1. Chapter 5 Merchandising Operations
Demonstration Problems
© 2016 Pearson Education, Inc.

2. © 2016 Pearson Education, Inc.
Demonstration of E5-17
Progress Fertilizers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.
Jan. 2
Purchased inventory of $12,000 on account from Yield Chemical Limited , a chemical importer. Terms were 2/10, n/45, FOB shipping point. 2
Paid freight charges, $900. 10
Returned $1,200 of inventory to Yield Chemicals. 18
Paid Yield Chemicals, less return. 20
Purchased inventory of $8,000 on account from Taylor Chemicals, a chemicals importer. Terms were 3/10, n/EOM, FOB destination. 21
Received a $500 allowance from Taylor for damaged but usable goods. 24
Paid Taylor Chemicals, less allowance and discount.
© 2016 Pearson Education, Inc.

3. Accounts and Explanation
Demonstration of E5-17
Jan. 2 Purchased inventory of $12,000 on account from Yield Chemical Limited , a chemical importer. Terms were 2/10, n/45, FOB shipping point.
Date
Accounts and Explanation
Debit
Credit
Jan. 2
Merchandise Inventory
12,000
Accounts Payable
© 2016 Pearson Education, Inc.

4. Accounts and Explanation
Demonstration of E5-17
Jan. 2 Paid freight charges, $900.
Date
Accounts and Explanation
Debit
Credit
Jan. 2
Merchandise Inventory
900
Cash
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5. Accounts and Explanation
Demonstration of E5-17
Jan. 10 Returned $1,200 of inventory to Yield Chemicals.
Date
Accounts and Explanation
Debit
Credit
Jan. 10
Accounts Payable
1,200
Merchandise Inventory
© 2016 Pearson Education, Inc.

6. Accounts and Explanation
Demonstration of E5-17
Jan. 18 Paid Yield Chemicals, less return.
Date
Accounts and Explanation
Debit
Credit
Jan. 18
Accounts Payable ($12,000 − $1,200)
10,800
Cash
© 2016 Pearson Education, Inc.

7. Accounts and Explanation
Demonstration of E5-17
Jan. 20 Purchased inventory of $8,000 on account from Taylor Chemicals, a chemicals importer. Terms were 3/10, n/EOM, FOB destination.
Date
Accounts and Explanation
Debit
Credit
Jan. 20
Merchandise Inventory
8,000
Accounts Payable
© 2016 Pearson Education, Inc.

8. Accounts and Explanation
Demonstration of E5-17
Jan. 21 Received a $500 allowance from Taylor for damaged but usable goods.
Date
Accounts and Explanation
Debit
Credit
Jan. 21
Accounts Payable
500
Merchandise Inventory
© 2016 Pearson Education, Inc.

9. Accounts and Explanation
Demonstration of E5-17
Jan. 24 Paid Taylor Chemicals, less allowance and discount.
Date
Accounts and Explanation
Debit
Credit
Jan. 24
Accounts Payable ($8,000 − $500)
7,500
Cash ($7,500 − $225)
7,275
Merchandise Inventory ($7,500 × 0.03)
225
© 2016 Pearson Education, Inc.

10. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
(b)
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
(d)
(g)
Cost of Goods Sold
60,000
(c)
50,400
85,000
Gross Profit
(a)
$40,000
(e)
$35,000
© 2016 Pearson Education, Inc.

11. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
(b)
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
(d)
(g)
Cost of Goods Sold
60,000
(c)
50,400
85,000
Gross Profit
$28,600
$40,000
(e)
$35,000
a. Gross Profit = $28,600 ﴾$88,600 − $60,000﴿
© 2016 Pearson Education, Inc.

12. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
(d)
(g)
Cost of Goods Sold
60,000
(c)
50,400
85,000
Gross Profit
$28,600
$40,000
(e)
$35,000
b. Sales Returns and Allowances = $9,000 ﴾$120,000 − $110,000 − $1,000﴿
© 2016 Pearson Education, Inc.

13. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
(d)
(g)
Cost of Goods Sold
60,000
70,000
50,400
85,000
Gross Profit
$28,600
$40,000
(e)
$35,000
c. Cost of Goods Sold = $70,000 ﴾$110,000 − $40,000﴿
© 2016 Pearson Education, Inc.

14. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
72,400
(g)
Cost of Goods Sold
60,000
70,000
50,400
85,000
Gross Profit
$28,600
$40,000
(e)
$35,000
d. Net Sales = $72,400 ﴾$75,000 − $2,000 − $600﴿
© 2016 Pearson Education, Inc.

15. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
72,400
(g)
Cost of Goods Sold
60,000
70,000
50,400
85,000
Gross Profit
$28,600
$40,000
$22,000
$35,000
e. Gross Profit = $22,000 ﴾$72,400 − $50,400﴿
© 2016 Pearson Education, Inc.

16. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$ (f)
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
72,400
120,000
Cost of Goods Sold
60,000
70,000
50,400
85,000
Gross Profit
$28,600
$40,000
$22,000
$35,000
g. Net Sales = $120,000 ﴾$85,000 + $35,000﴿
© 2016 Pearson Education, Inc.

17. © 2016 Pearson Education, Inc.
Demonstration of E5-18
Consider the following incomplete table of merchandiser’s profit data. Calculate the missing amounts to complete the table.
Sales
$90,000
$120,000
$75,000
$121,800
Sales Returns and Allowances
900
9,000
2,000
1,000
Sales Discounts
500
600
800
Net Sales
88,600
110,000
72,400
120,000
Cost of Goods Sold
60,000
70,000
50,400
85,000
Gross Profit
$28,600
$40,000
$22,000
$35,000
f. Sales = $121,800 ﴾$120,000 + $800 + $1,000﴿
© 2016 Pearson Education, Inc.

18. Demonstration of E5-22, E5-23, & E5-24
The adjusted trial balance of Leading Business Systems at March 31, 2016, follows:
LEADING BUSINESS SYSTEMS
Adjusted Trial Balance
March 31, 2016
Balance
Account Title
Debit
Credit
Cash
$3,000
Accounts Receivable
10,000
Merchandise Inventory
40,000
Office Supplies
7,500
Equipment
45,000
Accumulated Depreciation—Equipment
$18,000
Accounts Payable
15,000
Salaries Payable
2,500
Notes Payable, long-term
11,100
Common Stock
30,000
Retained Earnings
20,000
Dividends
55,000
Sales Revenue
300,000
Sales Returns and Allowances
3,000
Sales Discounts
Cost of Goods Sold
180,000
Selling Expense
Administrative Expense
18,000
Interest Expense
2,600
Total
$396,600
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19. Demonstration of E5-22, E5-23, & E5-24
Requirements
E5-22 1.
Journalize the required closing entries at March 31, 2016. 2.
Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts and calculate their ending balances. 3.
How much was Leading’s net income or net loss?
E5-23
Prepare Leading’s single-step income statement for the year ended March 31, 2016.
E5-24
Prepare Leading’s multi-step income statement for the year ended March 31, 2016.
© 2016 Pearson Education, Inc.

20. Demonstration of E5-22-Req. 1 & Req. 2 Accounts and Explanation
Date
Accounts and Explanation
Debit
Credit
Mar. 31
Sales Revenue
300,000
Income Summary
Income Summary
300,000
Clos. 1
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21. Demonstration of E5-22-Req. 1 & Req. 2 Accounts and Explanation
Date
Accounts and Explanation
Debit
Credit
Mar. 31
Income Summary
236,100
Sales Returns and Allowances
3,000
Sales Discounts
2,500
Cost of Goods Sold
180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Income Summary
Clos. 2
236,100
300,000
Clos. 1
63,900
Bal.
© 2016 Pearson Education, Inc.

22. Demonstration of E5-22-Req. 1 & Req. 2 Accounts and Explanation
Date
Accounts and Explanation
Debit
Credit
Mar. 31
Income Summary
63,900
Retained Earnings
Income Summary
Clos. 2
236,100
300,000
Clos. 1
63,900
Bal.
Clos. 3
Retained Earnings
20,000
Adj. bal.
63,900
Clos. 3
© 2016 Pearson Education, Inc.

