Preparing a

Worksheet for
a Merchandise
Company

11

ANSWERS TO DISCUSSION QUESTIONS

1.
2.
3.
4.
5.
6.

The purchases account records merchandise for resale.

Cash received before the service is performed or goods sold. It represents a liability until service is
performed or goods are provided to customer.
True.
Calculates the cost of ending inventory.
If a portion of the revenue has been earned, the liability will have to be reduced and the earned
revenue increased.
To calculate cost of goods sold, the cost of ending inventory is subtracted. This figure for ending
inventory is calculated at a separate time. The beginning inventory was calculated earlier. The figures
for beginning inventory and ending inventory are never combined since we assume the beginning
inventory was sold by end of period when ending inventory was calculated.

385

SOLUTIONS TO CHAPTER 11 MINI EXERCISES

Adjusting Entries
1. Income Summary
Merchandise Inventory
Merchandise Inventory
Income Summary
Adjusting Entry
2. A. Unearned Dog Walking Fees
Earned Dog Walking Fees

30,000
30,000
14,000
14,000

300
300

B. Liability
3. A.
B.
C.
D.
E.
F.

2,3
4
1
1
2
3

4. A is Ending Inventory
B is Beginning Inventory
B is to wipe out Beginning Inventory with a credit and it is a cost on Income Summary line (since it is sold).
A brings on the cost of Ending Inventory and is placed as a credit on Income Summary, since it is not a cost
until it is sold. We never combine the two Inventories together since when we prepare the formal Income
Statement, we will need separate figures for Beginning and Ending Inventory.
5. A.
B.
C.
D.
E.
F.

$500
$700
$500
$700
$500
$700

386

SOLUTIONS TO EXERCISES
11-1.

(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)

Credit
Debit
Debit
Debit
Credit
Debit
Credit
Credit

11-2.

(A) Net Sales:

Sales
$22,000

Liability
Asset (at the end of period it is part of cost of goods sold)
Cost of Goods Sold
Expense
Contra-Cost of Goods Sold
Contra Revenue
Liability
Contra-Cost of Goods Sold

Sales R & A
$250

Sales Disc.
$500

= Net Sales
= $21,250

+ Net Purch.
+ $13,200

End. Inv.
$510

Cost of Goods Sold

= $13,340

(C) Gross Profit:

Net Sales
$21,250

Cost of Goods Sold

$13,340

= Gross Profit
= $7,910

(D) Net Income:

Gross Profit
$7,910

Operating Expense
$3,600

= Net Income
= $4,310

(B) Cost of Goods Sold:

Beg. Inv.
$650

11-3.
Unearned Janitorial Service
Janitorial Service
11-4.
(A)
(B)
(C)

$40,000
$50,000
0

Liab.
Rev.
+
+
+

$400,000
$400,000
$400,000

Dr.
Cr.

387

$400
$400

0
$60,000
$30,000

=
=
=

$440,000
$390,000
$370,000

388

Net Loss

Salaries Payable
36

(D) 4

Dep. Exp., Store Equip.

(E) 2

(C) 6

112

(A) 11

(B) 13

Debit

(E)

36

(B) 13

(D) 4

(C) 6

(A) 11

Credit

Adjustments

Store Supplies Exp.

112

13

Advertising Expense

Totals

10

23

Salaries Expense

Freight In

Purchases Discount

Purchases

Sales Ret. & Allow.

64

Income Summary

Sales

34

J. Moore, Capital

Accounts Payable

20

Store Equipment
6

10

Store Supplies

Credit

Acc. Dep., Store Equip.

11

Accounts Receivable

Merchandise Inv.

Debit

Trial Balance

Cash

Account Titles

131

13

12

23

11

20

13

Debit

131

64

13

34

10

Credit

Adjusted Trial Balance

MOORE COMPANY
WORKSHEET
FOR THE YEAR ENDED DECEMBER 31, 200X

81

81

13

12

23

11

Debit

1
81

80

64

13

Credit

Income Statement

1
51

50

20

13

Debit

51

51

34

10

Credit

Balance Sheet

EXERCISES (CONTINUED)

11-5.

