Rose Merchandising Company buys and sells a product called Zoom. Company began t
ID: 2334548 • Letter: R
Question
Rose Merchandising Company buys and sells a product called Zoom. Company began the 2018 accounting year on Jan. 1st with the following balances. Debit Cash 41,000 Accounts Receivable 20,000 Merchandise Inventory 22,000 Supplies 1,440 Prepaid Insurance 2,000 Equipment 236,200
Credit: Accumulated Depreciation-equipment 40,240 Accounts Payable 7,000 Common Stock, $10 par 265,000 Retained Earnings 10,400 Total 322,640 322,640
On Jan. 1st, 2018, Merchandise Inventory consisted of 200 units of product Zoom each had cost $110. Company uses Perpetual Inventory System with LIFO method for inventory valuation. The following transactions took place in January of 2018.
1. In order to raise capital, issued and sold 5000 shares of $12 par value, 10%, preferred stocks.
2. Purchased 400 units of Zoom at a cost of $151.17 each from the Lyons Company, terms 2/10, n/30, with FOB Shipping point term plus sales taxes of 8% that were not included in the purchase price.
3. Shipping and handling cost was $158.
4. Returned 5 defective units of Zoom to the Lyons Company.
5. Paid Lyons Company the amount owed within discount period.
6. Sold 300 Zoom to Team America for a price of $510 each, terms were 2/10, n/30, FOB Shipping point. Applicable sales tax rate was 8%.
7. Borrowed $80,000 at 4%. Interest is expected to be paid monthly.
8. Paid $500 for the shipment of the merchandise to Team America.
9. Team America returned 10 units of Zooms.
10. Sold 100 units of Zoom for a price of 50,000 yen each to a Japanese company on account. Shipping term was FOB Shipping point on a Cash On Delivery basis. On the transaction date the exchange rate was $0.01 per yen. Sales taxes was not applicable.
11. Collected $1000 interest from bank on its saving account in cash
12. Team America paid the amount owed within discount period.
13. Collected from Japanese company for sales made in the above. On collection date the exchange rate was $0.008 per yen.
14. Invested $40,000 in marketable securities - $25000 for short-term purpose (also called trading securities) and $15,000 for long-term purpose (also called available-for-sale securities).
15. Collected $7,000 on accounts receivable. It was not within discount period.
16. Purchased a delivery truck (equipment) at a $30,000. Paid $5,000 in cash and signed a note for the remaining at 6% to be paid in 36 equal monthly payments.
17. Recorded $10,000 hurricane losses on equipment. The loss met extra ordinary requirements.
18. Closed its Mexico branch by selling the branch equipment that had cost $100,000 with accumulated depreciation of $20,000 for $88,000 in cash.
19. Paid $1,400 for utilities expense.
20. Paid salaries, $20,000. Applicable tax rates were as follows: FICA Taxes 7.65% Federal Income Taxes 18.00% State Income Taxes 6.00% Federal Unemployment Taxes 0.80% State Unemployment Taxes
21. Some equipment that was purchased at $5,000 was disposed for $3500 cash.
22. Declared and paid $10,000 cash dividends.
23. Made the 1st interest payment on loan to the bank.
24. Collected $500 dividends from its investment in marketable securities.
25. Detected $5,000 understatement of depreciation charges in prior period and made the necessary adjusting entry. Applicable income tax rate for last year was 30%.
26. A physical inventory count indicated that $240 supplies were let.
27. Recorded depreciation on the month, $5,000.
28. The expired insurance was $1,000.
29. Made the necessary journal entries to reflect the fair market value of investment in marketable securities. The fair value of company investment in marketable securities as of Dec.31st was as follows. Cost Fair Value Investment in Marketable Securities (short-term) $25,000 $30,000 Investment in Marketable Securities (long-term) $15,000 $17,500
30. Paid all sales taxes owed and related payroll taxes to government.
31. Paid $3,000 for income taxes.
Prepare general purpose financial statements– Income Statement (multiple step) with proper reporting of EPS Comprehensive Income Statement Statement of Retained Earnings Statement of Stockholders’ Equity Balance Sheet (classified) Statement of Cash Flows, and Perform closing entries.
