Chapter 5, Problem 4BPSB

Requirement-1.1:

To determine

To prepare:

The closing entries of the Barkley Company for the fiscal year March 31^st, 2015.

Answer to Problem 4BPSB

Solution:

a. To record the Sales of Barkley Company for the year ended March 31 2015:

Date	General Journal	Debit ($)	Credit ($)
Mar 31	Sales	332,650
	Income Summary		332,650

Explanation of Solution

Given,

Sales: $332,650

Sales account is debited with the sale amount of $332,650 and income summary is credited with the same amount of $332,650 to close the temporary accounts with credit balances.

b. To record the total expenses, discounts and allowances of Sales of Barkley Company for the year ended March 31^st, 2015.

Date	General Journal	Debit ($)	Credit ($)
Mar 31	Income Summary	277,475
	Sales discounts		5,875
	Sales returns & allowances		20,000
	Cost of goods sold		115,600
	Sales Salaries expense		44,500
	Rent expense-Selling space		16,000
	Stores supplies expense		3,850
	Advertising expense		26,000
	Office salaries expense		40,750
	Rent expense-Office space		3,800
	Office Supplies expense		1,100

Income summary is debited with the total sales expenses, discounts and allowances of $277,475 and credited with corresponding amounts of sales expenses, discounts and allowances related to sales as given in the trial balance of Barkley Company for the year ended March 31^st, 2015.

c. To record the net income or retained earnings determined from the income statement for the year ended March 31^st, 2015.

Date	General Journal	Debit ($)	Credit ($)
Mar 31	Income summary	55,175
	Retained earnings		55,175

Income summary is debited with the net income of $55,175 ($332,650-$277,475) i.e. Sales-Total expenses, discounts and allowances of Sales and retained earnings is credited with the percentage of net earnings made by the company not paid out as dividends which is $55,175.

Computation of Net Income:

Conclusion

Hence the closing entries are recorded for the income summary for the year ended March 31^st, 2015.

Requirement-1.2:

To determine

To analyse:

The cash management system of Barkley Company to accomplish the goal by taking all available purchase discounts of 3%.

Answer to Problem 4BPSB

Solution:

No, the company’s cash management system does not accomplish the goal by taking all available discounts on purchase.

Explanation of Solution

Calculation of Purchase discount if payment is made in agreed time for credit terms:

Particulars	Amount in $
Invoice Cost of merchandise purchases	138,500
Less: Purchase Returns & Allowances	6,700
Net Purchases	131.800
Discount 3% on net purchases	131,800*3%
Purchase Discount, if payment made in agreed time	$3,954

The purchase discount computed in the above table for 3% if payment is made on agreed time is $3,954 whereas as per the supplementary records, Barkley Company has received only $2,950 for the year ended March 31^st, 2015.

Therefore, the above statement indicates that the Barkley Company failed to pay cash on their credit purchases to suppliers within allowed time to avail purchase discount of 3% due to lack of cash balance. If the Barkley Company has paid within allowed time then the company would have got full discount of $3,954.

Conclusion

Hence from analysing the payment made on credit purchases and the discount received by the Barkley Company, it is clear that the company does not have efficient cash management.

Requirement-1.3:

To determine

To analyse:

The comparison of percentage of returns and allowances on sales of the Barkley Company between the prior years and the current year 2015.

Answer to Problem 4BPSB

Solution:

The Barkley Company’s current year percentage rate of sales returns and allowance is increased to 6.0% compared to prior year’s rate of 5% of its gross sales that were eventually returned outright or caused the company to grant allowances to customers. The increase in current year rate on returns and allowances to 6.0% indicates that company has inefficient sales system in meeting the specifications of the customer that made the company to grant more returns and allowances compared to prior year’s that had only 5% of sales returns and allowances on gross sales.

Explanation of Solution

Given,

Sales for the year March 31^st, 2015: $332,650

Sales returns and allowances for March 31^st, 2015: $20,000

Percentage of sales returns and allowances on Sales: $20,000/$332,650*100=6.0%

Conclusion

Hence from the above analysis, the sales returns and allowances for the current year ended 2015 is increased to 6.0% when comparing to prior year’s rate of 5%.

Requirement-2.1:

To determine

To Compute:

The net sales of Barkley Company for the year March 31^st, 2015 after discounts and returns allowed.

