EXERCISE 4-17A

Exercise 4-17A Comprehensive exercise with sales discounts

Junkers Stash started the 2016 accounting period with the balances given in the financial statements model shown below. During 2016 Junkers Stash experienced the following business events:

1. Paid cash to purchase $70,000 of merchandise inventory.

2. The goods that were purchased in Event 1 were delivered FOB destination. Freight costs of

$1,400 were paid in cash by the responsible party.

3a . Sold merchandise for $72,000 under terms 1/10, n/30.

3b. Recognized $41,900 of cost of goods sold.

4a. Junkers Stash customers returned merchandise that was sold for $2,100.

4b. The merchandise returned in Event 4a had cost Junkers Stash $1,250.

5. The merchandise in Event 3a was sold to customers FOB destination. Freight costs of $1,650

were paid in cash by the responsible party.

6a. The customers paid for the merchandise sold in Event 3a within the discount period. Recognized the sales discount.

6b. Collected the balance in the accounts receivable account.

7. Paid cash of $6,850 for selling and administrative expenses.

8. Sold the land for $9,100 cash.

Required

a. Record the above transactions in a financial statements model like the one shown below:

Event Accts. Com. Ret. Rev./ Cash

No. Cash 1 Rec. 1 Inventory 1 Land 5 Stk. 1 Earn. Gain 2 Exp. 5 Net Inc. Flow

Bal. 80,000 1 0 1 15,000 1 11,000 5 70,000 1 36,000 NA 2 NA 5 NA NA

b. Determine the amount of net sales.

c. Prepare a multistep income statement. Include common size percentages on the income statement.

d. Junkers Stash return on sales ratio in 2015 was 12 percent. Based on the common size data

in the income statement, did Junkers Stash expenses increase or decrease in 2016?

e. Explain why the term loss is used to describe the results due to the sale of land.