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
Whole Foods operates 284 stores with an average store size of 37,000 square feet.
•
The stores feature over 30,000 natural and organic items.
•
To underscore the company’s focus on health, it recently created a new Core Company Value –
•
Promoting the health of our stakeholders through healthy eating education.
Whole Foods employs 52,000 people in North America and the United Kingdom.
•
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
Note to instructor : These questions are designed to check students’ understanding of new terms, concepts, and
procedures presented in the chapter.
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.
4.
The Cost of Goods Sold section contains this information.
It shows the firm’s financial position on a specific date through a presentation of the assets, liabilities
and owner’s equity.
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.
5.
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.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  469
Discussion Questions (continued)
9.
10.
11.
12.
13.
14.
15.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
16.
It assures that the general ledger is in balance after the adjusting and closing entries have been
posted.
The permanent accounts—assets, liabilities, and owner’s equity—appear on the post-closing trial
balance.
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.
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.
A reversing entry with a debit to Interest Income and a credit to Interest Receivable would be
recorded.
Entries for (a) accrued payroll taxes and (e) accrued interest income would be reversed.
The steps in the accounting cycle are:
Analyze transactions
Journalize the data about transactions
Post the data about transactions to the accounts
Prepare a worksheet
Prepare financial statements
Journalize and post adjusting entries
Journalize and post closing entries
Prepare a post closing trial balance
Interpret the financial information
A final step for some companies is to journalize and post reversing entries.
The additional investment would be shown in the Statement of Owner’s Equity as an addition to
Beginning Capital.
470  Chapter 13
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 13.1
1. Purchase returns
and Allowances
2. Telephone Expense
3. Sales Returns and Allowances
4. Purchases
5. Interest income
b
c
a
b
d
6.
7.
8.
9.
Merchandise Inventory
Interest Expense
Sales
Depreciation expense –
Store Equipment
10. Rent Expense
b
e
a
c
c
EXERCISE 13.2
1.
2.
3.
4.
5.
Accounts Receivable
Delivery Van
Prepaid Insurance
Notes Payable, due 2014
Store Supplies
a
b
a
c
a
6.
7.
8.
9.
10.
Accounts Payable
Merchandise Inventory
Ray Lynch, Capital
Cash
Unearned Subscription Income
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
c
a
e
a
c
Chapter 13  471
EXERCISE 13.3
Alec’s Office Supplies
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowance
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowance
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, Dec. 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Selling Expenses
Salaries Expense—Sales
Store Supplies Expense
Depreciation Expense—Store Equip.
Total Selling Expense
General and Administrative Expenses
Rent Expense
Utilities Expense
Salaries Expense—Office
Payroll Taxes Expense
Depreciation Expense—Office Equip.
Uncollectible Accounts Expense
Total General and Admin. Expenses
Total Operating Expenses
Income from Operations
Other Income
Miscellaneous Income
Other Expense
Interest Expense
Net Nonoperating Expenses
Net Income for Year
472  Chapter 13
245 6 0 0 00
4 2 5 0 00
241 3 5 0 00
58 7 7 5 00
102 6 0 0 00
1 8 7 5 00
104 4 7 5 00
3 5 0 0 00
1 7 0 0 00
5 2 0 0 00
99 2 7 5 00
158 0 5 0 00
51 7 2 5 00
106 3 2 5 00
135 0 2 5 00
44 3 0 0 00
2 2 1 0 00
1 4 1 0 00
47 9 2 0 00
12
2
20
5
5
9
1
0
4
6
0
0
0
0
7
2
0
0
0
0
0
0
00
00
00
00
00
00
41 5 9 0 00
89 5 1 0 00
45 5 1 5 00
3 0 0 00
5 4 0 00
2 4 0 00
45 2 7 5 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 13.4
Alec’s Office Supplies
Statement of Owner's Equity
Year Ended December 31, 2013
Alec Patel, Capital, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Increase in Capital
Alec Patel, Capital, December 31, 2013
62 7 6 0 00
45 2 7 5 00
40 2 0 0 00
5 0 7 5 00
67 8 3 5 00
EXERCISE 13.5
Alec’s Office Supplies
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash
Change Fund
Accounts Receivable
Less Allowance for Doubtful Accounts
Merchandise Inventory
Prepaid Expenses
Store Supplies
Prepaid Interest
Total Current Assets
Plant and Equipment
Store 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
Sales Tax Payable
Total Current Liabilities
Owner’s Equity
Alec Patel, Capital
Total Liabilities and Owner’s Equity
9 7 8 0 00
4 0 0 00
5 0 4 0 00
7 6 0 00
1 0 0 0 00
8 0 00
10 2 0 0
1080
3200
400
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
00
00
00
00
4 2 8 0 00
51 2 5 0 00
1 0 8 0 00
66 7 9 0 00
9 1 2 0 00
2 8 0 0 00
11 9 2 0 00
78 7 1 0 00
540
362
6
179
10 8 7
0
5
0
0
5
00
00
00
00
00
67 8 3 5 00
78 7 1 0 00
Chapter 13  473
EXERCISE 13.6
GENERAL JOURNAL
DATE
DESCRIPTION
Closing Entries
1
2 2013
3 Dec. 31 Sales
4
Interest Income
5
Purchases Returns and Allowances
6
Purchases Discounts
7
Income Summary
8
9
31 Income Summary
10
Sales Returns and Allowances
11
Sales Discounts
12
Purchases
13
Freight In
14
Rent Expense
15
Utilities Expense
16
Telephone Expense
17
Salaries Expense
18
Payroll Taxes Expense
19
Supplies Expense
20
Depreciation Expense
21
Interest Expense
22
23
31 Income Summary
24
Bobby Thomason, Capital
25
26
31 Bobby Thomason, Capital
27
Bobby Thomason, Drawing
28
29
30
31
32
33
34
35
36
37
474  Chapter 13
PAGE
POST.
REF.
DEBIT
254 5
1
20
15
0
7
0
3
0
0
0
0
16
CREDIT
00
00
00
00
258 2 0 0 00
232 2 8 0 00
3
2
134
2
8
2
1
66
5
1
2
9
9
4
2
5
9
5
1
2
7
5
3
0
0
0
0
0
3
4
0
7
0
0
4
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
00
00
00
00
29 2 2 0 00
29 2 2 0 00
26 2 0 0 00
26 2 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 13.7
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
POST.
REF.
1
2 2014
3 Jan. 1 Salaries Payable
4
Salaries Expense—Office
5
To reverse adjustment (e) made on Dec. 31, 2013
6
7
1 Social Security Tax Payable
8
Medicare Tax Payable
9
Payroll Taxes Expense
10
To reverse adjustment (f) made on Dec. 31, 2013
11
12
1 Interest Payable
13
Interest Expense
14
To reverse adjustment (g) made on Dec. 31, 2013
15
16
1 Interest Income
17
Interest Receivable
18
To reverse adjustment (h) made on Dec. 31, 2013
19
20
21
22
23
24
25
26
27
28
29
30
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
DEBIT
21
CREDIT
2 8 0 0 00
2 8 0 0 00
1 7 3 60
4 0 60
2 1 4 20
2 0 0 00
2 0 0 00
2 1 5 00
2 1 5 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Chapter 13  475
EXERCISE 13.8
Harmon Farm Supply
Post-closing Trial Balance
December 31, 2013
ACCOUNT NAME
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
Totals
476  Chapter 13
DEBIT
18 6 0 0 00
59 8 0 0 00
CREDIT
1 2 0 00
186
7
3
51
2
1
0
0
0
4
6
0
0
0
0
0
00
00
00
00
17
9
8
1
325 8 0 0 00
8
5
7
3
3
287 9
325 8
0
0
0
9
2
6
0
0
0
0
2
4
4
0
00
00
00
00
00
00
00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 13.9
a. Net Sales
Sales
Less Sales Discounts
Net Sales
$525,000
2,200
$522,800
Gross profit
Net sales
Less cost of goods sold
Gross profit
$522,800
392,100
$130,700
The gross profit
percentage
Gross profit
Net sales
b. Current assets
=
$130,700 =
$522,800
Cash
Accounts receivable
Note receivable, due 2014
Merchandise inventory
Prepaid insurance
Supplies
25.0%
$22,500
46,700
8,500
34,700
2,250
1,310
$115,960
Current liabilities
Note payable to bank, due 2014
Accounts payable
Interest payable
$25,000
21,134
250
$46,384
Working capital
$115,960 - $46,384 =
$69,576
=
2.5
c. Current ratio
d. Inventory
turnover
Average inventory
$115,960
$46,384
Cost of goods sold
Average inventory
=
$392,100
$46,129
$34,700 + $57,558 =
2
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
=
8.5 times
$46,129
Chapter 13  477
7 4 4 0 00
10 1 6 0 00
259
20
59
8
2
5
3
8
0
0
3
0
0
0
0
0
00
00
00
00
189 6 0 0 00
6 1 0 0 00
4 8 0 0 00
17 6 0 0 00
757 0 0 0 00
12 8 0 0 00
769 8 0 0 00
Wood Design Company
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, December 31, 2013
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
PROBLEM 13.1A
347 8 3 0 00
200 5 0 0 00
752 2 0 0 00
986 2 0 0 00
224 0 0 0 00
234 0 0 0 00
762 2 0 0 00
886 4 8 4 00
1,665 8 8 4 00
17 2 0 0 00
1,648 6 8 4 00
Wood Design Company
Income Statement (continued)
Year Ended December 31, 2013
General and Administrative Expenses
Salaries Expense—Office
Office Supplies Expense
Insurance Expense
Utilities Expense
Telephone Expense
Payroll Taxes 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
PROBLEM 13.1A (continued)
69
3
5
8
5
54
4
4
8
3
6
0
2
2
5
0
6
8
0
0
0
0
0
9
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
00
00
7 2 0 0 00
1 4 8 0 00
166 0 1 0 00
5 7 2 0 00
166 4 2 4 00
714 3 4 0 00
172 1 4 4 00
PROBLEM 13.1A (continued)
Wood Design Company
Statement of Owner's Equity
Year Ended December 31, 2013
Chuck Kirby, Capital, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Increase in Capital
Chuck Kirby, Capital, December 31, 2013
480  Chapter 13
397 6 4 0 00
166 4 2 4 00
126 0 0 0 00
40 4 2 4 00
438 0 6 4 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.1A (continued)
Wood Design Company
Balance Sheet
December 31, 2013
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
23 1 0 0 00
4 0 0 00
10 8 0 0 00
86 1 6 4 00
5 0 0 0 00
2 7 6 0 00
1 3 2 0 00
7 2 0 0 00
81 1 6 4 00
224 0 0 0 00
11 2 8 0 00
350 7 4 4 00
36 0 0 0 00
168
48
32
14
46
17
20
9
0
0
0
4
0
6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
Liability and Owner’s Equity
Current Liabilities
Notes Payable
Accounts Payable
Interest Payable
Total Current Liabilities
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
120 0 0 0 00
17 6 0 0 00
28 4 0 0 00
11 0 0 0 00
213 0 0 0 00
563 7 4 4 00
19 2 0 0 00
38 0 0 0 00
4 8 0 00
57 6 8 0 00
Chapter 13  481
PROBLEM 13.1A (continued)
Wood Design Company
Balance Sheet (continued)
December 31, 2013
Long-Term Liabilities
Mortgage Payable
Loans Payable
Total Long-Term Liabilities
Total Liabilities
Owner’s Equity
Chuck Kirby, Capital
Total Liabilities and Owner’s Equity
56 0 0 0 00
12 0 0 0 00
68 0 0 0 00
125 6 8 0 00
438 0 6 4 00
563 7 4 4 00
Analyze: The company’s current ratio is 6.08 to 1 ($350,744 ÷ $57,680).
