Question

Junker’s Stash started the Year 2 accounting period with the balances given in the financial statements model shown below. During Year 2, Junker’s 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. Junker’s Stash customers returned merchandise that was sold for $2,100.
4b. The merchandise returned in Event 4a had cost Junker’s 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. The first event is recorded as an example.
b. Determine the amount of net sales.
c. Prepare a multistep income statement. Include common size percentages on the income statement.
d. The return-on-sales ratio for Junker’s Stash during the prior year was 12 percent. Based on the common size data in the income statement, did the expenses for Junker’s Stash increase or decrease in Year 2?

Answer 1

Answer:

a. Record the above transactions in a financial statements model. The first event is recorded as an example.

• I prepared an excel spreadsheet because there is not enough room here.

b. Determine the amount of net sales.

• $69,201

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

                    Multistep Income Statement

Revenues:                                                                  $69,201

• Sales revenue $72,000
• Sales discounts ($699)
• Sales returns and allowances ($2,100)

COGS:                                                                      ($40,650)

Gross profit:                                                               $28,551

S&A expenses:                                                          ($8,500)

• Delivery ($1,650)
• Sales and adm.  expenses ($6,850)                              

Operating income                                                     $20,051

d. The return-on-sales ratio for Junker’s Stash during the prior year was 12 percent. Based on the common size data in the income statement, did the expenses for Junker’s Stash increase or decrease in Year 2?

return on sales = operating profit / net sales = $20,051 / $69,201 = 28.98%

this means that Junker's expenses decreased this year

Explanation:

1)

Dr Merchandise inventory 70,000

    Cr Cash 70,000

3)

Dr Accounts receivable 72,000

    Cr Sales revenue 72,000

Dr Cost of goods sold 41,900

    Cr Merchandise inventory 41,900

4)

Dr Sales returns and allowances 2,100

    Cr Accounts receivable 2,100

Dr Merchandise inventory 1,250

    Cr Cost of goods sold 1,250

5)

Dr Delivery expense 1,650

    Cr Cash 1,650

6)

Dr Cash 69,201

Dr Sales discounts 699

    Cr Accounts receivable 69,900

7)

Dr S&A expenses 6,850

    Cr Cash 6,850

8)

Dr Cash 9,100

    Cr land 9,100

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