appendix C Periodic Inventory Systems for Merchandising Businesses Merchandise Transactions in a Periodic Inventory System

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1 66124_appC_C1-C14.qxd 11/10/03 7:45 PM Page C-1 appendix C Periodic Inventory Systems for Merchandising Businesses In this text, we emphasize the perpetual inventory system of accounting for purchases and sales of merchandise. Not all merchandise businesses, however, use perpetual inventory systems. For example, some managers/owners of small merchandise businesses, such as locally owned hardware stores, may feel more comfortable using manually kept records. Because a manual perpetual inventory system is timeconsuming and costly to maintain, the periodic inventory system is often used in these cases. Merchandise Transactions in a Periodic Inventory System In a periodic inventory system, the revenues from sales are recorded when sales are made in the same manner as in a perpetual inventory system. However, no attempt is made on the date of sale to record the cost of the merchandise sold. Instead, the merchandise inventory on hand at the end of the period is counted. This physical inventory is then used to determine (1) the cost of merchandise sold during the period and (2) the cost of merchandise on hand at the end of the period. In a periodic inventory system, purchases of inventory are recorded in a purchases account rather than in a merchandise inventory account. No attempt is made to keep a detailed record of the amount of inventory on hand at any given time. The purchases account is normally debited for the amount of the invoice before considering any purchases discounts. Purchases discounts are normally recorded in a separate purchases discounts account. 1 The balance of this account is reported as a deduction from the amount initially recorded in Purchases for the period. Thus, the purchases discounts account is viewed as a contra (or offsetting) account to Purchases. Purchases returns and allowances are recorded in a similar manner as purchases discounts. A separate account is used to keep a record of the amount of purchases returns and allowances during a period. Purchases returns and allowances are reported as a deduction from the amount initially recorded as Purchases. Like Purchases Discounts, the purchases returns and allowances account is a contra (or offsetting) account to Purchases. When merchandise is purchased FOB shipping point, the buyer is responsible for paying the freight charges. In a periodic inventory system, freight charges paid when purchasing merchandise FOB shipping point are debited to Transportation In, Freight In, or a similarly titled account. To illustrate the recording of merchandise transactions in a periodic system, we will use the following selected transactions for Taylor Co. We will also explain how the transaction would have been recorded under a perpetual system. June 5. Purchased $30,000 of merchandise on account from Owen Clothing, terms 2/10, n/30. Purchases 30,000 Accounts Payable Owen Clothing 30,000 Under the perpetual inventory system, such purchases would be recorded in the merchandise inventory account at their cost, $30, Some businesses prefer to credit the purchases account. If this alternative is used, the balance of the purchases account will be a net amount the total purchases less the total purchases discounts for the period.

2 66124_appC_C1-C14.qxd 11/10/03 7:45 PM Page C-2 C-2 Appendix C Periodic Inventory Systems for Merchandising Businesses June 8. Returned merchandise purchased on account from Owen Clothing on June 5, $500. Accounts Payable Owen Clothing 500 Purchases Returns and Allowances 500 Under the perpetual inventory system, returns would be recorded as a credit to the merchandise inventory account at their cost of $500. June 15. Paid Owen Clothing for purchase of June 5, less return of $500 and discount of $590 [($30,000 $500) 2%]. Accounts Payable Owen Clothing 29,500 Cash 28,910 Purchases Discounts 590 Under a perpetual inventory system, a purchases discount account is not used. Instead the merchandise inventory account is credited for the amount of the discount, $590. June 18. Sold merchandise on account to Jones Co., $12,500, 1/10, n/30. The cost of the merchandise sold was $9,000. Accounts Receivable Jones Co. 12,500 Sales 12,500 The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale. June 21. Received merchandise returned on account from Jones Co., $4,000. The cost of the merchandise returned was $2,800. Sales Returns and Allowances 4,000 Accounts Receivable Jones Co. 4,000 The entry to record the sales return is the same under both systems. In addition, the cost of the merchandise returned would be debited to the merchandise inventory account and credited to the cost of merchandise sold account under the perpetual inventory system. June 22. Purchased merchandise from Norcross Clothiers, $15,000, terms FOB shipping point, 2/15, n/30, with prepaid transportation charges of $750 added to the invoice. Purchases 15,000 Transportation In 750 Accounts Payable Norcross Clothiers 15,750 This entry is similar to the June 5 entry for the purchase of merchandise. Since the transportation terms were FOB shipping point, the prepaid freight charges of $750 must be added to the invoice cost of $15,000. Under the perpetual inventory system, the purchase is recorded in the merchandise inventory account at the cost of $15,750 (invoice price plus transportation). June 28. Received $8,415 as payment on account from Jones Co., less return of June 21 and less discount of $85 [($12,500 $4,000) 1%]. Cash 8,415 Sales Discounts 85 Accounts Receivable Jones Co. 8,500

