Bates Hardware purchased merchandise inventory for cash. Which of the following choices accurately reflects how this event would affect the company’s financial statements?

Assets

=

Liab.

+

Equity

Rev.

−

Exp.

=

Net Inc.

Cash Flow

a.

+ −

n/a

n/a

n/a

n/a

n/a

– OA

b.

+ −

n/a

n/a

n/a

n/a

n/a

n/a

c.

−

n/a

−

n/a

+

−

– OA

d.

−

n/a

−

n/a

+

−

n/a

[The following information applies to the questions displayed below.]

The trial balance for Terry’s Auto Shop as of January 1, 2016, follows:

Account Titles	Debit			Credit
Cash	$	6,000
Inventory		3,100
Common Stock				$	7,350
Retained Earnings					1,750
Total	$	9,100		$	9,100

The following events affected the company during the 2016 accounting period:

1.

Purchased merchandise on account that cost $4,130.

2.

The goods in Event 1 were purchased FOB shipping point with freight cost of $285 cash.

3.

Returned $445 of damaged merchandise for credit on account.

4.

Agreed to keep other damaged merchandise for which the company received an $215 allowance.

5.

Sold merchandise that cost $2,730 for $4,840 cash.

6.

Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $130 cash.

7.

Paid $2,800 on the merchandise purchased in Event 1.

Required

a.

Record the events in general journal format. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The Pet Store experienced the following events for the 2016 accounting period:

1.	Acquired $95,000 cash from the issue of common stock.
2.	Purchased $84,000 of inventory on account.
3.	Received goods purchased in Event 2 FOB shipping point; freight cost of $1,050 paid in cash.
4.	Sold inventory on account that cost $42,000 for $79,000.
5.	Freight cost on the goods sold in Event 4 was $1,360. The goods were shipped FOB destination. Cash was paid for the freight cost.
6.	Customer in Event 4 returned $5,320 worth of goods that had a cost of $2,710.
7.	Collected $64,780 cash from accounts receivable.
8.	Paid $63,200 cash on accounts payable.
9.	Paid $2,690 for advertising expense.
10.	Paid $4,090 cash for insurance expense.

Required

a.

Which of these events affect period (selling and administrative) costs? Which result in product costs? If neither, label the transaction NA.

b.

Record each event in a horizontal statements model. The first event is recorded as an example. (In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, NC for net change in cash, and NA to indicate the element is not affected by the event. Enter any decreases to account balances and cash outflows with a minus sign.)

Q

The following information was taken from the accounts of Green Market, a small grocery store at December 31, 2016. The accounts are listed in alphabetical order, and all have normal balances.

Accounts payable	$	609
Accounts receivable		409
Advertising expense		200
Cash		419
Common stock		209
Cost of goods sold		700
Interest expense		61
Merchandise inventory		360
Prepaid rent		49
Retained earnings, 1/1/2016		644
Sales revenue		1,090
Salaries expense		220
Rent expense		100
Gain on sale of land		34

Required

Prepare an income statement for the year using the single-step and multistep approach. (Amounts to be deducted should be indicated with minus sign.)

Single-step

Multistep

Q

The following income statements were drawn from the annual reports of the Denver Company and the Reno Company:

	Denver*			Reno*
Net sales	$	32,300		$	86,500
Cost of goods sold		(15,010	)		(63,040	)
Gross margin		17,290			23,460
Less: Operating exp.
Selling and admin. exp.		(12,840	)		(17,834	)
Net income	$	4,450		$	5,626

*All figures are reported in thousands of dollars.

Required

a-1.

Compute the gross margin percentages and return-on-sales ratios of Denver and Reno. (Round your answers to the nearest whole number.)

a-2.

Ascertain which of the company is a high-end retailer based on ratios computed.

b.	If Denver and Reno have equity of $17,200 and $19,400, respectively, which company is in the more profitable business?