482  Chapter 13
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
12 6 5 0 00
8 2 4 0 00
150 7 0 0 00
23 0 0 0 00
36 4 2 5 00
107 6 0 0 00
4 8 0 0 00
2 4 0 0 00
20 8 9 0 00
453 0 0 0 00
8 8 0 0 00
461 8 0 0 00
Good to Go Auto Products
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, Dec. 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Warehouse Expenses
Warehouse Wages Expense
Warehouse Supplies Expense
Depreciation Exp.—Warehouse Equip.
Total Warehouse Expenses
Selling Expenses
Salaries Expense—Sales
Travel Expense
Delivery Expense
Total Selling Expenses
PROBLEM 13.2A
210 1 2 5 00
114 8 0 0 00
440 9 1 0 00
571 3 1 0 00
127 5 0 0 00
130 4 0 0 00
443 8 1 0 00
639 0 9 0 00
1,090 3 0 0 00
7 4 0 0 00
1,082 9 0 0 00
84
1
8
7
3
30
15
2
2
4
1
Good to Go Auto Products
Income Statement (continued)
Year Ended December 31, 2013
General and Administrative Expenses
Salaries Expense—Office
Office Supplies Expense
Insurance Expense
Utilities Expense
Telephone Expense
Payroll Taxes Expense
Property Taxes Expense
Building Repair Expense
Uncollectible Accounts Expense
Depreciation Expense—Building
Depreciation Expense—Office Equip.
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
PROBLEM 13.2A (continued)
0
1
8
0
1
6
4
7
5
6
5
0
2
7
0
8
0
0
0
8
0
2
0
0
5
0
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
00
00
00
3 0 0 0 00
4 8 0 00
161 5 7 5 00
2 5 2 0 00
150 0 7 0 00
486 5 0 0 00
152 5 9 0 00
PROBLEM 13.2A (continued)
Good to Go Auto Products
Statement of Owner's Equity
Year Ended December 31, 2013
Colin O’Brien, Capital, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Increase in Capital
Colin O’Brien, Capital, December 31, 2013
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
317 0 2 0 00
150 0 7 0 00
69 6 5 0 00
80 4 2 0 00
397 4 4 0 00
Chapter 13  485
PROBLEM 13.2A (continued)
Good to Go Auto Products
Balance Sheet
December 31, 2013
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
Liability and Owner’s Equity
Current Liabilities
Notes Payable
Accounts Payable
Interest Payable
Total Current Liabilities
486  Chapter 13
98 0 0 0 00
5 0 0 00
10 0 0 0 00
139 2 0 0 00
2 8 0 0 00 136 4 0 0 00
127 5 0 0 00
1 0 0 00
2 3 0 0 00
6 0 0 00
3 6 4 0 00
6 5 4 0 00
379 0 4 0 00
15 0 0 0 00
102
16
18
9
8
3
0
2
8
0
4
4
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
85 8 0 0 00
9 8 0 0 00
5 0 0 0 00
115 6 0 0 00
494 6 4 0 00
14 0 0 0 00
55 9 0 0 00
3 0 0 00
70 2 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.2A (continued)
Good to Go Auto Products
Balance Sheet (continued)
December 31, 2013
Long-Term Liabilities
Mortgage Payable
Loans Payable
Total Long-Term Liabilities
Total Liabilities
Owner’s Equity
Colin O'Brien, Capital
Total Liabilities and Owner’s Equity
15 0 0 0 00
12 0 0 0 00
27 0 0 0 00
97 2 0 0 00
397 4 4 0 00
494 6 4 0 00
Analyze: The percentage of total operating expenses attributable to warehouse expense is 23.6%
($114,800 ÷ $486,500).
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  487
PROBLEM 13.3A
The Wine Shop
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Discount
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Net Delivered Cost of Purchases
Goods Available for Sale
Less Merchandise Inventory,
December 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Rent Expense
Wages Expense
Payroll Taxes Expense
Depreciation Expense, Store Equipment
Depreciation Expense, Office Equipment
Advertising Expense
Supplies Expense
Total Operating Expenses
Income From Operations
Other Income
Seminar Fee Income
Other Expenses
Interest Expense
Net Nonoperating Income
Net Income for Year
488  Chapter 13
153,970.00
200.00
153,770.00
15,000.00
91,000.00
225.00
91,225.00
1,000.00
90,225.00
105,225.00
12,000.00
93,225.00
60,545.00
13,200.00
24,500.00
3,362.25
3,125.00
1,000.00
160.00
200.00
45,547.25
14,997.75
2,000.00
250.00
1,750.00
16,747.75
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.3A (continued)
The Wine Shop
Statement of Owner's Equity
Year Ended December 31, 2013
Vincent Arroyo, Capital, January 1, 2013
Net Income for the Year
Less Withdrawals for the Year
Increase in Capital
Vincent Arroyo, Capital, December 31, 2013
32,700.00
16,747.75
14,110.00
2,637.75
35,337.75
The Wine Shop
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash
Accounts Receivable
Prepaid Advertising
Supplies
Merchandise Inventory
Total Current Assets
Plant and Equipment:
Store Equipment
25,000.00
Less Accumulated Depreciation
6,125.00
Office Equipment
5,000.00
Less Accumulated Depreciation
2,500.00
Total Plant and Equipment
Total Assets
Liabilities and Owner's Equity
Current Liabilities:
Notes Payable, due 2014
Accounts Payable
Wages Payable
Social Security Tax Payable
Medicare Tax Payable
Unearned Seminar Fees
Interest Payable
Total Current Liabilities
Owner's Equity
Vincent Arroyo, Capital
Total Liabilities and Owner's Equity
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
28,386.00
500.00
320.00
100.00
12,000.00
41,306.00
18,875.00
2,500.00
21,375.00
62,681.00
20,000.00
2,705.00
500.00
31.00
7.25
4,000.00
100.00
27,343.25
35,337.75
62,681.00
Chapter 13  489
PROBLEM 13.3A (continued)
Analyze:
The inventory turnover for The Wine Shop is 6.91, calculated as follows:
6.91
Cost of Goods Sold
93,225
=
Average Inventory
13,500
Average Inventory =
12,000 + 15,000
2
=
13,500
PROBLEM 13.4A
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Dec. 31 Income Summary
4
Merchandise Inventory
5
To transfer beginning inventory
6
7
(Adjustment b)
8
31 Merchandise Inventory
9
Income Summary
10
To record ending inventory
11
12
(Adjustment c)
13
31 Uncollectible Accounts Expense
14
Allowance for Doubtful Accounts
15
To record estimated loss for 2013, based
16
on 0.5% of net credit sales $560,000
17
18
(Adjustment d)
19
31 Supplies Expense
20
Supplies
21
To record supplies used during 2013
22
23
(Adjustment e)
24
31 Insurance Expense
25
Prepaid Insurance
26
To record expired insurance
27
28
(Adjustment f)
29
31 Depreciation Expense—Office Equipment
30
Accumulated Depreciation—Office Equipment
31
To record depreciation for 2013 (schedule on file)
490  Chapter 13
POST.
REF.
DEBIT
25
CREDIT
86 0 0 0 00
86 0 0 0 00
78 0 0 0 00
78 0 0 0 00
2 8 0 0 00
2 8 0 0 00
9 2 2 0 00
9 2 2 0 00
3 6 0 0 00
3 6 0 0 00
1 3 2 5 00
1 3 2 5 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.4A (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment g)
3 Dec. 31 Depreciation Expense—Warehouse Equipment
4
Accumulated Depreciation—Warehouse Equipment
5
To record depreciation for 2013 (schedule on file)
6
7
(Adjustment h)
8
31 Interest Expense
9
Interest Payable
10
To record accrued interest on 4-month, 12% trade
11
note payable dated November 1, 2013
12
$32,000 × 0.12 × 2/12 = $640
13
14
(Adjustment i)
15
31 Salaries Expense
16
Salaries Payable
17
To record accrued salaries
18
19
(Adjustment j)
20
31 Payroll Taxes Expense
21
Social Security Tax Payable
22
Medicare Tax Payable
23
To record accrued payroll taxes on accrued
24
salaries for December: social security tax =
25
6.2% × $5000; Medicare tax = 1.45% × $5,000
26
27
(Adjustment k)
28
31 Payroll Taxes Expense
29
Federal Unemployment Tax Payable
30
State Unemployment Tax Payable
31
To record payroll taxes (state = 0.054 × $5,000,
32
federal = 0.008 × $5,000)
33
34
35
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
POST.
REF.
DEBIT
26
CREDIT
4 8 0 0 00
4 8 0 0 00
6 4 0 00
6 4 0 00
5 0 0 0 00
5 0 0 0 00
3 8 2 50
3 1 0 00
7 2 50
3 1 0 00
4 0 00
2 7 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Chapter 13  491
PROBLEM 13.4A (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Closing Entries
1
2 2013
3 Dec. 31 Sales
4
Purchases Returns and Allowances
5
Income Summary
6
7
31 Income Summary
8
Sales Returns and Allowances
9
Purchases
10
Rent Expenses
11
Telephone Expense
12
Salaries Expense
13
Payroll Taxes Expense
14
Supplies Expense
15
Insurance Expense
16
Depreciation Expense—Office Equipment
17
Depreciation Expense—Warehouse Equipment
18
Uncollectible Accounts Expense
19
Interest Expense
20
21
31 Income Summary
22
Phillip Tucker, Capital
23
24
31 Phillip Tucker, Capital
25
Phillip Tucker, Drawing
26
27
28
29
30
31
32
33
34
35
36
37
492  Chapter 13
POST.
REF.
DEBIT
27
CREDIT
653 7 7 8 00
9 2 0 0 00
662 9 7 8 00
599 2 7 7 50
10
350
36
2
165
13
9
3
1
4
2
0
0
0
2
0
6
2
6
3
8
8
6
0
0
0
0
0
9
2
0
2
0
0
4
0
0
0
0
0
2
0
0
5
0
0
0
00
00
00
00
00
50
00
00
00
00
00
00
55 7 0 0 50
55 7 0 0 50
56 0 0 0 00
56 0 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.4A (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
POST.
REF.
1
2 2014
3 Jan. 1 Interest Payable
4
Interest Expense
5
To reverse adjusting entry (h) made Dec. 31, 2013
6
7
1 Salaries Payable
8
Salaries Expense
9
To reverse adjusting entry (i) made Dec. 31, 2013
10
11
1 Social Security Tax Payable
12
Medicare Tax Payable
13
Payroll Taxes Expense
14
To reverse adjusting entry (j) made Dec. 31, 2013
15
16
1 Federal Unemployment Tax Payable
17
State Unemployment Tax Payable
18
Payroll Taxes Expense
19
To reverse adjusting entry (k) made Dec. 31, 2013
20
21
22
23
DEBIT
28
CREDIT
6 4 0 00
6 4 0 00
5 0 0 0 00
5 0 0 0 00
3 1 0 00
7 2 50
3 8 2 50
4 0 00
2 7 0 00
3 1 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Analyze: The following entry would be required:
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
1 2014
2 Jan. 3 Salaries Payable
3
Cash
4
To record the payment of salaries
5
6
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
POST.