Explanation / Answer
No. Account Title Debit Credit 1 Cash 60000 10% Preferred stock 60000 (5000* $ 12) 2 Merchandise Inventory 60468 Sales tax receivable 4837 Accounts payable 65305 (Terms 2/10,n/30-FOB shipping point) 3 Merchandise Inventory 158 Cash 158 (Shipping & handling on 2 .above) 4 Accounts payable 816 Merchandise Inventory 756 Sales tax receivable 60 65305/400*5=816 60468/400*5=756 5 Accounts payable 64489 Merchandise Inventory 1290 Cash 63199 65305-816=64489 64489*2%=1290 6 Accounts receivable 165240 Sales revenue 153000 Sales tax payable 12240 (Terms 2/10,n/30-FOB shipping point) a. COGS 44490 Merchandise Inventory 44490 300 units *148.30=44490 Prepetual LIFO(Refer workings below) 7 Cash 80000 4% Bank Loan 80000 8 Accounts receivable 500 Cash 500 (Shipment of the above) 9 Sales Returns 5100 Sales tax payable 408 Accounts receivable 5508 153000/300*10=5100 12240/300*10=408 Merchandise Inventory 1483 COGS 1483 (Refer entry 6.a.) 10 Accounts receivable 50000 Sales revenue 50000 100*50000*0.01= COGS 14830 Merchandise Inventory 14830 (100*148.3) 11 Cash 1000 Interest income 1000 12 Cash 157037 Sales discounts 3195 Accounts receivables 160232 159732-3195=156537+500(shipping) 159732*2%=3195 165240-5508+500=160232 13 Cash 40000 Loss on exchange rate fluctuation 10000 Accounts receivable 50000 (0.01-0.008)*100*50000=10000 100*50000*0.008= 40000 14 Trading securities 25000 Available-for-sale securities 15000 Cash 40000 15 Cash 7000 Accounts receivables 7000 16 Delivery truck 37380 Cash 5000 6% Note payable 25000 Interest payable 7380 (Refer workings below) 17 Loss due to hurricane 10000 Equipment 10000 (Extraordinary item) 18 Cash 88000 Accumulated depreciation-Equipment 20000 Equipment 100000 Gain on sale 8000 (Discontinued operation) 19 Utilities expense 1400 Cash 1400 20 Salaries expense 20000 FICA Taxes payable(20000*7.65%) 1530 Federal Income taxes payable(20000*18%) 3600 State Income taxes payable(20000*6%) 1200 Cash(Plug-in fig.) 13670 Pay-roll tax expense 2770 FICA Taxes payable(Employer contn.) 1530 Federal Unemployment Taxes(20000*0.8%) 160 State Unemployment taxes(20000*5.4%) 1080 21 Cash 3500 Loss on sale 1500 Equipment 5000 22 Retained Earnings 10000 Cash 10000 23 Interest expense 267 Cash 267 (80000*4%/12) 24 Cash 500 Dividend Income 500 (on Trading securities) 25 Prior-period item-Depreciation exp.(equip.) 5000 Income tax receivable --30%*5000 1500 Accumulated depreciation-Equipment 5000 Retained Earnings 1500 26 Supplies expense 1200 Supplies 1200 (1440-240) 27 Depreciation expense 5000 Accumulated depreciation-Equipment 5000 28 Insurance expense 1000 Prepaid Insurance 1000 29 Fair value adjustment -Trading securities 5000 Unrealised gain on short-term (trading) securities 5000 Fair value adjustment -AFS 2500 OCI-Unrealised gain on Long-term (AFS) securities 2500 30 Sales tax payable 11832 Cash 7055 Sales tax Receivable 4777 Federal Income taxes payable(20000*18%) 3600 State Income taxes payable(20000*6%) 1200 FICA Taxes payable 3060 Federal Unemployment Taxes 160 State Unemployment taxes 1080 Cash 9100 31 Income tax expense 3000 Cash 3000 1051500 1051500 Workings for JE 6.a. Per unit Cost -------60468/400= 151.17 Shipping -----158/395= 0.4 -Discount------1290/395= -3.27 148.30 Workings for JE 16. 