SOLUTIONS TO A PROBLEMS
PROBLEM 11A-1
A

Net Sales:
Sales SRA SD
$5,000 $210 $48 = $4,742

Cost of Goods Sold:

Beg. Inv. + Net Purch. + Freight-In - End. Inv.
$75
+ $1,194 +
$70 - $55
= $1,284
($1,300 - $40 - $66)
Gross Profit:
Net Sales - COGS
$4,742 $1,284 = $3,458

Net Income:
Gross Profit - Operating Expenses
$3,458
$1,500 = $1,958

389

390

Net Income

1,210

(D) 60

Dep. Exp., Store Equip.

Wages Payable

(C)150

14,118

(E) 90

(A)600

(B)310

Debit

1,210

(E) 90

(B)310

(D) 60

(C)150

(A)600

Credit

Adjustments

Insurance Expense

14,118

96

114

Telephone Expense

Miscellaneous Expense

792

Rent Expense

1,716

102

Purchases Ret. & Allow.

Wages Expense

168

Purchases Discount

5,256

216

Hardware Sales Discount

Purchases

546

Hardware Sales Ret. & Allow.

11,040

Income Summary

Hardware Sales

1,632

Jim Spool, Capital

516

Accounts Payable

2,160

Store Equipment
660

684

Prepaid Insurance

Credit

Acc. Dep., Store Equip.

600

1,152

786

Debit

Trial Balance

Merchandise Inv.

Accounts Receivable

Cash

Account Titles

14,578

60

150

96

114

792

1,806

5,256

216

546

600

2,160

534

310

1,152

786

Debit

14,578

90

102

168

11,040

310

1,632

516

720

Credit

Adjusted Trial Balance

JIMS HARDWARE
WORKSHEET FOR YEAR ENDED DECEMBER 31, 20OX

11,620

9,636
1,984

60

150

96

114

792

1,806

5,256

216

546

600

Debit

11,620

11,620

102

168

11,040

310

Credit

Income Statement

4,942

4,942

2,160

534

310

1,152

786

Debit

4,942

2,958
1,984

90

1,632

516

720

Credit

Balance Sheet

PROBLEM 11A-2

391

Net Income

Office Supplies Expense

Rent Expense
Dep. Exp., Office Equip.
Office Salaries Payable

Cash
Petty Cash
Accounts Receivable
Merchandise Inventory
Prepaid Rent
Office Supplies
Office Equipment
Acc. Dep., Office Equip.
Accounts Payable
K. Waltz, Capital
K. Waltz, Withdrawals
Income Summary
Sales
Sales Ret. & Allow.
Sales Discount
Purchases
Purchases Discount
Purchases Ret. & Allow.
Office Salaries Expense
Insurance Expense
Advertising Expense
Utilities Expense

Account Titles

7,408
2,400
800
576
71,888

96
2,400
29,316

4,800

5,408
240
2,512
5,092
616
944
9,280

Debit

71,888

16
348

52,484

7,600
5,964
5,476

Credit

Trial Balance
Credit

(F) 310
8,162
8,162

(C) 210
(D) 195
(E) 550

(F) 310

(A)5,092 (B)1,805

(E) 550

(B)1,805 (A)5,092
(D) 195
(C) 210

Debit

Adjustments

74,553

210
195
550

7,718
2,400
800
576

96
2,400
29,316

4,800
5,092

5,408
240
2,512
1,805
421
734
9,280

Debit

310
74,553

16
348

1,805
52,484

8,150
5,964
5,476

Credit

Adjusted Trial Balance

5,300
54,653

49,353

210
195
550

7,718
2,400
800
576

96
2,400
29,316

5,092

Debit

54,653

54,653

16
348

1,805
52,484

Credit

Income Statement

WALTZ COMPANY WORKSHEET FOR YEAR ENDED DECEMBER 31, 200X

25,200

25,200

4,800

5,408
240
2,512
1,805
421
734
9,280

Debit

5,300
25,200

310
19,900

8,150
5,964
5,476

Credit

Balance Sheet

PROBLEM 11A-3

392

Net Loss

Supplies Expense
Insurance Expense
Dep. Exp., Store Equip.
Earned Storage Fees

Cash
Petty Cash
Accounts Receivable
Merchandise Inventory
Supplies
Prepaid Insurance
Store Equipment
Acc. Dep., Store Equip.
Accounts Payable
Federal Income Tax Payable
FICASoc. Sec. Payable
FICAMedicare Payable
State Income Tax Payable
SUTA Tax Payable
FUTA Tax Payable
Unearned Storage Fees
Ron Win, Capital
Ron Win, Withdrawals
Income Summary
Sales
Sales Ret. & Allow
Sales Discount
Purchases
Purchases Discount
Purchases Ret. & Allow.
Freight-In
Salaries Expense
Payroll Tax Expense
Interest Expense

