Question

The Green Thumb Gardener is a retail store that sells plants, soil, and decorative pots. On December 31, 2019, the firm's general ledger contained the accounts and balances that appear below. ACCOUNTS AND BALANCES Cash $ 5,100 Dr. Accounts Receivable 2,000 Dr. Allowance for Doubtful Accounts 46 Cr. Merchandise Inventory 10,700 Dr. Supplies 1,140 Dr. Prepaid Advertising 1,080 Dr. Store Equipment 7,740 Dr. Accumulated Depreciation—Store Equipment 1,440 Cr. Office Equipment 1,240 Dr. Accumulated Depreciation—Office Equipment 220 Cr. Accounts Payable 2,565 Cr. Social Security Tax Payable 370 Cr. Medicare Tax Payable 82 Cr. Federal Unemployment Tax Payable State Unemployment Tax Payable Salaries Payable Beth Argo, Capital 22,539 Cr. Beth Argo, Drawing 19,400 Dr. Sales 87,048 Cr. Sales Returns and Allowances 1,040 Dr. Purchases 44,600 Dr. Purchases Returns and Allowances 370 Cr. Rent Expense 5,400 Dr. Telephone Expense 530 Dr. Salaries Expense 13,500 Dr. Payroll Taxes Expense 1,210 Dr. Income Summary Supplies Expense Advertising Expense Depreciation Expense—Store Equipment Depreciation Expense—Office Equipment Uncollectible Accounts Expense ADJUSTMENTS a.–b. Merchandise inventory on December 31, 2019, is $11,721. During 2019, the firm had net credit sales of $29,000; the firm estimates that 0.5 percent of these sales will result in uncollectible accounts. On December 31, 2019, an inventory of the supplies showed that items costing $245 were on hand. On October 1, 2019, the firm signed a six-month advertising contract for $1,080 with a local newspaper and paid the full amount in advance. On January 2, 2018, the firm purchased store equipment for $7,740. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $540. On January 2, 2018, the firm purchased office equipment for $1,240. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $140. On December 31, 2019, the firm owed salaries of $1,770 that will not be paid until 2020. On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $1,770 of accrued wages. On December 31, 2019, the firm owed federal unemployment tax (assume 0.6 percent) and state unemployment tax (assume 5.4 percent) on the entire $1,770 of accrued wages. Required: Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019. Enter the adjustments above in the Adjustments section of the worksheet. Complete the worksheet. Analyze: By what amount were the assets of the business affected by adjustments?

Answer 1

	Adjusting entries:
	Date	Account titles and explanation			Debit	Credit
	2019
	Dec 31.
	a.	Income summary			10700
		Merchandise inventory				10700
		(Beginning inventory closed)
	b.	Merchandise inventory			11721
		Income summary				11721
		(Ending inventory recorded)
	c.	Uncollectible accounts expense			145
		Allowance for doubtful accounts				145
		(29000*0.5%)
		(Baddebt expense recorded)
	d	Supplies expense			895
		Supplies	(1140-245)			895
		(Supplies used during the year)
	e	Advertising expense			270
		Prepaid advertising		(1080*3/12)		270
		(Advertising expense for Oct to
		Dec recorded)
	f	Depreciation expense-Store equipment			1440
		Accumulated depreciation-Store equipment				1440
		(7740-540)/5
		(Depreciation recorded)
	g	Depreciation expense-Office equipment			220
		Accumulated depreciation-Office equipment				220
		(1240-140)/5
		(Depreciation recorded)
	i.	Salaries expense			1770
		Salaries payable				1770
		(Salary not paid till Dec 31)
	j.	Payroll tax expense			136
		Social security tax payable (1770*6.2%)				110
		Medicare tax payable (1770*1.45%)				26
		(FICA taxes due)
	k.	Payroll tax expense			107
		Fdederal unemployment tax payable (1770*0.6%)				11
		State unemployment tax payable (1770*5.4%)				96
		(Unemployment tax due)
			Worksheet
					Trial Balance		Adjustments		Adjusted Trial balance		Income statement		Balance sheet
	Account Name				Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
	Cash				5100				5100				5100
	Accounts receivable				2000				2000				2000
	Allowance for doubtful accounts					46		145		191				191
	Merchandise inventory				10700		1021		11721				11721
	Supplies				1140			895	245				245
	Prepaid advertising				1080			270	810				810
	Store Equipment				7740				7740				7740
	Accumulated depreciation-Store equipment					1440		1440		2880				2880
	Office equipment				1240				1240				1240
	Accumulated depreciation-Office equipment					220		220		440				440
	Accounts payable					2565				2565				2565
	Social security tax payable					370		110		480				480
	Medicare tax payable					82		26		108				108
	Federal Unemployment tax payable							11		11				11
	State unemployment tax payable							96		96				96
	Salaries payable							1770		1770				1770
	Beth argo capital					22539				22539				22539
	Beth argo ,Drawing				19400				19400				19400
	Sales					87048				87048		87048
	Sales return and allownces				1040				1040		1040
	Purchases				44600				44600		44600
	Purchase return and allownces					370				370		370
	Rent expense				5400				5400		5400
	Telephone expense				530				530		530
	Salaries expense				13500		1770		15270		15270
	Payroll tax expense				1210		243		1453		1453
	Income summary							1021		1021		1021
	Supplies expense						895		895		895
	Advertising expense						270		270		270
	Depreciation expense-Stores equipment						1440		1440		1440
	Depreciation expense-office equipment						220		220		220
	Uncollectible accounts expense						145		145		145
	Totals				114680	114680	6004	6004	119519	119519	71263	88439
	Net income										17176			17176
											88439	88439	48256	48256
	Analyze:
	Asset accounts effected by adjusting entries:
					Adjustments
	Account Name				Debit	Credit
	Cash
	Accounts receivable
	Allowance for doubtful accounts					145
	Merchandise inventory				1021
	Supplies					895
	Prepaid advertising					270
	Store Equipment
	Office equipment
					1021	1310
	Net effect=1310-1021=$ 289 Cr.