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Chapter 13: Financial Statements and Closing Procedures
Chapter Opener: Thinking Critically
Students should realize information such as stock prices, dividend earnings, net income, gross profit, net
sales, and changes in stockholders’ equity are all indicators of the financial strength of a company.
Fast Facts
• In the 1930s Safeway introduced produce pricing by the pound, open dating on perishables to assure
freshness, nutritional labeling, even some of the first parking lots.
• The Safeway SELECT line of products includes carbonated soft drinks; salsas; bagged salads; whole
bean coffees; the Indulgence line of cookies and other sweets; the Verdi line of frozen pizzas, fresh and
frozen pastas, pasta sauces and olive oils; Milena’s take & bake pizzas; the Primo Taglio line of meats,
cheeses and sandwiches; Signature Soups and sandwiches; Artisan fresh-baked breads; NutraBalance
pet food; and Ultra laundry detergents and dish soaps.
• Total sales for the year 2004 were approximately $36 billion.
• Operating profit for the year 2004 was $1.2 billion—almost double the operating profit for 2003.
Computers in Accounting: Thinking Critically
Answers will vary. A DSS used to compare the cost-effectiveness of various shipping methods may include a
comparison of transportation methods (rail, air, trucking, etc.) and their associated costs. The model may
include a delivery time comparison with effects on customer satisfaction or product availability within a store.
Computers in Accounting: Internet Application
Students should use the search term “decision support system.” They may also combine the search
term “decision support system” with their industry of choice such as “robotics” or “natural resources.”
One possible choice of a DSS is Decision Support System for Trumpeter Swan Management,
http://www.mesc.usgs.gov/projects/dss_trump-swan-general.html. Reports should include the name
and goal of the DSS as well as the input data required for the system.
Managerial Implications: Thinking Critically
Managers can use financial statements to learn about a company’s operating efficiency by using ratios and
measurements to analyze the financial statement results and compare them to those measurements of prior
periods and to similar businesses in the same industry.
Discussion Questions
1. Other Revenue and Expense consists of items that are routine and recurring, but not properly included
in Operating Expenses. To be an Extraordinary Gain and Loss, the item must be one that seldom
occurs and is not a part of the normal business operation.
2. Operating expenses arise from the normal operating activities of the business. Financing expenses are
generally excluded from operating expenses and included in Other Revenues and Expenses.
3. The Cost of Goods Sold section contains this information.
4. It shows the firm’s financial position on a specific date through a presentation of the assets, liabilities
and owner’s equity.
5. Cash, items that will be converted into cash within one year, and items that will be used up within one
year are considered to be current assets. These include cash, accounts receivable, merchandise
inventory, and prepaid expenses.
6. Current liabilities are debts that must be paid within one year; long-term liabilities are debts that are due
more than a year in the future.
7. It reports the beginning and ending owner’s equity and the changes that occurred in owner’s equity
during the year.
8. a. Ending merchandise inventory is shown in both the income statement and the balance sheet.
b. The owner’s ending capital is shown in both the balance sheet and the statement of owner’s equity.
9. It assures that the general ledger is in balance after the adjusting and closing entries have been posted.
10. The permanent accounts—assets, liabilities, and owner’s equity—appear on the post-closing trial
balance.
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11. The likely problem is that the posting of either a debit amount or a credit amount of a closing entry was
entered as an incorrect figure to an asset or liability account.
12. The types of adjusting entries that are reversed are: (a) all accruals, (b) prepaid items such as prepaid
insurance initially charged to the Insurance Expense account and (c) unearned income items initially
credited to income accounts.
13. A reversing entry with a debit to Interest Income and a credit to Interest Receivable would be needed.
14. Entries for (a) accrued payroll taxes and (e) accrued interest income would be reversed.
15. The steps in the accounting cycle are:
a. Analyze transactions
b. Journalize the data about transactions
c. Post the data about transactions to the accounts
d. Prepare a worksheet
e. Prepare financial statements
f. Journalize and post adjusting entries
g. Journalize and post closing entries
h. Prepare a postclosing trial balance
i. Interpret the financial information
j. A final step for some companies is to journalize and post reversing entries.
16. The additional investment would be shown in the Statement of Owner’s Equity as an addition to
Beginning Capital.
Exercises
Exercise 13.1
1. Rent Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Depreciation Expense—Store Equipment . . . . . . .
3. Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Merchandise Inventory. . . . . . . . . . . . . . . . . . . . . .
6. Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Sales Returns and Allowances. . . . . . . . . . . . . . . .
9. Utilities Expense. . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Purchase Returns and Allowances . . . . . . . . . . . .
c
c
a
e
b
d
b
a
c
b
Exercise 13.2
1. Rent Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Raja Julia, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
4. Merchandise Inventory. . . . . . . . . . . . . . . . . . . . . .
5. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
6. Store Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Sales Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . .
8. Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . .
9. Delivery Van . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
c
a
e
a
c
a
c
a
b
a
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Exercise 13.3
BOWIE OFFICE SUPPLY
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowance . . . . . . . . . . . .
246,000
4,200
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, January 1, 2007 . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowance . . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
241,800
58,125
102,000
1,800
103,800
3,000
1,600
4,600
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
99,200
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Dec. 31, 2007 . . . . .
157,325
51,300
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
106,025
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Selling Expenses
Salaries Expense—Sales . . . . . . . . . . . . . . . . . .
Store Supplies Expense . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . .
135,775
Total Selling Expense . . . . . . . . . . . . . . . . . . .
General and Administrative Expenses
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense—Office . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Store Equipment . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . .
Total General and Admin. Expenses . . . . . . . .
44,200
2,200
1,400
47,800
12,000
2,800
20,000
5,000
400
640
40,840
Total Operating Expenses . . . . . . . . . . . . . . . . . . .
88,640
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Income
Miscellaneous Income . . . . . . . . . . . . . . . . . . . . . .
Other Expense
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
47,135
220
520
Net Nonoperating Expenses . . . . . . . . . . . . . . . . . . .
300
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
46,835
300 䡲 Chapter 13
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Exercise 13.4
BOWIE OFFICE SUPPLY
Statement of Owner’s Equity
December 31, 2007
Sumit Patel, Capital, January 1, 2007 . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . . . 46,835
Less Withdrawals for Year . . . . . . . . . . . . . . 40,200
61,200
Increase in Capital . . . . . . . . . . . . . . . . . . . .
6,635
Sumit Patel, Capital, December 31, 2007 . . .
67,835
Exercise 13.5
BOWIE OFFICE SUPPLY
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change Fund . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . .
11,780
400
5,040
760
Merchandise Inventory . . . . . . . . . . . . . .
Prepaid Expenses
Store Supplies . . . . . . . . . . . . . . . . . . .
Prepaid Interest . . . . . . . . . . . . . . . . . .
4,280
51,300
1,000
80
Total Current Assets . . . . . . . . . . . . . . . .
Plant and Equipment
Store Equipment . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . .
10,200
1,080
9,120
Office Equipment . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . .
3,200
400
2,800
1,080
68,840
Total Plant and Equipment . . . . . . . . . . .
11,920
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
80,760
Liabilities and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . .
Sales Tax Payable . . . . . . . . . . . . . . . . .
5,400
5,625
60
1,840
Total Current Liabilities . . . . . . . . . . . . . .
Owner’s Equity
Sumit Patel, Capital . . . . . . . . . . . . . . . .
12,925
Total Liabilities and Owner’s Equity . . . . . .
80,760
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
67,835
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Exercise 13.6
GENERAL JOURNAL
Date
Description
PAGE
Post.
Ref.
Debit
Credit
Closing Entries
2007
Dec. 31
31
31
31
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases Returns and Allowances . . . . . . . . . . . . . . .
Purchases Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns and Allowances . . . . . . . . . . . . . . . . . .
Sales Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bobby Tompkins, Capital . . . . . . . . . . . . . . . . . . . . . .
Bobby Tompkins, Capital . . . . . . . . . . . . . . . . . . . . . . . .
Bobby Tompkins, Drawing . . . . . . . . . . . . . . . . . . . . .
254,300
100
1,900
1,740
258,040
228,625
3,100
2,300
134,300
1,700
8,400
2,875
1,450
65,000
5,150
1,600
2,400
350
31,415
31,415
26,000
26,000
Exercise 13.7
GENERAL JOURNAL
Date
Description
PAGE
Post.
Ref.
Debit
Credit
Reversing Entries
2008
Jan. 1
1
1
1
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense—Office . . . . . . . . . . . . . . . . . . . . .
To reverse adjustment (e) made on Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjustment (f) made on Dec. 31, 2007
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjustment (g) made on Dec. 31, 2007
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjustment (h) made on Dec. 31, 2007
302 䡲 Chapter 13
2,600.00
2,600.00
161.20
37.70
198.90
240.00
240.00
200.00
200.00
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Exercise 13.8
HARMON FARM SUPPLY
Postclosing Trial Balance
December 31, 2007
Account Name
Debit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Depreciation—Equipment . . .
