5-1) IBM recently reported its operations on this income statement: CONSOLIDATED STATEMENT OF EARNINGS INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES 1992 1991 1990 (Dollars in millions) For the year ended December 31: Revenue: Sales ............... ...... Software ...... Maintenance ........ Services... Rentals and financing Software S 33,755 11,103 7,635 7,352 4,678 64,523 S 37,093 10,498 7,414 5,582 4,179 64,766 $ 43,959 9,865 7,198 4,124 3,785 68,931 Cost: Sales Software Maintenance ................................. Services . Rentals and financing..... ce -19,698 3.924 3,430 6,051 1.966 35,069 29,454 18,571 3,865 3,379 4,531 1,727 3 2,073 3 2,693 19,401 3.118 3,302 3,315 1,579 30,715 38,216 * ... 20,709 6,554 Gross Profit.......... ............... Operating Expenses: Selling, general and administrative .. .... Research, development and engineering .. .. Restructuring charges....... ...... Operating Income Other Income, principally interest............... Interest Expense................ Earnings before Income Taxes......................... ...................... Provision for Income Taxes ............. Net Earnings before Changes in Accounting Principles........ Effect of Changes in Accounting Principles ......................... Net Earnings. 19.526 6.522 11.645 37,693 573 1,360 (9,026) (2,161) 21,375 6,644 3,735 31.754 939 602 1,423 423 .. (8239) pally interest. ngs before Income T . .. 2 7,263 10,953 495 1,324 10,124 4,157 118 716 (6,865) (598) 5,967 1.900 S (4,965) (2,263) S (2,861) $ 5,967 Required Required 1. ISBM a merchandising entity, a service business, or both? How can you tell2 2. Compute IBM's gross margin on sales (not total revenues) for 1992, 1991, and 1900. Compare this trend with the company's trend of total gross margin. CHAPTER 5 MERCHANDISING AND THE ACCOUNTING CYCLE 203 1 3. Write a brief memo to investors advising them of IBMS two-year trend of sales, total revenues. gross margin, operating income, and net income. In which year did IBM experience the larger change from the preceding year, 1992 or 199133 hair and sales Touring martin (Obj. 2) July 12 ct SORO E5-2 ) Journalive, without explanations, the following transactions of Mariposa, Inc. during July July 3 Purchased S1,000 of inventory under terms of 2/10 n/eom (end of month) and FOR shipping point 7 Returned $300 of defective merchandise purchased on July 3. 39 Paid freight bill of S110 on July 3 purchase. 10 Sold inventory for $2.200, collecting cash of $100. Payment terms on the remainder were 2/15 n/30. These goods cost Mariposa $1,300. 12 Pain amount ower on credit purchase of July, the discount and the return 16 Granted a sales allowance of $800 on the Joly 10 sale. 23 Received cash from Joly 10 customer in full settlement of her debt, less the allowance and the discount tual business, you receive the com (E5. As the proprietor of Rendeck Tire Company, paying invoice from a supplier Journalising i rrions from # purchase invoice (Obj. 2) Cash payment S542.11 LASCHE ABC TIRE WHOLESALE DISTRIBUTORS, INC. 2600 Commonwealth Avenue Boston, Massachusetts 02215 Invoice date: May 14, 1983 Payment terms: 2/10 1/30 Sold to: Kendrick TireCa 4219 Crestul Park Lexington, Mass 02173 Quantity Ordered Quantity Shipped Description Price Amount P135 X Radial L912 Ekibias. R39 Thuck tires $57.14 41.32 S222.54 330.56 SOLOZ 500.20 ol S1.053.60 Due date: May 24, 19X3 May 25 through June 13, 1983 Amount: $1.032.53 $1.053.60 Pald Required 1. Record the May 15 purchase on account 2. The R9 truck sures were ordered by mistake and therefore were returned to ABC. Journal ize the return on May 19. Record that may