$101,114 $40,915 = 2.47

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1 SOLUTION (concluded) 4. Working Capital = $101,114 $40,915 = $60,199 Current Ratio = $101,114 $40,915 = 2.47 DISCUSSION QUESTIONS Suggested Responses 1. Current assets are listed in the order of their liquidity (or convertibility into cash). 2. The cost of goods available for sale is the cost of goods that could be sold. The cost of goods sold, on the other hand, is the cost of goods that were actually sold. The difference between the cost of goods available for sale and the cost of goods sold is the amount of the ending inventory. 3. The basic classifications found on an income statement for a merchandising business are Revenue from Sales, Cost of Goods Sold, Operating Expenses, Other Income, and Other Expenses. 4. Current liabilities are debts that will become due within a company s normal operating cycle, usually within one year. An example of a current liability is Accounts Payable. Long-term liabilities are debts that are payable over a comparatively long period, usually more than one year. An example of a long-term liability is Mortgage Payable. 5. The difference between income from operations and net income is Other Income and Other Expenses. Income from Operations + Other Income Other Expenses = Net Income In comparing the results of operations over a number of years, income from operations is more useful, because it represents a company s regular recurring revenue and expenses. 6. Net Sales = Sales Sales Returns and Allowances Sales Discounts Net Purchases = Purchases Purchases Returns and Allowances Purchases Discounts These calculations show the true amounts actually earned and the amount actually added to inventory. 7. (a) Purchases Discounts is debited in the first closing entry, in which revenue accounts are closed. (b) Sales Returns and Allowances is credited in the second closing entry, in which expense accounts are closed. (c) Freight In is credited in the second closing entry, in which expense accounts are closed. (d) Gain on Disposal of Property and Equipment is debited in the first closing entry, in which revenue accounts are closed. 8. If an adjusting entry (a) increases an asset account or a liability account (except Merchandise Inventory or a contra account, such as Accumulated Depreciation) and (b) the asset or liability did not have a balance prior to the adjustment, then reverse the adjusting entry Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 625

2 SOLUTIONS TO EXERCISES Exercise 12-1 a. Net Sales, $242,000 $6,000 = $236,000 Cost of Goods Available for Sale, $152,000 + $170,000 = $322,000 Gross Profit, $236,000 $186,000 = $50,000 b. Sales Returns and Allowances, $304,000 $297,000 = $7,000 Net Purchases, $404,000 $134,000 = $270,000 Gross Profit, $297,000 $228,000 = $69,000 c. Sales, $628,000 + $10,000 = $638,000 Beginning Merchandise Inventory, $486,000 $416,000 = $70,000 Cost of Goods Sold, $486,000 $89,000 = $397,000 Gross Profit, $628,000 $397,000 = $231,000 Exercise 12-2 Merchandise Inventory, Jan. 1, 20-- $185,000 Purchases $476,000 Less: Purchases Returns and Allowances Purchases Discounts $9,000 8,500 17,500 Net Purchases $458,500 Add Freight In 12,000 Delivered Cost of Purchases 470,500 Cost of Goods Available for Sale $655,500 Less Merchandise Inventory, Dec. 31, ,000 Cost of Goods Sold $466,500 Exercise 12-3 a. Advertising Expense, SE f. Freight In, CGS b. Rent Expense, GE g. Depreciation Expense, Building, GE c. Purchases Discounts, CGS h. Interest Expense, OE d. Sales Returns and Allowances, S i. Insurance Expense, GE e. Interest Income, OI j. Delivery Expense, SE Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

3 Exercise 12-4 Bajia Company Income Statement For Year Ended June 30, 20-- Revenue from Sales: Sales $292,900 Less: Sales Returns and Allowances $ 12,100 Sales Discounts 6,100 18,200 Net Sales $274,700 Cost of Goods Sold: Merchandise Inventory, July 1, 20-- $ 26,000 Purchases $115,000 Less: Purchases Returns and Allowances $1,100 Purchases Discounts 1,200 2,300 Net Purchases $112,700 Add Freight In 6,500 Delivered Cost of Purchases 119,200 Cost of Goods Available for Sale $145,200 Less Merchandise Inventory, June 30, ,000 Cost of Goods Sold 123,200 Gross Profit $151,500 Operating Expenses: Selling Expenses $ 57,000 General Expenses 46,000 Total Operating Expenses 103,000 Net Income $ 48,500 Exercise 12-5 a. Accounts Receivable, CA f. Supplies, CA b. Building, PE g. Mortgage Payable (due in 3 years), LTL c. Wages Payable, CL h. Unearned Fees, CL d. Prepaid Taxes, CA i. D. Marlor, Capital, OE e. Mortgage Payable (current), CL j. Notes Payable (due in 3 months), CL 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 627