Notes Payable . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . .
Ken Harmon, Capital . . . . . . . . . . . . . . . . .
18,600
59,800
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit
120
186,200
7,140
3,060
51,000
17,800
9,500
8,700
1,392
324
287,964
325,800
325,800
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Problems
Problem 13.1A
HOTWIRE COMPANY
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, January 1, 2007 . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Dec. 31, 2007 . . . . .
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense . . . . . . . . . . . . . . .
Warehouse Supplies Expense . . . . . . . . . . . . . .
Depreciation Expense—Warehouse Eqpt. . . . . .
Total Warehouse Expenses . . . . . . . . . . . . . .
Selling Expenses
Salaries Expense—Sales . . . . . . . . . . . . . . . . . .
Travel and Entertainment Expense . . . . . . . . . .
Delivery Wages Expense . . . . . . . . . . . . . . . . . .
Depreciation Expense—Delivery Eqpt. . . . . . . .
Total Selling Expenses . . . . . . . . . . . . . . . . . .
General and Administrative Expenses
Salaries Expense—Office . . . . . . . . . . . . . . . . . .
Office Supplies Expense . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . .
Property Taxes Expense . . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . .
Depreciation Expense—Building . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . .
Total General and Administrative Exp. . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Income
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expenses
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
1,763,400
17,200
1,746,200
234,000
769,700
12,800
782,500
7,440
11,600
19,040
763,460
997,460
228,325
769,135
977,065
198,740
7,600
7,800
214,140
270,800
28,750
91,650
8,800
400,000
77,600
3,550
5,200
9,600
6,520
62,500
4,600
4,800
11,000
6,000
191,370
805,510
171,555
1,480
11,650
Net Nonoperating Expenses . . . . . . . . . . . . . . . . . . .
10,170
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
161,385
304 䡲 Chapter 13
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HOTWIRE COMPANY
Statement of Owner’s Equity
Year Ended December 31, 2007
Se Ri Pak, Capital, Jan. 1, 2007 . . . . . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . . 161,385
Less Withdrawals for Year . . . . . . . . . . . . . 124,600
Increase in Capital . . . . . . . . . . . . . . . . . . .
Se Ri Pak, Capital, Dec. 31, 2007 . . . . . . .
379,460
36,785
416,245
HOTWIRE COMPANY
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petty Cash Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . . . . . . . . . .
28,630
400
10,800
55,400
5,000
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Warehouse Supplies . . . . . . . . . . . . . . . . . . . . . .
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . .
50,400
228,325
2,760
1,510
7,200
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . .
Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
172,000
47,800
124,200
Warehouse Equipment . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
32,000
14,400
17,600
Delivery Equipment . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
44,200
17,600
26,600
Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Total Plant and Equipment . . . . . . . . . . . . . . . . . . .
20,000
8,500
11,500
11,470
330,025
36,000
215,900
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . .
Long-Term Liabilities
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Loans Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . .
545,925
19,200
42,000
480
61,680
56,000
12,000
68,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Se Ri Pak, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
129,680
416,245
Total Liabilities and Owner’s Equity . . . . . . . . . . . . . .
545,925
Analyze: The company’s current ratio is 5.35 to 1 ($330,025 ⫼ $61,680).
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Problem 13.2A
GOOD TO GO AUTO PRODUCTS
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, January 1, 2007 . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, December 31, 2007 . . .
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense . . . . . . . . . . . . . . .
Warehouse Supplies Expense . . . . . . . . . . . . . .
Depreciation Expense—Warehouse Eqpt. . . . . .
Total Warehouse Expenses . . . . . . . . . . . . . .
Selling Expenses
Salaries Expense—Sales . . . . . . . . . . . . . . . . . .
Travel Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivery Expense . . . . . . . . . . . . . . . . . . . . . . . .
Total Selling Expenses . . . . . . . . . . . . . . . . . .
General and Administrative Expenses
Salaries Expense—Office . . . . . . . . . . . . . . . . . .
Office Supplies Expense . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . .
Property Taxes Expense . . . . . . . . . . . . . . . . . . .
Building Repair Expense . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . .
Depreciation Expense—Building . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . .
Total General and Administrative Exp. . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Income
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expenses
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Nonoperating Expenses . . . . . . . . . . . . . . . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
1,090,300
7,400
1,082,900
130,400
453,000
8,800
461,800
12,650
8,240
20,890
440,910
571,310
127,500
443,810
639,090
107,600
4,800
2,400
114,800
150,700
23,000
36,425
210,125
84,000
1,120
8,875
7,000
3,180
30,600
15,400
2,700
2,580
4,600
1,520
161,575
486,500
152,590
480
3,000
2,520
150,070
The percentage of total operating expenses attributable to warehouse expenses is 23.6%. ($114,800 ⳰
$486,500 = 23.6%).
306 䡲 Chapter 13
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GOOD TO GO AUTO PRODUCTS
Statement of Owner’s Equity
Year Ended December 31, 2007
Colin O’Brien, Capital, January 1, 2007 . . .
Net Income for Year . . . . . . . . . . . . . . . . . .
Less Withdrawals for Year . . . . . . . . . . . . .
317,020
150,070
69,650
Increase in Capital . . . . . . . . . . . . . . . . . . .
80,420
Colin O’Brien, Capital, December 31, 2007
397,440
GOOD TO GO AUTO PRODUCTS
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petty Cash Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . .
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Warehouse Supplies . . . . . . . . . . . . . . . . . . . . . .
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . .
Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Warehouse Equipment . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Total Plant and Equipment . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,000
500
10,000
139,200
2,800
2,300
600
3,640
136,400
127,500
100
6,540
379,040
15,000
102,000
16,200
18,800
9,000
8,400
3,400
Liability and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . .
Long-Term Liabilities
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Colin O’Brien, Capital . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Owner’s Equity . . . . . . . . . . . . . .
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
85,800
9,800
5,000
115,600
494,640
14,000
55,900
300
70,200
15,000
12,000
27,000
97,200
397,440
494,640
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Problem 13.3A
GENERAL JOURNAL
Date
2007
Dec. 31
31
31
31
31
31
31
31
31
31
Description
Adjusting Entries
(Adjustment a)
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . .
To transfer beginning inventory
(Adjustment b)
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record ending inventory
(Adjustment c)
Uncollectible Accounts Expense . . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . . . . . . . . . .
To record estimated loss for 2007, based on 0.5%
of net credit sales of $560,000
(Adjustment d)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used during 2007
(Adjustment e)
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired insurance
(Adjustment f)
Depreciation Expense—Office Equipment . . . . . . . . . . .
Accumulated Depreciation—Office Equipment . . . . .
To record depreciation for 2007 (schedule on file)
(Adjustment g)
Depreciation Expense—Warehouse Equipment . . . . . .
Accumulated Depredation—Warehouse Equipment .
To record depreciation for 2007 (schedule on file)
(Adjustment h)
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued interest on 4-month, 12% trade
note payable dated November 1, 2007
$32,000 x .12 x 2/12 = $640
(Adjustment i)
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued salaries
(Adjustment j)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued payroll taxes on accrued salaries
for December: social security tax = 6.2% x $5,000;
Medicare tax = 1.45% x $5,000
308 䡲 Chapter 13
PAGE 25
Post.
Ref.
Debit
Credit
86,000.00
86,000.00
78,000.00
78,000.00
2,800.00
2,800.00
9,220.00
9,220.00
3,600.00
3,600.00
1,325.00
1,325.00
4,800.00
4,800.00
640.00
640.00
5,000.00
5,000.00
382.50
310.00
72.50
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 309
GENERAL JOURNAL
Date
Description
31
2007
31
31
31
31
2008
Jan. 1
1
1
1
PAGE 26
Post.
Ref.
(Adjustment k)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
To record payroll taxes (state = 0.054 x $5,000,
federal = 0.008 x $5,000)
Closing Entries
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Returns and Allowances . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns and Allowances . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . . . . . .
Depreciation Expense—Warehouse Equipment . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phillip Tucker, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
Phillip Tucker, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phillip Tucker, Drawing . . . . . . . . . . . . . . . . . . . . . . . .
Reversing Entries
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (h) made Dec. 31, 2007
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (i) made Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (j) made Dec. 31, 2007
Federal Unemployment Tax Payable . . . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . . . .
Payroll taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (k) made Dec. 31, 2007
Debit
Credit
310.00
40.00
270.00
653,778.00
9,200.00
662,978.00
599,277.50
10,000.00
350,000.00
36,000.00
2,200.00
165,000.00
13,692.50
9,220.00
3,600.00
1,325.00
4,800.00
2,800.00
640.00
55,700.50
55,700.50
56,000.00
56,000.00
640.00
640.00
5,000.00
5,000.00
310.00
72.50
382.50
40.00
270.00
310.00
Analyze: Entry needed when salaries are paid in January if the firm did not record a reversing entry for
salaries payable.
