Review the unadjusted trial balance for World Enterprises for the year ending December 31, 2014 (p. 247-248). Record the ADJUSTING ENTRIES (assuming they are prepared annually) using the additional information provided in the book. Prepare a MULTI-STEP INCOME STAEMENT (see pg. 231 for example) Prepare a STATEMENT OF OWNER'S EQUITY (see p. 232 for example) Record all the CLOSING ENTRIES Calculate the gross profit margin and profit margin for 2014. Compare with the 2013 ratios and comment on any trends you notice.

248 CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS Additional information: 1. There is $750 of supplies on hand on December 31, 2014. 2. The one-year insurance policy was purchased on March 1, 2014. 3. Depreciation expense for the year is $10,000 for the equipment and $4,500 for the furniture. 4. Accrued interest expense a e at December 31, 2014, is $675. 5. Unearned revenue of $975 is still unearned at December 31, 2014. On the sales that were earned, cost of goods sold was $1,750 6. A physical count of merchandise inventory indicates $32,750 on hand on December 31, 2014. 7. Of the mortgage payable, 58,500 is to be paid in 2015. 8. Seok Kim invested $5,000 cash in the business on July 19, 2014. 9. Last year, the company had a gross profit margin of 35%, and profit margin of 10%. Instructions (a) Prepare the adjusting journal entries assuming they are prepared annually. (b) Prepare a multiple-step income statement, statement of owner's equity, and classified balance sheet. (c) Prepare the closing entries. (a) Calculate the gross profit margin and profit margin for 2014. Compare with the 2013 ratios and comment on any trends TAKING IT FURTHER Compare the presentation of information in a multiple-step income statement for a service company with one for merchandising company. How would they be similar and how would they be different? Cakulate ratios and comment. (S06) AN P5-8A Magna International Inc. is a leading global supplier of technologically advanced automotive components, systems, and modules Selected financial information (in US$ millions) follows: Sales Cost of goods sold Profit (loss) Current assets Current liabilities 2011 $28,748 25,401 1,018 8,146 5,724 2010 523,465 20,456 1,003 7.485 4.968 2009 $16,876 15,387 (453) 6233 4,232 Instructions (a) Calculate the gross profit margin, profit margin, and current ratio for each year. (b) Comment on whether the ratios have improved or deteriorated over the three years TAKING IT FURTHER Assume you are thinking about investing in Magna International Inc. What other information would be useful in assessing these ratios? Record inventory transactions-periodic system. (SO 7) AP *P5-9A Data for Norlan Company are presented in PS-3A. Instructions Record the September and October transactions for Norlan Company, assuming a periodic inventory system is used instead of a perpetual inventory system. TAKING IT FURTHER Why might a periodic system be better than a perpetual system for Norlan Company? Record inventory transactions--periodic system. (SO 7) AP *P5-10A Data for Travel Warehouse are presented in P5-4A. Instructions Record the July transactions for Travel Warehouse, assuming a periodic inventory system is used instead of a perpetual inventory system. TAKING IT FURTHER What are the costs and benefits for Travel Warehouse of using a perpetual, as opposed to a periodic, system? Demonstration Problem 2 CHAPTER 5 231 SOLUTION TO DEMONSTRATION PROBLEM 2 (a) DYKSTRA COMPANY Income Statement Year Ended December 31, 2014 $620.500 2.500 623.000 Peveres Net sales Interest revenue Totales Expenses Cost of goods sold Advertising perse Depreciation experte Fieldtout Insurance pense Interest expense Property tax expense Salaries eperse Utilities expense Total expenses Profe $363.800 12.000 29.000 7.800 4500 3.600 24.000 61.000 18.000 Action Plan Recall that in a single-step income statement al revenues are together, then all of the penses Poft is the difference between the two subtotals Remember that the major subtotal headings in the multiple step income statement are net sales gross proft, profit from operations, and profit (0) Prepare the multiple step income statement in steps 1. Sales less sales returns and allowances and sales discounts equals net sales 2. Net sales less cost of goods sold equal gross proft 3. Gross profit less operating penses quals profit from Operations 4. Profit from operations plus in non-operating revenue expense Items couais proft Verchandise Inventory is a