Question

eBook References 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 Benidji Construction, $13,390. The inventory subsidiary ledger shows the cost of this merchandi was 59,105. Nov.9 Purchased tools on account from Owatonna Tool Company, $3,800. Dec.s Collected in cash the $13,390 account receivable from Benidji Construction Dec.9 Paid the 53,500 owed to Owatonna Tool Company. Dec. 31 Claypool's personnel counted the inventory on hand and determined its cost to be $182,080. The accounting records, however indicate Inventory of $183,799 and a cost of goods sold of 5695,222. The physical count of the inventory was observed by 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 25 percent Required: a. Prepare journal entries to record these transactions and events in the accounting records of Claypool Hardware. (The company us 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 $1,024,900.) 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 $18,000 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?

Answer 1

Solution:

a.

General Journal
		(1)
Nov	5	Accounts receivable (Bemidji Construction)	13,390
		Sales		13,390
		Sold merchandise on account.
	5	Cost of Good Sold	9,105
		Inventory		9,105
		To record the cost of goods sold relating to the sales of merchandise to Bemidji Construction.
	9	Inventory	3,800
		Accounts Payable (Owatonna Tool Co.)		3,800
		Purchased merchandise on credit.
Dec	5	Cash	13,390
		Accounts Receivable (Bemidji Construction)		13,390
		Collected accounts receivable.
	9	Accounts Payable (Owatonna Tool. Co.)	3,800
		Cash		3,800
		Paid account payable to supplier.
	31	Cost of Goods Sold	1,710
		Inventory		1,710
		To adjust inventory records to reflect the resultsof the year-end physical count.
		Inventory per accounting records	$183,790
		Inventory per physical count	182,080
		Adjustment for inventory shrinkage	$1,710

b.

CLAYPOOL HARDWARE
Partial Income Statement
For the Year Ended December 31
Net Sales	$1,024,900
Cost of goods sold	696,932
Gross profit	$327,968
Cost of goods sold prior to adjustment at Dec. 31	$695,222
Add: Shrinkage adjustment at Dec. 31	1,710
Cost of goods sold (adjusted balance)	$696,932

c.

cosis Claypool seems quite able to pass its extra transportation on its customers and fin fact enjoys Signif_Significant financial Il benefit from its location The follo ing data Suppari chess these conclus conclusi si remote Klaypool Handukne Industry Avenge Difference Annuw sales 1024.900 1,000,000 247400 Gross profit 327,968 25000 250000 147,96 Gross profil rate $24. 251 740 لمحععع Claypool parned a gross rate Lof 32:1. Which is significantly higher than the tel industry aver- afe člaypool's Sales above the industry Laverage and 9 77,968 more gross profit than store of its size, the higher gross profit was earnd even though lits cost of goods Sold was $18.000 10 20,000 highes thein the because lof the additional transportation charges then "average بلعملالهالعمل