REF.
DEBIT
29
CREDIT
5 0 0 0 00
5 0 0 0 00
1
2
3
4
5
6
Chapter 13  493
PROBLEM 13.5A
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Dec. 31 Rent Expense
4
Prepaid Rent
5
To record expired rent on 6-month lease of
6
$17,700 paid October 1, 2013
7
8
(Adjustment b)
9
31 Supplies Expense
10
Supplies
11
To record supplies used in 2013
12
13
(Adjustment c)
14
31 Depreciation Expense—Equipment
15
Accumulated Depreciation—Equipment
16
To record depreciation for 2013
17
18
(Adjustment d)
19
31 Salaries Expense
20
Salaries Payable
21
To record accrued salaries
22
23
31 (Adjustment e)
24
Payroll Taxes Expense
25
Social Security Tax Payable
26
Medicare Tax Payable
27
To record accrued payroll taxes on accrued
28
salaries
29
30
(Adjustment f)
31
31 Interest Receivable
32
Interest Income
33
To record accrued interest on 5-month,
34
8%, $4,500 note receivable dated
35
September 1, 2013
36
494  Chapter 13
POST.
REF.
DEBIT
25
CREDIT
8 8 5 0 00
8 8 5 0 00
9 2 8 0 00
9 2 8 0 00
8 2 0 0 00
8 2 0 0 00
4 4 0 0 00
4 4 0 0 00
3 3 6 60
2 7 2 80
6 3 80
1 2 0 00
1 2 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.5A (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
1
2 2014
3 Jan. 1 Salaries Payable
4
Salaries Expense
5
To reverse adjusting entry (d) made Dec. 31, 2013
6
7
1 Social Security Tax Payable
8
Medicare Tax Payable
9
Payroll Taxes Expense
10
To reverse adjusting entry (e) made Dec. 31, 2013
11
12
1 Interest Income
13
Interest Receivable
14
To reverse adjusting entry (f) made Dec. 31, 2013
15
16
POST.
REF.
DEBIT
26
CREDIT
1
2
4 4 0 0 00
3
4 4 0 0 00 4
5
6
2 7 2 80
7
6 3 80
8
3 3 6 60 9
10
11
1 2 0 00
12
1 2 0 00 13
14
15
16
Analyze: The balance of the Prepaid Rent Account on January 1, 2014, is $8,850.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  495
2 5 2 0 00
2 3 5 0 00
2 4 4 0 00
67 2 0 0 00
6 3 0 0 00
26 9 0 0 00
1 4 0 0 00
38 9 0 0 00
1 7 9 0 00
4 8 7 0 00
179 6 0 0 00
2 2 0 0 00
181 8 0 0 00
Lite Speed Electronics
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, Dec. 31, 2013
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
PROBLEM 13.1B
102 8 4 0 00
42 0 9 0 00
176 9 3 0 00
210 0 5 5 00
35 4 0 0 00
33 1 2 5 00
174 6 5 5 00
251 9 9 5 00
429 8 0 0 00
3 1 5 0 00
426 6 5 0 00
15
1
1
2
1
15
1
1
3
1
Lite Speed Electronics
Income Statement (continued)
Year Ended December 31, 2013
General and Administrative Expenses
Salaries Expense—Office
Office Supplies Expense
Insurance Expense
Utilities Expense
Telephone Expense
Payroll Taxes Expense
Property Taxes Expense
Uncollectible Accounts Expense
Depreciation Expense—Building
Depreciation Expense—Office Equipment
Total General and Administrative
Expenses
Total Operating Expenses
Income from Operations
Other Income
Interest Income
Other Expenses
Interest Expense
Net Nonoperating Expenses
Net Income for Year
PROBLEM 13.1B (continued)
9
1
5
4
3
2
7
0
0
0
0
5
0
0
8
5
5
5
0
2
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
00
00
1 6 0 0 00
4 6 2 00
44 4 0 0 00
1 1 3 8 00
61 5 2 7 00
189 3 3 0 00
62 6 6 5 00
PROBLEM 13.1B (continued)
Lite Speed Electronics
Statement of Owner's Equity
Year Ended December 31, 2013
Toshi Takahashi, Capital, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Increase in Capital
Toshi Takahashi, Capital, December 31, 2013
498  Chapter 13
60 9 4 0 00
61 5 2 7 00
24 0 0 0 00
37 5 2 7 00
98 4 6 7 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.1B (continued)
Lite Speed Electronics
Balance Sheet
December 31, 2013
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
10 2 0 0 00
1 0 0 00
3 2 0 0 00
21 2 5 0 00
2 2 5 0 00
7 7 5 00
7 8 0 00
2 2 0 0 00
19 0 0 0 00
35 4 0 0 00
3 7 5 5 00
71 6 5 5 00
7 6 4 2 00
48
13
8
2
16
3
6
2
5
0
0
3
4
6
0
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Liability and Owner’s Equity
Current Liabilities
Notes Payable
Accounts Payable
Interest Payable
Total Current Liabilities
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
00
00
00
00
00
00
00
00
35 5 0 0 00
5 7 0 0 00
12 8 0 0 00
3 5 0 0 00
65 1 4 2 00
136 7 9 7 00
5 0 0 0 00
13 1 4 0 00
2 4 0 00
18 3 8 0 00
Chapter 13  499
PROBLEM 13.1B (continued)
Lite Speed Electronics
Balance Sheet (continued)
December 31, 2013
Long-Term Liabilities
Mortgage Payable
Loans Payable
Total Long-Term Liabilities
Total Liabilities
15 9 5 0 00
4 0 0 0 00
19 9 5 0 00
38 3 3 0 00
Owner’s Equity
Toshi Takahashi, Capital
Total Liabilities and Owner’s Equity
Analyze:
98 4 6 7 00
136 7 9 7 00
The gross profit percentage for the period is 59.06% ($251,995/$426,650).
500  Chapter 13
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
6 4 2 0 00
5 7 6 0 00
78 9 0 0 00
21 0 0 0 00
35 4 0 0 00
2 4 0 0 00
64 3 0 0 00
4 3 0 0 00
12 1 8 0 00
230 0 5 0 00
9 6 0 0 00
239 6 5 0 00
Hog Wild
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, Dec. 31, 2013
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 Expense
Delivery Expense
Total Selling Expenses
PROBLEM 13.2B
135 3 0 0 00
71 0 0 0 00
227 4 7 0 00
316 4 5 0 00
87 9 1 5 00
88 9 8 0 00
228 5 3 5 00
370 4 8 2 00
608 4 1 7 00
9 4 0 0 00
599 0 1 7 00
57
1
9
6
4
19
11
3
2
3
1
Hog Wild
Income Statement (continued)
Year Ended December 31, 2013
General and Administrative Expenses
Salaries Expense—Office
Office Supplies Expense
Insurance Expense
Utilities Expense
Telephone Expense
Payroll Taxes Expense
Property Taxes Expense
Building Repair Expense
Uncollectible Accounts Expense
Depreciation Expense—Building
Depreciation Expense—Office Equipment
Total General and Administrative
Expenses
Total Operating Expenses
Income from Operations
Other Income
Interest Income
Other Expenses
Interest Expense
Net Nonoperating Expenses
Net Income for Year
PROBLEM 13.2B (continued)
5
3
5
9
3
2
7
1
9
2
6
0
6
0
1
7
0
0
0
0
0
8
0
0
0
2
0
0
0
0
0
0
0
00
00
00
00
00
00
00
00
00
00
00
3 6 0 0 00
7 2 0 00
121 4 2 2 00
2 8 8 0 00
39 8 8 0 00
327 7 2 2 00
42 7 6 0 00
PROBLEM 13.2B (continued)
Hog Wild
Statement of Owner's Equity
Year Ended December 31, 2013
Nick Henry, Capital, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Decrease in Capital
Nick Henry, Capital, December 31, 2013
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
198 7 1 0 00
39 8 8 0 00
56 0 0 0 00
16 1 2 0 00
182 5 9 0 00
Chapter 13  503
PROBLEM 13.2B (continued)
Hog Wild
Balance Sheet
December 31, 2013
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
Liability and Owner’s Equity
Current Liabilities
Notes Payable
Accounts Payable
Interest Payable
Total Current Liabilities
504  Chapter 13
14 3 5 0 00
2 0 0 00
6 0 0 0 00
54 6 0 0 00
5 0 0 0 00
3 7 0 0 00
1 8 0 0 00
6 9 0 0 00
49 6 0 0 00
87 9 1 5 00
2 0 0 00
12 4 0 0 00
170 6 6 5 00
20 4 0 0 00
53
8
24
4
12
1
1
4
0
0
8
8
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
00
00
44 7 0 0 00
20 0 0 0 00
11 0 0 0 00
96 1 0 0 00
266 7 6 5 00
8 0 0 0 00
32 5 0 0 00
1 8 0 0 00
42 3 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.2B (continued)
Hog Wild
Balance Sheet (continued)
December 31, 2013
Long-Term Liabilities
Mortgage Payable
Notes Payable-Long Term
Total Long-Term Liabilities
Total Liabilities
Owner’s Equity
Nick Henry, Capital
Total Liabilities and Owner’s Equity
35 8 7 5 00
6 0 0 0 00
41 8 7 5 00
84 1 7 5 00
182 5 9 0 00
266 7 6 5 00
Analyze: The inventory turnover is 2.58 times ($228,535 COGS ÷ $88,448 Avg. Inventory).
