Financial Accounting: An Integrated Statements Approach, 2nd Edition

The following selected accounts and their current balances appear in the ledger of Sombrero Co.

for the fiscal year ended November 30, 2006:

Cash $ 91,800 Sales $1,802,400

Accounts Receivable 74,400 Sales Returns and Allowances 25,200

Merchandise Inventory 120,000 Sales Discounts 13,200

Office Supplies 3,120 Cost of Merchandise Sold 1,284,000

Prepaid Insurance 8,160 Sales Salaries Expense 252,000

Office Equipment 76,800 Advertising Expense 33,960

Accumulated Depreciation— Depreciation Expense—

Office Equipment 12,960 Store Equipment 5,520

Store Equipment 141,000 Miscellaneous Selling Expense 1,320

Accumulated Depreciation— Office Salaries Expense 49,200

Store Equipment 58,320 Rent Expense 26,580

Accounts Payable 32,400 Insurance Expense 15,300

Salaries Payable 2,400 Depreciation Expense—

Note Payable Office Equipment 10,800

(final payment due 2016) 36,000 Office Supplies Expense 1,080

Capital Stock 60,000 Miscellaneous Administrative

Retained Earnings 261,600 Expense 1,440

Dividends 30,000 Interest Expense 1,200

Instructions

1. Prepare a multiple-step income statement.


2. Prepare a retained earnings statement.


3. Prepare a report form of balance sheet, assuming that the current portion of the note payable
   is $3,000.


4. Briefly explain how multiple-step and single-step income statements differ.

Selected accounts and related amounts for Sombrero Co. for the fiscal year ended March 30,

2006, are presented in Problem 5-1A.

Instructions

1. Prepare a single-step income statement.


2. Prepare a retained earnings statement.

The following selected transactions were completed by Interstate Supplies Co., which sells irri-

gation supplies primarily to wholesalers and occasionally to retail customers:

Mar. 1 Sold merchandise on account to Babcock Co., $7,500, terms FOB shipping point,

n/eom. The cost of the merchandise sold was $4,500.

2 Sold merchandise for $8,000 plus 6% sales tax to cash customers. The cost of mer-

chandise sold was $4,750.

5 Sold merchandise on account to North Star Company, $16,000, terms FOB destination

1/10, n/30. The cost of merchandise sold was $10,500.

8 Sold merchandise for $6,150 plus 6% sales tax to customers who used VISAcards.

Deposited credit card receipts into the bank. The cost of merchandise sold was $3,700.

13 Sold merchandise to customers who used American Expresscards, $6,500. The cost

of merchandise sold was $3,600.

250 Chapter 5 Accounting for Merchandise Operations

ACCOUNTING APPLICATION PROBLEMS

Problem 5-1A

Multiple-step income state-

ment, retained earnings state-

ment, and report form of

balance sheet

Goal 2

1. Net income, $81,600

Problem 5-2A

Single-step income statement

and retained earnings

statement

Goal 2

Problem 5-3A

Sales-related transactions

Goals3, 5

GENERAL LEDGER