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record the payment of salaries
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
5,000.00
5,000.00
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Problem 13.4A
GENERAL JOURNAL
Date
Description
2007
Dec. 31
31
31
31
31
2008
Jan. 1
1
1
Adjusting Entries
(Adjustment a)
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired rent on 6-month lease of $17,700
paid October 1, 2007
(Adjustment b)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used in 2007
(Adjustment c)
Depreciation Expense—Equipment . . . . . . . . . . . . . . . .
Accumulated Depreciation—Equipment . . . . . . . . . . .
To record depreciation for 2007
(Adjustment d)
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued salaries
(Adjustment e)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued payroll taxes on accrued salaries
(Adjustment f)
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued interest on 5-month, 8%, $4,500
note receivable dated September 1, 2007
Reversing Entries
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (d) made Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (e) made Dec. 31, 2007
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (f) made Dec. 31, 2007
PAGE 25
Post.
Ref.
Debit
Credit
8,850.00
8,850.00
9,280.00
9,280.00
8,200.00
8,200.00
4,400.00
4,400.00
336.60
272.80
63.80
120.00
120.00
4,400.00
4,400.00
272.80
63.80
336.60
120.00
120.00
Analyze: The balance of the Prepaid Rent Account on January 1, 2008, is $8,850.
310 䡲 Chapter 13
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Page 311
Problem 13.1B
THE FLOPPY DISK
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, Jan. 1, 2007 . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Dec. 31, 2007 . . . . .
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense . . . . . . . . . . . . . . .
Warehouse Supplies Expense . . . . . . . . . . . . . .
Depreciation Expense—Warehouse Equipment
Total Warehouse Expenses . . . . . . . . . . . . . .
Selling Expenses
Salaries Expense—Sales . . . . . . . . . . . . . . . . . .
Travel and Entertainment Expense . . . . . . . . . .
Delivery Wages Expense . . . . . . . . . . . . . . . . . .
Depreciation Expense—Delivery Equipment . . .
Total Selling Expenses . . . . . . . . . . . . . . . . . .
General and Administrative Expenses
Salaries Expense—Office . . . . . . . . . . . . . . . . . .
Office Supplies Expense . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . .
Property Taxes Expense . . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . .
Depreciation Expense—Building . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . .
Total General and Administrative Exp. . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Income
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expenses
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Nonoperating Expenses . . . . . . . . . . . . . . . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
431,100
3,150
427,950
33,125
186,600
2,200
188,800
2,520
2,350
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
4,870
183,930
217,055
35,400
181,655
246,295
38,900
1,790
1,400
42,090
67,200
6,300
24,642
2,440
100,582
15,900
1,150
1,500
2,800
1,380
15,250
1,750
1,050
3,000
1,020
44,800
187,472
58,823
462
1,600
1,138
57,685
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THE FLOPPY DISK
Statement of Owner’s Equity
Year Ended December 31, 2007
Franz Ulrich, Capital, January 1, 2007 . . . .
Net Income for Year . . . . . . . . . . . . . . . . . .
Less Withdrawals for Year . . . . . . . . . . . . .
60,940
57,685
24,000
Increase in Capital . . . . . . . . . . . . . . . . . . .
33,685
Franz Ulrich, Capital, December 31, 2007 .
94,625
THE FLOPPY DISK
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petty Cash Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Warehouse Supplies . . . . . . . . . . . . . . . . . . . . . .
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . .
Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Warehouse Equipment . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Delivery Equipment . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Total Plant and Equipment . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,842
100
3,200
16,326
2,250
775
780
2,200
14,076
35,400
3,755
66,373
7,642
48,500
13,000
8,000
2,300
16,400
3,600
6,000
2,500
Liability and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . .
Long-Term Liabilities
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Loans Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Franz Ulrich, Capital . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Owner’s Equity . . . . . . . . . . . . . .
35,500
5,700
12,800
3,500
65,142
131,515
5,000
11,700
240
16,940
15,950
4,000
19,950
36,890
94,625
131,515
Analyze: The gross profit percentage for the period is 57.55%.
312 䡲 Chapter 13
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Problem 13.2B
HOG WILD
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, January 1, 2007 . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Dec. 31, 2007 . . . . .
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense . . . . . . . . . . . . . . .
Warehouse Supplies Expense . . . . . . . . . . . . . .
Depreciation—Warehouse Equipment . . . . . . . .
Total Warehouse Expenses . . . . . . . . . . . . . .
Selling Expenses
Salaries Expense—Sales . . . . . . . . . . . . . . . . . .
Travel Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivery Expense . . . . . . . . . . . . . . . . . . . . . . . .
Total Selling Expenses . . . . . . . . . . . . . . . . . .
General and Administrative Expenses
Salaries Expense—Office . . . . . . . . . . . . . . . . . .
Office Supplies Expense . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . .
Property Taxes Expense . . . . . . . . . . . . . . . . . . .
Building Repair Expense . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . .
Depreciation Expense—Building . . . . . . . . . . . .
Depreciation Expense—Office Eqpt. . . . . . . . . .
Total General and Administrative Exp. . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Income
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expenses
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Nonoperating Expenses . . . . . . . . . . . . . . . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
608,417
9,400
599,017
88,980
230,050
9,600
239,650
6,420
5,760
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12,180
227,470
316,450
87,915
228,535
370,482
64,300
4,300
2,400
71,000
78,900
21,000
35,400
135,300
57,500
1,360
9,500
6,912
4,370
19,200
11,700
3,100
2,900
3,200
1,680
121,422
327,722
42,760
720
3,600
2,880
39,880
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HOG WILD
Statement of Owner’s Equity
Year Ended December 31, 2007
Nick Henry, Capital, January 1, 2007 . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . .
Less Withdrawals for Year . . . . . . . . . . . . .
198,710
39,880
56,000
Decrease in Capital . . . . . . . . . . . . . . . . . .
16,120
Nick Henry, Capital, Dec. 31, 2007 . . . . . . .
182,590
HOG WILD
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petty Cash Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . .
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Warehouse Supplies . . . . . . . . . . . . . . . . . . . . . .
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . .
Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Warehouse Equipment . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
Total Plant and Equipment . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . .
Long-Term Liabilities
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Nick Henry, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Owner’s Equity . . . . . . . . . . . . . .
14,350
200
6,000
54,600
5,000
3,700
1,800
6,900
49,600
87,915
200
12,400
170,665
20,400
53,100
8,400
24,000
4,000
12,800
1,800
44,700
20,000
11,000
96,100
266,765
8,000
32,500
1,800
42,300
35,875
6,000
41,875
84,175
182,590
266,765
Analyze: The inventory turnover is 2.58 times ($228,535 COGS ⳰ $88,448 Avg. Inventory).
314 䡲 Chapter 13
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Page 315
GENERAL JOURNAL
Date
2007
Dec. 31
31
31
31
31
31
31
31
31
31
Description
PAGE 29
Post.
Ref.
Adjusting Entries
(Adjustment a)
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . .
To transfer beginning inventory
(Adjustment b)
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record ending inventory
(Adjustment c)
Uncollectible Accounts Expense . . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . . . . . . . . . .
To record estimated loss for 2007, based on 0.8%
of net credit sales of $160,000
(Adjustment d)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used during 2007
(Adjustment e)
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired insurance on one-year policy
(Adjustment f)
Depreciation Expense—Store Equipment . . . . . . . . . . .
Accumulated Depreciation—Store Equipment . . . .
To record depreciation for 2007 (schedule on file)
(Adjustment g)
Depreciation Expense—Store Fixtures . . . . . . . . . . . . .
Accumulated Depreciation—Store Fixtures . . . . . . . .
To record depreciation for 2007 (schedule on file)
(Adjustment h)
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued interest on six-month, $4,000,
9% trade note payable, dated October 1, 2007
$4,000 x .09 x 3/12 = $90
(Adjustment i)
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued salaries
(Adjustment j)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued payroll taxes on accrued salaries
(Social Security = .062 x $1,450;
Medicare = .0145 x $1,450)
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Debit
Credit
16,985.00
16,985.00
15,840.00
15,840.00
1,280.00
1,280.00
505.00
505.00
1,200.00
1,200.00
1,000.00
1,000.00
2,050.00
2,050.00
90.00
90.00
1,450.00
1,450.00
110.93
89.90
21.03
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GENERAL JOURNAL
Date
Description
31
2007
Dec. 31
31
31
31
2008
Jan. 1
1
1
1
Post.
Ref.
(Adjustment k)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
To record unemployment taxes on accrued salaries
(federal = .01 x $1,450; state = .05 x $1,450)
Closing Entries
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Returns and Allowances . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns and Allowances . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Office Equipment . . . . . . . . .