Average inventory is ($88,980 + $87,915) ÷ 2 = $88,448.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  505
PROBLEM 13.3B
The Game Place
Income Statement
Year Ended December 31, 2013
Operating Revenue
Sales
Less Sales Discount
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory,
December 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Rent Expense
Wages Expense
Payroll Taxes Expense
Depreciation Expense, Store Equipment
Depreciation Expense, Office Equipment
Advertising Expense
Supplies Expense
Total Operating Expenses
Net Income From Operations
Other Income
Seminar Fee Income
Other Expenses
Interest Expense
Net Nonoperating Income
Net Income for Year
506  Chapter 13
162,660.00
180.00
162,480.00
18,500.00
92,500.00
275.00
92,775.00
770.00
92,005.00
110,505.00
20,000.00
90,505.00
71,975.00
26,400.00
18,800.00
1,872.20
4,500.00
1,500.00
320.00
275.00
53,667.20
18,307.80
6,000.00
300.00
5,700.00
24,007.80
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.3B (continued)
The Game Place
Statement of Owner's Equity
Year Ended December 31, 2013
Matt Huffman, Capital, January 1, 2013
Net Income for the Year
Less Withdrawals for the Year
Increase in Capital
Matt Huffman, Capital, December 31, 2013
43,000.00
24,007.80
18,000.00
6,007.80
49,007.80
The Game Place
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash
Accounts Receivable
Prepaid Advertising
Supplies
Merchandise Inventory
Total Current Assets
Plant and Equipment
Store Equipment
30,000.00
Less Accumulated Depreciation
7,500.00
Office Equipment
4,800.00
Less Accumulated Depreciation
3,000.00
Total Plant and Equipment
Total Assets
Liabilities and Owner's Equity
Current Liabilities
Notes Payable, due 2014
Accounts Payable
Wages Payable
Social Security Tax Payable
Medicare Tax Payable
Unearned Seminar Fees
Interest Payable
Total Current Liabilities
Owner's Equity
Matt Huffman, Capital
Total Liabilities and Owner's Equity
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
32,465.00
669.00
160.00
150.00
20,000.00
53,444.00
22,500.00
1,800.00
24,300.00
77,744.00
22,500.00
3,725.00
800.00
49.60
11.60
1,500.00
150.00
28,736.20
49,007.80
77,744.00
Chapter 13  507
PROBLEM 13.3B (continued)
Analyze: The amount of working capital is 24,707.80, calculated as follows:
Current assets
53,444.00
Less current liabilities
28,736.20
Working capital
24,707.80
PROBLEM 13.4B
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Dec. 31 Income Summary
4
Merchandise Inventory
5
To transfer beginning inventory
6
7
(Adjustment b)
8
31 Merchandise Inventory
9
Income Summary
10
To record ending inventory
11
12
(Adjustment c)
13
31 Uncollectible Accounts Expense
14
Allowance for Doubtful Accounts
15
To record estimated loss for 2013, based
16
on 0.8% of net credit sales $160,000
17
18
(Adjustment d)
19
31 Supplies Expense
20
Supplies
21
To record supplies used during 2013
22
23
(Adjustment e)
24
31 Insurance Expense
25
Prepaid Insurance
26
To record expired insurance on one-year policy
27
28
(Adjustment f)
29
31 Depreciation Expense—Store Equipment
30
Accumulated Depreciation—Store Equipment
31
To record depreciation for 2013 (schedule on file)
32
508  Chapter 13
POST.
REF.
DEBIT
29
CREDIT
16 9 8 5 00
16 9 8 5 00
15 8 4 0 00
15 8 4 0 00
1 2 8 0 00
1 2 8 0 00
5 0 5 00
5 0 5 00
1 2 0 0 00
1 2 0 0 00
1 0 0 0 00
1 0 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.4B (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment g)
3 Dec. 31 Depreciation Expense—Store Fixtures
4
Accumulated Depreciation—Store Fixtures
5
To record depreciation for 2013 (schedule on file)
6
7
(Adjustment h)
8
31 Interest Expense
9
Interest Payable
10
To record accrued interest on six-month, $4,000,
11
9% trade note payable, dated October 1, 2013
12
$4,000 × 0.09 × 3/12 = $90
13
14
(Adjustment i)
15
31 Salaries Expense
16
Salaries Payable
17
To record accrued salaries
18
19
(Adjustment j)
20
31 Payroll Taxes Expense
21
Social Security Tax Payable
22
Medicare Tax Payable
23
To record accrued payroll taxes on accrued
24
salaries (Social Security = 0.062 × $1,450;
25
Medicare = 0.0145 × $1450)
26
27
(Adjustment k)
28
31 Payroll Taxes Expense
29
Federal Unemployment Tax Payable
30
State Unemployment Tax Payable
31
To record unemployment taxes on accrued
32
salaries (federal = .01 × $1,450;
33
state = .05 × $1,450)
34
35
36
37
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
POST.
REF.
DEBIT
30
CREDIT
2 0 5 0 00
2 0 5 0 00
9 0 00
9 0 00
1 4 5 0 00
1 4 5 0 00
1 1 0 93
8 9 90
2 1 03
8 7 00
1 4 50
7 2 50
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Chapter 13  509
PROBLEM 13.4B (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Closing Entries
1
2 2013
3 Dec. 31 Sales
4
Purchases Returns and Allowances
5
Income Summary
6
7
31 Income Summary
8
Sales Returns and Allowances
9
Purchases
10
Rent Expenses
11
Telephone Expense
12
Salaries Expense
13
Payroll Taxes Expense
14
Supplies Expense
15
Insurance Expense
16
Depreciation Expense—Office Equipment
17
Depreciation Expense—Store Equipment
18
Uncollectible Accounts Expense
19
Interest Expense
20
21
31 Income Summary
22
Preston Allen, Capital
23
24
31 Preston Allen, Capital
25
Preston Allen, Drawing
26
27
28
29
510  Chapter 13
POST.
REF.
DEBIT
31
CREDIT
236 5 6 0 00
2 0 0 0 00
238 5 6 0 00
237 3 7 2 93
6
160
18
2
41
3
1
1
2
1
0
0
0
4
4
3
5
2
0
0
2
0
0
0
0
5
9
0
0
0
5
8
9
0
0
0
0
0
7
5
0
0
0
0
0
00
00
00
00
00
93
00
00
00
00
00
00
4 2 07
4 2 07
8 0 0 0 00
8 0 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.4B (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
POST.
REF.
1
2 2014
3 Jan. 1 Interest Payable
4
Interest Expense
5
To reverse adjusting entry (h) made Dec. 31, 2013
6
7
1 Salaries Payable
8
Salaries Expense
9
To reverse adjusting entry (i) made Dec. 31, 2013
10
11
1 Social Security Tax Payable
12
Medicare Tax Payable
13
Payroll Taxes Expense
14
To reverse adjusting entry (j) made Dec. 31, 2013
15
16
1 Federal Unemployment Tax Payable
17
State Unemployment Tax Payable
18
Payroll Taxes Expense
19
To reverse adjusting entry (k) made Dec. 31, 2013
20
21
22
23
DEBIT
32
CREDIT
9 0 00
9 0 00
1 4 5 0 00
1 4 5 0 00
8 9 90
2 1 03
1 1 0 93
1 4 50
7 2 50
8 7 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Analyze: The following entry would be required:
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
1 2014
2 Jan. 4 Salaries Payable
3
Salaries Expense
4
Cash
5
To record the payment of salaries
6
(ignoring payroll taxes)
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
POST.
REF.
DEBIT
33
CREDIT
1 4 5 0 00
1 1 5 0 00
2 6 0 0 00
1
2
3
4
5
6
Chapter 13  511
PROBLEM 13.5B
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Dec. 31 Advertising Expense
4
Prepaid Advertising
5
To record expired advertising on $17,700,
6
one year contract paid August 1, 2013
7
8
(Adjustment b)
9
31 Supplies Expense
10
Supplies
11
To record supplies used in 2013
12
13
(Adjustment c)
14
31 Depreciation Expense—Store Equipment
15
Accumulated Depreciation—Equipment
16
To record depreciation for 2013
17
18
(Adjustment d)
19
31 Salaries Expense
20
Salaries Payable
21
To record accrued salaries
22
23
31 (Adjustment e)
24
Payroll Taxes Expense
25
Social Security Tax Payable
26
Medicare Tax Payable
27
To record accrued payroll taxes on accrued
28
salaries
29
30
(Adjustment f)
31
31 Interest Receivable
32
Interest Income
33
To record accrued interest on 5-month,
34
8%, $4,500 note receivable dated
35
December 1, 2013
36
512  Chapter 13
POST.
REF.
DEBIT
25
CREDIT
7 3 7 5 00
7 3 7 5 00
8 2 8 0 00
8 2 8 0 00
9 2 0 0 00
9 2 0 0 00
4 4 0 0 00
4 4 0 0 00
3 3 6 60
2 7 2 80
6 3 80
3 0 00
3 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 13.5B (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
1
2 2014
3 Jan. 1 Salaries Payable
4
Salaries Expense
5
To reverse adjusting entry (d) made Dec. 31, 2013
6
7
1 Social Security Tax Payable
8
Medicare Tax Payable
9
Payroll Taxes Expense
10
To reverse adjusting entry (e) made Dec. 31, 2013
11
12
1 Interest Income
13
Interest Receivable
14
To reverse adjusting entry (f) made Dec. 31, 2013
15
16
POST.
REF.
DEBIT
4 4 0 0 00
2 7 2 80
6 3 80
3 0 00
26
CREDIT
1
2
3
4 4 0 0 00 4
5
6
7
8
3 3 6 60 9
10
11
12
3 0 00 13
14
15
16
Analyze: The balance of the Prepaid Advertising Account on December 31 is $10,325.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  513
CRITICAL THINKING PROBLEM 13.1
Programs Plus
Worksheet
Year Ending December 31, 2013
ACCOUNT NAME
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Merchandise Inventory
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equip.