Account Titles

225
12,000
420
895
72,260

1,475
1,335
26,000

4,300

4,460
300
7,500
9,000
1,000
850
2,500

Debit

72,260

550
400

45,000

1,500
10,635
500
454
106
150
108
32
325
12,500

Credit

Trial Balance
Credit

176

400

(F) 176
16,776 16,776

(C) 600
(D) 600
(E) 400

(A) 9,000 (B) 6,000

(F)

(E)

(B) 6,000 (A)9,000

(C) 600
(D) 600

Debit

Adjustments

78,660

600
600
400

225
12,000
420
895

1,475
1,335
26,000

4,300
9,000

4,460
300
7,500
6,000
400
250
2,500

Debit

176
78,660

550
400

6,000
45,000

1,900
10,635
500
454
106
150
108
32
149
12,500

Credit

Adjusted Trial Balance

RONS WHOLESALE CLOTHING CO.

WORKSHEET FOR YEAR ENDED DECEMBER 31, 20OX

52,950

52,950

600
600
400

225
12,000
420
895

1,475
1,335
26,000

9,000

Debit

824
52,950

176
52,126

550
400

6,000
45,000

Credit

Income Statement

824
26,534

25,710

4,300

4,460
300
7,500
6,000
400
250
2,500

Debit

26,534

26,534

1,900
10,635
500
454
106
150
108
32
149
12,500

Credit

Balance Sheet

PROBLEM 11A-4

SOLUTIONS TO B PROBLEMS
PROBLEM 11B-1
A

Net Sales:
Sales SRA SD
$3,950 - $191 - $452 = $3,307

Cost of Goods Sold:

Beg. Inv. + Net Purch. + Freight-In - End. Inv.
$79
+ $1,046 +
$41 - $75
= $1,091
($1,152 - $64 - $42)
Gross Profit:
Net Sales - COGS
$3,307 - $1,091 = $2,216

Net Income:
Gross Profit - Operating Expenses
$2,216
- $895
= $1,321

393

394
144

Miscellaneous Expense

Net Income

1,568

(D) 90

Dep. Exp., Store Equip.

Wages Payable

(C) 112

20,952

(E) 150

(A) 736

(B)480

Debit

(E) 150
1,568

(B) 480

(D) 90

(C) 112

(A) 736

Credit

Adjustments

Insurance Expense

20,952

552

1,840

Telephone Expense

2,304

Rent Expense

248

Purchases Ret. & Allow.

Wages Expense

240

Purchases Discount

7,088

688

Hardware Sales Discount

Purchases

728

Hardware Sales Ret. & Allow.

14,800

Income Summary

Hardware Sales

2,576

Jim Spool, Capital

1,408

Accounts Payable

3,200

Store Equipment
1,680

1,112

Prepaid Insurance

Credit

Acc. Dep., Store Equip.

736

1,600

960

Debit

Trial Balance

Merchandise Inv.

Accounts Receivable

Cash

Account Titles

21,672

90

112

144

552

1,840

2,454

7,088

688

728

736

3,200

1,000

480

1,600

960

Debit

150
21,672

248

240

14,800

480

2,576

1,408

1,770

Credit

Adjusted Trial Balance

JIMS HARDWARE
WORKSHEET
FOR YEAR ENDED DECEMBER 31, 200X

14,432
1,336
15,768

90

112

144

552

1,840

2,454

7,088

688

728

736

Debit

15,768

15,768

248

240

14,800

480

Credit

Income Statement

7,240

7,240

3,200

1,000

480

1,600

960

Debit

150
5,904
1,336
7,240

2,576

1,408

1,770

Credit

Balance Sheet

PROBLEM 11B-2

395

Net Income

Office Supplies Expense

Rent Expense
Dep. Exp., Office Equip.
Office Salaries Payable

Cash
Petty Cash
Accounts Receivable
Merchandise Inventory
Prepaid Rent
Office Supplies
Office Equipment
Acc. Dep., Office Equip.
Accounts Payable
K. Waltz, Capital
K. Waltz, Withdrawals
Income Summary
Sales
Sales Ret. & Allow.
Sales Discount
Purchases
Purchases Discount
Purchases Ret. & Allow.
Office Salaries Expense
Insurance Expense
Advertising Expense
Utilities Expense