Depreciation Expense—Store Fixtures . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preston Allen, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
Preston Allen, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preston Allen, Drawing . . . . . . . . . . . . . . . . . . . . . . . .
Reversing Entries
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (h) made Dec. 31, 2007
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (i) made Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (j) made Dec. 31, 2007
Federal Unemployment Tax Payable . . . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (k) made Dec. 31, 2007
Debit
Credit
87.00
14.50
72.50
236,560.00
2,000.00
238,560.00
237,372.93
6,000.00
160,000.00
18,000.00
2,400.00
41,450.00
3,397.93
505.00
1,200.00
1,000.00
2,050.00
1,280.00
90.00
42.07
42.07
8,000.00
8,000.00
90.00
90.00
1,450.00
1,450.00
89.90
21.03
110.93
14.50
72.50
87.00
Analyze: Entry required in January when salaries are paid if no entry was made to reverse adjusting entry
for salaries payable:
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record the payment of salaries (ignoring payroll taxes)
316 䡲 Chapter 13
1,450.00
1,150.00
2,600.00
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Page 317
Problem 13.4B
GENERAL JOURNAL
Date
Description
2007
Dec. 31
31
31
31
31
31
2008
Jan. 1
1
1
PAGE 25
Post.
Ref.
Adjusting Entries
(Adjustment a)
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Advertising . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired advertising on $9,000, one year
contract paid August 1, 2007
(Adjustment b)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used in 2007
(Adjustment c)
Depreciation Expense—Store Equipment . . . . . . . . . . .
Accumulated Depreciation—Equipment . . . . . . . . . . .
To record depreciation for 2007
(Adjustment d)
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued salaries
(Adjustment e)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued payroll taxes on accrued salaries
(Adjustment f)
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued interest on 5-month, 8%, $4,400
note receivable dated October 1, 2007
Reversing Entries
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (d) made Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (e) made Dec. 31, 2007
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (f) made Dec. 31, 2007
Debit
Credit
3,750.00
3,750.00
7,390.00
7,390.00
6,250.00
6,250.00
3,400.00
3,400.00
260.10
210.80
49.30
88.00
88.00
3,400.00
3,400.00
210.80
49.30
260.10
88.00
88.00
Analyze: The following entry would be made for the payment of salaries of $3,800 in January if no reversing
entry was made for salaries payable.
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record payment of salaries
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
3,400.00
400.00
3,800.00
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Challenge Problem
PROGRAMS PLUS
Worksheet
Year Ending December 31, 2007
Trial Balance
Account Name
Debit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Merchandise Inventory
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Accounts Payable
Social Security Tax Payable
Medicare Tax Payable
Salaries Payable
Interest Payable
Yasser Tousson, Capital
Yasser Tousson, Drawing
Income Summary
Sales
Sales Returns and Allowances
Purchases
Freight In
Purchase Returns and Allowances
Purchase Discounts
Rent Expense
Telephone Expense
Salaries Expense
Payroll Taxes Expense
Interest Expense
Supplies Expense
Insurance Expense
Depreciation Expense—Equipment
Uncollectible Accounts Expense
Credit
Debit
Credit
15,280.00
26,600.00
95.00
62,375.00
6,740.00
2,380.00
34,000.00
(b) 67,850.00
10,100.00
7,264.00
6,500.00
560.00
130.00
(c) 1,225.00
(a)62,375.00
(d) 5,720.00
(e) 1,190.00
(f) 5,600.00
(i) 130.20
(i)
30.45
(h) 2,100.00
(g) 325.00
93,620.00
50,000.00
(a) 62,375.00
(b)67,850.00
514,980.00
9,600.00
319,430.00
3,600.00
7,145.00
5,760.00
14,500.00
2,164.00
92,000.00
7,300.00
185.00
646,154.00
318 䡲 Chapter 13
Adjustments
(h)
(i)
(g)
(d)
(e)
(f)
(c)
646,154.00
2,100.00
160.65
325.00
5,720.00
1,190.00
5,600.00
1,225.00
146,545.65
146,545.65
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Adjusted Trial Balance
Debit
Credit
Income Statement
Debit
Credit
15,280.00
26,600.00
Balance Sheet
Debit
15,280.00
26,600.00
1,320.00
1,320.00
67,850.00
1,020.00
1,190.00
34,000.00
67,850.00
1,020.00
1,190.00
34,000.00
15,700.00
7,264.00
6,500.00
690.20
160.45
2,100.00
325.00
93,620.00
50,000.00
62,375.00
15,700.00
7,264.00
6,500.00
690.20
160.45
2,100.00
325.00
93,620.00
50,000.00
67,850.00
514,980.00
9,600.00
319,430.00
3,600.00
62,375.00
67,850.00
514,980.00
9,600.00
319,430.00
3,600.00
7,145.00
5,760.00
14,500.00
2,164.00
94,100.00
7,460.65
510.00
5,720.00
1,190.00
5,600.00
1,225.00
723,414.65
Credit
7,145.00
5,760.00
14,500.00
2,164.00
94,100.00
7,460.65
510.00
5,720.00
1,190.00
5,600.00
1,225.00
723,414.65
527,474.65
68,260.35
595,735.00
195,940.00
127,679.65
68,260.35
595,735.00
595,735.00
195,940.00
195,940.00
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PROGRAMS PLUS
Income Statement
Year Ended December 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
514,980.00
9,600.00
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, Jan. 1, 2007 . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . .
505,380.00
62,375.00
319,430.00
3,600.00
323,030.00
7,145.00
5,760.00
12,905.00
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
310,125.00
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Dec. 31, 2007 . . . . .
372,500.00
67,850.00
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
304,650.00
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Exp.—Equipment . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . .
200,730.00
14,500.00
2,164.00
94,100.00
7,460.65
5,720.00
1,190.00
5,600.00
1,225.00
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
131,959.65
Income from Operations . . . . . . . . . . . . . . . . . . . . . .
Other Expenses
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
68,770.35
Net Income for Year . . . . . . . . . . . . . . . . . . . . . . . . . .
68,260.35
320 䡲 Chapter 13
510.00
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PROGRAMS PLUS
Statement of Owner’s Equity
Year Ended December 31, 2007
Yasser Tousson. Jan. 1, 2007 . . . . . . . . . . .
Net Income for Year . . . . . . . . . . . . . . . . . .
Less Withdrawals for Year . . . . . . . . . . . . .
93,620.00
68,260.35
50,000.00
Increase in Capital . . . . . . . . . . . . . . . . . . .
18,260.35
Yasser Tousson, Capital, Dec. 31, 2007 . . .
111,880.35
PROGRAMS PLUS
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . . . . . . . . . .
15,280.00
26,600.00
1,320.00
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . .
Plant and Equipment
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . . . . . . . . . .
25,280.00
67,850.00
1,020.00
1,190.00
2,210.00
110,620.00
34,000.00
15,700.00
18,300.00
Total Plant and Equipment . . . . . . . . . . . . . . . . . . .
18,300.00
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability and Owner’s Equity
Current Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
128,920.00
7,264.00
6,500.00
325.00
690.20
160.45
2,100.00
Total Current Liabilities . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Yasser Tousson, Capital . . . . . . . . . . . . . . . . . . . . .
111,880.35
Total Liabilities and Owner’s Equity . . . . . . . . . . . . . .
128,920.00
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17,039.65
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GENERAL JOURNAL
Date
2007
Dec. 31
31
31
31
31
31
31
31
31
Description
Adjusting Entries
(Adjustment a)
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . .
To transfer beginning inventory
(Adjustment b)
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record ending inventory
(Adjustment c)
Uncollectible Accounts Expense . . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . . . . . . . . . .
To record estimated loss for 2007, based on 0.5%
of net credit sales of $245,000
(Adjustment d)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used during 2007
(Adjustment e)
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired insurance
(Adjustment f)
Depreciation Expense—Equipment . . . . . . . . . . . . . . . .
Accumulated Depreciation—Equipment . . . . . . . . . . .
To record depreciation for 2007 (schedule on file)
(Adjustment g)
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued interest on note payable
(Adjustment h)
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued salaries
(Adjustment i)
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
To record accrued payroll taxes on accrued salaries
for December: social security tax = 6.2% x $2,100;
Medicare tax = 1.45% x $2,100
322 䡲 Chapter 13
PAGE 25
Post.
Ref.
Debit
Credit
62,375.00
62,375.00
67,850.00
67,850.00
1,225.00
1,225.00
5,720.00
5,720.00
1,190.00
1,190.00
5,600.00
5,600.00
325.00
325.00
2,100.00
2,100.00
160.65
130.20
30.45
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GENERAL JOURNAL
Date
Description
Post.
Ref.
Debit
Credit
Closing Entries
2007
Dec. 31
31
31
31
2008
Jan. 1
1
1
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Returns and Allowances . . . . . . . . . . . . . . . .