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
Purchases Returns and Allowances
Purchases Discounts
Rent Expense
Telephone Expense
Salaries Expense
Payroll Taxes Expense
Interest Expense
Supplies Expense
Insurance Expense
Depreciation Expense—Equipment
Uncollectible Accounts Expense
Totals
Net Income
514  Chapter 13
TRIAL BALANCE
ADJUSTMENTS
DEBIT
CREDIT
DEBIT
CREDIT
15 2 8 0 00
26 6 0 0 00
9 5 00
(c) 1 2 2 5
62 3 7 5 00
(b) 67 8 5 0 00 (a) 62 3 7 5
6 7 4 0 00
(d) 5 7 2 0
2 3 8 0 00
(e) 1 1 9 0
34 0 0 0 00
10 1 0 0 00
(f) 5 6 0 0
7 2 6 4 00
6 5 0 0 00
5 6 0 00
(i)
130
1 3 0 00
(i)
30
(h) 2 1 0 0
(g)
325
93 6 2 0 00
50 0 0 0 00
(a) 62 3 7 5 00 (b) 67 8 5 0
514 9 8 0 00
9 6 0 0 00
319 4 3 0 00
3 6 0 0 00
7 1 4 5 00
5 7 6 0 00
14 5 0 0 00
2 1 6 4 00
92 0 0 0 00
(h) 2 1 0 0 00
7 3 0 0 00
(i)
1 6 0 65
1 8 5 00
(g) 3 2 5 00
(d) 5 7 2 0 00
(e) 1 1 9 0 00
(f) 5 6 0 0 00
(c) 1 2 2 5 00
646 1 5 4 00 646 1 5 4 00 146 5 4 5 65
146 5 4 5
00
00
00
00
00
20
45
00
00
00
65
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 13.1 (continued)
ADJUSTED TRIAL BALANCE
DEBIT
CREDIT
15 2 8 0 00
26 6 0 0 00
1 3 2 0 00
67 8 5 0 00
1 0 2 0 00
1 1 9 0 00
34 0 0 0 00
15 7 0 0 00
7 2 6 4 00
6 5 0 0 00
6 9 0 20
1 6 0 45
2 1 0 0 00
3 2 5 00
93 6 2 0 00
50 0 0 0 00
62 3 7 5 00
67 8 5 0 00
514 9 8 0 00
9 6 0 0 00
319 4 3 0 00
3 6 0 0 00
7 1 4 5 00
5 7 6 0 00
14 5 0 0 00
2 1 6 4 00
94 1 0 0 00
7 4 6 0 65
5 1 0 00
5 7 2 0 00
1 1 9 0 00
5 6 0 0 00
1 2 2 5 00
723 4 1 4 65
723 4 1 4 65
INCOME STATEMENT
DEBIT
CREDIT
62 3 7 5 00
67 8 5 0
514 9 8 0
9 6 0 0 00
319 4 3 0 00
3 6 0 0 00
7145
5760
14
2
94
7
5
1
5
1
527
68
595
5
1
1
4
5
7
1
6
2
4
2
7
0
6
0
6
1
2
9
0
2
7
6
3
0
4
0
0
0
0
0
0
5
4
0
5
00
00
00
65
00
00
00
00
00
65
35
00
595 7 3 5
595 7 3 5
BALANCE SHEET
DEBIT
CREDIT
15 2 8 0 00
26 6 0 0 00
1 3 2 0 00
67 8 5 0 00
1 0 2 0 00
1 1 9 0 00
34 0 0 0 00
15 7 0 0 00
7 2 6 4 00
6 5 0 0 00
6 9 0 20
1 6 0 45
2 1 0 0 00
3 2 5 00
93 6 2 0 00
50 0 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
00
17
00
18
19
20
21
22
00
00
23
24
25
26
27
28
29
30
31
32
00 195 9 4 0 00 127 6 7 9 65 33
68 2 6 0 35 34
00 195 9 4 0 00 195 9 4 0 00 35
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  515
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, January 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, Dec. 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Rent Expense
Telephone Expense
Salaries Expense
Payroll Taxes Expense
Supplies Expense
Insurance Expense
Depreciation Expense—Equipment
Uncollectible Accounts Expense
Total Operating Expenses
Income from Operations
Other Expenses
Interest Expense
Net Income for Year
7 1 4 5 00
5 7 6 0 00
14
2
94
7
5
1
5
1
5
1
1
4
7
1
6
2
0
6
0
6
2
9
0
2
0
4
0
0
0
0
0
5
00
00
00
65
00
00
00
00
12 9 0 5 00
319 4 3 0 00
3 6 0 0 00
323 0 3 0 00
Programs Plus
Income Statement
Year Ended December 31, 2013
CRITICAL THINKING PROBLEM 13.1 (continued)
310 1 2 5 00
372 5 0 0 00
67 8 5 0 00
62 3 7 5 00
5 1 0 00
68 2 6 0 35
131 9 5 9 65
68 7 7 0 35
304 6 5 0 00
200 7 3 0 00
514 9 8 0 00
9 6 0 0 00
505 3 8 0 00
CRITICAL THINKING PROBLEM 13.1 (continued)
Programs Plus
Statement of Owner's Equity
Year Ended December 31, 2013
Yasser Tousson, January 1, 2013
Net Income for Year
Less Withdrawals for Year
Increase in Capital
Yasser Tousson, Capital, December 31, 2013
93 6 2 0 00
68 2 6 0 35
50 0 0 0 00
18 2 6 0 35
111 8 8 0 35
Programs Plus
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash
Accounts Receivable
Less Allowance for Doubtful Accounts
Merchandise Inventory
Prepaid Expenses
Supplies
Prepaid Insurance
Total Current Assets
Plant and Equipment
Equipment
Less Accumulated Depreciation
Total Plant and Equipment
Total Assets
Liability and Owner’s Equity
Current Liabilities
Notes Payable
Accounts Payable
Interest Payable
Social Security Tax Payable
Medicare Tax Payable
Salaries Payable
Total Current Liabilities
Owner’s Equity
Yasser Tousson, Capital
Total Liabilities and Owner’s Equity
15 2 8 0 00
26 6 0 0 00
1 3 2 0 00
1 0 2 0 00
1 1 9 0 00
34 0 0 0 00
15 7 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
25 2 8 0 00
67 8 5 0 00
2 2 1 0 00
110 6 2 0 00
18 3 0 0 00
18 3 0 0 00
128 9 2 0 00
726
650
32
69
16
210
4
0
5
0
0
0
00
00
00
20
45
00
17 0 3 9 65
111 8 8 0 35
128 9 2 0 00
Chapter 13  517
CRITICAL THINKING PROBLEM 13.1 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Dec. 31 Income Summary
4
Merchandise Inventory
5
To transfer beginning inventory
6
7
(Adjustment b)
8
31 Merchandise Inventory
9
Income Summary
10
To record ending inventory
11
12
(Adjustment c)
13
31 Uncollectible Accounts Expense
14
Allowance for Doubtful Accounts
15
To record estimated loss for 2013, based on 0.5%
16
of net credit sales of $245,000
17
18
(Adjustment d)
19
31 Supplies Expense
20
Supplies
21
To record supplies used during 2013
22
23
(Adjustment e)
24
31 Insurance Expense
25
Prepaid Insurance
26
To record expired insurance
27
28
(Adjustment f)
29
31 Depreciation Expense—Equipment
30
Accumulated Depreciation—Equipment
31
To record depreciation for 2013 (schedule on file)
32
518  Chapter 13
POST.
REF.
DEBIT
25
CREDIT
62 3 7 5 00
62 3 7 5 00
67 8 5 0 00
67 8 5 0 00
1 2 2 5 00
1 2 2 5 00
5 7 2 0 00
5 7 2 0 00
1 1 9 0 00
1 1 9 0 00
5 6 0 0 00
5 6 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 13.1 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
POST.
REF.
1
2 2013
(Adjustment g)
3 Dec. 31 Interest Expense
4
Interest Payable
5
To record accrued interest on notes payable
6
7
(Adjustment h)
8
31 Salaries Expense
9
Salaries Payable
10
To record accrued salaries
11
12
(Adjustment i)
13
31 Payroll Taxes Expense
14
Social Security Tax Payable
15
Medicare Tax Payable
16
To record accrued payroll taxes on accrued
17
salaries for December:
18
Social Security tax = 6.2% × $2,100;
19
Medicare = 1.45% × $2,100
20
21
22
23
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
DEBIT
26
CREDIT
3 2 5 00
3 2 5 00
2 1 0 0 00
2 1 0 0 00
1 6 0 65
1 3 0 20
3 0 45
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Chapter 13  519
CRITICAL THINKING PROBLEM 13.1 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Closing Entries
1
2 2013
3 Dec. 31 Sales
4
Purchase Returns and Allowances
5
Purchase Discounts
6
Income Summary
7
8
31 Income Summary
9
Sales Returns and Allowances
10
Purchases
11
Freight In
12
Rent Expenses
13
Telephone Expense
14
Salaries Expense
15
Payroll Taxes Expense
16
Supplies Expense
17
Insurance Expense
18
Depreciation Expense—Equipment
19
Uncollectible Accounts Expense
20
Interest Expense
21
22
31 Income Summary
23
Yasser Tousson, Capital
24
25
31 Yasser Tousson, Capital
26
Yasser Tousson, Drawing
27
28
29
520  Chapter 13
POST.
REF.
DEBIT
27
CREDIT
514 9 8 0 00
7 1 4 5 00
5 7 6 0 00
527 8 8 5 00
465 0 9 9 65
9
319
3
14
2
94
7
5
1
5
1
6
4
6
5
1
1
4
7
1
6
2
5
0
3
0
0
6
0
6
2
9
0
2
1
0
0
0
0
4
0
0
0
0
0
5
0
00
00
00
00
00
00
65
00
00
00
00
00
68 2 6 0 35
68 2 6 0 35
50 0 0 0 00
50 0 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 13.1 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Reversing Entries
POST.
REF.
1
2 2014
3 Jan. 1 Interest Payable
4
Interest Expense
5
To reverse adjusting entry (g) made Dec. 31, 2013
6
7
1 Salaries Payable
8
Salaries Expense
9
To reverse adjusting entry (h) made Dec. 31, 2013
10
11
1 Social Security Tax Payable
12
Medicare Tax Payable
13
Payroll Taxes Expense
14
To reverse adjusting entry (i) made Dec. 31, 2013
15
16
17
18
19
20
21
22
23
24
25
DEBIT
3 2 5 00
2 1 0 0 00
1 3 0 20
3 0 45
28
CREDIT
1
2
3
3 2 5 00 4
5
6
7
2 1 0 0 00 8
9
10
11
12
1 6 0 65 13
14
15
16
17
18
19
20
21
22
23
24
25
Analyze: The owner’s capital account increased by 19.5% ($111,880.35 - $93,620.00) ÷ $93,620 = 19.5%.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  521
CRITICAL THINKING PROBLEM 13.2
Kim-Yi Jewelry
Balance Sheet
December 31, 2012
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
Total Current Assets
Plant and Equipment
Store Fixtures and Equipment
Total Assets
Liability and Owner’s Equity
Current Liabilities
Accounts Payable
Salaries Payable
Total Current Liabilities
Long-Term Liabilities
Notes Payable
Total Liabilities
Owner’s Equity
Kim-Yi Wei, Capital
Total Liabilities and Owner’s Equity
522  Chapter 13
150
45
105
6
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
306 0 0 0 00
180 0 0 0 00
486 0 0 0 00
132 0 0 0 00
18 0 0 0 00
150 0 0 0 00
90 0 0 0 00
240 0 0 0 00
246 0 0 0 00
486 0 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 13.2 (continued)
Kim-Yi Jewelry
Balance Sheet
December 31, 2013
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
Total Current Assets
Plant and Equipment
Store Fixtures and Equipment
Total Assets
Liability and Owner’s Equity
Current Liabilities
Accounts Payable
Salaries Payable
Total Current Liabilities
Long-Term Liabilities
Notes Payable
Total Liabilities
Owner’s Equity
Kim-Yi Wei, Capital
Total Liabilities and Owner’s Equity
35
96
236
9
0
0
0
0
0
0
0
0
0
0
0
0
00
00
00
00
376 0 0 0 00
390 0 0 0 00
766 0 0 0 00
176 0 0 0 00
19 5 0 0 00
195 5 0 0 00
246 5 0 0 00
442 0 0 0 00
324 0 0 0 00
766 0 0 0 00
NOTE TO INSTRUCTOR: While detailed financial statement analysis is not presented in this
chapter, we have included this problem to show students how classified statements provide more
useful financial information than non-classified statements.
2. From 2012 to 2013, Kim-Yi Jewelry’s cash decreased by $115,000. At the same time, current
liabilities increased from $150,000 to $195,500, or by $45,500. 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. Kim-Yi
Jewelry should be able to meet its obligations. However one development to be examined further is
the large growth in inventory.
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.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  523
SOLUTIONS TO 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. Yes. This indicates a strong possibility 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 seek different forms of financing that would not require
maintenance of a 1.5 current ratio. Additionally, you can offer to meet with the banker and try to
obtain a waiver of the current ratio current ratio requirement for the current period.
Financial Statement Analysis:
1. 2009: 1.2 ($970.5 ÷ $818.2)
2008: 0.9 ($968.3 ÷ $1,034.1)
2. The current ratio improved from 0.9 in 2008 to 1.2 in 2009.
3. 41.6% gross profit percentage ($1,327 ÷ $3,192)
Teamwork:
Answers will vary depending on the year.
Internet Connection:
Answers will vary depending on the corporation.
524  Chapter 13
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
SOLUTIONS TO PRACTICE TEST
Part A True-False
1. FALSE
2. TRUE
3. FALSE
4. FALSE
5. TRUE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. FALSE
11. FALSE
12. TRUE
13. FALSE
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
FALSE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
FALSE
FALSE
TRUE
TRUE
FALSE
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 13  525
MINI-PRACTICE SET 2
MERCHANDISING BUSINESS ACCOUNTING CYCLE
PAGE
SALES JOURNAL
DATE
1 2013
2 Oct. 3
3
9
4
15
5
24
6
29
7
31
8
9
10
11
12
13
14
SALES
POST.
