barkley Company has paid within allowed time then the company would have got full discount of $3,954.

Conclusion

Hence from analysing the payment made on credit purchases and the discount received by the Barkley 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 Barkley Company between the prior years and the current year 2015.

Requirement-1.3:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

The Barkley Company’s current year percentage rate of sales returns and allowance is increased to 6.0% compared to prior year’s rate of 5% 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 6.0% 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 5% of sales returns and allowances on gross sales.

Explanation of Solution

Given,

Sales for the year March 31st, 2015: $332,650

Sales returns and allowances for March 31st, 2015: $20,000

Percentage of sales returns and allowances on Sales: $20,000/$332,650*100=6.0%

Conclusion

Hence from the above analysis, the sales returns and allowances for the current year ended 2015 is increased to 6.0% when comparing to prior year’s rate of 5%.

Requirement-2.1:

To determine

To Compute:

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

Requirement-2.1:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

    ParticularsAmount in $
    Sales

    332,650

    Less: Sales discounts

    5,875

    Less: Sales returns & allowances

    20,000

    Net sales for the year 306,775

Explanation of Solution



The net sales is computed using the formula:

  Net sales=SalesSales discountsSales Returns and allowances

Net Sales= $332,650$5,875$20,000

Net Sales = $306,775

Conclusion

Hence the net sales of Barkley Company for the year 2015 is $306,775.

Requirement-2.2:

To determine

To Compute:

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

Requirement-2.2:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

    ParticularsAmount in $Amount in $
    Invoice Cost of Merchandise

    138,500

    Add: Cost of transportation

    5,750

    144,250

    Less: Purchase discounts

    (2,950)

    Less: Purchase returns & allowances

    (6,700)

    (9,650)

    Cost of Merchandise Purchased

    134,600

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 =$138,500+$5,750$2,950$6,700

Cost of Merchandise=$134,600

Conclusion

Hence the cost of Merchandise of Barkley Company for the year 2015 is $134,600.

Requirement-2.3:

To determine

To Prepare:

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

Requirement-2.3:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

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



    Sales

    332,650



    Less: Sales discounts

    5,875



    Less: Sales returns & allowances

    20,000



    Net Sales



    306,775

    Cost of goods sold



    115,600

    Gross Profit

    191,175
    Expenses:



    Selling Expenses:



    Advertising Expense

    26,000



    Sales salaries expense

    44,500



    Rent expense-Selling space

    16,000



    Store supplies expense

    3,850



    Total Selling expenses90,350

    General & administrative expenses:



    Office Supplies expense

    1,100



    Office salaries expense

    40,750



    Rent expense-Office space

    3,800



    Total General & administrative expenses45,650
    Total expenses

    136,000
    Net income

    55,175

Explanation of Solution

Computation of Gross Profit:

The formula used to compute gross profit is:

Gross Profit=Net Sales-Cost of goods sold Gross Profit= $306,775-$115,600

Gross Profit=$191,175

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

  Net income=RevenuesExpenses

Revenues: $191,175 (Gross Profit)

Expenses: $136,000

Net income= $191,175$136,000

Net income=$55,175

Conclusion

Hence the net income of Barkley Company for the year 2015 is $55,175.

Requirement-2.4:

To determine

To prepare:

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

Requirement-2.4:

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

    Barkley Company Income Statement for the year ended March 31st,2015

    ParticularsAmount in $Amount in $
    Net Sales



    306,775

    Expenses:





    Cost of goods sold

    115,600



    Selling Expenses

    90,350



    General & Administrative Expenses

    45,650



    Total Expenses



    251,600

    Net Income

    55,175

Explanation of Solution

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

  Net Sales=SalesSales discountsSales returns and allowances

Net Sales= $332,650$5,875$20,000

Net Sales=$306,775

Computation of total expenses:

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

Cost of goods sold: $115,600

Selling Expenses: Advertising expense ($26,000) + Sales Salaries Expense ($44,500) + Rent expense (Selling Space) ($16,000) + Stores supplies expense ($3,850) = $90,350.

General and Administrative Expenses: Office Supplies expense ($1,100) + Office Salaries expense ($40,750) + Rent expense (office space) ($3,800) = $45,650.

Therefore total expenses for the year is $115,600+$90,350+$45,650=$251,600.

Computation of Net income:

The formula used to compute net income is:

  Net income=RevenuesExpenses

Revenues: $306,775 (Net Sales)

Expenses: $251,600

Net income= $306,775$251,600

Net income=$55,175

Conclusion

Hence the net income of Barkley Company for the year 2015 is $55,175.

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Chapter 5 Solutions

Fundamental Accounting Principles -Hardcover

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