Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Solution to Problem 5-1A
1
Part 1—Journalizing
(NOTE: The General Journal shown is how it would appear after the entries had been posted.)
GENERAL JOURNAL Date 2014 a.
b.
b.
c.
d.
e.
f.
g.
g.
Page 1
Account Titles and Explanation
PR
Debit
Merchandise Inventory ................................... Accounts Payable .................................. Terms 2/10, n/30.
119 201
550,000
Cash............................................................... Sales ..................................................... To record cash sales.
101 413
815,000
Cost of Goods Sold ........................................ Merchandise Inventory.......................... To record cost of sales.
502 119
509,000
Merchandise Inventory ................................... Cash ..................................................... To record freight costs.
119 101
10,500
Accounts Payable ........................................... Merchandise Inventory.......................... To record purchase return.
201 119
20,000
Accounts Payable ........................................... Merchandise Inventory.......................... Cash ..................................................... Payment within discount period.
201 119 101
530,000
Prepaid Rent................................................... Cash ..................................................... To record prepaid rent.
128 101
36,000
Accounts Receivable ....................................... Sales ..................................................... Terms 2/10, n/30.
106 413
25,000
Cost of Goods Sold ........................................ Merchandise Inventory.......................... To record cost of sales.
502 119
17,000
Credit
550,000
815,000
509,000
10,500
20,000
10,600 519,400
36,000
25,000
17,000
2
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
GENERAL JOURNAL Date 2014 h.
h.
i.
j.
k.
l.
Page 2
Account Titles and Explanation
PR
Debit
Sales Returns & Allowances ............................ Accounts Receivable .............................. Sales return; returned to inventory.
414 106
3,000
Merchandise Inventory ................................... Cost of Goods Sold ............................... Cost of returned merchandise.
119 502
2,040
Salaries Expense ............................................. Cash ..................................................... To record payment of salaries.
622 101
50,000
Long-Term Notes Payable .............................. Interest Expense ............................................. Cash ..................................................... Payment of interest and principal.
251 633 101
5,000 1,000
Cash............................................................... Sales Discount ................................................ Accounts Receivable .............................. 25,000 ⫺ 3,000 ⫽ 22,000 ⫻ 2% ⫽ 440; 22,000 ⫺ 440 ⫽ 21,560.
101 415 106
21,560 440
Insurance Payable........................................... Cash ..................................................... Payment of outstanding insurance.
202 101
1,000
Credit
3,000
2,040
50,000
6,000
22,000
1,000
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
3
Part 1, 2, 4, & 6—Posting Cash Beg bal b. k.
Unadj bal
10,000 815,000 21,560
101
10,500 519,400 36,000 50,000 6,000 1,000
c. e. f. i. j. l.
Beg bal g.
26,000 25,000
Unadj bal
26,000
3,000 22,000
106 h. k.
Merchandise Inventory Beg bal a. c. h.
38,000 550,000 10,500 2,040
509,000 20,000 10,600 17,000
Unadj bal
43,940
4,940
Adj Bal
39,000
119
b. d. e. g. AJE
223,660
Prepaid Rent Beg bal f.
4,000 36,000
Unadj bal
40,000
Adj bal
2,000
20,000 530,000
128
Store Equipment Beg bal
38,000
Accounts Payable d. e.
Accounts Receivable
9,000 550,000
165
Accumulated Dep., Store Equip.
73,000
AJE
201 Beg bal a.
9,000 14,000 700
Unadj bal AJE AJE
23,700
Adj bal
Insurance Payable l.
1,000
1,000 -0-
202
Unadj bal
11,000 5,500
Beg bal AJE
16,500
Adj Bal
Long-Term Notes Payable
Beg bal j.
5,000
166
251
45,000
Beg bal
40,000
Unadj bal
NOTE: The blue represents adjusting information; the red represents closing information.
4
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 1, 2, 4, & 6 (continued) Wes Glendall, Capital
301
Sales
85,000 Beg bal 198,460 Clsng Entry 283,460 Post-Clsng bal
Sales Discounts k.
440
Post-Clsng bal
-0-
415
440 Clsng Entry
815,000 b. 25,000 g. Clsng Entry 840,000
Cost of Goods Sold b. 509,000 g. 17,000
Salaries Expense
Post-Clsng bal
-0-
38,000
Post-Clsng bal
-0-
622
50,000 Clsng Entry
Rent Expense AJE
502
2,040 h.
Unadj bal 523,960 AJE 4,940
Post-Clsng bal
50,000
840,000 Unadj bal -0- Post-Clsng bal
Adj bal 528,900
i.