payment of the amount owed. Fourwag purchase tract Oh! 2 ES-4) on April 30 Corwi Jewelers purchased inventory of $5,300 on account from La Rote Fine Gems, wholesale jewelry supplier. Tenns were MIS net 45. On receiving the Corwin checked the order and und SRO of unsuitable mercadise. Therefore. Con merchandise to the supplier on May + o pay the remaining amount owed, Corwin had to borrow from the bank because of a Con TUD. 4) Payment on account .365 goods, corwm en ken the ouer and round 300 or usutade merchase, nererore, cor- win returned this amount of merchandise to the supplier on May 4 "To pay the remaining To pay the remaining amount owed, Corwin had to borrow from the bank because of a Cari temporary cash shortage. On May 14 Corwin signed a short-term note payable to the bank and 204 PART 1 THE BASIC STRUCTURE OF ACCOUNTING Immediately paid the borrowed funds to La Roche. On May 31 Corwin paid the bank the ner amount of the invoice, which Corwin had borrowed, plus S30 interest. Required Record the indicated transactions in the journal of Corwin Jewelers. Explanations are not required 5.5 Refer to the business situation in Exercise 5.4. Journalie the transactions of La Roche Fine Gems. La Roche rosmarin is 40 percent. Baplanations are not required. Fournaling salesma ( O2) Receipt on account $4.365 Comparing the d ents of 4 matent (Obj. 3) 0.800 e) $2,200 102.100 5.6 Supply the missing income tattinent amounts in each of the following situations Cost of Goods Sold Ending Inventory $19,400 Ner Sales $92,800 Gross Marron $11.000 Solce 504300 72.400 Net Purchases 564,700 43.000 Sales Discounts (0) $2100 1.800 Beginning Inventory $12,500 22.450 (6) $44,100 59,400 22.000 99,200 210 Required Record the indicated transactions in the journal of Corwin Jewelers. Explanations are not required 5.5 Refer to the business situation in Exercise 5.4. Journalize the transactions of La Roche Fine Gems. La Roche gross marins o percent. Explanations are not required. Tournalising i n (Obj. 2) Receipt on account S4365 (E5-6 Supply the missing income statement amounts in each of the following situations: N ELLI Computing the dewenis of a merchandiser income statement (Obj. 3) (b) 59,800 (e) $26,200 (h) S102.100 BR Sales Net Beginning Sales Discounts Sales Inventory $94.300 (a) $92,800 $32,500 72.400 $2,100 (c) 27.450 01.500 1.800 89,700 () th) 3.000 () 40,700 Net Purchases $66,700 E nding Inventory $39,400 (d) 22.600 48,230 Cost of Goods Sold (b) (b) $44,100 59,400 62.500 Gross Margin $33,000 (e) () 36,600 43.000 54,900 E5-7 For the year ended December 31, 1939, one of Fabries, retailer of home-related Computing out of good old woducts, reported net sales of 338 million and cost of goods sold of $154 million. The company anal.com balance sheet at December 31, 19X8 and 19X9, reported inventories of $133 million and S129 mil (Obj. 3) lion, respectively. What were House of Fabrics net purchases during 1989 Net purchases SITTillion E5-8 Selected amounts from the counting records of landy Dan Home Products are listed P rin der in alphabetical order waliple-step income statemente rate the bar Accounts receivable....... $48,300 Owner's equity, May 31. $126,070 (Obj. 3,5,6) Accumulated depreciation.... 18,700 Purchases of inventory.... 3.000 Net income S41,180: Inventory Purchase discounts...... Cost of goods sold 0.200 2,000 Purchase returns. Freight in ......... turnover 4.2 9,000 Sales discounts......... General expenses......... 23.800 . 4,600 Sales returns 1,500 Interest revenue. 201,000 Sales revenue. 21.870 Inventory, June 30 37,840 Selling expenses. 