4 Exercise 12-6 Current Assets: Current Liabilities: Prepaid Insurance $ 1,600 Unearned Fees $ 800 Merchandise Inventory 72,000 Notes Payable 5,000 Cash 19,000 Accounts Payable 23,000 Store Supplies 1,200 Mortgage Payable Notes Receivable 3,000 (current portion) 3,500 Total $96,800 Salaries Payable 2,700 Total $35,000 Working Capital = $96,800 $35,000 = $61,800 Current Ratio = $96,800 $35,000 = 2.77 Exercise 12-7 GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 Dec. 31 Sales 502, Purchases Returns and Allowances 8, Purchases Discounts 4, Income Summary 514, Income Summary 353, Sales Returns and Allowances 7, Purchases 235, Freight In 11, Salary Expense 65, Rent Expense 22, Miscellaneous Expense 12, Income Summary 177, H. Baylor, Capital 177, ( $103,000 + $514,900 ) ( $87,000 + $353,400 ) H. Baylor, Capital 55, H. Baylor, Drawing 55, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

5 Exercise 12-8 GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 Dec. 31 Income Summary 93, H. Nishimoto, Capital 93, H. Nishimoto, Capital 75, H. Nishimoto, Drawing 75, Nishimoto Company Statement of Owner's Equity For Year Ended December 31, 20-- H. Nishimoto, Capital, January 1, 20-- Investment during the Year Net Income for the Year Subtotal Less Withdrawals for the Year Increase in Capital H. Nishimoto, Capital, December 31, 20-- $ 18,000 93,000 $111,000 75,000 $450,000 36,000 $486, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 629

6 Problem 12-1A The Fan Shop Income Statement For Year Ended December 31, 20-- Revenue from Sales: Sales $324,000 Less: Sales Returns and Allowances $ 3,400 Sales Discounts 2,707 6,107 Net Sales $317,893 Cost of Goods Sold: Merchandise Inventory, Jan. 1, 20-- $ 52,300 Purchases $201,490 Less: Purchases Returns and Allowances 2,880 Net Purchases $198,610 Add Freight In 9,790 Delivered Cost of Purchases 208,400 Cost of Goods Available for Sale $260,700 Less Merchandise Inventory, Dec. 31, ,580 Cost of Goods Sold 206,120 Gross Profit $111,773 Operating Expenses: Wages Expense $ 46,240 Rent Expense 12,610 Commissions Expense 8,310 Supplies Expense 1,842 Insurance Expense 1,240 Depreciation Expense, Building 4,600 Depreciation Expense, Equipment 2,600 Total Operating Expenses 77,442 Income from Operations $ 34,331 Other Income: Interest Income $ 1,830 Other Expenses: Interest Expense Net Income $ 35, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

7 Problem 12-1A (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 Dec. 31 Sales 324, Purchases Returns and Allowances 2, Interest Income 1, Income Summary 328, Income Summary 295, Sales Returns and Allowances 3, Sales Discounts 2, Purchases 201, Freight In 9, Wages Expense 46, Rent Expense 12, Commissions Expense 8, Supplies Expense 1, Insurance Expense 1, Depreciation Expense, Building 4, Depreciation Expense, Equipment 2, Interest Expense Income Summary 35, P. G. Ochoa, Capital 35, P. G. Ochoa, Capital 30, P. G. Ochoa, Drawing 30, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 631

8 Problem 12-2A Eckland Stereo Statement of Owner's Equity For Year Ended December 31, 20-- M. J. Eckland, Capital, January 1, 20-- $57,314 Net Income for the Year $25,485 Less Withdrawals for the Year 23,000 Increase in Capital 2,485 M. J. Eckland, Capital, December 31, 20-- $59,799 Eckland Stereo Balance Sheet December 31, 20-- Assets Current Assets: Cash $14,815 Notes Receivable 7,500 Accounts Receivable 30,170 Merchandise Inventory 50,244 Prepaid Property Taxes 2,115 Prepaid Insurance 1,640 Total Current Assets $106,484 Property and Equipment: Land $16,700 Building $50,000 Less Accumulated Depreciation 15,900 34,100 Computer Equipment $ 6,892 Less Accumulated Depreciation 5,674 1,218 Store Equipment $ 7,230 Less Accumulated Depreciation 4,424 2,806 Delivery Equipment $ 4,300 Less Accumulated Depreciation 3, Total Property and Equipment 55,654 Total Assets $162, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

