Claypool Hardware is the only hardware store in a remote area of northern Minnesota. Some of Claypool's transactions during the current year are as follows. Nov. 5 Sold lumber on account to Bemidji Construction, $17,140. The inventory subsidiary ledger shows the cost of this merchandise was $11, 430. Nov. 9 Purchased tools on account from Owatonna Tool Company, $4, 550. Dec. 5 Collected in cash the $17,140 account receivable from Bemidji Construction. Dec. 9 Paid the $4,550 owed to Owatonna Tool Company. Dec. 31 Claypool's personnel counted the inventory on hand and determined its cost to be $183,880. The accounting records, however, indicate inventory of $186,040 and a cost of goods sold of $680, 810. The physical count of the inventory was observed by the company's auditors and is considered correct. Assume that an index of key business ratios in your library shows hardware stores of Claypool's approximate size (in total assets) average net sales of $1 million per year and a gross profit margin of 31 percent. Required: a. Prepare journal entries to record these transactions and events in the accounting records of Claypool Hardware. (The company uses a perpetual inventory system.) b. Prepare a partial income statement showing the company's gross profit for the year. (Net sales for the year amount to $1,047,400.) c. Claypool purchases merchandise inventory at the same wholesale prices as other hardware stores. Due to its remote location, however, the company must pay between $16,000 and $20,000 per year in extra transportation charges to receive delivery of merchandise. (These additional charges are included in the amount shown as cost of goods sold.) d. Does the business appear to suffer or benefit financially from its remote location?
Claypool Hardware is the only hardware store in a remote area of northern Minnesota. Some of Claypool's transactions during the current year are as follows. Nov. 5 Sold lumber on account to Bemidji Construction, $17,140. The inventory subsidiary ledger shows the cost of this merchandise was $11, 430. Nov. 9 Purchased tools on account from Owatonna Tool Company, $4, 550. Dec. 5 Collected in cash the $17,140 account receivable from Bemidji Construction. Dec. 9 Paid the $4,550 owed to Owatonna Tool Company. Dec. 31 Claypool's personnel counted the inventory on hand and determined its cost to be $183,880. The accounting records, however, indicate inventory of $186,040 and a cost of goods sold of $680, 810. The physical count of the inventory was observed by the company's auditors and is considered correct. Assume that an index of key business ratios in your library shows hardware stores of Claypool's approximate size (in total assets) average net sales of $1 million per year and a gross profit margin of 31 percent. Required: a. Prepare journal entries to record these transactions and events in the accounting records of Claypool Hardware. (The company uses a perpetual inventory system.) b. Prepare a partial income statement showing the company's gross profit for the year. (Net sales for the year amount to $1,047,400.) c. Claypool purchases merchandise inventory at the same wholesale prices as other hardware stores. Due to its remote location, however, the company must pay between $16,000 and $20,000 per year in extra transportation charges to receive delivery of merchandise. (These additional charges are included in the amount shown as cost of goods sold.) d. Does the business appear to suffer or benefit financially from its remote location?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Claypool Hardware is the only hardware store in a remote area of northern Minnesota. Some of
Claypool's transactions during the current year are as follows. Nov. 5 Sold lumber on account to
Bemidji Construction, $17,140. The inventory subsidiary ledger shows the cost of this merchandise
was $11,430. Nov. 9 Purchased tools on account from Owatonna Tool Company, $4, 550. Dec. 5
Collected in cash the $17, 140 account receivable from Bemidji Construction. Dec. 9 Paid the $4,550
owed to Owatonna Tool Company. Dec. 31 Claypool's personnel counted the inventory on hand and
determined its cost to be $183, 880. The accounting records, however, indicate inventory of $186, 040
and a cost of goods sold of $680,810. The physical count of the inventory was observed by the
company's auditors and is considered correct. Assume that an index of key business ratios in your
library shows hardware stores of Claypool's approximate size (in total assets) average net sales of $1
million per year and a gross profit margin of 31 percent. Required: a. Prepare journal entries to record
these transactions and events in the accounting records of Claypool Hardware. (The company uses a
perpetual inventory system.) b. Prepare a partial income statement showing the company's gross
profit for the year. (Net sales for the year amount to $1,047, 400.) c. Claypool purchases merchandise
inventory at the same wholesale prices as other hardware stores. Due to its remote location, however,
the company must pay between $16,000 and $20,000 per year in extra transportation charges to
receive delivery of merchandise. (These additional charges are included in the amount shown as cost
of goods sold.) d. Does the business appear to suffer or benefit financially from its remote location?
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