Question

A physical inventory taken at year end indicated that there was $125,000 on hand. The Estimated Returns Inventory is $8,200. Depreciation for the year is $24,500. On December 31, the close of the fiscal year, the balances of selected accounts appearing in the ledger of Broxton Gallery, an art retailer, are as follows:

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Accumulated Depr.-Building	$365,000	Inventory	$115,000
Administrative Expenses	440,000	Notes Payable	100,000
Building	810,000	Purchases	810,000
Retained Earnings	455,000	Purchases Returns and Allowances	2,500
Cash	78,000	Sales	1,700,000
Common Stock	75,000	Sales Tax Payable	4,500
Cost of Goods Sold	775,000	Selling Expenses	160,000
Dividends	15,000	Store Supplies	16,000
Interest Expense	6,000	​	​

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Prepare the December 31 closing entries for Broxton Gallery.

Answer 1

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Broxton Gallery	Amount $
Opening Inventory	115,000.00
Add: Purchases	810,000.00
Less: Purchase returns	2,500.00
Less: Cost of goods sold	775,000.00
Ending Inventory	147,500.00
Physical ending inventory	125,000.00
Adjustment to be done	22,500.00
Cost of goods sold- adjusted	797,500.00
Less: Estimated Returns Inventory	8,200.00
Revised Cost of goods sold	789,300.00
Adjusting entry
Account	Debit $	Credit $
Depreciation expense-Building	24,500.00
Accumulated Depreciation-Building		24,500.00
Cost of goods sold	22,500.00
Inventory		22,500.00
Inventory- estimated returns	8,200.00
Cost of goods sold		8,200.00
Closing Entries
Account	Debit $	Credit $
Sales	1,700,000.00
Income Summary		1,700,000.00
Income Summary	1,395,300.00
Cost of goods sold		789,300.00
Administrative Expenses		440,000.00
Interest Expense		6,000.00
Selling Expenses		160,000.00
Income Summary	304,700.00
Retained Earnings		304,700.00
Retained Earnings	15,000.00
Dividends		15,000.00