23. Demonstration of E5-22-Req. 1 & Req. 2 Accounts and Explanation
Date
Accounts and Explanation
Debit
Credit
Mar. 31
Retained Earnings
55,000
Dividends
Retained Earnings
30,000
Adj. bal.
63,900
Clos. 3
Clos. 4
55,000
28,900
Bal.
Dividends
Adj. bal.
55,000
Clos.4
Bal.
© 2016 Pearson Education, Inc.

24. Demonstration of E5-22-Req. 3
Sales Revenue
300,000
Sales Returns and Allowances
3,000
Sales Discounts
2,500
Cost of Goods Sold
180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Net Income ═
Revenues − Expenses
© 2016 Pearson Education, Inc.

25. Demonstration of E5-22-Req. 3
Sales Revenue
300,000
Sales Returns and Allowances
3,000
Sales Discounts
2,500
Cost of Goods Sold
180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Net Income ═
Revenues − Expenses
$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿
© 2016 Pearson Education, Inc.

26. Demonstration of E5-22-Req. 3
Sales Revenue
300,000
Sales Returns and Allowances
3,000
Sales Discounts
2,500
Cost of Goods Sold
180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Net Income ═
Revenues − Expenses
$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿
$300,000 − $236,100
© 2016 Pearson Education, Inc.

27. Demonstration of E5-22-Req. 3
Sales Revenue
300,000
Sales Returns and Allowances
3,000
Sales Discounts
2,500
Cost of Goods Sold
180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Net Income ═
Revenues − Expenses
$300,000 − ﴾$3,000 + $2,500 + $180,000 + $30,000+ $18,000 + $2,600﴿
$300,000 − $236,100
$63,900
© 2016 Pearson Education, Inc.

28. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
© 2016 Pearson Education, Inc.

29. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
© 2016 Pearson Education, Inc.

30. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
Selling Expense
30,000
© 2016 Pearson Education, Inc.

31. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
Selling Expense
30,000
Administrative Expense
18,000
© 2016 Pearson Education, Inc.

32. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
© 2016 Pearson Education, Inc.

33. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Total Expenses
230,600
© 2016 Pearson Education, Inc.

34. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Revenues:
Net Sales Revenue
$294,500
Expenses:
Cost of Goods Sold
$180,000
Selling Expense
30,000
Administrative Expense
18,000
Interest Expense
2,600
Total Expenses
230,600
Net Income
$63,900
© 2016 Pearson Education, Inc.

35. LEADING BUSINESS SYSTEMS
Demonstration of E5-23
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
© 2016 Pearson Education, Inc.

36. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
© 2016 Pearson Education, Inc.

37. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
© 2016 Pearson Education, Inc.

38. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
© 2016 Pearson Education, Inc.

39. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
© 2016 Pearson Education, Inc.

40. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
© 2016 Pearson Education, Inc.

41. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
© 2016 Pearson Education, Inc.

42. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
© 2016 Pearson Education, Inc.

43. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
Total Operating Expenses
48,000
© 2016 Pearson Education, Inc.

44. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
Total Operating Expenses
48,000
Operating Income
66,500
© 2016 Pearson Education, Inc.

45. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
Total Operating Expenses
48,000
Operating Income
66,500
Other Revenues and (Expenses):
Interest Expense
(2,600)
© 2016 Pearson Education, Inc.

46. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
Total Operating Expenses
48,000
Operating Income
66,500
Other Revenues and (Expenses):
Interest Expense
(2,600)
Total Other Revenues and (Expenses)
© 2016 Pearson Education, Inc.

47. LEADING BUSINESS SYSTEMS
Demonstration of E5-24
LEADING BUSINESS SYSTEMS
Income Statement
Year Ended March 31, 2016
Sales Revenue
$300,000
Less: Sales Returns and Allowances
2,500
Sales Discounts
3,000
Net Sales Revenue
$294,500
Cost of Goods Sold
180,000
Gross Profit
114,500
Operating Expenses:
Selling Expenses
30,000
Administrative Expenses
18,000
Total Operating Expenses
48,000
Operating Income
66,500
Other Revenues and (Expenses):
Interest Expense
(2,600)
Total Other Revenues and (Expenses)
Net Income
$63,900
© 2016 Pearson Education, Inc.

48. © 2016 Pearson Education, Inc.
End of Chapter 5
© 2016 Pearson Education, Inc.