413
640
38,000 Clsng Entry
Sales Returns & Allowances h.
3,000
Post-Clsng bal
-0-
414
3,000 Clsng Entry
Depreciation Expense AJE
5,500
Post-Clsng bal
-0-
605
5,500 Clsng Entry
528,900 Clsng Entry
-0-
Interest Expense j.
1,000
Post-Clsng bal
-0-
1,000 Clsng Entry
Advertising Expense AJE
14,000
Post-Clsng bal
-0-
633
655
14,000 Clsng Entry
Insurance Expense AJE
700
Post-Clsng bal
-0-
637
700 Clsng Entry
Income Summary
901
Clsng 641,540
840,000 Clsng
Clsng 198,460
198,460 Balance -0-
NOTE: The blue represents adjusting information; the red represents closing information.
Post-Clsng bal
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
5
Part 3—Unadjusted Trial Balance Glendall Company Unadjusted Trial Balance October 31, 2014 Account No. 101 106 119 128 165 166 201 202 251 301 413 414 415 502 622 633
Account Description Cash .......................................................................... Accounts receivable ................................................... Merchandise inventory .............................................. Prepaid rent ............................................................... Store equipment ........................................................ Accumulated depreciation, store equip ...................... Accounts payable....................................................... Insurance payable ...................................................... Long-term notes payable ........................................... Wes Glendall, capital.................................................. Sales .......................................................................... Sales returns and allowances ...................................... Sales discounts........................................................... Cost of goods sold ..................................................... Salaries expense ......................................................... Interest expense......................................................... Totals .........................................................................
Debits $223,660 26,000 43,940 40,000 73,000
Credits
$ 11,000 9,000 1,000 40,000 85,000 840,000 3,000 440 523,960 50,000 1,000 $985,000
$985,000
Part 4—Adjusting Entries (NOTE: The General Journal shown is how it would appear after the entries had been posted.) GENERAL JOURNAL Date 2014 Oct. 31
31
31
31
31
Page 3
Account Titles and Explanation
PR
Rent Expense.................................................. Prepaid Rent ......................................... 40,000 ⫺ 2,000 ⫽ 38,000.
640 128
38,000
605
5,500
Depreciation Expense, Store Equip. ................ Accum. Dep., Store Equip. .................... To record annual depreciation.
Debit
Credit
38,000
166
5,500
Advertising Expense ....................................... Accounts Payable .................................. To accrue advertising expense.
655 201
14,000
Insurance Expense .......................................... Accounts Payable .................................. To accrue insurance expense.
637 201
700
Cost of Goods Sold ........................................ Merchandise Inventory.......................... 43,940 ⫺ 39,000 ⫽ 4,940.
502 119
4,940
14,000
700
4,940
6
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 5—Adjusted Trial Balance Glendall Company Adjusted Trial Balance October 31, 2014 Account No. 101 106 119 128 165 166 201 251 301 413 414 415 502 605 622 633 637 640 655
Account Description Cash ...................................................................... Accounts receivable ............................................... Merchandise inventory .......................................... Prepaid rent ........................................................... Store equipment .................................................... Accumulated depreciation, store equip .................. Accounts payable................................................... Long-term notes payable ....................................... Wes Glendall, capital.............................................. Sales ...................................................................... Sales returns and allowances .................................. Sales discounts....................................................... Cost of goods sold ................................................. Depreciation expense, store equipment ................. Salaries expense ..................................................... Interest expense..................................................... Insurance expense ................................................. Rent expense ......................................................... Advertising expense ............................................... Totals .....................................................................
Debits $ 223,660 26,000 39,000 2,000 73,000
Credits
$
3,000 440 528,900 5,500 50,000 1,000 700 38,000 14,000 $1,005,200
16,500 23,700 40,000 85,000 840,000
$1,005,200
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
7
Part 6—Single-step income statement and balance sheet
Glendall Company Income Statement For Year Ended October 31, 2014 Revenues: Net sales .................................................................................... Expenses: Cost of goods sold ..................................................................... Selling expenses ......................................................................... General and administrative expenses .......................................... Interest expense ......................................................................... Total expenses ............................................................................ Net income ...................................................................................
$836,560 $528,900 63,850 44,350 1,000 638,100 $198,460
Glendall Company Balance Sheet October 31, 2014 Assets Current assets: Cash .................................................................. Accounts receivable ........................................... Merchandise inventory ...................................... Prepaid rent ....................................................... Total current assets ............................................
