Reference no: EM132986196
Question 1 - Pharoah Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Pharoahs' ledger showed Cash of $8,700 and Common Stock of $8,700.
May 1 Purchased merchandise on account from Black Wholesale Supply for $8,700, terms 1/10, n/30.
May 2 Sold merchandise on account for $5,100, terms 2/10, n/30. The cost of the merchandise sold was $4,000.
May 5 Received credit from Black Wholesale Supply for merchandise returned $200.
May 9 Received collections in full, less discounts, from customers billed on May 2.
May 10 Paid Black Wholesale Supply in full, less discount.11Purchased supplies for cash $900.
May 12 Purchased merchandise for cash $3,700.
May 15 Received $230 refund for return of poor-quality merchandise from supplier on cash purchase.
May 17 Purchased merchandise from Wilhelm Distributors for $3,100, terms 2/10, n/30.
May 19 Paid freight on May 17 purchase $250.
May 24 Sold merchandise for cash $5,500. The cost of the merchandise sold was $4,100.
May 25 Purchased merchandise from Clasps Inc. for $800, terms 3/10, n/30.
May 27 Paid Wilhelm Distributors in full, less discount.
May 29 Made refunds to cash customers for returned merchandise $108. The returned merchandise had cost $122.
May 31 Sold merchandise on account for $1,280, terms n/30. The cost of the merchandise sold was $797.
A. Journalize the transactions using a perpetual inventory system. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)
B. Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances. (Post entries in the order of journal entries posted in part (a). Round answers to 0 decimal places, e.g. 5,275.)
C. Prepare income statement through gross profit for the month of May 2022. (Round answers to 0 decimal places, e.g. 5,275.)
D. Calculate the profit margin and the gross profit rate. (Assume operating expenses were $1,404.) (Round answers to 1 decimal place, e.g. 15.5%.)
Question 2 - Sandhill Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company's fiscal year on November 30, 2022, these accounts appeared in its adjusted trial balance.
Accounts Payable $36,800
Accounts Receivable 23,900
Accumulated Depreciation-Equipment 95,200
Cash 11,200
Common Stock 49,000
Cost of Goods Sold 853,530
Freight-Out 8,910
Equipment 222,680
Depreciation Expense 19,300
Dividends 16,800
Gain on Disposal of Plant Assets 2,800
Income Tax Expense 14,000
Insurance Expense 12,600
Interest Expense 7,000
Inventory 36,500
Notes Payable 60,900
Prepaid Insurance 8,400
Advertising Expense 46,900
Rent Expense 47,600
Retained Earnings 19,700
Salaries and Wages Expense 166,180
Sales Revenue 1,265,000
Salaries and Wages Payable 8,400
Sales Returns and Allowances 28,000
Utilities Expense 14,300
A1. Prepare multiple-step income statement. (List other revenues before other expenses.)
A2. Prepare retained earnings statement. (List items that increase retained earnings first.)
A3. Prepare classified balance sheet. (List current assets in order of liquidity.)
B. Calculate the profit margin and the gross profit rate.
C1. The vice president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis. Given the increased incentive, they expect net sales to increase by 10%. As a result, they estimate that gross profit will increase by $38,347 and expenses by $60,613.
C2. Compute the expected new net income. (Hint: You do not need to prepare income statement.) Then, compute the revised profit margin and gross profit rate. Comment on the effect that this plan would have on net income and on the ratios, and evaluate the merit of this proposal. (Ignore income tax effects.)