Account Titles

7,408
2,200
800
736
72,500

116
2,200
29,296

5,000

3,800
100
3,400
5,204
1,200
1,360
9,680

Debit

72,500

1,208
1,350

52,462

4,040
7,964
5,476

Credit

Trial Balance
Credit

8,614

(C)1,270
(D) 110
(E) 250

(F) 180

(F) 180
8,614

(A)5,204 (B)1,600

(E) 250

(B)1,600 (A)5,204
(D) 110
(C)1,270

Debit

Adjustments

74,530

1,270
110
250

7,588
2,200
800
736

116
2,200
29,296

5,000
5,204

3,800
100
3,400
1,600
1,090
90
9,680

Debit

180
74,530

1,208
1,350

1,600
52,462

4,290
7,964
5,476

Credit

Adjusted Trial Balance

WALTZ COMPANY WORKSHEET

FOR YEAR ENDED DECEMBER 31, 20OX

49,770
6,850
56,620

1,270
110
250

7,588
2,200
800
736

116
2,200
29,296

5,204

Debit

56,620

56,620

1,208
1,350

1,600
52,462

Credit

Income Statement

24,760

24,760

5,000

3,800
100
3,400
1,600
1,090
90
9,680

Debit

180
17,910
6,850
24,760

4,290
7,964
5,476

Credit

Balance Sheet

PROBLEM 11B-3

396

Net Income

Supplies Expense
Insurance Expense
Dep. Exp., Store Equip.
Earned Storage Fees

Cash
Petty Cash
Accounts Receivable
Merchandise Inventory
Supplies
Prepaid Insurance
Store Equipment
Acc. Dep., Store Equip.
Accounts Payable
FIT Payable
FICASoc. Sec. Payable
FICAMedicare Payable
SIT Payable
SUTA Tax Payable
FUTA Tax Payable
Unearned Storage Fees
Ron Win, Capital
Ron Win, Withdrawals
Income Summary
Sales
Sales Ret. & Allow
Sales Discount
Purchases
Purchases Discount
Purchases Ret. & Allow.
Freight-In
Salaries Expense
Payroll Tax Expense
Interest Expense

Account Titles

100
6,000
194
320
28,734

560
480
8,600

1,800

2,600
30
3,000
3,600
270
180
1,000

Debit

28,734

240
160

19,400

496
4,590
350
194
46
100
60
14
350
2,734

Credit

Trial Balance
Credit

115

(F) 115
13,090 13,090

(C) 220
(D) 55
(E) 100

(A)3,600 (B)9,000

(F)

(E) 100

(B)9,000 (A)3,600
(C) 220
(D) 55

Debit

Adjustments

37,834

220
55
100

100
6,000
194
320

560
480
8,600

1,800
3,600

2,600
30
3,000
9,000
50
125
1,000

Debit

115
37,834

240
160

9,000
19,400

596
4,590
350
194
46
100
60
14
235
2,734

Credit

Adjusted Trial Balance

RONS WHOLESALE CLOTHING CO.

WORKSHEET FOR YEAR ENDED DECEMBER 31, 20OX

20,229
8,686
28,915

220
55
100

100
6,000
194
320

560
480
8,600

3,600

Debit

28,915

115
28,915

240
160

9,000
19,400

Credit

Income Statement

17,605

17,605

1,800

2,600
30
3,000
9,000
50
125
1,000

Debit

8,919
8,686
17,605

596
4,590
350
194
46
100
60
14
235
2,734

Credit

Balance Sheet

PROBLEM 11B-4

SOLUTIONS TO REAL WORLD APPLICATION #1

+
+

Cash Professional Fees

Increase for Accrued Fees
Reduction in Unearned Fees
Total Professional Fees on an Accrual Basis

$50,000
1,100
$51,100
1,950
$53,050

SOLUTIONS TO REAL WORLD APPLICATION #2

1.
2.
3.
4.
5.
6.
7.
8.