25000=x*(1-1.005^-36)/0.005 760.55 760.55*36= 32380-25000=7380 (int.) LEDGER ACCOUNTS Net Ledger Balances No. Account Title Debit Credit Debit Credit 1 10% Preferred stock 60000 60000 7 4% Bank Loan 80000 80000 16 6% Note payable 25000 25000 Beginning balance 7000 2 Accounts payable 65305 4 Accounts payable 816 5 Accounts payable 64489 7000 Beginning balance 20000 6 Accounts receivable 165240 8 Accounts receivable 500 9 Accounts receivable 5508 10 Accounts receivable 50000 13 Accounts receivable 50000 12 Accounts receivables 160232 15 Accounts receivables 7000 13000 Beginning balance 40240 18 Accumulated depreciation-Equipment 20000 27 Accumulated depreciation-Equipment 5000 25 Accumulated depreciation-Equipment 5000 30240 14 Available-for-sale securities 15000 15000 Beginning balance 41000 1 Cash 60000 3 Cash 158 5 Cash 63199 7 Cash 80000 8 Cash 500 11 Cash 1000 12 Cash 157037 13 Cash 40000 14 Cash 40000 16 Cash 5000 18 Cash 88000 19 Cash 1400 20 Cash 13670 21 Cash 3500 22 Cash 10000 23 Cash 267 24 Cash 500 30 Cash 7055 30 Cash 9100 31 Cash 3000 15 Cash 7000 324689 10.a COGS 14830 6.a. COGS 44490 9.a. COGS 1483 57837 Common stock 265000 265000 16 Delivery truck 37380 37380 27 Depreciation expense 5000 5000 24 Dividend Income 500 500 Beginning balance 236200 17 Equipment 10000 18 Equipment 100000 21 Equipment 5000 121200 29 Fair value adjustment -AFS 2500 2500 29 Fair value adjustment -Trading securities 5000 5000 20 Federal Income taxes payable(20000*18%) 3600 Federal Income taxes payable(20000*18%) 3600 0 30 Federal Unemployment Taxes 160 Federal Unemployment Taxes(20000*0.8%) 160 0 30 FICA Taxes payable 3060 20 FICA Taxes payable(20000*7.65%) 1530 FICA Taxes payable(Employer contn.) 1530 0 18 Gain on sale of equipment 8000 8000 31 Income tax expense 3000 3000 25 Income tax receivable --30%*5000 1500 1500 28 Insurance expense 1000 1000 23 Interest expense 267 267 11 Interest income 1000 1000 Interest payable 7380 7380 17 Loss due to hurricane 10000 10000 13 Loss on exchange rate fluctuation 10000 10000 21 Loss on sale 1500 1500 Beginning balance 22000 2 Merchandise Inventory 60468 3 Merchandise Inventory 158 4 Merchandise Inventory 756 5 Merchandise Inventory 1290 6.a. Merchandise Inventory 44490 9.a. Merchandise Inventory 1483 10.a Merchandise Inventory 14830 22743 29 OCI-Unrealised gain on Long-term (AFS) securities 2500 2500 Pay-roll tax expense 2770 2770 Beginning balance 2000 28 Prepaid Insurance 1000 1000 25 Prior-period item-Depreciation exp.(equip.) 5000 5000 Beginning balance 10400 22 Retained Earnings 10000 25 Retained Earnings 1500 1900 20 Salaries expense 20000 20000 12 Sales discounts 3195 3195 9 Sales Returns 5100 5100 6 Sales revenue 153000 10 Sales revenue 50000 203000 6 Sales tax payable 12240 9 Sales tax payable 408 30 Sales tax payable 11832 0 2 Sales tax receivable 4837 4 Sales tax receivable 60 30 Sales tax receivable 4777 0 20 State Income taxes payable(20000*6%) 1200 State Income taxes payable(20000*6%) 1200 0 30 State Unemployment taxes 1080 State Unemployment taxes(20000*5.4%) 1080 0 Beginning balance 1440 26 Supplies 1200 240 26 Supplies expense 1200 1200 14 Trading securities 25000 25000 29 Unrealised gain on short-term (trading) securities 5000 5000 19 Utilities expense 1400 1400 1374140 1374140 696520 696520 Trial balance for Jan Cash 324689 Accounts