Power Buys started the 2013 accounting period with the balances given in the financial statements model shown below. During 2013 Power Buys experienced the following business events:

1. Paid cash to purchase $60,000 of merchandise inventory.

2. The goods that were purchased in Event 1 were delivered FOB destination. Freight costs of $1,100 were paid in cash by the responsible party.

3a. Sold merchandise for $65,000 under terms 1y10, ny30.

3b. Recognized $42,500 of cost of goods sold.

4a. Power Buys customers returned merchandise that was sold for $1,900.

4b. The merchandise returned in Event 4a had cost Power Buys $1,300.

5. The merchandise in Event 3a was sold to customers FOB destination. Freight costs of $1,800 were paid in cash by the responsible party.

6a. The customers paid for the merchandise sold in Event 3a within the discount period. Recognized the sales discount.

6b. Collected the balance in the accounts receivable account.

7. Paid cash of $6,500 for selling and administrative expenses.

8. Sold the land for $9,100 cash.

Required

a. Record the above transactions in a financial statements model like the one shown below:

b. Determine the amount of net sales.
c. Prepare a multistep income statement. Include common size percentages on the income statement.
d. Power Buys return on sales ratio in 2012 was 12 percent. Based on the common size data in the income statement, did Power Buys’ expenses increase or decrease in 2013?
e. Explain why the term loss is used to describe the results due to the sale ofland.

Transcribed Image Text:

Com. Ret. Rev./ Event No. | Cash + Rec. + Inventory+ Land = Stk. + Earn. Gain -Exp. = Net Inc. |Flow Bal- 170,000 + 0 + 12,000 + 10,000-50,000 + 42,000 | NA -NA- NA I NA Accts Cash