Question

#3 disregard Heartstrings and Decision Case

Heartstrings Music Company Trial Balance February 29, 2018 Account Cash Accounts receivable Inventory Supplies Furniture Accumulated depreciation Accounts payable Salary payable Unearned revenue Notes payable, long term Common stock Retained earnings Dividends Sales revenue Sales returns Cost of goods sold Selling expense General expense Interest Expense Total Trial Balance Debit Credit $6,000 19,000 16,000 1,000 40,000 $8,500 12,000 500 8,000 13,500 5,000 34,000 42,200 165,000 7,400 78,000 22,000 12,500 2.400 $246.500 $246,500 Requirements: R1. Journalize Heartstrings' closing entries. R2. Prepare Heartstrings' single-step income statement for the year. R3. Compute the gross profit percentage and the rate of inventory turnover for 2018. Inventory on hand one year ago, at February 28, 2017, was $12,800. R4. For the year ended February 28, 2017, Heartstrings' gross profit bercentage was 51%, and inventory turnover was 5.4 times. Did the results for the year ended February 29, 2018 suggest improvement or deterioration in profitability over last year? 3. The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:

Answer 1

R1	Journal of heartstring Closing Entries
	Details		debit($)	Credit($)
	Sales Revenue		1,65,000
	Income Statement			1,65,000
	Income Statement		1,22,300
	Sales Return			7,400
	Cost of goods sold			78,000
	Selling Expenses			22,000
	General Exp			12,500
	Interest Expenses			2,400
	Net of Income Statement
	Income Statement		42,700
	Retained Earnings			42,700
	Retained Earnings		42,200
	Dividend			42,200
R2	Single Step Income Statement
	Sales Revenue			1,65,000
	Less - Total Expenses
	Sales Return		7,400
	Cost of goods sold		78,000
	Selling Expenses		22,000
	General Exp		12,500
	Interest Expenses		2,400
	Total Expenses			1,22,300
	Net Profit			42,700
R3	Calculate Gross Profit
	Sales Revenue		1,65,000
	Less - Sales Return		7,400
	Net Sales -b			1,57,600
	Cost of goods sold			78,000
	Gross Profit-a			79,600
	Gross Profit % (a/b)			51%
	Average Inventory
	Opening inventory		12,800
	Closing inventory		16,000
	Average Inventory		14,400
	($12800+$16000)/2
	Cost of goods sold		78,000
	Inventory turnover		5.42

R4 _ No Change in GP % + Inventory Turnover  

Fram Quality Steak Company - Quarter ended April 30 , 2018
Need to prepare Multi Step Income Statement
For the year ended April 30, 2018
Details		Amnt($)	Amnt($)
Net Sales Revenue			2,98,000
Less
Cost of goods sold			1,54,960
Gross profit			1,43,040
Gross profit %			48%
Less- Operating Expenses
Rent Expenses		15,100
Salary Expenses		6,000
Utility Expenses		10,000
Delivery Expenses		3,800
Admin cost
Salary Expenses		2,000
Depreciation Exp		1,320
Utility Expenses		4,600
Rent Expenses		7,100
Total Operating Expenses			49,920
Inetrest Expenses		-2,100
Inetrest Revenue		400	-1,700
Income before Tax			91,420

Fisher , owner of the company , planing to have Gross Profit 50%
But as per above calculation Gross profit 48% , which not achieved
Target Plan GP%

	Existing ($)	Projected$
Revenue	3,75,000	1,12,500
Additional Advertisement cost increase in Revenue by 30%
Existing Revenue		3,75,000
30% additional Revenue		1,12,500
($375000*30%)
Cost of Goods Sold
Existing		1,85,000
30% additional		55,500
($185000*30%)
Single Step Income Statement
Plan A	Existing ($)	Projected$	Total$
Revenue	3,75,000	1,12,500	4,87,500
Less
Cost of Goods Sold	1,85,000	55,500	2,40,500
Selling Expenses	60,000	25,000	85,000
General Exp	30,000		30,000
Net Profit	1,00,000	32,000	1,32,000
Plan B	Existing ($)	Projected$	Total$
Revenue	3,75,000	52,500	4,27,500
Less
Cost of Goods Sold	1,85,000	26,250	2,11,250
Selling Expenses	60,000	5,000	65,000
General Exp	30,000	-	30,000
Net Profit	1,00,000	21,250	1,21,250
Revenue Proposed as per Question
Sales Unit	750
rate $/ Unit	70
Projected$	52,500
Cost of goods Sold
Unit	750
rate $/ Unit	35
Projected$	26,250
Plan A giving More Net Profit as compared with Plan B