19.450 Inventory, May 31 Unearned sales revenue 6,500 5-1) IBM recently reported its operations on this income statement: CONSOLIDATED STATEMENT OF EARNINGS INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES 1992 1991 1990 (Dollars in millions) For the year ended December 31: Revenue: Sales ............... ...... Software ...... Maintenance ........ Services... Rentals and financing Software S 33,755 11,103 7,635 7,352 4,678 64,523 S 37,093 10,498 7,414 5,582 4,179 64,766 $ 43,959 9,865 7,198 4,124 3,785 68,931 Cost: Sales Software Maintenance ................................. Services . Rentals and financing..... ce -19,698 3.924 3,430 6,051 1.966 35,069 29,454 18,571 3,865 3,379 4,531 1,727 3 2,073 3 2,693 19,401 3.118 3,302 3,315 1,579 30,715 38,216 * ... 20,709 6,554 Gross Profit.......... ............... Operating Expenses: Selling, general and administrative .. .... Research, development and engineering .. .. Restructuring charges....... ...... Operating Income Other Income, principally interest............... Interest Expense................ Earnings before Income Taxes......................... ...................... Provision for Income Taxes ............. Net Earnings before Changes in Accounting Principles........ Effect of Changes in Accounting Principles ......................... Net Earnings. 19.526 6.522 11.645 37,693 573 1,360 (9,026) (2,161) 21,375 6,644 3,735 31.754 939 602 1,423 423 .. (8239) pally interest. ngs before Income T . .. 2 7,263 10,953 495 1,324 10,124 4,157 118 716 (6,865) (598) 5,967 1.900 S (4,965) (2,263) S (2,861) $ 5,967 Required Required 1. ISBM a merchandising entity, a service business, or both? How can you tell2 2. Compute IBM's gross margin on sales (not total revenues) for 1992, 1991, and 1900. Compare this trend with the company's trend of total gross margin. CHAPTER 5 MERCHANDISING AND THE ACCOUNTING CYCLE 203 1 3. Write a brief memo to investors advising them of IBMS two-year trend of sales, total revenues. gross margin, operating income, and net income. In which year did IBM experience the larger change from the preceding year, 1992 or 199133 hair and sales Touring martin (Obj. 2) July 12 ct SORO E5-2 ) Journalive, without explanations, the following transactions of Mariposa, Inc. during July July 3 Purchased S1,000 of inventory under terms of 2/10 n/eom (end of month) and FOR shipping point 7 Returned $300 of defective merchandise purchased on July 3. 39 Paid freight bill of S110 on July 3 purchase. 10 Sold inventory for $2.200, collecting cash of $100. Payment terms on the remainder were 2/15 n/30. These goods cost Mariposa $1,300. 12 Pain amount ower on credit purchase of July, the discount and the return 16 Granted a sales allowance of $800 on the Joly 10 sale. 23 Received cash from Joly 10 customer in full settlement of her debt, less the allowance and the discount tual business, you receive the com (E5. As the proprietor of Rendeck Tire Company, paying invoice from a supplier Journalising i rrions from # purchase invoice (Obj. 2) Cash payment S542.11 LASCHE ABC TIRE WHOLESALE DISTRIBUTORS, INC. 2600 Commonwealth Avenue Boston, Massachusetts 02215 Invoice date: May 14, 1983 Payment terms: 2/10 1/30 Sold to: Kendrick TireCa 4219 Crestul Park Lexington, Mass 02173 Quantity Ordered Quantity Shipped Description Price Amount P135 X Radial L912 Ekibias. R39 Thuck tires $57.14 41.32 S222.54 330.56 SOLOZ 500.20 ol S1.053.60 Due date: May 24, 19X3 May 25 through June 13, 1983 Amount: $1.032.53 $1.053.60 Pald Required 1. Record the May 15 purchase on account 2. The R9 truck sures were ordered by mistake and therefore were returned to ABC. Journal ize the return on May 19. Record that may