SLIP NO. CUSTOMER’S NAME REF.
241
242
243
244
245
Dimitri Sayegh
Emma Maldonado
James Helmer
Megan Greening
Emily Tran
Totals
✔
✔
✔
✔
✔
ACCOUNTS
RECEIVABLE
DEBIT
SALES TAX
PAYABLE
CREDIT
2 6 04
2 1 52
2 0 37
8 61
3 0 66
10 7 2 0
( 1 11
1 2 4
1 0 2
9 7
4 1
1 4 6
5 1 0
( 2 3 1
00
50
00
00
00
50
)
00
50
00
00
00
50
)
10
SALES CREDIT
2 4 8 0
2 0 5 0
1 9 4 0
8 2 0
2 9 2 0
10 2 1 0
( 4 0 1
PURCHASED FROM
2013
Oct. 11 A Fashion Statement
25 Classy Threads
30 Today’s Woman
31
526  Chapter 13
INVOICE INVOICE
DATE
NUMBER
9422
3418
5821
1
2
3
4
5
6
7
8
9
10
11
12
13
14
10
PURCHASES JOURNAL
DATE
00
00
00
00
00
00
)
TERMS
10/8/13 2/10,n/30
10/23/13 2/10,n/30
10/26/13 1/10,n/30
POST.
REF.
✔
✔
✔
PURCHASES
DR./ACCOUNTS
PAYABLE
CREDIT
4
3
2
11
(5
8
3
9
1
0
2
8
2
2
1/
0
0
0
0
2
00
00
00
00
03)
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
DATE
2013
Oct. 2
5
6
8
13
16
20
27
31
31
Megan Greening
Emily Tran
Cash sales
James Helmer
Cash sales
Dimitri Sayegh
Cash sales
Cash sales
Cash sales
Totals
DESCRIPTION
8 3 2 00
5 1 0 00
✔
✔
3 5 6 2 00
( 1 11)
5 2 0 00
1 7 0 0 00
640
662
85
2907
(231
00
00
00
00
)
6 1 5 00
9 0 5 00
ACCOUNTS SALES TAX
RECEIVABLE PAYABLE
CREDIT
CREDIT
12
13
1
58
(
8
2
7
1
4
0
4
0
4
0
0
0
0
0
1
00
00
00
00
)
12 3 0 0 00
18 1 0 0 00
SALES
CREDIT
CASH RECEIPTS JOURNAL
✔
✔
POST.
REF.
MINI-PRACTICE SET 2 (continued)
ACCOUNT NAME
POST.
REF.
OTHER ACCOUNTS CREDIT
13
13
1
64
(
12
1
19
5
7
0
8
9
5
4
9
7
6
1
2
0
0
3
1
1
4
0
8
0
0
0
0
5
2
5
0
0
2
5
9
1
CASH
DEBIT
PAGE
00
00
00
00
00
00
00
00
00
00
)
10
601
602
603
604
605
606
607
608
2013
Oct. 1
1
2
2
4
4
5
8
City Properties
Cable Station KOTV
State Tax Com.
Fashion Statement
BMX Supply Co.
Today’s Woman
Classy Threads
U.S. Treasury
DESCRIPTION
10 609 The City Daily
12 610 Ace Freight Co.
16 611 Acme Jobbers
16 612 Fashion Statement
18 613 Teresa Lojay
22 614 City Utilities
26 615 Regional Telephone
31 16-61 (Employees)
31 620 Handy Janitors
31
CK.
NO.
DATE
MINI-PRACTICE SET 2 (continued)
23 1 2 0 00
(203)
4 8 2 0 00
8 7 7 0 00
1 7 0 0 00
✔
✔
✔
7 8 3 0 00
✔
ACCOUNT
S
POST. PAYABLE
DEBIT
REF.
Teresa Lojay, 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
221
222
223
611
502
501
131
629
135
231
POST.
REF.
OTHER ACCOUNTS DEBIT
CASH PAYMENTS JOURNAL
0
6
2
2
0
5
2
2
0
5
0
0
6500
881
520
8916
275
53 4 2 1
( ✕)
7
1
10
22
3
52
00
00
00
00
00
00
00
00
00
00
00
00
1 0 5 0 00
4 2 0 0 00
3 6 0 0 00
17 8 2 0 00
AMOUNT
8
4 6 2 40 76
(50 4)
(
9 6 40
5
4
6
1
2
2
6
8
6
0
5
6
7
1
0
2
3
2
7
5
8
5
9
2
0
1
0
0
2
7
5
9
6
0
6
2
2
0
5
2
0
8
2
1
7
7
0
0
0
0
3
0
4
6
2
2
0
5
0
0
3
0
1
0
6
5
8
1
10
00
00
00
40
00
60
00
00
00
00
00
00
00
60
00
00
00
00
00
60
)
CASH
CREDIT
4
3
17
1 5 6 60 7
1
1 7 5 40 8
3 4 00 1
PURCHAS
ES
DISCOUNT
CREDIT
PAGE
MINI-PRACTICE SET 2 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
1 2013
2 Oct. 5 Sales Returns and Allowances
3
Sales Tax Payable
4
Accounts Receivable—Dimitri Sayegh
5
Issued Credit Memo 18 for damaged
6
merchandise originally sold on Sales
7
Slip 241, October 3
8
9
29 Accounts Payable—Classy Threads
10
Purchases Returns and Allowances
11
Received Credit Memo 175 for defective
12
goods returned; original purchase made
13
on Invoice 3418, October 25
14
15
29 Salaries Expense
16
Salaries Payable
17
Social Security Tax Payable
18
Medicare Tax Payable
19
Employee Income Tax Payable
20
To record October payroll
21
22
29 Payroll Taxes Expense
23
Social Security Tax Payable
24
Medicare Tax Payable
25
Federal Unemployment Tax Payable
26
State Unemployment Tax Payable
27
To record October payroll taxes
28
29
30
31
32
33
34
35
36
37
38
POST.
REF.
DEBIT
402
231
111
6 0 0 00
3 0 00
203
503
4 3 0 00
632
229
221
222
223
10 8 0 0 00
626
221
222
225
227
1 5 6 6 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
16
CREDIT
6 3 0 00
4 3 0 00
89
7
1
10
1
0
6
2
6
2
2
0
00
00
00
00
7
1
1
5
0
6
1
8
2
2
8
4
00
00
00
00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Chapter 13  529
MINI-PRACTICE SET 2 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Adjusting Entries
1
2 2013
(Adjustment a)
3 Oct. 31 Uncollectible Accounts Expense
4
Allowance for Doubtful Accounts
5
To record estimated loss from uncollectible
6
accounts, based on 1% of net credit sales
7
8
(Adjustment b)
9
31 Supplies Expense
10
Supplies
11
To record supplies used
12
13
(Adjustment c)
14
31 Insurance Expense
15
Prepaid Insurance
16
To record expired insurance
17
18
(Adjustment d)
19
31 Advertising Expense
20
Prepaid Advertising
21
To record expired advertising
22
23
(Adjustment e)
24
31 Depreciation Expense—Equipment
25
Accumulated Depreciation—Equipment
26
To record depreciation for month
27
28
(Adjustment f)
29
31 Income Summary
30
Merchandise Inventory
31
To transfer beginning inventory
32
33
(Adjustment g)
34
31 Merchandise Inventory
35
Income Summary
36
To record ending inventory
37
530  Chapter 13
POST.
REF.
DEBIT
620
112
9 6 10
635
131
2 3 1 0 00
617
133
7 0 0 00
611
135
9 0 0 00
614
142
1 1 7 5 00
399
121
88 9 9 6 00
121
399
80 4 0 0 00
17
CREDIT
9 6 10
2 3 1 0 00
7 0 0 00
9 0 0 00
1 1 7 5 00
88 9 9 6 00
80 4 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
PAGE
GENERAL JOURNAL
DATE
DESCRIPTION
Closing Entries
1
2 2013
3 Oct. 31 Sales
4
Purchases Returns and Allowances
5
Purchases Discounts
6
Income Summary
7
8
31 Income Summary
9
Sales Returns and Allowances
10
Purchases
11
Freight In
12
Advertising Expense
13
Depreciation Expense—Equipment
14
Insurance Expense
15
Uncollectible Accounts Expense
16
Janitorial Services Expense
17
Payroll Taxes Expense
18
Rent Expense
19
Salaries Expense
20
Supplies Expense
21
Telephone Expense
22
Utilities Expense
23
24
31 Income Summary
25
Teresa Lojay, Capital
26
27
31 Teresa Lojay, Capital
28
Teresa Lojay, Drawing
29
30
31
32
33
34
35
36
37
POST.
REF.
DEBIT
401
503
504
399
68 3 5 0 00
4 3 0 00
4 6 2 40
399
402
501
502
611
614
617
620
623
626
629
632
635
638
644
42 9 1 8 10
399
301
17 7 2 8 30
301
302
6 5 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
18
CREDIT
69 2 4 2 40
6
16 3
3
31
11
7
1
4
10
2
2
5
2
8
3
5
8
0
7
0
2
7
0
9
7
6
0
0
1
2
8
0
0
0
5
5
0
6
5
6
0
0
0
0
1
00
00
00
00
00
00
10
00
00
00
00
00
00
00
17 7 2 8 30
6 5 0 0 00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Chapter 13  531
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1 Balance
31
31
ACCOUNT
DATE
2013
Oct.
1
31
31
✔
CR10
CP10
DEBIT
CREDIT
64 6 0 9 00
76 0 7 8 60
POST.
REF.
✔
J16
S10
CR10
DEBIT
CREDIT
6 3 0 00
10 7 2 0 50
3 5 6 2 00
POST.
REF.
DEBIT
59 8 0 0 00
124 4 0 9 00
48 3 3 0 40
✔
J17
DESCRIPTION
Balance
Adjusting
Adjusting
532  Chapter 13
POST.
REF.
✔
J17
J17
6
5
16
12
2
5
3
7
1
8
0
3
0
0
0
8
00
00
50
50
4 2 0 00
5 1 6 10
ACCOUNT NO.
DEBIT
CREDIT
88 9 9 6 00
80 4 0 0 00
112
BALANCE
DEBIT
CREDIT
9 6 10
Merchandise Inventory
111
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
CREDIT
101
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
Allowance for Doubtful Accounts
DATE
DESCRIPTION
2013
Oct.
1 Balance
31 Adjusting
ACCOUNT
POST.
REF.
Accounts Receivable
DATE
DESCRIPTION
2013
Oct.
1 Balance
5 Credit Memo 18
31
31
ACCOUNT
ACCOUNT NO.
Cash
121
BALANCE
DEBIT
CREDIT
88 9 9 6 00
─ 0─
80 4 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1 Balance
4
31 Adjusting
ACCOUNT
✔
CP10
J17
DEBIT
BALANCE
DEBIT
CREDIT
2 3 1 0 00
4 1 0 0 00
5 1 5 0 00
2 8 4 0 00
1 0 5 0 00
ACCOUNT NO.
POST.
REF.