3 66124_appC_C1-C14.qxd 11/10/03 7:45 PM Page C-3 Appendix C Periodic Inventory Systems for Merchandising Businesses C-3 This entry is the same under the perpetual inventory system. June 29. Received $19,600 from cash sales. The cost of the merchandise sold was $13,800. Cash 19,600 Sales 19,600 The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale. The multiple-step income statement under the periodic inventory system is illustrated in Exhibit 1. The multiple-step income statement under a perpetual inventory system is similar, except that the cost of merchandise sold is reported as a single amount. Chart of Accounts for a Periodic Inventory System Exhibit 2 is the chart of accounts for NetSolutions when a periodic inventory system is used. The periodic inventory accounts related to merchandising transactions are shown in color. End-of-Period Procedures in a Periodic Inventory System The end-of-period procedures are generally the same for the periodic and perpetual inventory systems. In the remainder of this appendix, we will discuss the differences in procedures for the two systems that affect the work sheet, the adjusting entries, and the closing entries. As the basis for illustrations, we will use the data for NetSolutions, presented in Chapter 6. Work Sheet The differences in the work sheet for a merchandising business that uses the periodic inventory system are highlighted in the work sheet for NetSolutions in Exhibit 3. As we illustrated earlier, accounts for purchases, purchases returns and allowances, purchases discounts, and transportation in are used in a periodic inventory system. Under the periodic inventory system, the merchandise inventory account, throughout the accounting period, shows the inventory at the beginning of the period. The merchandise inventory on January 1, 2007, $59,700, is a part of the merchandise available for sale. At the end of the period, the beginning inventory amount in the ledger is replaced with the ending inventory amount. To update the inventory account, two adjusting entries are used. 2 The first adjusting entry transfers the beginning inventory balance to Income Summary. This entry, shown below, has the effect of increasing the cost of merchandise sold and decreasing net income. Dec. Income Summary 59,700 Merchandise Inventory 59,700 2 Another method of updating the merchandise inventory account at the end of the period is called the closing method. This method adjusts the merchandise inventory through the use of closing entries. This method may not be appropriate for use in computerized accounting systems. Since the financial statements are the same under both methods and since computerized accounting systems are used by most businesses, the closing method is not illustrated.