$223,660 26,000 39,000 2,000 $290,660
Property, plant and equipment: Store equipment ................................................ Less: Accumulated depreciation...................... Total property, plant and equipment ................. Total assets ............................................................... Liabilities Current liabilities: Accounts payable............................................... Current portion of long-term notes payable ....... Total current liabilities ........................................ Long-term liabilities: Long-term notes payable, less $5,000 current portion............................................... Total liabilities ....................................................... Equity Wes Glendall, capital ............................................. Total liabilities and equity..........................................
$ 73,000 16,500 56,500 $347,160
$23,700 5,000 $ 28,700
35,000 $ 63,700
283,460 $347,160
8
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 7—Journalize closing entries (NOTE: The General Journal shown is how it would appear after the entries had been posted.) GENERAL JOURNAL Date 2014 Oct. 31
31
31
Page 4
Account Titles and Explanation
PR
Debit
Sales............................................................... Income Summary .................................. To close temporary credit balance accounts.
413 901
840,000
Income Summary ........................................... Sales Returns and Allowances ................ Sales Discounts ..................................... Cost of Goods Sold ............................... Depreciation Exp., Store Equip. ............. Salaries Expense .................................... Interest Expense .................................... Insurance Expense................................. Rent Expense ........................................ Advertising Expense .............................. To close temporary debit balance accounts.
901 414 415 502 605 622 633 637 640 655
641,540
Income Summary ........................................... Wes Glendall, Capital ............................ To close net income to capital.
901 301
198,460
Credit
840,000
3,000 440 528,900 5,500 50,000 1,000 700 38,000 14,000
198,460
Part 8—Post-closing trial balance Glendall Company Post-Closing Trial Balance October 31, 2014 Account No. 101 106 119 128 165 166 201 251 301
Account Description Cash .......................................................................... Accounts receivable ................................................... Merchandise inventory .............................................. Prepaid rent ............................................................... Store equipment ........................................................ Accumulated depreciation, store equip ...................... Accounts payable....................................................... Long-term notes payable ........................................... Wes Glendall, capital.................................................. Totals .........................................................................
Debits $223,660 26,000 39,000 2,000 73,000
$363,660
Credits
$ 16,500 23,700 40,000 283,460 $363,660
Analysis component: Gross profit ratio ⫽ Gross profit/Net sales ⫻ 100% ⫽ ($836,560 ⫺ $528,900)/$836,560 ⫻ 100% ⫽ 36.78% The gross profit ratio for the year ended October 31, 2014, was 36.78%, which is favourable when compared to the 27% achieved for the year ended October 31, 2013.
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Solution to Problem 5-1B
9
Part 1—Journalizing
(NOTE: The General Journal shown is how it would appear after the entries had been posted.) GENERAL JOURNAL Date 2014 a.
b.
b.
c.
d.
e.
f.
g.
g.
Page 1
Account Titles and Explanation
PR
Debit
Merchandise Inventory ................................... Accounts Payable .................................. Terms 3/10, n/30.
119 201
2,900,000
Cash............................................................... Sales ..................................................... To record cash sales.
101 413
3,400,000
Cost of Goods Sold ........................................ Merchandise Inventory.......................... To record cost of sales.
502 119
2,720,000
Merchandise Inventory ................................... Cash ..................................................... To record freight costs.
119 101
140,000
Accounts Payable ........................................... Merchandise Inventory.......................... To record purchase return.
201 119
150,000
Accounts Payable ........................................... Cash ..................................................... 2,900,000 ⫺ 150,000 ⫽ 2,915,000.
201 101
2,915,000
Prepaid Rent................................................... Cash ..................................................... To record prepaid rent.
128 101
120,000
Accounts Receivable ....................................... Sales ..................................................... Terms 1/10, n/30.
106 413
650,000
Cost of Goods Sold ........................................ Merchandise Inventory.......................... To record cost of sales.
502 119
520,000
Credit
2,900,000
3,400,000
2,720,000
140,000
150,000
2,915,000
120,000
650,000
520,000
10
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
GENERAL JOURNAL Date 2014 h.
i.
j.
k.
l.
Page 2
Account Titles and Explanation
PR
Debit
Sales Returns & Allowances ............................ Accounts Receivable .............................. Sales return; returned to inventory.
414 106
15,000
Salaries Expense ............................................. Cash ..................................................... To record payment of salaries.
622 101
320,000
Long-Term Notes Payable .............................. Interest Expense ............................................. Cash ..................................................... Payment of interest and principal.
251 633 101
25,000 8,500
Cash............................................................... Accounts Receivable .............................. 650,000 ⫺ 15,000 ⫽ 635,000.
101 106
635,000
Insurance Payable........................................... Cash ..................................................... 24,000 ⫻ 1/2 ⫽ 12,000.