receivable 13000 Merchandise Inventory 22743 Trading securities 25000 Fair value adjustment -Trading securities 5000 Supplies 240 Prepaid Insurance 1000 Income tax receivable 1500 Delivery truck 37380 Equipment 121200 Accumulated depreciation-Equipment 30240 Available-for-sale securities 15000 Fair value adjustment -AFS 2500 Accounts payable 7000 Interest payable 7380 4% Bank Loan 80000 6% Note payable 25000 Common stock $ 10 par 265000 10% Preferred stock 60000 Retained Earnings 1900 OCI-Unrealised gain on Long-term (AFS) securities 2500 Sales revenue 203000 Sales Returns 5100 Sales discounts 3195 COGS 57837 Supplies expense 1200 Utilities expense 1400 Depn.exp 5000 Salaries expense 20000 Pay-roll tax expense 2770 Insurance expense 1000 Interest expense 267 Loss on exchange rate fluctuation 10000 Loss on sale of Equipment 1500 Interest income 1000 Gain on sale of equipment(discontinued opns.) 8000 Dividend Income 500 Unrealised gain on short-term (trading) securities 5000 Income tax expense 3000 Prior-period item-Depreciation exp.(equip.) 5000 Loss due to hurricane 10000 Total 696521 696520 Rose Merchandising Company Multi-step Income statement Sales revenue 203000 Less:Sales Returns -5100 Less:Sales discounts -3195 Net sales 194705 Less: COGS -57837 Gross Margin 136868 Less: Operating Expenses: Supplies expense 1200 Utilities expense 1400 Depn.exp 5000 Salaries expense 20000 Pay-roll tax expense 2770 Insurance expense 1000 Loss on sale of Equipment 1500 Unrealised gain on short-term (trading) securities -5000 -27870 Operating Income 108998 Add/(Less): Non-operating items Interest expense -267 Interest income 1000 Dividend Income 500 Prior-period item-Depreciation exp.(equip.) -5000 -3767 EPS Income from continuing operations 105232 3.97 Add:Gain on sale of equipment(discontinued opns.) 8000 0.30 Less: Non-recurring:Loss due to hurricane -10000 -0.38 Income before tax 103232 3.90 Less:Income tax expense -3000 Net Income 100232 3.78 Less Pref. div. (60000*10%) -6000 Earnings for Equity 94232 3.56 Statement of Comprehensive Income Net Income 100232 OCI-- Loss on exchange rate fluctuation -10000 OCI-Unrealised gain on Long-term (AFS) securities 2500 -7500 Comprehensive Income 92732 Statement of Retained Earnings Beginning balance 10400 Add:Net income 100232 Add: Income tax receivable(PP depn.) 1500 Less: Dividends paid -10000 Ending balance 102132 Classified Balance sheet Assets Current assets Cash 324689 Accounts receivable 13000 Merchandise Inventory 22743 Trading securities 25000 Add:Fair value adjustment -Trading securities 5000 30000 Supplies 240 Prepaid Insurance 1000 Income tax receivable 1500 Total Current assets 393172 Fixed assets Delivery truck 37380 Equipment 121200 Accumulated depreciation-Equipment -30240 90960 Available-for-sale securities 15000 Add: Fair value adjustment -AFS 2500 17500 145840 Total Assets 539012 Liabilities & Equity Current Liabilities Accounts payable 7000 Interest payable 7380 4% Bank Loan 80000 94380 Total current Liabilities Long-term liabilities 6% Note payable 25000 Total long-term Liabilities 25000 Equity Common stock $ 10 par 265000 10% Preferred stock 60000 Retained Earnings 102132 OCI (-10000+2500) -7500 Total equity 419632 Total Liabilities & Equity 539012
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