4 66124_appC_C1-C14.qxd 11/10/03 7:46 PM Page C-4 C-4 Appendix C Periodic Inventory Systems for Merchandising Businesses Exhibit 1 Multiple-Step Income Statement Periodic Inventory System NetSolutions Income Statement For the Year Ended December, 2007 Revenue from sales: Sales Less: Sales returns and allowances Sales discounts Net sales Cost of merchandise sold: Merchandise inventory, January 1, Purchases Less: Purchases returns and allowances $9,100 Purchases discounts ,525 Net purchases Add transportation in Cost of merchandise purchased Merchandise available for sale Less merchandise inventory, December, Cost of merchandise sold Gross profit Operating expenses: Selling expenses: Sales salaries expense Advertising expense Depreciation expense store equipment... Miscellaneous selling expense Total selling expenses Administrative expenses: Office salaries expense Rent expense Depreciation expense office equipment... Insurance expense Office supplies expense Miscellaneous administrative expense.... Total administrative expenses Total operating expenses Income from operations Other income and expense: Rent revenue Interest expense Net income $ 6,140 5,790 $521,980 11,625 $510,355 17,400 $ 56,230 10,860 3, $ 21,020 8,100 2,490 1, $720,185 11,930 $ 59,700 $527,755 $587,455 62,150 $ 70,820 34,890 $ 600 2,440 $708, ,305 $182, ,710 $ 77,240 1,840 $ 75,400 After the first adjusting entry has been recorded and posted, the balance of the merchandise inventory account is zero. The second adjusting entry records the cost of the merchandise on hand at the end of the period by debiting Merchandise Inventory. Since the merchandise inventory at December, 2007, $62,150, is subtracted from the cost of merchandise available for sale in determining the cost of

5 66124_appC_C1-C14.qxd 11/10/03 7:46 PM Page C-5 Appendix C Periodic Inventory Systems for Merchandising Businesses C-5 Exhibit 2 Chart of Accounts Periodic Inventory System Balance Sheet Accounts Income Statement Accounts 100 Assets 400 Revenues 110 Cash 410 Sales 111 Notes Receivable 411 Sales Returns and Allowances 112 Accounts Receivable 412 Sales Discounts 115 Merchandise Inventory 116 Office Supplies 500 Costs and Expenses 117 Prepaid Insurance 510 Purchases 120 Land 511 Purchases Returns and 123 Store Equipment Allowances 124 Accumulated Depreciation 512 Purchases Discounts Store Equipment 513 Transportation In 125 Office Equipment 520 Sales Salaries Expense 126 Accumulated Depreciation 521 Advertising Expense Office Equipment 522 Depreciation Expense Store Equipment 200 Liabilities 523 Transportation Out 210 Accounts Payable 529 Miscellaneous Selling Expense 211 Salaries Payable 530 Office Salaries Expense 212 Unearned Rent 5 Rent Expense 215 Notes Payable 532 Depreciation Expense Office Equipment 300 Owner s Equity 533 Insurance Expense 0 Chris Clark, Capital 534 Office Supplies Expense 1 Chris Clark, Drawing 539 Misc. Administrative Expense 2 Income Summary 600 Other Income 610 Rent Revenue 700 Other Expense 710 Interest Expense merchandise sold, Income Summary is credited. This credit has the effect of decreasing the cost of merchandise available for sale during the period, $587,455, by the cost of the unsold merchandise. The second adjusting entry is shown below. Dec. Merchandise Inventory 62,150 Income Summary 62,150 After the second adjusting entry has been recorded and posted, the balance of the merchandise inventory account is the amount of the ending inventory. The accounts for Merchandise Inventory and Income Summary after both entries have been posted would appear in T account form as follows: Merchandise Inventory 2007 Jan. 1 Beginning inventory 59,700 Dec. Beginning inventory 59,700 Dec. Ending inventory 62,150 Income Summary Dec. Beginning inventory 59,700 Dec. Ending inventory 62,150 No separate adjusting entry can be made for merchandise inventory shrinkage in a periodic inventory system. This is because no perpetual inventory records are available to show what inventory should be on hand at the end of the period.