202 101
12,000
Credit
15,000
320,000
33,500
635,000
12,000
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
11
Part 1, 2, 4, & 6—Posting Cash Beg bal 65,000 b. 3,400,000 k. 635,000
Unadj bal
101
140,000 2,915,000 120,000 320,000 33,500 12,000
c. e. f. i. j. l.
Beg bal g. Unadj bal
203,000 650,000 203,000
106
15,000 h. 635,000 k.
Merchandise Inventory Beg bal 420,000 a. 2,900,000 c. 140,000 Unadj bal Adj Bal
70,000 42,000
119
2,720,000 b. 150,000 d. 520,000 g. 28,000 AJE
559,500
Prepaid Rent Beg bal f. Unadj bal Adj bal
Accounts Receivable
84,000 120,000 204,000 14,000
Store Equipment Beg bal
165
Accumulated Dep., Store Equip.
498,000
178,000 2,900,000 13,000 85,000 8,000 106,000
166
56,000 Beg bal 28,000 AJE 84,000 Adj Bal
190,000 AJE
Accounts Payable d. 150,000 e. 2,915,000
128
201 Beg bal a. Unadj bal AJE AJE Adj bal
Insurance Payable l.
12,000
202
24,000 Beg bal 12,000 Unadj bal
Long-Term Notes Payable j.
25,000
251
192,000 Beg bal 167,000 Unadj bal
NOTE: The blue represents adjusting information; the red represents closing information.
12
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 1, 2, 4, & 6 (continued) Sasha Tuxall, Capital
301
820,000 Beg bal 127,500 Clsng Entry 947,500 PostClsng bal
Sales
413
3,400,000 b. 650,000 g. Clsng Entry 4,050,000
4,050,000 Unadj bal -0- PostClsng bal
Cost of Goods Sold b. 2,720,000 g. 520,000 Unadj bal 3,240,000 AJE 28,000 Adj bal 3,268,000 PostClsng bal
Salaries Expense i.
320,000
PostClsng bal
-0-
320,000 Clsng Entry
Rent Expense AJE
190,000
PostClsng bal
-0-
622
190,000 Clsng Entry
h.
15,000
PostClsng bal
-0-
15,000 Clsng Entry
Depreciation Expense AJE
28,000
PostClsng bal
-0-
414
605
28,000 Clsng Entry
3,268,000 Clsng Entry
-0-
Interest Expense j.
8,500
PostClsng bal
-0-
640
502
Sales Returns & Allowances
8,500 Clsng Entry
Advertising Expense AJE
85,000
PostClsng bal
-0-
633
655
85,000 Clsng Entry
Insurance Expense AJE
8,000
PostClsng bal
-0-
8,000 Clsng Entry
Income Summary Clsng 3,922,500 Clsng 127,500
637
901
4,050,000 Clsng 127,500 Balance -0- PostClsng bal
NOTE: The blue represents adjusting information; the red represents closing information.
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
13
Part 3—Unadjusted Trial Balance Tuxall Company Unadjusted Trial Balance March 31, 2014 Account No. 101 106 119 128 165 166 201 202 251 301 413 414 502 622 633
Account Description Cash ...................................................................... Accounts receivable ............................................... Merchandise inventory .......................................... Prepaid rent ........................................................... Store equipment .................................................... Accumulated depreciation, store equip .................. Accounts payable................................................... Insurance payable .................................................. Long-term notes payable ....................................... Sasha Tuxall, capital ............................................... Sales ...................................................................... Sales returns and allowances .................................. Cost of goods sold ................................................. Salaries expense ..................................................... Interest expense..................................................... Totals .....................................................................
Debits $ 559,500 203,000 70,000 204,000 498,000
Credits
$
15,000 3,240,000 320,000 8,500 $5,118,000
56,000 13,000 12,000 167,000 820,000 4,050,000
$5,118,000
Part 4—Adjusting Entries (NOTE: The General Journal shown is how it would appear after the entries had been posted.) GENERAL JOURNAL Date 2014 Mar. 31
31
31
31
31
Page 3
Account Titles and Explanation
PR
Debit
Rent Expense.................................................. Prepaid Rent ......................................... To record expired rent.
640 128
190,000
Depreciation Expense, Store Equip. ................ Accum. Deprec., Store Equip................. To record annual depreciation.
605 166
28,000
Advertising Expense ....................................... Accounts Payable .................................. To accrue advertising expense.
655 201
85,000
Insurance Expense .......................................... Accounts Payable .................................. To accrue insurance expense.
637 201
8,000
Cost of Goods Sold ........................................ Merchandise Inventory.......................... 70,000 ⫺ 42,000 ⫽ 28,000.