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns and Allowances . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Equipment . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yasser Tousson, Capital . . . . . . . . . . . . . . . . . . . . . . .
Yasser Tousson, Capital . . . . . . . . . . . . . . . . . . . . . . . . .
Yasser Tousson, Drawing . . . . . . . . . . . . . . . . . . . . . .
Reversing Entries
Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (g) made Dec. 31, 2007
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (h) made Dec. 31, 2007
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
To reverse adjusting entry (i) made Dec. 31, 2007
514,980.00
7,145.00
5,760.00
527,885.00
465,099.65
9,600.00
319,430.00
3,600.00
14,500.00
2,164.00
94,100.00
7,460.65
5,720.00
1,190.00
5,600.00
1,225.00
510.00
68,260.35
68,260.35
50,000.00
50,000.00
325.00
325.00
2,100.00
2,100.00
130.20
30.45
160.65
Analyze: The owner’s capital account changed by 19.5%.
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Critical Thinking Problem
1.
SWEATERS GALORE
Balance Sheet
December 31, 2006
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses . . . . . . . . . . . . . . . . . .
150,000
45,000
105,000
6,000
Total Current Assets . . . . . . . . . . . . . . . .
Plant and Equipment
Store Fixtures and Equipment . . . . . . . .
180,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
486,000
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . .
306,000
132,000
18,000
Total Current Liabilities . . . . . . . . . . . . . .
Long-Term Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . .
150,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Lea Simone . . . . . . . . . . . . . . . . . . . . . . .
240,000
Total Liabilities and Owner’s Equity . . . . . .
486,000
90,000
246,000
NOTE TO INSTRUCTOR: While financial statement analysis is not presented until Chapters 23 and 24,
this problem has been included here to show students how classified statements provide more useful
financial information than non-classified statements.
324 䡲 Chapter 13
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2. From 2006 to 2007, Sweaters Galore’s cash decreased by $120,000. At the same time, current
liabilities increased from $150,000 to $190,500, or by $40,500. In spite of these changes, the ratio of
current assets to current liabilities is still close to 2:1, a widely-used rule of thumb for this ratio as
satisfactory. One strong factor is the growth in owner’s equity, resulting from profits. Sweaters Galore
should be able to meet its obligations. However one development to be examined further is the large
growth in inventory.
SWEATERS GALORE
Balance Sheet
December 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses . . . . . . . . . . . . . . . . . .
30,000
91,500
234,000
9,000
Total Current Assets . . . . . . . . . . . . . . . .
Plant and Equipment
Store Fixtures and Equipment . . . . . . . .
390,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
754,500
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . .
364,500
171,000
19,500
Total Current Liabilities . . . . . . . . . . . . . .
Long-Term Liabilities
Notes Payable . . . . . . . . . . . . . . . . . . . . .
190,500
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Lea Simone, Capital . . . . . . . . . . . . . . . .
430,500
324,000
Total Liabilities and Owner’s Equity . . . . . .
754,500
240,000
3. A classified balance sheet permits the reader to make more meaningful comparisons of balance sheet
accounts, and thus, to make better decisions regarding the financial strength and the financial future of
the company.
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Business Connections
Managerial Focus
1. Timely receipt of financial data facilitates effective management and planning.
2. Increase in accounts receivable resulting from slow collections from customers or an unwarranted
growth in inventories; payment of long-term debt or purchase of property.
3. May reflect that excess inventory has become obsolete or soiled. Growth in inventory ties up funds.
4. Reveal trends or changes in specific items that need to be investigated.
5. Possible that there will be inadequate funds to cover the liabilities as they come due.
6. Yes, compare increase in selling expenses to the increase in sales. Investigate levels of sales returns
and allowances. Review each selling expense account for accuracy.
7. Reveals variances out-of-line with industry averages; areas where costs should be controlled.
Ethical Dilemma
You should follow the generally accepted accounting principles (GAAP) and do the proper adjusting entry.
You might suggest the owner take out a line of credit that would not require the current ratio of 1.5 times to
be maintained at all times.
Streetwise
1. January 30, 2005, $24,430 million; February 1, 2004, $20,580 million. No, the company’s gross profit
increased by 18.7%.
2. a. Gross profit percentage: $24,430 ⳰ $73,094 = 33.4%.
b. Current ratio: $14,190 ⳰ $10,529 = 1.35:1.
Financial Statement Analysis
1. 2003 current ratio is 1.63 to 1; 2002 current ratio is 1.45 to 1.
2. The current ratio has increased from 2002 to 2003. In 2002, the company had $1.45 in assets for every
dollar of liability. In 2003, the company only has $1.63 in assets for every dollar of liability.
3. 49% gross profit percentage
Analyze Online: Answers will vary depending on the year.
Extending the Thought
Answers will vary, but students should demonstrate an understanding that any known financial, managerial,
or legal events that would impact an investor’s view of the company should be disclosed in some manner in
the annual report.
Business Communication
Answers will vary. Students should list the following closing tasks: prepare financial statements, journalize
and post adjusting entries, journalize and post closing entries, prepare a postclosing trial balance, journalize
and post required reversing entries. Work efficiencies should be attended to. In other words, the same
student that journalizes adjusting entries should probably post them to the general ledger.
Team Work
Answers will vary depending on the year.
Internet Connection
Answers will vary depending on the corporation.
326 䡲 Chapter 13
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 327
Practice Test Answer Key
Part A True-False
1. F
2. F
3. T
4. F
5. T
6. F
7. F
8. T
9. F
10. F
11. F
12. T
13. F
14. T
15. F
16. F
17. T
18. F
19. T
20. T
21. T
22. T
23. T
24. F
25. T
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13 䡲 327
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Mini-Practice Set 2: Merchandising Business Accounting Cycle
SALES JOURNAL
Date
2007
Oct. 3
9
15
24
29
31
Sales Slip
No.
241
242
243
244
245
PAGE 10
Customer’s Name
Post.
Ref.
Accounts
Receivable
Debit
Sales Tax
Payable
Credit
Sales
Credit
Emile Sahliyeh . . . . . . . . .
Dagmar Radin . . . . . . . . .
James Bautista . . . . . . . . .
Megan Greening . . . . . . .
Jong Han Yoon . . . . . . . . .
✓
✓
✓
✓
✓
2,604.00
2,073.75
2,037.00
861.00
2,961.00
124.00
98.75
97.00
41.00
141.00
2,480.00
1,975.00
1,940.00
820.00
2,820.00
10,536.75
501.75
10,035.00
(111)
(231)
(401)
Totals . . . . . . . . . . . . . . . .
PURCHASES JOURNAL
Date
Purchased From
2007
Oct. 11
25
30
Super Styles
Classy Clothes, Inc.
Today’s Threads
31
Invoice
Number
9422
3418
5821
Inv.
Date
PAGE 10
Terms
10/8/07 2/10, n/30
10/23/07 2/10, n/30
10/26/07 1/10, n/30
Post
Ref.
Purchases Dr./
Accounts Payable Credit
✓
✓
✓
4,820
3,380
2,140
10,340
(501/203)
328 䡲 Mini-Practice Set 2
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Date
Megan Greening
Jong Han Yoon
Cash Sales
James Bautista
Cash Sales
Emile Sahliyeh
Cash Sales
Cash Sales
Cash Sales
Totals
2
5
6
8
13
16
20
27
31
31
Description
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
(231)
640.00
612.00
79.50
614.50
(111)
510
X
860.00
2,806.00
832
X
3,562
520
1,700
X
X
(401)
56,120
12,800
12,240
1,590
12,290
17,200
Sales
Credit
Account Name
Post.
Ref.
Other Accounts Credit
Amount
(101)
62,488.00
520.00
1,700.00
18,060.00
832.00
12,904.50
510.00
13,440.00
12,852.00
1,669.50
Cash
Debit
1:29 PM
Sales Tax
Payable
Credit
PAGE 10
10/26/05
Accounts
Post. Receivable
Ref
Credit
CASH RECEIPTS JOURNAL
Price_SM_ch13.qxd
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Mini-Practice Set 2 䡲 329
330 䡲 Mini-Practice Set 2
601
602
603
604
605
606
607
608
City Properties
Radio KTTT
State Tax Com.
Super Styles
AMX Supply Co.
Today’s Threads
Classy Clothes, Inc.