6 66124_appC_C1-C14.qxd 11/10/03 7:46 PM Page C-6 C-6 Appendix C Periodic Inventory Systems for Merchandising Businesses Exhibit 3 Work Sheet Periodic Inventory System NetSolutions Work Sheet For the Year Ended December, 2007 Account Title Cash Accounts Receivable Merchandise Inventory Office Supplies Prepaid Insurance Land Store Equipment Accum. Depr. Store Equipment Office Equipment Accum. Depr. Office Equipment Accounts Payable Salaries Payable Unearned Rent Notes Payable (final payment, 2017) Chris Clark, Capital Chris Clark, Drawing Income Summary Sales Sales Returns and Allowances Sales Discounts Purchases Purchases Returns & Allowances Purchases Discounts Transportation In Sales Salaries Expense Advertising Expense Depr. Expense Store Equipment Miscellaneous Selling Expense Office Salaries Expense Rent Expense Depr. Expense Office Equipment Insurance Expense Office Supplies Expense Misc. Administrative Expense Rent Revenue Interest Expense Net Income Trial Balance Dr. Cr. 52,950 91,080 59,700 1,090 4,560 20,000 27,100 2,600 15,570 2,230 22,420 2,400 25, ,800 18, ,185 6,140 5, ,980 9,100 2,525 17,400 55,450 10, ,660 8, , , ,260 Adjusted Trial Balance Income Statement Balance Sheet Adjustments Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 52,950 52,950 91,080 91,080 (b) 62,150 (a)59,700 62,150 62,150 (c) (d) 1,910 2,650 20,000 2,650 20,000 27,100 27,100 (e) 3,100 5,700 5,700 15,570 15,570 (f) 2,490 4,720 22,420 4,720 22,420 (g) 1,140 1,140 1,140 (h) 600 1,800 1,800 25,000 25, , ,800 18,000 18,000 (a)59,700 (b)62,150 59,700 62,150 59,700 62, , ,185 6,140 6,140 5,790 5, , ,980 9,100 9,100 2,525 2,525 17,400 17,400 (g) ,030 60,030 10,860 10,860 (e) 3,100 3,100 3, (g) ,020 21,020 8,100 8,100 (f) 2,490 2,490 2,490 (d) 1,910 1,910 1,910 (c) (h) ,440 2,440 1,700 1,700 1,009,140 1,009, , , , ,580 75,400 75, , , , ,980 (a) Beginning merchandise inventory, $59,700. (b) Ending merchandise inventory, $62,150. (c) Office supplies used, $610 ($1,090 $480). (d) Insurance expired, $1,910. (e) Depreciation of store equipment, $3,100. (f) Depreciation of office equipment, $2,490. (g) Salaries accrued but not paid (sales salaries, $780; office salaries, $360), $1,140. (h) Rent earned from amount received in advance, $600.

7 66124_appC_C1-C14.qxd 11/10/03 7:46 PM Page C-7 Appendix C Periodic Inventory Systems for Merchandising Businesses C-7 One disadvantage of the periodic inventory system is that inventory shrinkage cannot be measured. 3 Completing the Work Sheet After all of the necessary adjustments have been entered on the work sheet, the work sheet is completed in the normal manner. An exception to the usual practice of extending only account balances is Income Summary. Both the debit and credit amounts for Income Summary are extended to the Adjusted Trial Balance columns. Extending both amounts aids in the preparation of the income statement because the debit adjustment (the beginning inventory of $59,700) and the credit adjustment (the ending inventory of $62,150) are reported as part of the cost of merchandise sold. The purchases, purchases discounts, purchases returns and allowances, and transportation in accounts are extended to the Income Statement Columns of the work sheet, since they are used in computing the cost of merchandise sold. You should note that the two merchandise inventory amounts in Income Summary are extended to the Income Statement columns. After all of the items have been extended to the statement columns, the four columns are totaled and the net income or net loss is determined. Financial Statements The financial statements for NetSolutions are essentially the same under both the perpetual and periodic inventory systems. The main difference is that the cost of goods is reported as a single amount under the perpetual system. Exhibit 1 illustrates the manner in which cost of merchandise sold is reported in a multiple-step income statement when the periodic inventory system is used. 4 Adjusting and Closing Entries The adjusting entries are the same under both inventory systems, except for merchandise inventory. As indicated previously, two adjusting entries for beginning and ending merchandise inventory are necessary in a periodic inventory system. The closing entries differ in the periodic inventory system in that there is no cost of merchandise sold account to be closed to Income Summary. Instead, the purchases, purchases discounts, purchases returns and allowances, and transportation in accounts are closed to Income Summary. 5 To illustrate, the adjusting and closing entries under a periodic inventory system for NetSolutions are shown at the top of the following pages. 3 Any inventory shrinkage that does exist is part of the cost of merchandise sold and is reported on the income statement, since a smaller ending inventory is deducted from other merchandise available for sale. 4 The single-step income statement would be the same for both the perpetual and the periodic inventory systems. 5 The balance of Income Summary, after the merchandise inventory adjustments and the first two closing entries have been posted, is the net income or net loss for the period.