current assent the dessified balance sheet Sales Returns and Allowances Sales Discounts and Cost of Goods Sold are temporary accounts with debit balances that must be dosed 513,500 $109,500 (b) DYKSTRA COMPANY Income Statement Year Ended December 31, 2014 $627 200 Sales revenue Sales Less Sales returns and allowances Sales discounts $ 5.700 1.000 6.700 620.500 353.800 266, 700 Coast of goods sold Gross proft Operating expenses Advertising experse Depreciation experte Freight out Insurance pense Property tax expense Salaries eperse Ultes expense Total coording expenses Poft from operations Other revenues and expenses Interest revenue Interest expense Polt $12.000 29.000 7.600 4500 24,000 61.000 18.000 156.100 110.600 $ 2.500 3.600 1.100 $109.500 SOLUTION TO DEMONSTRATION PROBLEM 2 continued on ne page 2 CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS SOLUTION TO DEMONSTRATION PROBLEM 2 continued from previous page (c) DYKSTRA COMPANY Statement of Owner's Equity Year Ended December 31, 2014 G Dykstra capital, January 1, 2014 At poft $ 81,000 109.500 190,500 Dedirt Drawings 12.000 GDystra, capital, December 31, 2014 $178,500 (d) DYKSTRA COMPANY Balance Sheet December 31, 2014 Assets Current assets $ 14,500 15,100 29,000 2.500 61,100 150.000 Accounts receivable Merchandise inventory Prepaid insurance Total current sets Property, plant, and equipment Land Building Less: Acumulated depreciation Epment Less: Accumulated depreciation Total property, plant, and equipment Totalsts 460,000 $500.000 40.000 $95.000 18.000 77,000 687,000 $748,100 Liabilities and Owner's Equity $ 10,500 4,000 25,000 39,600 Curentales Accounts payable Property taxes payable Current porton of mortgage payable Total current abilities Non curent labites Mortgage payable Total abities Owner's GDystra, capital Total abilities and owner's equity 530.000 569,600 178,500 $748,100 SOLUTION TO DEMONSTRATION PROBLEM 2 continued on next page Problems: Set A CHAPTER 5 247 vi equipment Rent expense Sales discounts Depreciation expense 6680 P5-6A Wolcott Warehouse Store has an August 31 fiscal year end and uses a perpetual inventory system. Prepare adjusting and An alphabetical list of its account balances at August 31, 2014, follows. All accounts have normal balances. closing entries, and single- Accounts payable $ 30,000 Interest revenue $ 960 step and multiple-step Accounts receivable 20,000 Merchandise inventory 57,440 income statements Accumulated depreciation- Notes payable 36,000 perpetual system 26.720 Notes receivable 32,000 Calculate ratios Cash 12,525 16,000 (SO4,5,6) AP Cost of goods sold am 569.680 Sales 703,360 3.700 Equipment 66,800 Sales returns and allowances 14.440 Freight out 4.720 Supplies expense 5.840 Insurance expense Unearned revenue Interest expense 2.160 Interest receivable 240 V. Wolcott, drawings 60,640 Additional information: 1. All adjustments have been recorded and posted except for the inventory adjustment. According to the inventory count, the company has $55,000 of merchandise on hand 2. Last year Wolcott Warehouse Store had a gross profit margin of 20% and a profit margin of 10%. rW th 2,895 6,040 v. Wolcott, capital 72.680 STA Instructions ERI s nan (a) Prepare any additional required adjusting entries (b) Prepare a single-step income statement C) Prepare a multiple-step income statement. (d) Calculate gross profit margin and profit margin. Compare with last year's margins and comment on the results (e) Prepare the closing entries. Post to the Income Summary account. Before closing the Income Sum- mary account, check that the balance is equal to profit. TAKING IT FURTHER Compare the two income statements and comment on the usefulness of each one. P5-7A The unadjusted trial balance of World Enterprises for the year ending December 31, 2014, follows: Prepare adjusting and closing entries and finan WORLD ENTERPRISES cial statements-perpetual Trial Balance system. Calculate ratios December 31, 2014 (SO 4,5,6) AP Debit Credit Cash $ 15,000 Accounts receivable 19,200 Merchandise inventory 37.050 Prepaid insurance 3.000 Supplies 2,950 150,000 Accumulated depreciation-equipment $ 35.000 Furniture 45,000 Accumulated depreciation-furniture 18.000 Accounts payable 33.200 4.000 Mortgage payable 125.000 Kim, capital 46.200 S. Kim, drawings 48,000 Sales 265.000 Sales returns and allowances 2,500 Sales discounts 3,275 Cost of goods sold 153,000 Interest expense 6,875 Salaries expense 35.450 5.100 $526,400 $526,400 Equipment Unearned revenue Utilities expense