Question

CHAPTER 5 Communicating and interpreting Accou $ 231 Net sales Costs and expenses Cost of sales Research and development Selling, general, and administrative Operating income (loss) Interest and other income (expenses), net Income (loss) before provision (benefit) for income taxes Provision (benefit) for income taxes Net income (loss) Source: Creative Technology LTD The company's beginning and ending assets were $403 and $342, respectively. (52) $ (47) (5) Required: Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction (+ for increase, - for decrease, and NE for no effect). Consider each item independently and ignore ACS. (Hint: Construct the journal entry for each transaction before evaluating its effect.) Recorded sales on account of $400 and related cost of goods sold of $300. incurred additional research and development expense of $100, which was paid in cash. Issued additional shares of common stock for $260 cash. d. Declared and paid dividends of $90. Transaction Return on Assets Gross Profit Operating Income

Answer 1

Solution

Transaction	Gross Profit	Operating Income	Return on Assets
Sales on account and related cost of goods sold	+	+	+
Additional research and development expenses, paid in cash	-	-	-
Issue of additional shares for cash	NE	NE	+
Declared and paid dividends	NE	NE	-

Journal Entries:

Account titles and Explanation	Debit	Credit
Accounts Receivable	$400
Sales Revenue		$400
(To record sales on account)
Cost of Goods Sold	$300
Merchandise Inventory		$300
(To record cost of goods sold)
Research and development expenses	$100
Cash		$100
(To record research and development expenses paid)
Cash	$260
Common Stock		$260
(To record issue of additional common shares)
Dividends	$90
Cash		$90
(To record payment of dividends)