Question

Junker’s Stash started the Year 2 accounting period with the balances given in the following horizontal financial statements model. 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. Transportation 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. Transportation 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:
Record the above transactions in a financial statements model like the one shown below:
Event Number Cash + Accounts Receivable + Inventory + Land = Common Stock + Retained Earnings Rev./ Gain - Expense = Net income Cash Flow
Balance 80,000.00 0 15,000.00 11,000.00 70,000.00 36,000.00 N/A N/A N/A N/A
Determine the amount of net sales.
Prepare a multistep income statement. Include common size percentages on the income statement.
Junker’s Stash return on sales ratio in 2015 was 12 percent. Based on the common size data in the income statement, did Junker’s Stash expenses increase or decrease in 2016?
Explain why the term loss is used to describe the results due to the sale of land.

Answer 1

Answer:

I used an excel spreadsheet  for the financial statements model since there is not enough room here.  

   

Junker's Stash

Income Statement

For the year ended December 31, year 2

Sales                                     $72,000         100%

Sales returns                         ($2,100)         2.92%

Sales discounts                       ($699)         0.97%

Net sales                               $69,201         96.11%

Cost of goods sold            ($40,650)         56.46%

Gross profit                           $28,551         39.65%

Operating expenses:

• Delivery Costs              ($1,650)         2.29%
• Other S&A expenses  ($6,850)         9.51%

Operating income                $20,051         27.85%

Other revenue and expenses:

Loss from sale of land         ($1,900)         2.64%

Net income before taxes      $18,151          25.21%

Current return on sales ratio = operating income / net revenue = $20,051 / $69,201 = 28.98%

The land's basis was $11,000 and the selling price was $9,100:

gain/loss form sale = selling price - basis = $9,100 - $11,000 = ($1,900)

you sold the land for less than its book value

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