U.S. Treasury
31
(203)
23,120.00
4,820.00
8,770.00
1,700.00
X
X
X
7,830.00
X
Jennifer Jackson, Drawing
Utilities Expense
Telephone Expense
Salaries Payable
Janitorial Services Expense
Social Security Tax Payable
Medicare Tax Payable
Employee Income Tax
Payable
Advertising Expense
Freight In
Purchases
Supplies
Rent Expense
Prepaid Advertising
Sales Tax Payable
Account Name
302
644
638
229
623
96.40
X
(504)
(101)
50,605.00 462.58 73,262.42
6,000.00
805.00
480.00
8,916.00
200.00
2,000.00
300.00
4,750.00
4,723.60
6,000.00
805.00
480.00
8,916.00
200.00
1,020.00
2,000.00
300.00
4,750.00
131
223
611
502
501
Cash
Credit
221
222
3,500.00
2,800.00
17,820.00
Amount
Purchases
Discounts
Credit
3,500.00
2,800.00
17,820.00
156.78 7,673.22
1,150.00
1,150.00
175.40 8,594.60
34.00
1,666.00
702.00
1,884.00
162.00
629
135
231
Post
Ref.
1:29 PM
10
609 The Ames Daily
12
610 Ace Freight Co.
16
611 Akron Jobbers
16
612 Super Styles
18
613 Jennifer Jackson
22
614 City Utilities
26
615 Regional Telephone
31 616–619 (Employees)
31
620 Handy Janitors
Oct. 1
1
2
2
4
4
5
8
Description
Post
Ref.
Other Accounts Debit
PAGE 10
10/26/05
2007
Date
Ck.
No.
Accounts
Payable
Debit
CASH PAYMENTS JOURNAL
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Page 331
GENERAL JOURNAL
Date
2007
Oct. 5
29
29
29
Description
PAGE 16
Post.
Ref.
Sale Returns and Allowances . . . . . . . . . . . . . . . . . . . .
Sales Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable—Emile Sahliyeh . . . . . . . . . . .
Issued Credit Memo 18 for damaged merchandise
originally sold on Sales Slip 241, October 3
Accounts Payable—Classy Clothes, Inc. . . . . . . . . . . . .
Purchases Returns and Allowances . . . . . . . . . . . . . .
Received Credit Memo 175 for defective goods
returned; original purchase made on invoice 3418,
October 25
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . . . . . . . . . .
To record October payroll
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
To record October payroll taxes
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Debit
402
231
111
600
30
203
503
430
632
229
221
222
223
10,800
626
221
222
225
227
1,566
Credit
630
430
8,916
702
162
1,020
702
162
118
584
Mini-Practice Set 2 䡲 331
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GENERAL JOURNAL
Date
2007
Oct. 31
31
31
31
31
31
31
Description
Adjusting Entries
(Adjustment a)
Uncollectible Accounts Expense . . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . . . . . . . . . .
To record estimated loss from uncollectible accounts,
based on 0.8% of net credit sales
(Adjustment b)
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record supplies used
(Adjustment c)
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired insurance
(Adjustment d)
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Advertising . . . . . . . . . . . . . . . . . . . . . . . . . .
To record expired advertising
(Adjustment e)
Depreciation Expense—Equipment . . . . . . . . . . . . . . . .
Accumulated Depreciation—Equipment . . . . . . . . . . .
To record depreciation for month
(Adjustment f)
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . .
To transfer beginning inventory
(Adjustment g)
Merchandise Inventory . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record ending inventory
332 䡲 Mini-Practice Set 2
PAGE 17
Post.
Ref.
Debit
620
112
75.48
635
131
2,540.00
617
133
700.00
611
135
700.00
614
142
1,175.00
399
121
88,996.00
121
399
81,500.00
Credit
75.48
2,540.00
700.00
700.00
1,175.00
88,996.00
81,500.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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GENERAL JOURNAL
PAGE 18
Description
Post.
Ref.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases Returns and Allowances . . . . . . . . . . . . . . .
Purchases Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales Returns and Allowances . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Expense—Equipment . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . . . .
Janitorial Services Expense . . . . . . . . . . . . . . . . . . . .
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jennifer Jackson, Capital . . . . . . . . . . . . . . . . . . . . . .
Jennifer Jackson, Capital . . . . . . . . . . . . . . . . . . . . . . . .
Jennifer Jackson, Drawing . . . . . . . . . . . . . . . . . . . . .
401
503
504
399
399
402
501
502
611
614
617
620
623
626
629
632
635
638
644
399
301
301
302
Date
Debit
Credit
Closing Entries
2007
Oct. 31
31
31
31
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
66,155.00
430.00
462.58
67,047.58
40,531.48
600.00
15,090.00
300.00
2,700.00
1,175.00
700.00
75.48
200.00
1,566.00
3,500.00
10,800.00
2,540.00
480.00
805.00
19,020.10
19,020.10
6,000.00
6,000.00
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GENERAL LEDGER
ACCOUNT:
Date
2007
Oct. 1
31
31
x
J16
S10
CR10
Debit
Post.
Ref.
Credit
630.00
10,536.75
3,562.00
x
J17
Credit
x
J17
J17
Debit
Credit
88,996.00
81,500.00
Supplies
Description
Balance
Adjusting
334 䡲 Mini-Practice Set 2
6,210.00
5,580.00
16,116.75
12,554.75
420.00
495.48
x
CP10
J17
Debit
Credit
1,150.00
2,540.00
121
Balance
Debit
Credit
88,996.00
0.00
81,500.00
ACCOUNT NO.
Post.
Ref.
112
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
111
Balance
Debit
Credit
75.48
Merchandise Inventory
Balance
Adjusting
Adjusting
Balance
Debit
Credit
ACCOUNT NO.
Debit
101
59,800.00
122,288.00
73,262.42 49,025.58
Allowance for Doubtful Accounts
Description
ACCOUNT:
2007
Oct. 1
4
31
Post.
Ref.
Balance
Adjusting
Date
62,488.00
Credit
ACCOUNT NO.
Description
ACCOUNT:
Debit
Accounts Receivable
Balance
Credit Memo 18
Date
Date
x
CR10
CP10
Description
ACCOUNT:
2007
Oct. 1
31
31
Post.
Ref.
Balance
Date
2007
Oct. 1
31
ACCOUNT NO.
Description
ACCOUNT:
2007
Oct. 1
5
31
31
Cash
131
Balance
Debit
Credit
4,100.00
5,250.00
2,710.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 335
GENERAL LEDGER
ACCOUNT:
Date
2007
Oct. 1
31
Description
Balance
Adjusting
ACCOUNT:
Date
2007
Oct. 1
31
Adjusting
Date
Balance
Date
2007
Oct. 1
31
Balance
Adjusting
Date
2007
Oct. 1
29
31
31
Date
2007
Oct. 1
8
29
29
x
J17
Credit
700.00
Post.
Ref.
CP10
J17
Debit
Credit
2,800.00
700.00
Balance
Debit
Credit
x
Post.
Ref.
Balance
Balance
Debit
Credit
2,800.00
2,100.00
Debit
Credit
7,050.00
8,225.00
1,175.00
Debit
Credit
430.00
10,340.00
23,120.00
x
CP10
J16
J16
Debit
Credit
702.00
702.00
702.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
203
Balance
Debit
Credit
18,300.00
17,870.00
28,210.00
5,090.00
ACCOUNT NO.
Post.
Ref.
142
Balance
Debit
Credit
ACCOUNT NO.
x
J16
P10
CP10
141
Balance
Debit
Credit
ACCOUNT NO.
x
J17
Post.
Ref.
135
83,000.00
Social Security Tax Payable
Description
8,400.00
7,700.00
ACCOUNT NO.
Post.
Ref.
133
Balance
Debit
Credit
ACCOUNT NO.
Accounts Payable
Description
ACCOUNT:
Debit
Accumulated Depreciation—Equipment
Description
ACCOUNT:
Post.
Ref.
Equipment
Description
ACCOUNT:
ACCOUNT NO.
Prepaid Advertising
Description
ACCOUNT:
2007
Oct. 1
Prepaid Insurance
221
Balance
Debit
Credit
702.00
0.00
702.00
1,404.00
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GENERAL LEDGER
ACCOUNT:
Date
2007
Oct. 1
8
29
29
Description
Balance
ACCOUNT:
Date
2007
Oct. 1
8
29
Balance
Date
Balance
Date
2007
Oct. 1
29
Date
x
CP10
J16
J16
Debit
Credit
Post.
Ref.
x
CP10
J16
Post.
Ref.
ACCOUNT NO.
Credit
Balance
ACCOUNT NO.
Credit
2007
Oct. 29
31
336 䡲 Mini-Practice Set 2
512.00
630.00
ACCOUNT NO.
Debit
x
J16
Credit
1,268.00
1,852.00
584.00
J16
CP10
Debit
Credit
8,916.00
8,916.00
227
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
225
Balance
Debit
Credit
118.00
Salaries Payable
Description
1,020.00
0.00
1,020.00
1,020.00
Debit
223
Balance
Debit
Credit
1,020.00
x
J16
Post.
Ref.
162.00
0.00
162.00
324.00
162.00
162.00
Debit
222
Balance
Debit
Credit
162.00
State Unemployment Tax Payable
Description
ACCOUNT:
Post.
Ref.
Federal Unemployment Tax Payable
Description
ACCOUNT:
ACCOUNT NO.
