Chapter 5 Accounting for Merchandise Operations 249physical inventory is correct. Indicate the effects of the inventory misstatements on the financial
statements for 2006 and 2007, using the following format for your answers:Amount of Misstatement
Overstatement (Understatement)
2006 2007
Balance sheet (December 31):
Merchandise inventory _____ _____
Total assets _____ _____
Accounts payable _____ _____
Total liabilities _____ _____
Retained earnings _____ _____
Total stockholders’ equity _____ _____
Income statement:
Cost of merchandise sold _____ _____
Gross profit _____ _____
Net income _____ _____Merchandise of $38,000 was ordered on December 29, 2006, FOB shipping point. The vendor
paid the shipping charges of $1,000 as an accommodation to the buyer. The invoice from the
vendor was not received until January 3, 2007, and the related accounts payable journal entry
was not recorded until January 3, 2007. The merchandise was shipped on December 30, 2006,
and was received on January 5, 2007. Since the merchandise was in transit, it was not included
in the physical count of inventory on December 31, 2006.
Assume that the accounts payable was recorded on January 3, 2007, as a debit to Merchandise
Inventory and a credit to Accounts Payable for $39,000. Also, assume that the December 31, 2007,
physical inventory is correct. Indicate the effects of the inventory misstatements on the financial
statements for 2006 and 2007, using the following format for your answers:Amount of Misstatement
Overstatement (Understatement)
2006 2007
Balance sheet (December 31):
Merchandise inventory _____ _____
Total assets _____ _____
Accounts payable _____ _____
Total liabilities _____ _____
Retained earnings _____ _____
Total stockholders’ equity _____ _____
Income statement:
Cost of merchandise sold _____ _____
Gross profit _____ _____
Net income _____ _____Staples, Inc., operates a chain of office supply stores throughout the United States. For 2004 and
2003, Staples reported (in thousands) the following operating data:2004 2003
Net sales $14,448,378 $13,181,222
Cost of goods sold 10,343,643 9,559,123
Gross profit $ 4,104,735 $ 3,622,099
Operating income $ 1,125,873 $ 798,288a. Compute the percent of gross profit and operating income to net sales. Round to one dec-
imal place.
b. Based upon (a), comment on Staples’ operating performance in 2004 as compared to 2003.Exercise 5-35
Effects of inventory
misstatements
Goal 8
Exercise 5-36
Gross profit and operating
income
Goal 9