9 Problem 12-2A (concluded) Eckland Stereo Balance Sheet (concluded) December 31, 20-- Liabilities Current Liabilities: Notes Payable $ 5,215 Mortgage Payable (current portion) 2,800 Accounts Payable 27,140 Wages Payable 1,984 Total Current Liabilities $ 37,139 Long-Term Liabilities: Mortgage Payable 65,200 Total Liabilities $102,339 Owner's Equity M. J. Eckland, Capital 59,799 Total Liabilities and Owner's Equity $162,138 Working Capital = Current Assets Current Liabilities $106,484 $37,139 = $69,345 Current Assets $106,484 Current Ratio = = Current Liabilities $37,139 = Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 633

10 Problem 12-3A GENERAL JOURNAL PAGE DESCRIPTION Adjusting Entries 1 2 June 30 Income Summary 112, Merchandise Inventory 112, Merchandise Inventory 116, Income Summary 116, Salary Expense 1, Salaries Payable 1, Insurance Expense 2, Prepaid Insurance 2, Depreciation Expense, Delivery Equipment 1, Accumulated Depreciation, Delivery Equipment 1, Depreciation Expense, Store Equipment 2, Accumulated Depreciation, Store Equipment 2, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

11 Problem 12-3A (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 June 30 Sales 516, Purchases Returns and Allowances 9, Purchases Discounts 6, Income Summary 532, Income Summary 480, Purchases 399, Freight In 14, Salary Expense 46, Truck Expense 10, Supplies Expense 2, Miscellaneous Expense 1, Insurance Expense 2, Depreciation Expense, Delivery Equipment 1, Depreciation Expense, Store Equipment 2, Income Summary 55, P. R. Masanto, Capital 55, P. R. Masanto, Capital 26, P. R. Masanto, Drawing 26, Reversing Entry 27 July 1 Salaries Payable 1, Salary Expense 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 635

12 Problem 12-4A Celso and Company Work Sheet For Year Ended June 30, 20-- TRIAL 1 Cash 15, Accounts Receivable 13, Merchandise Inventory 50, Prepaid Insurance 1, Store Equipment 18, Accumulated Depreciation, Store Equipment 6, Accounts Payable 10, B. E. Celso, Capital 96, B. E. Celso, Drawing 30, Sales 208, Sales Returns and Allowances 1, Purchases 133, Purchases Returns and Allowances 4, Purchases Discounts 3, Freight In 8, Wages Expense 35, Advertising Expense 7, Rent Expense 12, Store Supplies Expense 1, , , Income Summary 22 Insurance Expense 23 Depreciation Expense, Store Equipment 24 Wages Payable Net Income NAME Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

13 Problem 12-4A (continued) ADJUSTMENTS INCOME STATEMENT SHEET 15, , (b) 54, (a) 50, , (c) , (d) 4, , , , , , , , , , , (e) 1, , , , , (a) 50, (b) 54, , , (c) (d) 4, , (e) 1, , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 637

14 Problem 12-4A (continued) Celso and Company Income Statement For Year Ended June 30, 20-- Revenue from Sales: Sales $208,030 Less Sales Returns and Allowances 1,740 Net Sales $206,290 Cost of Goods Sold: Merchandise Inventory, July 1, 20-- $ 50,280 Purchases $133,050 Less: Purchases Returns and Allowances $4,295 Purchases Discounts 3,853 8,148 Net Purchases $124,902 Add Freight In 8,350 Delivered Cost of Purchases 133,252 Cost of Goods Available for Sale $183,532 Less Merchandise Inventory, June 30, ,600 Cost of Goods Sold 128,932 Gross Profit $ 77,358 Operating Expenses: Wages Expense $ 36,892 Advertising Expense 7,710 Rent Expense 12,000 Store Supplies Expense 1,835 Insurance Expense 475 Depreciation Expense, Store Equipment 4,380 Total Operating Expenses 63,292 Net Income $ 14, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

15 Problem 12-4A (continued) Celso and Company Statement of Owner's Equity For Year Ended June 30, 20-- B. E. Celso, Capital, July 1, 20-- $96,424 Net Income for the Year $14,066 Less Withdrawals for the Year 30,000 Decrease in Capital 15,934 B. E. Celso, Capital, June 30, 20-- $80,490 Celso and Company Balance Sheet June 30, 20-- Assets Current Assets: Cash $15,349 Accounts Receivable 13,810 Merchandise Inventory 54,600 Prepaid Insurance 910 Total Current Assets $84,669 Property and Equipment: Store Equipment $18,640 Less Accumulated Depreciation 11,262 7,378 Total Assets $92,047 Liabilities Current Liabilities: Accounts Payable $10,065 Wages Payable 1,492 Total Liabilities $11,557 Owner's Equity B. E. Celso, Capital 80,490 Total Liabilities and Owner's Equity $92, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 639