Employee Income Tax Payable
Description
ACCOUNT:
2007
Oct. 1
29
Medicare Tax Payable
229
Balance
Debit
Credit
8,916.00
0.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 337
GENERAL LEDGER
ACCOUNT:
Sales Tax Payable
Date
2007
Oct. 1
2
5
31
31
Description
Balance
ACCOUNT:
Description
Balance
Closing
Closing
ACCOUNT:
Description
Description
Adjusting
Adjusting
Closing
Closing
Closing
ACCOUNT:
Description
Closing
Balance
Debit
Credit
30.00
501.75
2,806.00
x
J18
J18
Debit
Credit
471.75
3,277.75
203,252.00
222,272.10
216,272.10
6,000.00
ACCOUNT NO.
Post.
Ref.
Debit
Credit
6,000.00
6,000.00
J17
J17
J18
J18
J18
Debit
Credit
88,996.00
81,500.00
67,047.58
40,531.48
19,020.10
6,000.00
0.00
S10
CR10
J18
Debit
399
Balance
Debit
Credit
88,996.00
7,496.00
59,551.58
19,020.10
0.00
ACCOUNT NO.
Post.
Ref.
302
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
301
Balance
Debit
Credit
19,020.10
Sales
Date
2007
Oct. 31
31
31
Post.
Ref.
231
17,820.00
0.00
17,820.00
30.00
Income Summary
Date
2007
Oct. 31
31
31
31
31
Credit
ACCOUNT NO.
CP10
J18
Closing
ACCOUNT:
x
CP10
J16
S10
CR10
Debit
Jennifer Jackson, Drawing
Date
2007
Oct. 1
31
Post.
Ref.
Jennifer Jackson, Capital
Date
2007
Oct. 1
31
31
ACCOUNT NO.
Credit
10,035.00
56,120.00
66,155.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
401
Balance
Debit
Credit
10,035.00
66,155.00
0.00
Mini-Practice Set 2 䡲 337
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Page 338
GENERAL LEDGER
ACCOUNT:
Sales Returns and Allowances
Date
2007
Oct. 5
31
Description
Description
Description
Description
Description
Date
2007
Oct. 10
31
31
Post.
Ref.
Post.
Ref.
4,750.00
10,340.00
15,090.00
Debit
Credit
300.00
Adjusting
Closing
338 䡲 Mini-Practice Set 2
4,750.00
15,090.00
0.00
Post.
Ref.
300.00
0.00
Credit
430.00
Credit
430.00
0.00
462.58
462.58
0.00
462.58
CP10
J17
J18
Debit
Credit
2,000.00
700.00
2,700.00
504
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
503
Balance
Debit
Credit
430.00
Debit
502
Balance
Debit
Credit
ACCOUNT NO.
Debit
501
Balance
Debit
Credit
300.00
Advertising Expense
Description
600.00
0.00
ACCOUNT NO.
CP10
J18
Closing
ACCOUNT:
Credit
Purchases Discounts
Date
2007
Oct. 31
31
Debit
402
Balance
Debit
Credit
ACCOUNT NO.
J16
J18
Closing
ACCOUNT:
600.00
Purchases Returns and Allowances
Date
2007
Oct. 29
31
Post.
Ref.
CP10
J18
Closing
ACCOUNT:
600.00
Freight In
Date
2007
Oct. 12
31
Credit
ACCOUNT NO.
CP10
P10
J18
Closing
ACCOUNT:
Debit
Purchases
Date
2007
Oct. 16
31
31
J16
J18
Closing
ACCOUNT:
Post.
Ref.
ACCOUNT NO.
611
Balance
Debit
Credit
2,000.00
2,700.00
0.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 339
GENERAL LEDGER
ACCOUNT:
Depreciation Expense—Equipment
Date
2007
Oct. 31
31
Description
Adjusting
Closing
ACCOUNT:
Description
Adjusting
Closing
ACCOUNT:
Description
Adjusting
Closing
ACCOUNT:
Description
Description
Debit
Credit
700.00
Description
Closing
0.00
Post.
Ref.
700.00
J17
J18
0.00
ACCOUNT NO.
Debit
Credit
75.48
75.48
Debit
Credit
200.00
200.00
75.48
0.00
Debit
Credit
1,566.00
1,566.00
200.00
0.00
CP10
J18
Debit
Credit
3,500.00
3,500.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
626
Balance
Debit
Credit
1,566.00
0.00
ACCOUNT NO.
Post.
Ref.
623
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
620
Balance
Debit
Credit
ACCOUNT NO.
Post.
Ref.
617
Balance
Debit
Credit
700.00
Rent Expense
Date
2007
Oct. 1
31
J17
J18
J16
J18
Closing
ACCOUNT:
1,175.00
1,175.00
Payroll Taxes Expense
Date
2007
Oct. 29
31
Post.
Ref.
614
Balance
Debit
Credit
ACCOUNT NO.
CP10
J18
Closing
ACCOUNT:
1,175.00
Janitorial Services Expense
Date
2007
Oct. 31
31
Credit
Uncollectible Accounts Expense
Date
2007
Oct. 31
31
J17
J18
Debit
Insurance Expense
Date
2007
Oct. 31
31
Post.
Ref.
ACCOUNT NO.
629
Balance
Debit
Credit
3,500.00
0.00
Mini-Practice Set 2 䡲 339
Price_SM_ch13.qxd
ACCOUNT:
10/26/05
Description
Description
Adjusting
Closing
Description
10,800.00
10,800.00
Post.
Ref.
J17
J18
Debit
Credit
2,540.00
2,540.00
Post.
Ref.
Debit
Credit
480.00
480.00
Description
Closing
340 䡲 Mini-Practice Set 2
10,800.00
0.00
CP10
J18
Debit
Credit
805.00
805.00
635
Balance
Debit
Credit
2,540.00
0.00
638
Balance
Debit
Credit
480.00
0.00
ACCOUNT NO.
Post.
Ref.
632
Balance
Debit
Credit
ACCOUNT NO.
Utilities Expense
Date
2007
Oct. 22
31
Credit
ACCOUNT NO.
CP10
J18
Closing
ACCOUNT:
Debit
Telephone Expense
Date
2007
Oct. 26
31
Post.
Ref.
Supplies Expense
Date
ACCOUNT:
ACCOUNT NO.
J16
J18
Closing
ACCOUNT:
2007
Oct. 31
31
Page 340
Salaries Expense
Date
2007
Oct. 29
31
1:29 PM
644
Balance
Debit
Credit
805.00
0.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 341
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME:
Emily Clough
Date
2007
Oct. 1
NAME:
Description
Balance
NAME:
NAME:
Balance
NAME:
2007
Oct. 1
Post.
Ref.
Description
Balance
x
CR10
S10
Sales Slip 243
Debit
Debit
Description
Balance
Sales Slip 242
520.00
520.00
0.00
861.00
Debit
x
S10
2,073.75
Balance
832.00
832.00
0.00
2,037.00
Credit
Debit
x
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
n/30
Balance
232.00
2,305.75
TERMS:
Post.
Ref.
n/30
Credit
TERMS:
John Flanagan
Description
Balance
2,037.00
Post.
Ref.
n/30
Credit
861.00
Dagmar Radin
Balance
Balance
TERMS:
Post.
Ref.
n/30
795.00
James Bautista
Date
Credit
TERMS:
x
CR10
S10
Sales Slip 244
Date
2007
Oct. 1
9
Debit
x
Description
Date
2007
Oct. 1
8
15
Post.
Ref.
Megan Greening
Date
2007
Oct. 1
2
24
TERMS:
Credit
n/30
Balance
1,621.00
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Page 342
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME:
Emile Sahliyeh
Date
2007
Oct. 1
3
5
16
NAME:
Description
Balance
Sales Slip 241
Credit Memo 18
Post.
Ref.
x
S10
J16
CR10
Debit
Balance
630.00
510.00
510.00
3,114.00
2,484.00
1,974.00
TERMS:
Description
Balance
Post.
Ref.
x
CR10
S10
Sales Slip 245
Debit
n/30
Credit
2,604.00
Jong Han Yoon
Date
2007
Oct. 1
5
29
TERMS:
n/30
Credit
Balance
1,700.00
1,700.00
0.00
2,961.00
2,961.00
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME:
Super Styles
Date
2007
Oct. 1
2
11
16
NAME:
Description
Balance
NAME:
Debit
4,820.00
4,820.00
Balance
Post.
Ref.
x
CP10
P10
J16
Invoice 3418
Credit Memo 175
Debit
7,830.00
0.00
4,820.00
0.00
3,380.00
430.00
Balance
1,700.00
0.00
3,380.00
2,950.00
TERMS:1/10, n/30
Description
342 䡲 Mini-Practice Set 2
Credit
1,700.00
Today’s Threads
Invoice 5821
Balance
TERMS:2/10, n/30
Description
Balance
Credit
7,830.00
Classy Clothes, Inc.
