Question

Junker's Stash started the Year 2 accounting period with the balances given in the following horizontal financial statements model. During Year 2, Junker's Stash experienced the following business events: 1. Paid cash to purchase $93,000 of merchandise inventory. 2. The goods that were purchased in Event 1 were delivered FOB destination. Transportation costs of $1,860 were paid in cash by the responsible party. 3a. Sold merchandise for $106,500 under terms 1/10,n/30. 3b. Recognized $53,400 of cost of goods sold. 4a. Junker's Stash customers returned merchandise that was sold for $2,560. 4b. The merchandise returned in Event 4a had cost Junker's Stash $1,480. 5. The merchandise in Event 3a was sold to customers FOB destination. Transportation costs of $1,880 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. Pald cash of $7.425 for selling and administrative expenses. 8. Sold the land for $10,250 cash. Required a. Record the above transactions in a horizontal financial statements model. b. Determine the amount of net sales. c. Prepare a multistep income statement. Include common size percentages on the income statement. d. The return-on-sales ratio for Junker's Stash during the prior year was 12 percent. Based on the common size data in the income statement, did the expenses for Junker's Stash increase or decrease in Year 2? Assume sales are the same for both years.

Answer 1

Net Sales (106500-2560)	103,940
Discount (103940*1%)	1,039
Payment received	102,901
Loss on sale of land (15600-10250)	5,350

Part 1

Financial statement model
	Balance sheet	Income statement	Statement of cash flows
	Assets	Stockholder's equity
Event. No.	Cash	Accounts receivable	Inventory	Land	Common stock	Retained earnings	Revenue	Expenses	Net income
Beg. Balance	103,000		17,300	15,600	93,000	42,900
1	(93,000)		93,000							(93,000)	Operating activity
2
3a		106,500				106,500	106,500		106,500
3b			(53,400)			(53,400)		53,400	(53,400)
4a		(2,560)				(2,560)	(2,560)		(2,560)
4b			1,480			1,480		(1,480)	1,480
5	(1,880)					(1,880)		1,880	(1,880)	(1,880)	Operating activity
6a		(1,039)				(1,039)	(1,039)		(1,039)
6b	102,901	(102,901)				-			-	102,901	Operating activity
7	(7,425)					(7,425)		7,425	(7,425)	(7,425)	Operating activity
8	10,250			(15,600)		(5,350)		5,350	(5,350)	10,250	Investing activity
End. Bal	113,846	-	58,380	-	93,000	79,226	102,901	66,575	36,326	10,846	Net change in cash (NC)

Part 2

Sales	106,500
Sales Returns (less)	(2,560)
Sales Discounts (less)	(1,039)
Net Sales	102,901

Part 3

Income statement
For the Year Ended December 31, Year 2
Net Sales		102,901	100.0%
Less: Cost of Goods Sold (53400-1480)		51,920	50.5%
Gross profit		50,981	49.5%
Operating Expenses
Selling and Adm. Expenses	7,425		7.2%
Transportation-Out	1,880		1.8%
Total Operating Expenses		9,305	9.0%
Operating Income		41,676	40.5%
Non-Operating Items
Loss on Sale of Land		(5,350)	-5.2%
Net income		36,326	35.3%

From each line item ratio is amount of line item by divided by sales.

Part 4

Year 2 of Profit ratio is more than precious's year profit ratio.
Higher profit ratio indicates the company have low expenses.
Answer:		Decreases