16 Problem 12-4A (continued) GENERAL JOURNAL PAGE DESCRIPTION Adjusting Entries 1 2 June 30 Income Summary 50, Merchandise Inventory 50, Merchandise Inventory 54, Income Summary 54, Insurance Expense Prepaid Insurance Depreciation Expense, Store Equipment 4, Accumulated Depreciation, Store Equipment 4, Wages Expense 1, Wages Payable 1, Closing Entries Sales 208, Purchases Returns and Allowances 4, Purchases Discounts 3, Income Summary 216, Income Summary 206, Sales Returns and Allowances 1, Purchases 133, Freight In 8, Wages Expense 36, Advertising Expense 7, Rent Expense 12, Store Supplies Expense 1, Insurance Expense Depreciation Expense, Store Equipment 4, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

17 Problem 12-4A (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 June 30 Income Summary 14, B. E. Celso, Capital 14, B. E. Celso, Capital 30, B. E. Celso, Drawing 30, Reversing Entry 9 July 1 Wages Payable 1, Wages Expense 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 641

18 Problem 12-1B McKnight Music Store Income Statement For Year Ended December 31, 20-- Revenue from Sales: Sales $315,483 Less: Sales Returns and Allowances $ 4,348 Sales Discounts 1,817 6,165 Net Sales $309,318 Cost of Goods Sold: Merchandise Inventory, Jan. 1, 20-- $ 48,473 Purchases $185,272 Less: Purchases Returns and Allowances 1,547 Net Purchases $183,725 Add Freight In 9,173 Delivered Cost of Purchases 192,898 Cost of Goods Available for Sale $241,371 Less Merchandise Inventory, Dec. 31, ,850 Cost of Goods Sold 192,521 Gross Profit $116,797 Operating Expenses: Wages Expense $ 40,615 Rent Expense 10,840 Commissions Expense 8,220 Supplies Expense 1,826 Insurance Expense 2,624 Depreciation Expense, Building 4,220 Depreciation Expense, Equipment 4,500 Total Operating Expenses 72,845 Income from Operations $ 43,952 Other Income: Interest Income $ 925 Other Expenses: Interest Expense 1,258 (333) Net Income $ 43, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

19 Problem 12-1B (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 Dec. 31 Sales 315, Purchases Returns and Allowances 1, Interest Income Income Summary 317, Income Summary 274, Sales Returns and Allowances 4, Sales Discounts 1, Purchases 185, Freight In 9, Wages Expense 40, Rent Expense 10, Commissions Expense 8, Supplies Expense 1, Insurance Expense 2, Depreciation Expense, Building 4, Depreciation Expense, Equipment 4, Interest Expense 1, Income Summary 43, W. J. McKnight, Capital 43, W. J. McKnight, Capital 40, W. J. McKnight, Drawing 40, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 643

20 Problem 12-2B Meyer Mountain Shop Statement of Owner's Equity For Year Ended December 31, 20-- M. E. Meyer, Capital, January 1, 20-- $75,085 Net Income for the Year $24,351 Less Withdrawals for the Year 35,250 Decrease in Capital 10,899 M. E. Meyer, Capital, December 31, 20-- $85,984 Meyer Mountain Shop Balance Sheet December 31, 20-- Assets Current Assets: Cash $18,525 Notes Receivable 4,500 Accounts Receivable 22,680 Merchandise Inventory 53,542 Prepaid Taxes 1,820 Prepaid Insurance 2,450 Total Current Assets $103,517 Property and Equipment: Land $18,600 Building $42,000 Less Accumulated Depreciation 22,500 19,500 Computer Equipment $ 4,424 Less Accumulated Depreciation 2,250 2,174 Store Equipment $ 7,480 Less Accumulated Depreciation 5,085 2,395 Delivery Equipment $ 5,740 Less Accumulated Depreciation 3,225 2,515 Total Property and Equipment 45,184 Total Assets $148, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

21 Problem 12-2B (concluded) Meyer Mountain Shop Balance Sheet (concluded) December 31, 20-- Liabilities Current Liabilities: Notes Payable $ 6,500 Mortgage Payable (current portion) 2,500 Accounts Payable 19,455 Wages Payable 1,460 Total Current Liabilities $ 29,915 Long-Term Liabilities: Mortgage Payable 54,600 Total Liabilities $ 84,515 Owner's Equity M. E. Meyer, Capital 64,186 Total Liabilities and Owner's Equity $148,701 Working Capital = Current Assets Current Liabilities $103,517 $29,915 = $73,602 Current Assets $103,517 Current Ratio = = Current Liabilities $29,915 = Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 645