8 66124_appC_C1-C14.qxd 11/10/03 7:46 PM Page C-8 C-8 Appendix C Periodic Inventory Systems for Merchandising Businesses JOURNAL Page 16 Date Description Post. Ref. Debit Credit Dec. Adjusting Entries Income Summary Merchandise Inventory Merchandise Inventory Income Summary Office Supplies Expense Office Supplies Insurance Expense Prepaid Insurance Depreciation Expense Store Equip. Accumulated Depr. Store Equip Depreciation Expense Office Equip. Accumulated Depr. Office Equip Sales Salaries Expense Office Salaries Expense Salaries Payable Unearned Rent Rent Revenue

9 66124_appC_C1-C14.qxd 11/10/03 7:47 PM Page C-9 Appendix C Periodic Inventory Systems for Merchandising Businesses C-9 JOURNAL Page 17 Date Description Post. Ref. Debit Credit Dec. Closing Entries Sales Purchases Returns and Allowances Purchases Discounts Rent Revenue Income Summary Income Summary Sales Returns and Allowances Sales Discounts Purchases Transportation In Sales Salaries Expense Advertising Expense Depreciation Exp. Store Equip. Miscellaneous Selling Expense Office Salaries Expense Rent Expense Depreciation Exp. Office Equip. Insurance Expense Office Supplies Expense Miscellaneous Administrative Exp. Interest Expense Income Summary Chris Clark, Capital Chris Clark, Capital Chris Clark, Drawing Exercises EXERCISE C-1 Purchases-related transactions periodic inventory system EXERCISE C-2 Sales-related transactions periodic inventory system Journalize entries for the following related transactions, assuming that Mountain Gallery, Inc. uses the periodic inventory system. a. Purchased $12,000 of merchandise from Yellowstone Co. on account, terms 2/10, n/30. b. Discovered that some of the merchandise was defective and returned items with an invoice price of $2,500, receiving credit. c. Paid the amount owed on the invoice within the discount period. d. Purchased $9,000 of merchandise from Glacier, Inc. on account, terms 1/10, n/30. e. Paid the amount owed on the invoice within the discount period. Journalize entries for the following related transactions, assuming that Aveda Company uses the periodic inventory system.