502 119
28,000
Credit
190,000
28,000
85,000
8,000
28,000
14
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 5—Adjusted Trial Balance Tuxall Company Adjusted Trial Balance March 31, 2014 Account No. 101 106 119 128 165 166 201 202 251 301 413 414 502 605 622 633 637 640 655
Account Description Cash ...................................................................... Accounts receivable ............................................... Merchandise inventory .......................................... Prepaid rent ........................................................... Store equipment .................................................... Accumulated depreciation, store equip .................. Accounts payable................................................... Insurance payable .................................................. Long-term notes payable ....................................... Sasha Tuxall, capital ............................................... Sales ...................................................................... Sales returns and allowances .................................. Cost of goods sold ................................................. Depreciation expense, store equipment ................. Salaries expense ..................................................... Interest expense..................................................... Insurance expense ................................................. Rent expense ......................................................... Advertising expense ............................................... Totals .....................................................................
Debits $ 559,500 203,000 42,000 14,000 498,000
Credits
$
15,000 3,268,000 28,000 320,000 8,500 8,000 190,000 85,000 $5,239,000
84,000 106,000 12,000 167,000 820,000 4,050,000
$5,239,000
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
15
Part 6—Single-step income statement and balance sheet
Tuxall Company Income Statement For Year Ended March 31, 2014 Revenues: Net sales ................................................................................. Expenses: Cost of goods sold .................................................................. Selling expenses ...................................................................... General and administrative expenses ....................................... Interest expense ...................................................................... Total expenses ......................................................................... Net income ................................................................................
$4,035,000 $3,268,000 501,500 129,500 8,500 3,907,500 $ 127,500
Tuxall Company Balance Sheet March 31, 2014 Assets Current assets: Cash ................................................................ Accounts receivable ......................................... Merchandise inventory .................................... Prepaid rent ..................................................... Total current assets ..........................................
$559,500 203,000 42,000 14,000 $ 818,500
Property, plant and equipment: Store equipment .............................................. Less: Accumulated depreciation.................... Total property, plant and equipment ............... Total assets ............................................................. Liabilities Current liabilities: Accounts payable............................................. Insurance payable ............................................ Current portion of long-term notes payable ...... Total current liabilities ...................................... Long-term liabilities: Long-term notes payable, less $25,000 current portion............................................. Total liabilities ..................................................... Equity Sasha Tuxall, capital ............................................ Total liabilities and equity........................................
$498,000 84,000 414,000 $1,232,500
$106,000 12,000 25,000 $143,000
142,000 $ 285,000
947,500 $1,232,500
16
Extend Your Knowledge 5-2 Comprehensive Merchandising Problems—Perpetual
Part 7—Journalize closing entries (NOTE: The General Journal shown is how it would appear after the entries had been posted.) GENERAL JOURNAL Date 2014 Oct. 31
31
31
Page 4
Account Titles and Explanation
PR
Debit
Sales............................................................... Income Summary .................................. To close temporary credit balance accounts.
413 901
4,050,000
Income Summary ........................................... Sales Returns and Allowances ................ Cost of Goods Sold ............................... Depreciation Exp., Store Equip. ............. Salaries Expense .................................... Interest Expense .................................... Insurance Expense................................. Rent Expense ........................................ Advertising Expense .............................. To close temporary debit balance accounts.
901 414 502 605 622 633 637 640 655
3,922,500
Income Summary ........................................... Sasha Tuxall, Capital ............................. To close net income to capital.
901 301
127,500
Credit
4,050,000
15,000 3,268,000 28,000 320,000 8,500 8,000 190,000 85,000
127,500
Part 8—Post-closing trial balance Tuxall Company Post-Closing Trial Balance March 31, 2014 Account No. 101 106 119 128 165 166 201 637 251 301
Account Description Cash ...................................................................... Accounts receivable ............................................... Merchandise inventory .......................................... Prepaid rent ........................................................... Store equipment .................................................... Accumulated depreciation, store equip .................. Accounts payable................................................... Insurance payable .................................................. Long-term notes payable ....................................... Sasha Tuxall, capital ............................................... Totals .....................................................................
Debits $ 559,500 203,000 42,000 14,000 498,000
Credits
$
$1,316,500
84,000 106,000 12,000 167,000 947,500 $1,316,500
Analysis component: The inventory shrinkage for the year ended March 31, 2014, of 8.6% as calculated below represents a decrease when compared to the 12% for the year ended March 31, 2013. This is a favourable change. Calculations: $28,000/$3,268,000 ⫻ 100% ⫽ 8.6%