22 Problem 12-3B GENERAL JOURNAL PAGE DESCRIPTION Adjusting Entries 1 2 June 30 Income Summary 113, Merchandise Inventory 113, Merchandise Inventory 117, Income Summary 117, Salary Expense 1, Salaries Payable 1, Insurance Expense 2, Prepaid Insurance 2, Depreciation Expense, Delivery Equipment 2, Accumulated Depreciation, Delivery Equipment 2, Depreciation Expense, Store Equipment 2, Accumulated Depreciation, Store Equipment 2, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

23 Problem 12-3B (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 June 30 Sales 532, Purchases Returns and Allowances 8, Purchases Discounts 6, Income Summary 548, Income Summary 498, Purchases 397, Freight In 23, Salary Expense 54, Truck Expense 9, Supplies Expense 2, Miscellaneous Expense 1, Insurance Expense 2, Depreciation Expense, Delivery Equipment 2, Depreciation Expense, Store Equipment 2, Income Summary 53, J. Ketcher, Capital 53, J. Ketcher, Capital 40, J. Ketcher, Drawing 40, Reversing Entry 27 July 1 Salaries Payable 1, Salary Expense 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 647

24 Problem 12-4B Sheldon Company Work Sheet For Year Ended January 31, 20-- TRIAL 1 Cash 16, Accounts Receivable 15, Merchandise Inventory 55, Prepaid Insurance 3, Store Equipment 24, Accumulated Depreciation, Store Equipment 3, Accounts Payable 14, M. E. Sheldon, Capital 126, M. E. Sheldon, Drawing 36, Sales 227, Sales Returns and Allowances 2, Purchases 172, Purchases Returns and Allowances 2, Purchases Discounts 3, Freight In 7, Wages Expense 24, Advertising Expense 5, Rent Expense 12, Store Supplies Expense 1, , , Income Summary 22 Insurance Expense 23 Depreciation Expense, Store Equipment 24 Wages Payable Net Loss NAME Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

25 Problem 12-4B (continued) ADJUSTMENTS INCOME STATEMENT SHEET 16, , (b) 55, (a) 55, , (c) 1, , , (d) 5, , , , , , , , , , , (e) 1, , , , , (a) 55, (b) 55, , , (c) 1, , (d) 5, , (e) 1, , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 649

26 Problem 12-4B (continued) Sheldon Company Income Statement For Year Ended January 31, 20-- Revenue from Sales: Sales $227,000 Less Sales Returns and Allowances 2,000 Net Sales $225,000 Cost of Goods Sold: Merchandise Inventory, February 1, 20-- $ 55,500 Purchases $172,000 Less: Purchases Returns and Allowances $2,375 Purchases Discounts 3,567 5,942 Net Purchases $166,058 Add Freight In 7,491 Delivered Cost of Purchases 173,549 Cost of Goods Available for Sale $229,049 Less Merchandise Inventory, January 31, ,750 Cost of Goods Sold 173,299 Gross Profit $ 51,701 Operating Expenses: Wages Expense $ 26,303 Advertising Expense 5,912 Rent Expense 12,900 Store Supplies Expense 1,503 Insurance Expense 1,285 Depreciation Expense, Store Equipment 5,482 Total Operating Expenses 53,385 Net Loss $ (1,684) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

27 Problem 12-4B (continued) Sheldon Company Statement of Owner's Equity For Year Ended January 31, 20-- M. E. Sheldon, Capital, February 1, 20-- $126,384 Net Loss for the Year $ 1,684 Less Withdrawals for the Year 36,000 Decrease in Capital 37,684 M. E. Sheldon, Capital, January 31, 20-- $ 88,700 Sheldon Company Balance Sheet January 31, 20-- Assets Current Assets: Cash $16,400 Accounts Receivable 15,100 Merchandise Inventory 55,750 Prepaid Insurance 1,795 Total Current Assets $ 89,045 Property and Equipment: Store Equipment $24,900 Less Accumulated Depreciation 9,342 15,558 Total Assets $104,603 Liabilities Current Liabilities: Accounts Payable $14,400 Wages Payable 1,503 Total Liabilities $ 15,903 Owner's Equity M. E. Sheldon, Capital 88,700 Total Liabilities and Owner's Equity $104, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 651

28 Problem 12-4B (continued) GENERAL JOURNAL PAGE DESCRIPTION Adjusting Entries 1 2 Jan. 31 Income Summary 55, Merchandise Inventory 55, Merchandise Inventory 55, Income Summary 55, Insurance Expense 1, Prepaid Insurance 1, Depreciation Expense, Store Equipment 5, Accumulated Depreciation, Store Equipment 5, Wages Expense 1, Wages Payable 1, Closing Entries Sales 227, Purchases Returns and Allowances 2, Purchases Discounts 3, Income Summary 232, Income Summary 234, Sales Returns and Allowances 2, Purchases 172, Freight In 7, Wages Expense 26, Advertising Expense 5, Rent Expense 12, Store Supplies Expense 1, Insurance Expense 1, Depreciation Expense, Store Equipment 5, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