Answer to Problem 4BPSB

Solution:

Particulars	Amount in $
Sales	332,650
Less: Sales discounts	5,875
Less: Sales returns & allowances	20,000
Net sales for the year	306,775

Explanation of Solution

The net sales is computed using the formula:

  $Netsales=Sales-Salesdiscounts-SalesReturnsandallowances$

Net Sales= $\$332,650-\$5,875-\$20,000$

Net Sales = $306,775

Conclusion

Hence the net sales of Barkley Company for the year 2015 is $306,775.

Requirement-2.2:

To determine

To Compute:

The total cost of merchandise purchased by the Barkley Company for the year 2015.

Answer to Problem 4BPSB

Solution:

Particulars	Amount in $	Amount in $
Invoice Cost of Merchandise	138,500
Add: Cost of transportation	5,750	144,250
Less: Purchase discounts	(2,950)
Less: Purchase returns & allowances	(6,700)	(9,650)
Cost of Merchandise Purchased		134,600

Explanation of Solution

The cost of merchandise is computed by using the formula:

  $CostofMerchandise=Costofmerchandisepurchase+TransportationCost-PurchaseDiscounts-PurchaseReturns\&Allowances$

Cost of Merchandise $=\$138,500+\$5,750-\$2,950-\$6,700$

Cost of Merchandise=$134,600

Conclusion

Hence the cost of Merchandise of Barkley Company for the year 2015 is $134,600.

Requirement-2.3:

To determine

To Prepare:

The multi-step income statement of Barkley Company for the year ended March 31^st, 2015 to determine the net income of the company.

Answer to Problem 4BPSB

Solution:

Barkley Company Income Statement for the year ended March 31st,2015
Particulars	Amount in $	Amount in $
Revenues:
Sales	332,650
Less: Sales discounts	5,875
Less: Sales returns & allowances	20,000
Net Sales		306,775
Cost of goods sold		115,600
Gross Profit		191,175
Expenses:
Selling Expenses:
Advertising Expense	26,000
Sales salaries expense	44,500
Rent expense-Selling space	16,000
Store supplies expense	3,850
Total Selling expenses	90,350
General & administrative expenses:
Office Supplies expense	1,100
Office salaries expense	40,750
Rent expense-Office space	3,800
Total General & administrative expenses	45,650
Total expenses		136,000
Net income		55,175

Explanation of Solution

Computation of Gross Profit:

The formula used to compute gross profit is:

Gross Profit=Net Sales-Cost of goods sold Gross Profit= $306,775-$115,600

Gross Profit=$191,175

Computation of Net income: The formula used to compute net income is:

  $Netincome=Revenues-Expenses$

Revenues: $191,175 (Gross Profit)

Expenses: $136,000

Net income= $\$191,175-\$136,000$

Net income=$55,175

Conclusion

Hence the net income of Barkley Company for the year 2015 is $55,175.

Requirement-2.4:

To determine

To prepare:

The single-step income statement for Barkley Company for the year ended March 31^st, 2015 to determine the net income of the company.

Answer to Problem 4BPSB

Solution:

Barkley Company Income Statement for the year ended March 31st,2015
Particulars	Amount in $	Amount in $
Net Sales		306,775
Expenses:
Cost of goods sold	115,600
Selling Expenses	90,350
General & Administrative Expenses	45,650
Total Expenses		251,600
Net Income		55,175

Explanation of Solution

Computation of Net sales: The formula for computing net sales is:

  $NetSales=Sales-Salesdiscounts-Salesreturnsandallowances$

Net Sales= $\$332,650-\$5,875-\$20,000$

Net Sales=$306,775

Computation of total expenses:

Total expenses is derived by adding cost of goods sold, selling expenses and general & administrative expenses.

Cost of goods sold: $115,600

Selling Expenses: Advertising expense ($26,000) + Sales Salaries Expense ($44,500) + Rent expense (Selling Space) ($16,000) + Stores supplies expense ($3,850) = $90,350.

General and Administrative Expenses: Office Supplies expense ($1,100) + Office Salaries expense ($40,750) + Rent expense (office space) ($3,800) = $45,650.

Therefore total expenses for the year is $115,600+$90,350+$45,650=$251,600.

Computation of Net income:

The formula used to compute net income is:

  $Netincome=Revenues-Expenses$

Revenues: $306,775 (Net Sales)

Expenses: $251,600

Net income= $\$306,775-\$251,600$

Net income=$55,175

Conclusion

Hence the net income of Barkley Company for the year 2015 is $55,175.