Date
2007
Oct. 1
4
30
Post.
Ref.
x
CP10
P10
CP10
Invoice 9422
Date
2007
Oct. 1
5
25
29
TERMS:2/10, n/30
Post.
Ref.
x
CP10
P10
Debit
Credit
Balance
2,140.00
8,770.00
0.00
2,140.00
8,770.00
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 343
BARGAIN BUYS
Schedule of Accounts Payable
October 31, 2007
Super Styles . . . . . . . . . . . . . . . . . . . . . . . .
Classy Clothes, Inc. . . . . . . . . . . . . . . . . . .
Today’s Threads . . . . . . . . . . . . . . . . . . . . .
0.00
2,950.00
2,140.00
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,090.00
BARGAIN BUYS
Schedule of Accounts Receivable
October 31, 2007
Emily Clough . . . . . . . . . . . . . . . . . . . . . . .
Megan Greening . . . . . . . . . . . . . . . . . . . . .
James Bautista . . . . . . . . . . . . . . . . . . . . . .
Dagmar Radin . . . . . . . . . . . . . . . . . . . . . .
John Flanagan . . . . . . . . . . . . . . . . . . . . . .
Emile Sahliyeh . . . . . . . . . . . . . . . . . . . . . .
Jong Han Yoon . . . . . . . . . . . . . . . . . . . . . .
795.00
861.00
2,037.00
2,305.75
1,621.00
1,974.00
2,961.00
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,554.75
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Mini-Practice Set 2 䡲 343
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Page 344
BARGAIN BUYS
Worksheet
Month ending October 31, 2007
Trial Balance
Account Name
Debit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Merchandise Inventory
Supplies
Prepaid Insurance
Prepaid Advertising
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Social Security Tax Payable
Medicare Tax Payable
Employee Income Tax Payable
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Sales Tax Payable
Jennifer Jackson, Capital
Jennifer Jackson, Drawing
Income Summary
Sales
Sales Returns and Allowances
Purchases
Freight In
Purchase Returns and Allowances
Purchase Discounts
Advertising Expense
Depreciation Expense—Equipment
Insurance Expense
Uncollectible Accounts Expense
Janitorial Services Expense
Payroll Taxes Expense
Rent Expense
Salaries Expense
Supplies Expense
Telephone Expense
Utilities Expense
Debit
Credit
49,025.58
12,554.75
420.00
88,996.00
5,250.00
8,400.00
2,800.00
83,000.00
(g) 81,500.00
7,050.00
5,090.00
1,404.00
324.00
1,020.00
630.00
1,852.00
(a)
75.48
(f) 88,996.00
(b) 2,540.00
(c) 700.00
(d) 700.00
(e) 1,175.00
3,277.75
203,252.00
6,000.00
(f) 88,996.00 (g) 81,500.00
66,155.00
600.00
15,090.00
300.00
430.00
462.58
2,000.00
(d) 700.00
(e) 1,175.00
(c) 700.00
(a)
75.48
200.00
1,566.00
3,500.00
10,800.00
(b) 2,540.00
480.00
805.00
291,367.33
344 䡲 Mini-Practice Set 2
Credit
Adjustments
291,367.33
175,686.48
175,686.48
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 345
Adjusted Trial Balance
Debit
Credit
Income Statement
Debit
Credit
49,025.58
12,554.75
Balance Sheet
Debit
49,025.58
12,554.75
495.48
495.48
81,500.00
2,710.00
7,700.00
2,100.00
83,000.00
6,000.00
88,996.00
81,500.00
2,710.00
7,700.00
2,100.00
83,000.00
8,225.00
5,090.00
1,404.00
324.00
1,020.00
630.00
1,852.00
8,225.00
5,090.00
1,404.00
324.00
1,020.00
630.00
1,852.00
3,277.75
203,252.00
3,277.75
203,252.00
6,000.00
81,500.00
66,155.00
600.00
15,090.00
300.00
88,996.00
81,500.00
66,155.00
600.00
15,090.00
300.00
430.00
462.58
2,700.00
1,175.00
700.00
75.48
200.00
1,566.00
3,500.00
10,800.00
2,540.00
480.00
805.00
374,117.81
Credit
430.00
462.58
2,700.00
1,175.00
700.00
75.48
200.00
1,566.00
3,500.00
10,800.00
2,540.00
480.00
805.00
374,117.81
129,527.48
19,020.10
148,547.58
244,590.33
225,570.23
19,020.10
148,547.58
148,547.58
244,590.33
244,590.33
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Mini-Practice Set 2 䡲 345
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Page 346
BARGAIN BUYS
Income Statement
Month Ended October 31, 2007
Operating Revenue
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Sales Returns and Allowances . . . . . . . . . . .
66,155.00
600.00
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Goods Sold
Merchandise Inventory, October 1, 2007 . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,555.00
88,996.00
15,090.00
300.00
Delivered Cost of Purchases . . . . . . . . . . . . . . . . .
Less Purchase Returns and Allowances . . . . . . . . 430.00
Purchase Discounts . . . . . . . . . . . . . . . . . . . . . . 462.58
15,390.00
892.58
Net Delivered Cost of Purchases . . . . . . . . . . . . . .
14,497.42
Total Merchandise Available for Sale . . . . . . . . . . .
Less Merchandise Inventory, Oct. 31, 2007 . . . . . .
103,493.42
81,500.00
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . .
21,993.42
Gross Profit on Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . .
Depreciation Exp.—Equipment . . . . . . . . . . . . . . .
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . .
Uncollectible Accounts Expense . . . . . . . . . . . . . .
Janitorial Services Expense . . . . . . . . . . . . . . . . . .
Payroll Tax Expense . . . . . . . . . . . . . . . . . . . . . . . .
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . .
Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,561.58
2,700.00
1,175.00
700.00
75.48
200.00
1,566.00
3,500.00
10,800.00
2,540.00
480.00
805.00
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . .
24,541.48
Income from Operations/Net Income for Year . . . . . .
19,020.10
BARGAIN BUYS
Statement of Owner’s Equity
Month Ended October 31, 2007
Jennifer Jackson, Capital, Oct. 1, 2007 . . .
Net Income for Month . . . . . . . . . . . . . . . . .
Less Withdrawals for Year . . . . . . . . . . . . .
203,252.00
19,020.10
6,000.00
Increase in Capital . . . . . . . . . . . . . . . . . . .
13,020.10
Jennifer Jackson, Capital, Oct. 31, 2007 . .
216,272.10
346 䡲 Mini-Practice Set 2
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Page 347
BARGAIN BUYS
Balance Sheet
October 31, 2007
Assets
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . .
Less Allowance for Doubtful Accounts . .
Merchandise Inventory . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Expenses
Prepaid Insurance . . . . . . . . . . . . . . . .
Prepaid Advertising . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . .
Plant and Equipment
Equipment . . . . . . . . . . . . . . . . . . . . . . . .
Less Accumulated Depreciation . . . . . . .
49,025.58
12,554.75
495.48
12,059.27
81,500.00
2,710.00
7,700.00
2,100.00
9,800.00
155,094.85
83,000.00
8,225.00
Total Plant and Equipment . . . . . . . . . . .
74,775.00
Total Assets . . . . . . . . . . . . . . . . . . . . . . . .
Liability and Owner’s Equity
Current Liabilities
Accounts Payable . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . .
Federal Unemployment Tax Payable . . .
State Unemployment Tax Payable . . . . .
Salaries Payable
Sales Tax Payable . . . . . . . . . . . . . . . . .
229,869.85
5,090.00
1,404.00
324.00
1,020.00
630.00
1,852.00
3,277.75
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .
Owner’s Equity
Jennifer Jackson, Capital . . . . . . . . . . . .
216,272.10
Total Liabilities and Owner’s Equity . . . . . .
229,869.85
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
13,597.75
Mini-Practice Set 2 䡲 347
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Page 348
BARGAIN BUYS
Postclosing Trial Balance
October 31, 2007
Account Name
Debit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Receivable . . . . . . . . . . . . . . . . .
Allowance for Doubtful Accounts . . . . . . . .
Merchandise Inventory . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid Insurance . . . . . . . . . . . . . . . . . . .
Prepaid Advertising . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Depreciation—Equipment . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . .
Federal Unemployment Tax Payable . . . . .
State Unemployment Tax Payable . . . . . . .
Sales Tax Payable . . . . . . . . . . . . . . . . . . .
Jennifer Jackson, Capital . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348 䡲 Mini-Practice Set 2
Credit
49,025.58
12,554.75
495.48
81,500.00
2,710.00
7,700.00
2,100.00
83,000.00
8,225.00
5,090.00
1,404.00
324.00
1,020.00
630.00
1,852.00
3,277.75
216,272.10
238,590.33 238,590.33
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.