Portor Norton Financial Accounting impact on decision makers 9th edition. Multi
ID: 2492248 • Letter: P
Question
Portor Norton Financial Accounting impact on decision makers 9th edition.
Multi concept problems
problem 5-7 purchases and sales of merchandise ,cash flows
Two wheeler, a bike shop, opened fo business on April 1 It uses a periodic inventory system the following transaction occurred during the firts moth of business;
april 1 purchased five units from dunham co for 500.00 total wit terms 3/10,n/30, FOB destination/ april 10 paid for the april 1 purchase/ april 15 sold on eunit for 200.00 cash/ april 18 purchased ten units form clinton inc.for $900 total, with terms 3/10,n/30, FOB destination , april 25 sold three units for 200 each , cash. / april 28 paid for teh april 18 puchase.
1. For each of the proceeding transactions of two wheeler, prepare the approparite journal entry.
2. Determine net income fo the month of April. Two Wheeler incurred and paid 100 for rent and 50 for miscellaneous exenses during April. Ending inventory is $967.( ignore income taxes)
3. Assuming that these are the only transacrtions during april ( including rent and miscellaneous expenses) compute net cash flow frpm operating activities.
4 explain why cash outflow is so much lagher than expenses on the income statement.
Explanation / Answer
Part 1)
The journal entries are as follows:
_________
Part 2)
The net income is calculated with the use of following table:
_________
Part 3)
Net cash flow from operating activities is calculated as follows:
_________
Part 4)
The difference of $967 (259 - (708)) between net income and cash flow from operating activities is on account of ending inventory (that is, the inventory that has not been sold at the end of the month). While the company has paid a total of $1,358 for the purchase of inventory resulting in cash outflow, only $391 has been recognized as cost of goods sold at the end of the month generating a difference of $967 (1,358 - 391).
Date Account Titles Debit Credit Apr. 1 Purchases $500 Accounts Payable $500 (To record purchase of merchandise on account) Apr. 10 Accounts Payable $500 Cash (500 – 500*3%) $485 Purchase Discounts (500*3%) $15 (To record payment for goods purchased) Apr. 15 Cash $200 Sales Revenue $200 (To record cash sale) Apr. 18 Purchases $900 Accounts Payable $900 (To record purchase of merchandise on account) Apr. 25 Cash (200*3) $600 Sales Revenue $600 (To record cash sale) Apr. 28 Accounts Payable $900 Cash (900 – 900*3%) $873 Purchase Discounts (900*3%) $27 (To record payment for goods purchased)