DEBIT
✔
J17
CREDIT
7 0 0 00
CP10
J17
DEBIT
CREDIT
3 6 0 0 00
9 0 0 00
DATE
DESCRIPTION
2013
Oct.
1 Balance
8 4 0 0 00
7 7 0 0 00
POST.
REF.
DEBIT
CREDIT
✔
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
135
BALANCE
DEBIT
CREDIT
3 6 0 0 00
2 7 0 0 00
ACCOUNT NO.
Equipment
133
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
POST.
REF.
131
CREDIT
Prepaid Advertising
DATE
DESCRIPTION
2013
Oct.
1
31 Adjusting
ACCOUNT
POST.
REF.
Prepaid Insurance
DATE
DESCRIPTION
2013
Oct.
1 Balance
31 Adjusting
ACCOUNT
ACCOUNT NO.
Supplies
141
BALANCE
DEBIT
CREDIT
83 0 0 0 00
Chapter 13  533
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1 Balance
31 Adjusting
ACCOUNT
DEBIT
✔
J17
CREDIT
1 1 7 5 00
POST.
REF.
✔
J16
P10
CP10
DEBIT
CREDIT
4 3 0 00
11 1 2 0 00
23 1 2 0 00
534  Chapter 13
BALANCE
DEBIT
CREDIT
7 0 5 0 00
8 2 2 5 00
POST.
REF.
✔
CP10
J16
J16
POST.
REF.
✔
CP10
J16
J16
203
BALANCE
DEBIT
CREDIT
18
17
28
5
3
8
9
8
0
7
9
7
ACCOUNT NO.
DEBIT
CREDIT
7 0 2 00
7 0 2 00
7 0 2 00
DEBIT
CREDIT
1 6 2 00
1 6 2 00
1 6 2 00
0
0
0
0
00
00
00
00
221
BALANCE
DEBIT
CREDIT
7
─
7
1 4
0
0
0
0
ACCOUNT NO.
Medicare Tax Payable
DATE
DESCRIPTION
2013
Oct.
1 Balance
8
29
29
142
ACCOUNT NO.
Social Security Tax Payable
DATE
DESCRIPTION
2013
Oct.
1 Balance
8
29
29
ACCOUNT
POST.
REF.
Accounts Payable
DATE
DESCRIPTION
2013
Oct.
1 Balance
29
31
31
ACCOUNT
ACCOUNT NO.
Accumulated Depreciation—Equipment
2 00
─
2 00
4 00
222
BALANCE
DEBIT
CREDIT
1
─
1
3
6
0
6
2
2 00
─
2 00
4 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1 Balance
8
29
ACCOUNT
DATE
2013
Oct.
DESCRIPTION
DATE
2013
Oct. 29
31
✔
CP10
J16
DEBIT
CREDIT
1 0 2 0 00
1 0 2 0 00
POST.
REF.
DEBIT
✔
J16
CREDIT
1 1 8 00
POST.
REF.
DEBIT
✔
J16
5 8 4 00
POST.
REF.
J16
CP10
DEBIT
CREDIT
8 9 1 6 00
8 9 1 6 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
225
BALANCE
DEBIT
CREDIT
5 1 2 00
6 3 0 00
227
BALANCE
DEBIT
CREDIT
1 2 6 8 00
1 8 5 2 00
ACCOUNT NO.
Salaries Payable
DESCRIPTION
1 0 2 0 00
─0─
1 0 2 0 00
ACCOUNT NO.
CREDIT
223
BALANCE
CREDIT
DEBIT
ACCOUNT NO.
State Unemployment Tax Payable
DATE
DESCRIPTION
2013
Oct.
1 Balance
29
ACCOUNT
POST.
REF.
Federal Unemployment Tax Payable
1 Balance
29
ACCOUNT
ACCOUNT NO.
Employee Income Tax Payable
229
BALANCE
DEBIT
CREDIT
8 9 1 6 00
─0─
Chapter 13  535
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1 Balance
2
5
31
31
ACCOUNT
DATE
2013
Oct.
1
31
31
ACCOUNT
DATE
2013
Oct. 31
31
31
31
31
POST.
REF.
DEBIT
✔
CP10 17 8 2 0 00
J16
3 0 00
S10
CR10
CREDIT
DESCRIPTION
Balance
Closing
Closing
3 0 00
5 1 0 50
2 9 0 7 00
✔
J18
J18
DEBIT
CREDIT
POST.
REF.
CP10
J18
536  Chapter 13
203 2 5 2 00
220 9 8 0 30
214 4 8 0 30
ACCOUNT NO.
DEBIT
CREDIT
6 5 0 0 00
6 5 0 0 00
J17
J17
J18
J18
J18
DEBIT
CREDIT
88 9 9 6 00
80 4 0 0 00
69 2 4 2 40
42 9 1 8 10
17 7 2 8 30
302
BALANCE
DEBIT
CREDIT
6 5 0 0 00
─ 0─
ACCOUNT NO.
POST.
REF.
301
BALANCE
DEBIT
CREDIT
6 5 0 0 00
Income Summary
Adjusting
Adjusting
Closing
Closing
Closing
4 8 0 50
3 3 8 7 50
17 7 2 8 30
Teresa Lojay, Drawing
DESCRIPTION
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
POST.
REF.
231
17 8 2 0 00
─ 0─
Teresa Lojay, Capital
DATE
DESCRIPTION
2013
Oct. 18
31 Closing
ACCOUNT
ACCOUNT NO.
Sales Tax Payable
399
BALANCE
DEBIT
CREDIT
88 9 9 6 00
8 5 9 6 00
60 6 4 6 40
17 7 2 8 30
─ 0─
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct. 31
31
31 Closing
ACCOUNT
DATE
2013
Oct.
5
31
ACCOUNT
POST.
REF.
DEBIT
S10
CR10
J18 68 3 5 0 00
CREDIT
DESCRIPTION
POST.
REF.
J16
J18
CREDIT
6 0 0 00
6 0 0 00
POST.
REF.
DEBIT
CP10 5 2 5 0 00
P10 11 1 2 0 00
J18
CREDIT
6 0 0 00
─ 0─
BALANCE
DEBIT
CREDIT
16 3 7 0 00
─ 0─
ACCOUNT NO.
CP10
J18
DEBIT
501
5 2 5 0 00
16 3 7 0 00
Freight In
POST.
REF.
402
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
Purchases
DATE
DESCRIPTION
2013
Oct. 12
31 Closing
10 2 1 0 00
68 3 5 0 00
─ 0─
ACCOUNT NO.
DEBIT
401
BALANCE
DEBIT
CREDIT
10 2 1 0 00
58 1 4 0 00
Sales Returns and Allowances
DATE
DESCRIPTION
2013
Oct. 16
31
31 Closing
ACCOUNT
ACCOUNT NO.
Sales
CREDIT
3 0 0 00
502
BALANCE
DEBIT
CREDIT
3 0 0 00
3 0 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
─ 0─
Chapter 13  537
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct. 29
31 Closing
ACCOUNT
J16
J18
DEBIT
CREDIT
ACCOUNT NO.
DEBIT
CP10
J18
4 6 2 40
CREDIT
538  Chapter 13
4 6 2 40
─ 0─
ACCOUNT NO.
POST.
REF.
CP10
J17
J18
DEBIT
CREDIT
2 2 2 5 00
9 0 0 00
3 1 2 5 00
POST.
REF.
J17
J18
DEBIT
1 1 7 5 00
611
BALANCE
DEBIT
CREDIT
2 2 2 5 00
3 1 2 5 00
─ 0─
ACCOUNT NO.
CREDIT
504
BALANCE
DEBIT
CREDIT
4 6 2 40
Depreciation Expense—Equipment
DATE
DESCRIPTION
2013
Oct. 31 Adjusting
31 Closing
4 3 0 00
─ 0─
4 3 0 00
POST.
REF.
503
BALANCE
DEBIT
CREDIT
4 3 0 00
Advertising Expense
DATE
DESCRIPTION
2013
Oct. 10
31 Adjusting
31 Closing
ACCOUNT
POST.
REF.
Purchases Discounts
DATE
DESCRIPTION
2013
Oct. 31
31 Closing
ACCOUNT
ACCOUNT NO.
Purchases Returns and Allowances
614
BALANCE
DEBIT
CREDIT
1 1 7 5 00
1 1 7 5 00
─ 0─
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
ACCOUNT NO.
Insurance Expense
POST.
DESCRIPTION REF.
DATE
2013
Oct. 31 Adjusting
31 Closing
ACCOUNT
7 0 0 00
POST.
REF.
J17
J18
POST.
REF.
CP10
J18
7 0 0 00
DATE
2013
Oct. 29
31 Closing
J16
J18
─ 0─
ACCOUNT NO.
DEBIT
CREDIT
9 6 10
9 6 10
DEBIT
CREDIT
2 7 5 00
2 7 5 00
9 6 10
─ 0─
CREDIT
1 5 6 6 00
1 5 6 6 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
623
BALANCE
DEBIT
CREDIT
2 7 5 00
─ 0─
ACCOUNT NO.
DEBIT
620
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
Payroll Taxes Expense
POST.
DESCRIPTION REF.
BALANCE
DEBIT
CREDIT
7 0 0 00
Janitorial Services Expense
DATE
DESCRIPTION
2013
Oct. 31
31 Closing
ACCOUNT
CREDIT
Uncollectible Accounts Expense
DATE
DESCRIPTION
2013
Oct. 31 Adjusting
31 Closing
ACCOUNT
J17
J18
DEBIT
617
626
BALANCE
DEBIT
CREDIT
1 5 6 6 00
─ 0─
Chapter 13  539
MINI-PRACTICE SET 2 (continued)
GENERAL LEDGER
ACCOUNT
DATE
DESCRIPTION
2013
Oct.
1
31 Closing
ACCOUNT
CREDIT
4 2 0 0 00
4 2 0 0 00
POST.
REF.
J16
J18
DEBIT
CREDIT
10 8 0 0 00
10 8 0 0 00
J17
J18
DEBIT
CREDIT
2 3 1 0 00
2 3 1 0 00
POST.
REF.
CP10
J18
DEBIT
CREDIT
5 2 0 00
5 2 0 00
540  Chapter 13
10 8 0 0 00
─ 0─
CP10
J18
DEBIT
CREDIT
8 8 1 00
8 8 1 00
635
BALANCE
DEBIT
CREDIT
2 3 1 0 00
─ 0─
638
BALANCE
DEBIT
CREDIT
5 2 0 00
─ 0─
ACCOUNT NO.
POST.
REF.
632
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
Utilities Expense
DATE
DESCRIPTION
2013
Oct. 22
31 Closing
4 2 0 0 00
─ 0─
ACCOUNT NO.
POST.
REF.
629
BALANCE
DEBIT
CREDIT
ACCOUNT NO.
Telephone Expense
DATE
DESCRIPTION
2013
Oct. 26
31 Closing
ACCOUNT
CP10
J18
DEBIT
Supplies Expense
DATE
DESCRIPTION
2013
Oct. 31 Adjusting
31 Closing
ACCOUNT
POST.
REF.
Salaries Expense
DATE
DESCRIPTION
2013
Oct. 29
31 Closing
ACCOUNT
ACCOUNT NO.