$100,000;
$240,000;
$220,000;
$460,000;
$180,000;
$180,000;
$400,000;
$140,000;

$ 60,000;
$180,000
$260,000
$300,000;
$200,000;
$120,000;
$240,000;
$200,000;

$ 20,000 (Net Loss)

$ 20,000
$100,000
$ 80,000
$180,000
$ 80,000

SOLUTIONS TO REAL WORLD APPLICATION #3

The questions in this case is whether Jim should use the petty cash fund for his own personal use. Jims poor
financial situation should not be an adequate excuse to take advantage of the petty cash fund. I would
recommend that Jim return the money to the petty cash fund.

397

Account Titles

Cash
12
Petty Cash
Accounts Receivable
11
Prepaid Rent
2
Supplies
Merchandise Inventory
Computer Shop Equipment
3
Accumulated Depr. CS Equip.
Office Equipment
1
Accum. Depr. Office Equip.
Accounts Payable
T. Freedman Capital
T. Freedman Withdrawals
2
Income Summary
Service Revenue
Sales
Sales Return and Allowances
Sales Discounts
Advertising Exp.
Rent Exp.
Utilities Exp.
Phone Exp.
Supplies Exp.
Insurance Exp.
Postage Exp.
Depreciation Exp. C.S. Equip.
Depreciation Exp. Office Equip.
Miscellaneous Exp.
Wage Expense
2
Payroll Tax Expense
Purchases
Purch. Ret. & Allow.
Totals
39
Net Income

1
0
0
0
3

6
0
0
0
2

65
00
00
00
00

0
0
6
0

00
00
35
00

19 8 0 0 00
9 7 0 0 00

2 0 00
2 8 4 0 00
7 4 0 6 00

9 9 00

5 0 00 3

4 3 00
1 0 0 00

2 8 7 00

2 4 0 0 00

3 0 0 00

6
0
0
0
5
0
0

65
00
00
00
00
00
00

0
2
0
0
9
5
8
0
7
4
0
1
3
2
5

0
0
0
0
0
0
7
0
5
3
0
0
0
6
0

00
00
00
00
00
00
00
00
00
00
00
00
00
35
00

3 0 0 00
19 8 0 0 00
9 7 0 0 00

1 2 0 00
2 8 4 0 00
7 4 0 6 00

5 2 00

1 0 0 00
5 0 00 40 8 0 8 00 40 8 0 8 00

2 0
2
9

4
2
8
2 4
2
1
2
1
1

2 0 1 5 00

5 0 00

1
0
0
0
4
0
0

Adjustmed Trial Balance

Dr.
Cr.

12 5
1
11 9
0 00
4
7 00
1
3
3 8
3 00
1 0
0 00

3 0 0 00

1 0

2 4 0
2 8

Adjustments
Dr.
Cr.

0
2
0
0
9
5
8
0
7
4
0
1
3
2
5

0
0
0
0
0
0
7
0
5
3
0
0
0
6
0

00
00
00
00
00
00
00
00
00
00
00
00
00
35
00

1
0
0
0
4
0
0

6
0
0
0
5
0
0

65
00
00
00
00
00
00

2 0 1 5 00

1 0 5 0 00

12 5
1
11 9
4
1
3
3 8

1 2 0 00
2 8 4 0 00
7 4 0 6 00

5 2 00

Balance Sheet
Dr.
Cr.

1 0 0 00
8 5 1 35 29 9 0 0 00 32 2 2 6 65 10 9 0 8 00
21
3 8 65
21 3 1 8 65
29 9 0 0 00 29 9 0 0 00 32 2 2 6 65 32 2 2 6 65

2 0
2
9

4
2
8
2 4
2
1
2
1
1

3 0 0 00
19 8 0 0 00
9 7 0 0 00

Income Statement
Dr.
Cr.

ELDORADO COMPUTER CENTER WORKSHEET, MARCH 31, 20XX

1 0 0 00
9 6 5 00 39 9 6 5 00 3

1
0 3
2 2
9 5

1 0 0 00
1 7 5 00

2 9 0 00
1 5 0 00

4 0 0 00
2 2 0 00
8 0 0 00

0 1 5 00

0 5 0 00

8 0 0 00

5
1
9
8
4

Trial Balance
Dr.
Cr.