Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 5 Accounting for Merchandise Operations 243

For (a) through (d), identify the items designated by X.

a. Purchases(XX)Net purchases.

b. Net purchases XCost of merchandise purchased.

c. Merchandise inventory (beginning) Cost of merchandise purchased X.

d. Merchandise available for sale XCost of merchandise sold.

The following data were extracted from the accounting records of Meniscus Company for the

year ended April 30, 2006:

Merchandise inventory, May 1, 2005 $ 121,200

Merchandise inventory, April 30, 2006 142,000

Purchases 985,000

Purchases returns and allowances 23,500

Purchases discounts 21,000

Sales 1,420,000

Transportation in 11,300

a. Prepare the cost of merchandise sold section of the income statement for the year ended

April 30, 2006, using the periodic inventory method.

b. Determine the gross profit to be reported on the income statement for the year ended

April 30, 2006.

Identify the errors in the following schedule of cost of merchandise sold for the current year

ended December 31, 2006:

Cost of merchandise sold:

Merchandise inventory, December 31, 2006 $120,000

Purchases $600,000

Plus: Purchases returns and allowances $14,000

Purchases discounts 6,000 20,000

Gross purchases $620,000

Less transportation in 7,500

Cost of merchandise purchased 612,500

Merchandise available for sale $732,500

Less merchandise inventory, January 1, 2006 132,000

Cost of merchandise sold $600,500

The following expenses were incurred by a merchandising business during the year. In which

expense section of the income statement should each be reported: (a) selling or (b) adminis-

trative?

1. Advertising expense.


2. Depreciation expense on office equipment.


3. Insurance expense on store equipment.


4. Office supplies used.


5. Rent expense on office building.


6. Salaries of office personnel.


7. Salary of sales manager.

Summary operating data for The Meriden Company during the current year ended June 30,

2006, are as follows: cost of merchandise sold, $3,240,000; administrative expenses, $300,000; in-

terest expense, $47,500; rent revenue, $30,000; net sales, $5,400,000; and selling expenses, $480,000.

Prepare a single-step income statement.

Exercise 5-7

Identify items missing in
determining cost of
merchandise sold

Goal 2

Exercise 5-8

Cost of merchandise sold and
related items

Goal 2

a. Cost of merchandise sold,
$931,000

Exercise 5-9

Cost of merchandise sold

Goal 2

Correct cost of merchandise
sold, $599,500

Exercise 5-10

Income statement for
merchandiser

Goal 2

Exercise 5-11

Single-step income statement

Goal 2

Net income: $1,362,500