Custom Auto Parts (CAP) started the 2016 accounting period with the balances given in the financial statements model shown below. During 2016, CAP experienced the following business events:
1. Purchased $60,000 of merchandise inventory on account, terms 2/10, n/30.
2. The goods that were purchased in Event 1 were delivered FOB shipping point. Freight costs of $1,500 were paid in cash by the responsible party.
3. Returned $3,000 of goods purchased in Event 1.
4a. Recorded the cash discount on the goods purchased in Event 1.
4b. Paid the balance due on the account payable within the discount period.
5a. Recognized $59,000 of cash revenue from the sale of merchandise.
5b. Recognized $45,000 of cost of goods sold.
6. The merchandise in Event 5a was sold to customers FOB destination. Freight costs of $1,400 were paid in cash by the responsible party.
7. Paid cash of $9,000 for selling and administrative expenses.
8. Sold the land for $14,500 cash.
a. Record the above transactions in a financial statements model like the one shown below.
b. Prepare a multistep income statement. Include common size percentages on the income statement.
c. CAP’s gross margin percentage in 2015 was 34%. Based on the common size data in the income statement, did CAP raise or lower its prices in 2016?
d. Assuming a 5% rate of growth, what is the amount of net income expected for 2017?

  • CreatedApril 20, 2015
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