10 66124_appC_C1-C14.qxd 11/10/03 7:47 PM Page C-10 C-10 Appendix C Periodic Inventory Systems for Merchandising Businesses July 6 Sold merchandise to a customer for $18,500, terms FOB shipping point, 2/10, n/30. 6 Paid the transportation charges of $420, debiting the amount to Accounts Receivable. 9 Issued a credit memorandum for $4,700 to the customer for merchandise returned. 16 Received a check for the amount due from the sale. EXERCISE C-3 Adjusting entries for merchandise inventory periodic inventory system Data assembled for preparing the work sheet for Meridian Co. for the fiscal year ended December, 2006, included the following: Merchandise inventory as of January 1, 2006 $475,000 Merchandise inventory as of December, 2006 $528,300 Journalize the two adjusting entries for merchandise inventory that would appear on the work sheet, assuming that the periodic inventory system is used. EXERCISE C-4 Identification of missing items from income statement periodic inventory system EXERCISE C-5 Multiple-step income statement periodic inventory system Gross profit: $230,560 For (a) through (i), identify the items designated by X and Y. a. Sales (X Y) Net sales b. Purchases (X Y) Net purchases c. Net purchases X Cost of merchandise purchased d. Merchandise inventory (beginning) Cost of merchandise purchased X e. Merchandise available for sale X Cost of merchandise sold f. Net sales Cost of merchandise sold X g. Gross profit Operating expenses X h. X Y Operating expenses i. Income from operations X Y Net income Selected data for Canyon Ferry Stores Company for the year ended December, 2006, are as follows: Merchandise inventory, January 1 $ 85,760 Sales $1,288,000 Merchandise inventory, December 102,240 Sales discounts 10,400 Purchases 1,051,200 Sales returns and allowances 13,920 Purchases discounts 12,800 Transportation in 36,000 Purchases returns and allowances 24,800 Prepare a multiple-step income statement through gross profit for Canyon Ferry Stores Company for the current year ended December. EXERCISE C-6 Adjusting and closing entries periodic inventory system Selected account titles and related amounts appearing in the Income Statement and Balance Sheet columns of the work sheet of Southern Bell Company for the year ended December are listed in alphabetical order as follows: Administrative Expenses $ 72,000 Purchases $ 820,000 Building 2,500 Purchases Discounts 14,000 Cash 58,500 Purchases Returns and Allowances 9,000 Connie Sorum, Capital 433,080 Salaries Payable 4,220 Connie Sorum, Drawing 40,000 Sales 1,450,000 Interest Expense 2,500 Sales Discounts 18,000 Merchandise Inventory (1/1) 300,000 Sales Returns and Allowances 32,000 Merchandise Inventory (12/) 275,000 Selling Expenses 240,200 Notes Payable 25,000 Store Supplies 7,700 Office Supplies 10,600 Transportation In 21,300 All selling expenses have been recorded in the account entitled Selling Expenses, and all administrative expenses have been recorded in the account entitled Administrative Expenses. Assuming that Southern Bell Company uses the periodic inventory system, journalize (a) the adjusting entries for merchandise inventory and (b) the closing entries.

11 66124_appC_C1-C14.qxd 11/10/03 7:47 PM Page C-11 Appendix C Periodic Inventory Systems for Merchandising Businesses C-11 Problems PROBLEM C-1 Sales-related and purchaserelated transactions periodic inventory system The following were selected from among the transactions completed by Infinet Shops, Inc., during November of the current year: Nov. 2. Purchased merchandise on account from Loftin Co., list price $24,000, trade discount 25%, terms FOB destination, 2/10, n/ Sold merchandise for cash, $8, Purchased merchandise on account from Chestnut Co., $12,000, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $180 added to the invoice. 10. Returned $3,000 of merchandise purchased on November 2 from Loftin Co. 11. Sold merchandise on account to Fawcett Co., list price $2,500, trade discount 20%, terms 1/10, n/ Paid Loftin Co. on account for purchase of November 2, less return of November 10 and discount. 15. Sold merchandise on nonbank credit cards and reported accounts to the card company, American Express, $9, Paid Chestnut Co. on account for purchase of November 9, less discount. 21. Received cash on account from sale of November 11 to Fawcett Co., less discount. 25. Sold merchandise on account to Clemons Co., $3,000, terms 1/10, n/ Received cash from American Express for nonbank credit card sales of November 15, less $380 service fee. 30. Received merchandise returned by Clemons Co. from sale on November 25, $1,700. Instructions Journalize the transactions for Infinet Shops, Inc., in a two-column general journal. PROBLEM C-2 Sales-related and purchaserelated transactions periodic inventory system The following were selected from among the transactions completed by Copra Sentry Company during July of the current year: July 3. Purchased merchandise on account from Swanson Co., list price $60,000, trade discount 30%, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $1,200 added to the invoice. 4. Purchased merchandise on account from Lambert Co., $8,000, terms FOB destination, 1/10, n/ Sold merchandise on account to Walsh Co., list price $12,000, trade discount 20%, terms 2/10, n/ Returned merchandise purchased on July 4 from Lambert Co., $1, Paid Swanson Co. on account for purchase of July 3, less discount. 14. Paid Lambert Co. on account for purchase of July 4, less return of July 9 and discount. 17. Received cash on account from sale of July 7 to Walsh Co., less discount. 19. Sold merchandise on nonbank credit cards and reported accounts to the card company, American Express, $7, Sold merchandise on account to Wu Co., $4,420, terms 2/10, n/ Sold merchandise for cash, $4, Received merchandise returned by Wu Co. from sale on July 22, $1,610.. Received cash from American Express for nonbank credit card sales of July 19, less $290 service fee. Instructions Journalize the transactions for Copra Sentry Co. in a two-column general journal.