payment of the amount owed. Fourwag purchase tract Oh! 2 ES-4) on April 30 Corwi Jewelers purchased inventory of $5,300 on account from La Rote Fine Gems, wholesale jewelry supplier. Tenns were MIS net 45. On receiving the Corwin checked the order and und SRO of unsuitable mercadise. Therefore. Con merchandise to the supplier on May + o pay the remaining amount owed, Corwin had to borrow from the bank because of a Con TUD. 4) Payment on account .365 goods, corwm en ken the ouer and round 300 or usutade merchase, nererore, cor- win returned this amount of merchandise to the supplier on May 4 "To pay the remaining To pay the remaining amount owed, Corwin had to borrow from the bank because of a Cari temporary cash shortage. On May 14 Corwin signed a short-term note payable to the bank and 204 PART 1 THE BASIC STRUCTURE OF ACCOUNTING Immediately paid the borrowed funds to La Roche. On May 31 Corwin paid the bank the ner amount of the invoice, which Corwin had borrowed, plus S30 interest. Required Record the indicated transactions in the journal of Corwin Jewelers. Explanations are not required 5.5 Refer to the business situation in Exercise 5.4. Journalie the transactions of La Roche Fine Gems. La Roche rosmarin is 40 percent. Baplanations are not required. Fournaling salesma ( O2) Receipt on account $4.365 Comparing the d ents of 4 matent (Obj. 3) 0.800 e) $2,200 102.100 5.6 Supply the missing income tattinent amounts in each of the following situations Cost of Goods Sold Ending Inventory $19,400 Ner Sales $92,800 Gross Marron $11.000 Solce 504300 72.400 Net Purchases 564,700 43.000 Sales Discounts (0) $2100 1.800 Beginning Inventory $12,500 22.450 (6) $44,100 59,400 22.000 99,200 210 Required Record the indicated transactions in the journal of Corwin Jewelers. Explanations are not required 5.5 Refer to the business situation in Exercise 5.4. Journalize the transactions of La Roche Fine Gems. La Roche gross marins o percent. Explanations are not required. Tournalising i n (Obj. 2) Receipt on account S4365 (E5-6 Supply the missing income statement amounts in each of the following situations: N ELLI Computing the dewenis of a merchandiser income statement (Obj. 3) (b) 59,800 (e) $26,200 (h) S102.100 BR Sales Net Beginning Sales Discounts Sales Inventory $94.300 (a) $92,800 $32,500 72.400 $2,100 (c) 27.450 01.500 1.800 89,700 () th) 3.000 () 40,700 Net Purchases $66,700 E nding Inventory $39,400 (d) 22.600 48,230 Cost of Goods Sold (b) (b) $44,100 59,400 62.500 Gross Margin $33,000 (e) () 36,600 43.000 54,900 E5-7 For the year ended December 31, 1939, one of Fabries, retailer of home-related Computing out of good old woducts, reported net sales of 338 million and cost of goods sold of $154 million. The company anal.com balance sheet at December 31, 19X8 and 19X9, reported inventories of $133 million and S129 mil (Obj. 3) lion, respectively. What were House of Fabrics net purchases during 1989 Net purchases SITTillion E5-8 Selected amounts from the counting records of landy Dan Home Products are listed P rin der in alphabetical order waliple-step income statemente rate the bar Accounts receivable....... $48,300 Owner's equity, May 31. $126,070 (Obj. 3,5,6) Accumulated depreciation.... 18,700 Purchases of inventory.... 3.000 Net income S41,180: Inventory Purchase discounts...... Cost of goods sold 0.200 2,000 Purchase returns. Freight in ......... turnover 4.2 9,000 Sales discounts......... General expenses......... 23.800 . 4,600 Sales returns 1,500 Interest revenue. 201,000 Sales revenue. 21.870 Inventory, June 30 37,840 Selling expenses. 19.450 Inventory, May 31 Unearned sales revenue 6,500