Rent Expense
644
BALANCE
DEBIT
CREDIT
8 8 1 00
─ 0─
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME
DATE
DESCRIPTION
2013
Oct.
1 Balance
NAME
DEBIT
BALANCE
TERMS
POST.
REF.
✔
CR10
S10
DEBIT
CREDIT
5 2 0 00
─ 0─
8 6 1 00
5 2 0 00
8 6 1 00
✔
CR10
S10
DEBIT
CREDIT
8 3 2 00
2 0 3 7 00
✔
S10
DEBIT
2 1 5 2 50
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CREDIT
n/30
BALANCE
8 3 2 00
─ 0─
2 0 3 7 00
TERMS
POST.
REF.
n/30
BALANCE
TERMS
POST.
REF.
n/30
7 9 5 00
Emma Maldonado
DESCRIPTION
DATE
2013
Oct.
1 Balance
9 Sales Slip 242
CREDIT
✔
James Helmer
DESCRIPTION
DATE
2013
Oct.
1 Balance
8
15 Sales Slip 243
NAME
POST.
REF.
Megan Greening
DATE
DESCRIPTION
2013
Oct.
1 Balance
2
24 Sales Slip 244
NAME
TERMS
Jennifer Brown
n/30
BALANCE
2 3 2 00
2 3 8 4 50
Chapter 13  541
MINI-PRACTICE SET 2 (continued)
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME
TERMS
Jim Price
DATE
DESCRIPTION
2013
Oct.
1 Balance
NAME
CREDIT
BALANCE
1 6 2 1 00
✔
TERMS
POST.
REF.
✔
S10
J16
CR10
DEBIT
CREDIT
2 6 0 4 00
6 3 0 00
5 1 0 00
POST.
REF.
✔
CR10
S10
DEBIT
3 0 6 6 00
n/30
BALANCE
5
3 1
2 4
1 9
TERMS
Emily Tran
DATE
DESCRIPTION
2013
Oct.
1 Balance
5
29 Sales Slip 245
542  Chapter 13
DEBIT
Dimitri Sayegh
DESCRIPTION
DATE
2013
Oct.
1 Balance
3 Sales Slip 241
5 Credit Memo 18
16
NAME
POST.
REF.
n/30
1
1
8
7
0
4
4
4
00
00
00
00
n/30
CREDIT
BALANCE
1 7 0 0 00
1 7 0 0 00
─ 0─
3 0 6 6 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME
DATE
DESCRIPTION
2013
Oct.
1 Balance
2
11 Invoice 9422
16
NAME
NAME
POST.
REF.
✔
CP10
P10
CP10
DEBIT
CREDIT
7 8 3 0 00
4 8 2 0 00
4 8 2 0 00
POST.
REF.
✔
CP10
P10
J16
DEBIT
CREDIT
1 7 0 0 00
3 3 8 0 00
4 3 0 00
Today’s Woman
DATE
DESCRIPTION
2013
Oct.
1 Balance
4
30 Invoice 5821
BALANCE
7 8
─
4 8
─
✔
CP10
P10
DEBIT
CREDIT
8 7 7 0 00
2 9 2 0 00
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
0 00
─
0 00
─
BALANCE
1 7
─
3 3
2 9
TERMS
POST.
REF.
3
0
2
0
2/10,n/30
TERMS
Classy Threads
DATE
DESCRIPTION
2013
Oct.
1 Balance
5
25 Invoice 3418
29 Credit Memo 175
2/10,n/30
TERMS
A Fashion Statement
0
0
8
5
0 00
─
0 00
0 00
1/10,n/30
BALANCE
8 7 7 0 00
─ 0─
2 9 2 0 00
Chapter 13  543
MINI-PRACTICE SET 2 (continued)
The Fashion Rack
Schedule of Accounts Payable
October 31, 2013
A Fashion Statement
Classy Threads
Today’s Woman
Total
0
29 5 0
29 2 0
58 7 0
00
00
00
00
The Fashion Rack
Schedule of Accounts Receivable
October 31, 2013
Jennifer Brown
Megan Greening
James Helmer
Emma Maldonado
Jim Price
Dimitri Sayegh
Emily Tran
Total
544  Chapter 13
2
2
1
1
3
12
7
8
0
3
6
9
0
7
9
6
3
8
2
7
6
3
5
1
7
4
1
4
6
8
00
00
00
50
00
00
00
50
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
The Fashion Rack
Worksheet
For Month Ended October 31, 2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
ACCOUNT NAME
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
Teresa Lojay, Capital
Teresa Lojay, Drawing
Income Summary
Sales
Sales Returns and Allowances
Purchases
Freight In
Purchases Returns and Allowances
Purchases 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
Totals
Net Income
TRIAL BALANCE
DEBIT
CREDIT
48 3 3 0 40
12 7 3 8 50
4 2 0 00
88 9 9 6 00
5 1 5 0 00
8 4 0 0 00
3 6 0 0 00
83 0 0 0 00
7 0 5 0 00
5 8 7 0 00
1 4 0 4 00
3 2 4 00
1 0 2 0 00
6 3 0 00
1 8 5 2 00
0 00
3 3 8 7 50
203 2 5 2 00
6 5 0 0 00
ADJUSTMENTS
DEBIT
CREDIT
80 4 0 0 00
9
88 9 9
231
70
90
6
6
0
0
0
10
00
00
00
00
1 1 7 5 00
88 9 9 6 00
80 4 0 0 00
68 3 5 0 00
6 0 0 00
16 3 7 0 00
3 0 0 00
4 3 0 00
4 6 2 40
2225
0
0
0
275
1566
4200
10 8 0 0
0
520
881
294 4 5 1
00
00
1
00
00
00
00
00
00
00
2
00
00
90 294 4 5 1 90 174
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
9 0 0 00
1 7 5 00
7 0 0 00
9 6 10
3 1 0 00
5 7 7 10 174 5 7 7 10
Chapter 13  545
MINI-PRACTICE SET 2 (continued)
ADJUSTED TRIAL BALANCE
DEBIT
CREDIT
48 3 3 0 40
12 7 3 8 50
5 1 6 10
80 4 0 0 00
2 8 4 0 00
7 7 0 0 00
2 7 0 0 00
83 0 0 0 00
8 2 2 5 00
5 8 7 0 00
1 4 0 4 00
3 2 4 00
1 0 2 0 00
6 3 0 00
1 8 5 2 00
0 00
3 3 8 7 50
203 2 5 2 00
6 5 0 0 00
88 9 9 6 00
80 4 0 0 00
68 3 5 0 00
6 0 0 00
16 3 7 0 00
3 0 0 00
4 3 0 00
4 6 2 40
3 1 2 5 00
1 1 7 5 00
7 0 0 00
9 6 10
2 7 5 00
1 5 6 6 00
4 2 0 0 00
10 8 0 0 00
2 3 1 0 00
5 2 0 00
8 8 1 00
376 1 2 3 00
376 1 2 3 00
546  Chapter 13
INCOME STATEMENT
DEBIT
CREDIT
88 9 9 6 00
BALANCE SHEET
DEBIT
CREDIT
48 3 3 0 40
12 7 3 8 50
5 1 6 10
80 4 0 0 00
2 8 4 0 00
7 7 0 0 00
2 7 0 0 00
83 0 0 0 00
8 2 2 5 00
5 8 7 0 00
1 4 0 4 00
3 2 4 00
1 0 2 0 00
6 3 0 00
1 8 5 2 00
0 00
3 3 8 7 50
203 2 5 2 00
6 5 0 0 00
80 4 0 0 00
68 3 5 0 00
6 0 0 00
16 3 7 0 00
3 0 0 00
4 3 0 00
4 6 2 40
312
117
70
9
27
156
420
10 8 0
231
52
88
131 9 1
17 7 2
149 6 4
5
5
0
6
5
6
0
0
0
0
1
4
8
2
00
00
00
10
00
00
00
00
00
00
00
10
30
40
149 6 4 2 40
0 00
149 6 4 2 40
244 2 0 8 90
0 00
244 2 0 8 90
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
226 4 8 0 60 38
17 7 2 8 30 39
244 2 0 8 90 40
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
4 3 0 00
4 6 2 40
8 9 2 40
16 3 7 0 00
3 0 0 00
16 6 7 0 00
The Fashion Rack
Income Statement
For Month Ended October 31, 2013
Operating Revenue
Sales
Less Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Merchandise Inventory, October 1, 2013
Purchases
Freight In
Delivered Cost of Purchases
Less Purchases Returns and Allowances
Purchases Discounts
Net Delivered Cost of Purchases
Total Merchandise Available for Sale
Less Merchandise Inventory, October 31, 2013
Cost of Goods Sold
Gross Profit on Sales
Operating Expenses
Advertising Expense
Depreciation Expense—Equipment
Insurance Expense
Uncollectible Accounts Expense
Janitorial Services Expense
Payroll Tax Expense
Rent Expense
Salaries Expense
Supplies Expense
Telephone Expense
Utilities Expense
Total Operating Expenses
Income from Operations/Net Income for the Month
MINI-PRACTICE SET 2 (continued)
312
117
70
9
27
156
420
10 8 0
231
52
88
5
5
0
6
5
6
0
0
0
0
1
00
00
00
10
00
00
00
00
00
00
00
15 7 7 7 60
104 7 7 3 60
80 4 0 0 00
88 9 9 6 00
25 6 4 8 10
17 7 2 8 30
24 3 7 3 60
43 3 7 6 40
68 3 5 0 00
6 0 0 00
67 7 5 0 00
MINI-PRACTICE SET 2 (continued)
The Fashion Rack
Statement of Owner's Equity
For Month Ended October 31, 2013
Teresa Lojay, Capital, October 1, 2013
Net Income for Month
Less Withdrawals for Month
Increase in Capital
Teresa Lojay, Capital, October 31, 2013
203 2 5 2 00
17 7 2 8 30
6 5 0 0 00
11 2 2 8 30
214 4 8 0 30
The Fashion Rack
Balance Sheet
October 31, 2013
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
Total Plant and Equipment
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
Sales Tax Payable
Total Liabilities
Owner’s Equity
Teresa Lojay, Capital
Total Liabilities and Owner’s Equity
548  Chapter 13
48 3 3 0 40
12 7 3 8 50
5 1 6 10
7 7 0 0 00
2 7 0 0 00
12 2 2 2 40
80 4 0 0 00
2 8 4 0 00
10 4 0 0 00
154 1 9 2 80
83 0 0 0 00
8 2 2 5 00
74 7 7 5 00
228 9 6 7 80
587
140
32
102
63
185
338
0
4
4
0
0
2
7
00
00
00
00
00
00
50
14 4 8 7 50
214 4 8 0 30
228 9 6 7 80
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
MINI-PRACTICE SET 2 (continued)
The Fashion Rack
Post-closing Trial Balance
October 31, 2013
ACCOUNT NAME
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
Teresa Lojay, Capital
Totals
DEBIT
48 3 3 0 40
12 7 3 8 50
CREDIT
5 1 6 10
80
2
7
2
83
4
8
7
7
0
0
4
0
0
0
0
0
0
0
0
00
00
00
00
00
237 7 0 8 90
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.
8225
5870
1404
324
1020
630
1852
3387
214 4 8 0
237 7 0 8
00
00
00
00
00
00
00
50
30
90
Chapter 13  549