12 66124_appC_C1-C14.qxd 12/1/03 2:33 PM Page C-12 C-12 Appendix C Periodic Inventory Systems for Merchandising Businesses PROBLEM C-3 Sales-related and purchaserelated transactions for seller and buyer periodic inventory system PROBLEM C-4 Preparation of work sheet, financial statements, and adjusting and closing entries periodic inventory system 1. Net income: $222,950 The following selected transactions were completed during May between Simkins Company and Burk Co.: May 6. Simkins Company sold merchandise on account to Burk Co., $18,500, terms FOB destination, 2/15, n/eom. 6. Simkins Company paid transportation costs of $600 for delivery of merchandise sold to Burk Co. on May Simkins Company sold merchandise on account to Burk Co., $15,750, terms FOB shipping point, n/eom. 11. Burk Co. returned merchandise purchased on account on May 6 from Simkins Company, $5, Burk Co. paid transportation charges of $300 on May 10 purchase from Simkins Company. 17. Simkins Company sold merchandise on account to Burk Co., $30,000, terms FOB shipping point, 1/10, n/30. Simkins prepaid transportation costs of $1,750, which were added to the invoice. 21. Burk Co. paid Simkins Company for purchase of May 6, less discount and less return of May Burk Co. paid Simkins Company on account for purchase of May 17, less discount.. Burk Co. paid Simkins Company on account for purchase of May 10. Instructions Journalize the May transactions for (1) Simkins Company and for (2) Burk Co. The accounts and their balances in the ledger of Sunshine Sports Co. on December, 2006, are as follows: Cash $ 28,000 Sales Discounts $ 7,100 Accounts Receivable 142,500 Purchases 500,000 Merchandise Inventory 200,000 Purchases Returns and Allowances 10,100 Prepaid Insurance 9,700 Purchases Discounts 4,900 Store Supplies 4,250 Transportation In 11,200 Office Supplies 2,100 Sales Salaries Expense 81,400 Store Equipment 132,000 Advertising Expense 45,000 Accumulated Depreciation Depreciation Expense Store Equipment 40,300 Store Equipment Office Equipment 50,000 Store Supplies Expense Accumulated Depreciation Miscellaneous Selling Expense 1,600 Office Equipment 17,200 Office Salaries Expense 44,000 Accounts Payable 56,700 Rent Expense 26,000 Salaries Payable Insurance Expense Unearned Rent 1,200 Depreciation Expense Note Payable (final payment, 2013) 100,000 Office Equipment Sherri Vogel, Capital 159,600 Office Supplies Expense Sherri Vogel, Drawing 40,000 Miscellaneous Administrative Income Summary Expense 1,650 Sales 960,000 Rent Revenue Sales Returns and Allowances 11,900 Interest Expense 11,600 The data needed for year-end adjustments on December are as follows: Merchandise inventory on December $215,000 Insurance expired during the year ,800 Supplies on hand on December : Store supplies ,300 Office supplies Depreciation for the year: Store equipment ,500 Office equipment ,800 Salaries payable on December : Sales salaries $4,000 Office salaries ,000 6,000 Unearned rent on December

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