29 Problem 12-4B (concluded) GENERAL JOURNAL PAGE DESCRIPTION Closing Entries 1 2 Jan. 31 M. E. Sheldon, Capital 1, Income Summary 1, M. E. Sheldon, Capital 36, M. E. Sheldon, Drawing 36, Reversing Entry 9 Feb. 1 Wages Payable 1, Wages Expense 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 653

30 NOTES AND CALCULATIONS Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

31 COMPREHENSIVE REVIEW PROBLEM (General Journal) GENERAL JOURNAL PAGE 89 DESCRIPTION Reversing Entry 1 2 Feb. 1 Salaries Payable Salary Expense Reversed the adjusting entry for 4 5 accrued salaries Accounts Receivable, Hotel Beritz 113/ 12, Sales , Sold merchandise to Hotel Beritz, 9 10 invoice No Accounts Payable, Kingston Fabrics 221/ 16, Purchases Discounts Cash , Paid Kingston Fabrics for invoice no D1739 less discount, Ck. No Purchases 511 4, Freight In Accounts Payable, Magnuson Textiles 221/ 5, Purchased merchandise from Magnuson Textiles, invoice no. RE275, invoice dated February 2, terms 1/10, n/ Utilities Expense Cash Paid Countrywide Power for electric bill, Ck. No Cash , Accounts Receivable, Jason and Waldon 113/ 10, Received payment of account from Jason and Waldon Accounts Payable, Magnuson Textiles 221/ 9, Purchases Discounts Cash 111 9, Paid Magnuson Textiles for invoice no RE64 less discount, Ck. No Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 655

32 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) GENERAL JOURNAL PAGE 90 DESCRIPTION Feb. 9 Cash 111 9, Sales 411 9, Cash sales, February Salary Expense 611 5, Employees' Income Tax Payable FICA Taxes Payable Salaries Payable 230 4, Payroll register for semimonthly period ended February Salaries Payable 230 4, Cash, R. W. Harris 111 2, Cash, T. L. Newkirk 111 1, Issued Ck. No to R. W. Harris for $2,335.74, and Ck. No to T. L. Newkirk for $1, for the February 12 payroll Payroll Tax Expense FICA Taxes Payable State Unemployment Tax Payable Federal Unemployment Tax Payable To record employer's share of FICA taxes and employer's federal and state unemployment taxes Accounts Payable, Magnuson Textiles 221/ Purchases Returns and Allowances Credit memo no. 916 for defective merchandise Employees' Income Taxes Payable 226 1, FICA Taxes Payable 227 1, Cash 111 2, Issued Ck. No to Mid-State Bank for monthly deposit of January employees federal income tax withheld Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

33 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) GENERAL JOURNAL PAGE 91 DESCRIPTION Feb. 14 Accounts Receivable, Jason and Waldon 113/ 15, Sales , Sold merchandise to Jason and 4 5 Waldon, invoice no Accounts Payable, Magnuson Textiles 221/ 4, Purchases Discounts Cash 111 4, Paid Magnuson Textiles for invoice no. RE275, Ck. No Purchases , Freight In 514 1, Accounts Payable, Brandon, Inc. 221/ 22, Purchased merchandise from Brandon, Inc., invoice no. 164M, invoice dated February 14, terms 2/10, n/ Cash 111 7, Sales 411 7, Cash sales, February Supplies Expense Cash Bought invoice forms from Quicker Printing, Ck. No Cash 111 4, Accounts Receivable, Fashion Decor 113/ 4, Received payment on account Accounts Payable, Tyson Manufacturing Company 221/ 12, Cash , Paid Tyson Manufacturing Company for invoice no. 9264D, Ck. No Accounts Receivable, Fashion Decor 113/ 17, Sales , Sold merchandise to Fashion Decor, invoice no Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 657

