Question

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2017, unadjusted trial balance of Emiko Co.. Emiko Co. uses a perpetual inventory system.

		Debit			Credit
Merchandise inventory	$	30,000
Prepaid selling expenses		5,600
Dividends		33,000
Sales				$	529,000
Sales returns and allowances		17,500
Sales discounts		5,000
Cost of goods sold		212,000
Sales salaries expense		48,000
Utilities expense		15,000
Selling expenses		36,000
Administrative expenses		105,000

Additional Information

Accrued sales salaries amount to $1,700. Prepaid selling expenses of $3,000 have expired. A physical count of year-end merchandise inventory shows $28,700 of goods still available.

(a) Use the above account balances along with the additional information, prepare the adjusting entries.
(b) Use the above account balances along with the additional information, prepare the closing entries.

Answer 1

Emiko Company	Unadjusted		Adjustments		Adjusted		Remarks
Account Titles	Debit	Credit	Debit	Credit	Debit	Credit
Merchandise Inventory	30,000.00			1,300.00	28,700.00		Ending Merchandise Inventory is $ 28,700. So difference will be adjusted with cost of goods sold i.e. is $ 30,000- $ 2,8700= $ 1,300.
Prepaid Selling expenses	5,600.00			3,000.00	2,600.00		Expired Prepaid Selling expenses $ 3,000.
Cost of good sold	212,000.00		1,300.00		213,300.00		Ending Merchandise Inventory is $ 28,700. So difference will be adjusted with cost of goods sold i.e. is $ 30,000- $ 2,8700= $ 1,300.
Salaries Expense	48,000.00		1,700.00		49,700.00		Unpaid Salaries Expense $ 1,700.
Selling expenses	36,000.00		3,000.00		39,000.00		Expired Prepaid Selling expenses $ 3,000.
Salaries Payable				1,700.00		1,700.00	Unpaid Salaries Expense $ 1,700.

Answer a	Adjusting Entries
Account	Debit $	Credit $
Sales Salaries Expense	1,700.00
Sales Salaries Payable		1,700.00
Selling expenses	3,000.00
Prepaid Selling expenses		3,000.00
Cost of good sold	1,300.00
Merchandise Inventory		1,300.00
Answer b	Closing Entries
All expense and income accounts will be closed to income summary account.
Then income summary account will be closed to Capital account.
Account	Debit $	Credit $
Sales	529,000.00
Income Summary		529,000.00
(Being Revenue accounts closed to Income Summary account)
Income Summary	444,500.00
Sales Returns and Allowances		17,500.00
Sales Discount		5,000.00
Cost of good sold		213,300.00
Salaries Expense		49,700.00
Selling expenses		39,000.00
Utilities Expense		15,000.00
Administrative Expense		105,000.00
(Being Expense accounts closed to Income Summary account)
Income Summary	84,500.00
Retained Earnings		84,500.00
(This is the difference between revenues and expenses.)
Retained Earnings	33,000.00
Dividend		33,000.00
(To record closing of dividend account)