34 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) GENERAL JOURNAL DESCRIPTION PAGE Feb. 24 Sales Returns and Allowances Accounts Receivable, Fashion Decor 113/ Credit memo no. 214 for return of 4 5 merchandise Purchases , Accounts Payable, Kingston Fabrics 221/ 16, Purchased merchandise from 9 10 Kingston Fabrics, invoice no. D1797, invoice dated February 22, terms /10, n/ Salary Expense 611 5, Employees' Income Tax Payable FICA Taxes Payable Salaries Payable 230 4, Payroll register for semimonthly period ended February Salaries Payable 230 4, Cash, R. W. Harris 111 2, Cash, T. L. Newkirk 111 1, Issued Ck. No to R. W. Harris for $2,335.74, and Ck. No to T. L. Newkirk for $1, for the February 26 payroll Payroll Tax Expense FICA Taxes Payable State Unemployment Tax Payable Federal Unemployment Tax Payable To record employer's share of FICA taxes and employer's federal and state unemployment taxes Freight In 514 1, Cash 111 1, Paid JIT Freight Line for transportation charges on merchandise purchased from Kingston Fabrics, Ck. No Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

35 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) GENERAL JOURNAL PAGE 93 DESCRIPTION Feb. 28 Supplies Expense Miscellaneous Expense Cash Issued Ck. No to reimburse the 5 6 petty cash fund Cash 111 8, Sales 411 8, Cash sales, February Rent Expense 613 2, Cash 111 2, Paid Global Rental Agency for monthly rent, Ck. No M. L. Langdon, Drawing 312 5, Cash 111 5, Owner withdrew cash for personal use, Ck. No GENERAL JOURNAL PAGE 94 DESCRIPTION Adjusting Entries 1 2 Feb. 28 Income Summary , (a) Merchandise Inventory , (b) 28 Merchandise Inventory , Income Summary , (c) 28 Salary Expense 611 2, Salaries Payable 230 2, (d) 28 Insurance Expense Prepaid Insurance (e) 28 Depreciation Expense, Equipment 618 1, Accumulated Depreciation, Equipment 123 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 659

36 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) DESCRIPTION GENERAL JOURNAL PAGE Closing Entries 1 2 Feb. 28 Sales , Purchases Returns and Allowances Purchases Discounts Income Summary , Income Summary , Sales Returns and Allowances Purchases , Freight In 514 2, Salary Expense , Payroll Tax Expense 612 1, Rent Expense 613 2, Utilities Expense Supplies Expense Insurance Expense Depreciation Expense, Equipment 618 1, Miscellaneous Expense Income Summary 313 2, M. L. Langdon, Capital 311 2, M. L. Langdon, Capital 311 5, M. L. Langdon, Drawing 312 5, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

37 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) GENERAL LEDGER Cash NO. 111 Feb. 1 Balance 34, J89 16, , J , J89 10, , J89 9, , J90 9, , J90 2, , J90 1, , J90 2, , J91 4, , J91 7, , J , J91 4, , J91 12, , J92 2, , J92 1, , J92 1, , J , J93 8, , J93 2, , J93 5, , Petty Cash Fund NO. 112 Feb. 1 Balance Accounts Receivable NO. 113 Feb. 1 Balance 15, J89 12, , J89 10, , J91 15, , J91 4, , J91 17, , J , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 661

38 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Merchandise Inventory NO. 114 Feb. 1 Balance 52, Adj. J94 52, Adj. J94 45, , Prepaid Insurance NO. 118 Feb. 1 Balance 2, Adj. J , Equipment NO. 122 Feb. 1 Balance 9, Accumulated Depreciation, Equipment NO. 123 Feb. 1 Balance 5, Adj. J94 1, , Accounts Payable NO. 221 Feb. 1 Balance 39, J89 16, , J89 5, , J89 9, , J , J91 4, , J91 22, , J91 12, , J92 16, , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

39 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Employees' Income Tax Payable NO. 226 Feb. 1 Balance 1, J , J90 1, J , FICA Taxes Payable NO. 227 Feb. 1 Balance 1, J , J , J90 1, J , J , State Unemployment Tax Payable NO. 228 Feb. 1 Balance J J Federal Unemployment Tax Payable NO. 229 Feb. 1 Balance J J Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 663

40 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Salaries Payable 230 NO. Feb. 1 Balance Reversing J J90 4, , J90 4, J92 4, , J92 4, Adj. J94 2, , M. L. Langdon, Capital NO. 311 Feb. 1 Balance 66, Closing J95 2, , Closing J95 5, , M. L. Langdon, Drawing NO Feb. 28 J93 5, , Closing J95 5, Income Summary NO Feb. 28 Adj. J94 52, , Adj. J94 45, , Closing J95 73, , Closing J95 63, , Closing J95 2, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

41 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Sales NO Feb. 1 J89 12, , J90 9, , J91 15, , J91 7, , J91 17, , J93 8, , Closing J95 72, Sales Returns and Allowances NO Feb. 24 J Closing J Purchases NO Feb. 5 J89 4, , J91 21, , J92 16, , Closing J92 42, Purchases Returns and Allowances NO Feb. 12 J Closing J Purchases Discounts NO Feb. 2 J J J Closing J Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 665

42 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Freight In NO Feb. 5 J J91 1, , J92 1, , Closing J95 2, Salary Expense NO Feb. 1 Reversing J J90 5, , J92 5, , Adj. J94 2, , Closing J95 11, Payroll Tax Expense 612 NO Feb. 12 J J , Closing J95 1, Rent Expense NO Feb. 28 J93 2, , Closing J95 2, Utilities Expense 614 NO Feb. 5 J Closing J Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

43 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Supplies Expense NO Feb. 19 J J Closing J Insurance Expense NO Feb. 28 Adj. J Closing J Depreciation Expense, Equipment NO Feb. 28 Adj. J94 1, , Closing J95 1, Miscellaneous Expense NO Feb. 28 J Closing J Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 667

44 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) S RECEIVABLE LEDGER Fashion Decor 642 Guthrie St. Dallas, TX NAME ADDRESS Feb. 1 Balance 4, J91 4, J91 17, , J , NAME ADDRESS Hotel Beritz 4600 Beaumont Drive Dallas, TX Feb. 1 J89 12, , NAME ADDRESS Jason and Waldon 1420 Favela Road Dallas, TX Feb. 1 Balance 10, J89 10, J91 15, , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

45 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) NAME ADDRESS Brandon, Inc. 400 W. Tatum St. Amarillo, TX S PAYABLE LEDGER 20-- Feb. 18 J91 22, , NAME ADDRESS Kingston Fabrics 1464 Harding Drive Dallas, TX Feb. 1 Balance 16, J89 16, J92 16, , NAME ADDRESS Magnuson Textiles 620 W. Huber St. Corpus Christi, TX Feb. 1 Balance 9, J89 5, , J89 9, , J , J91 4, NAME ADDRESS Tyson Manufacturing Company 842 N. Howard Ave. Fort Worth, TX Feb. 1 Balance 12, J91 12, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 669

46 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Fabulous Furnishings Schedule of Accounts Receivable February 28, Fashion Decor Hotel Beritz Jason and Waldon Total Accounts Receivable $17, , , $45, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

47 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Fabulous Furnishings Schedule of Accounts Payable February 28, Brandon, Inc. Kingston Fabrics Total Accounts Payable $22, , $39, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 671

48 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Fabulous Furnishings Work Sheet For Month Ended February 28, TRIAL 1 Cash 13, Petty Cash Fund Accounts Receivable 45, Merchandise Inventory 52, Prepaid Insurance 2, Equipment 9, Accumulated Depreciation, Equipment 5, Accounts Payable 39, Employees' Income Tax Payable 1, FICA Taxes Payable 1, State Unemployment Tax Payable Federal Unemployment Tax Payable M. L. Langdon, Capital 66, M. L. Langdon, Drawing 5, Sales 72, Sales Returns and Allowances Purchases 42, Purchases Returns and Allowances Purchases Discounts Freight In 2, Salary Expense 9, Payroll Tax Expense 1, Rent Expense 2, Utilities Expense Supplies Expense Miscellaneous Expense , , Income Summary 29 Salaries Payable 30 Insurance Expense 31 Depreciation Expense, Equipment Net Income NAME Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

49 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) ADJUSTMENTS INCOME STATEMENT SHEET 13, , (b) 45, (a) 52, , (d) , , (e) 1, , , , , , , , , , (c) 2, , , , (a) 52, (b) 45, , , (c) 2, , (d) (e) 1, , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 673

50 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Fabulous Furnishings Income Statement For Month Ended February 28, Revenue from Sales: Sales $72, Less Sales Returns and Allowances Net Sales $72, Cost of Goods Sold: Merchandise Inventory, Feb. 1, 20-- $52, Purchases $42, Less: Purchases Returns and Allowances $ Purchases Discounts , Net Purchases $41, Add Freight In 2, Delivered Cost of Purchases 44, Cost of Goods Available for Sale $96, Less Merchandise Inventory, Feb. 28, , Cost of Goods Sold 51, Gross Profit $20, Operating Expenses: Salary Expense $11, Payroll Tax Expense 1, Rent Expense 2, Utilities Expense Supplies Expense Insurance Expense Depreciation Expense, Equipment 1, Miscellaneous Expense Total Operating Expenses 18, Net Income $ 2, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

51 COMPREHENSIVE REVIEW PROBLEM (General Journal) (continued) Fabulous Furnishings Statement of Owner's Equity For Month Ended February 28, M. L. Langdon, Capital, February 1, 20-- $66, Net Income for February $2, Less Withdrawals for February 5, Decrease in Capital 2, M. L. Langdon, Capital, February 28, 20-- $63, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 675

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