Question

The following are selected account balances for Withers Company for the year ending December 31, 2019:

Accounts Payable $63,000

Accounts Receivable $82,000

Cash $95,000

Freight-in $3,000

Merchandise Inventory (1/1/19) $120,000

Merchandise Inventory (12/31/19) $90,000

Purchases $262,000

Purchase Returns & Allowances $33,000

Purchases Discounts $12,000

Sales $566,000

Sales Returns & Allowances 36,000

Total Selling Expenses $92,000

Total Administrative Expenses $43,000 Withers,

Capital $660,000 Withers,

Withdrawals $100,000

REQUIRED: 1) Prepare the multiple-step income statement under the Periodic System (the way we did in class). Highlight Nets Sales, Cost of Goods Sold, Gross Margin, and Net Income.

2) Prepare the necessary closing entries.

Answer 1

1)

Withers Company
Income Statement
December 31, 2019
Revenues
Sales revenue	566,000
Less:
Sales return and allowance	-36,000
Net Sales		530,000
Cost of goods sold:
Merchandise inventory (1/1/19)	120,000
Add: Purchase	262,000
Less: Purchase returns and allowance	-33,000
Less: Purchase discount	-12,000
Add: Freight in	3,000
Cost of goods available for sale	340,000
Less: Merchandise inventory (12/31/19)	-90,000
Cost of goods sold		-250,000
Gross Margin		280,000
Operating expenses:
Total Selling expenses	-92,000
Total Administrative expenses	-43,000
Total Operating expenses		-135,000
Net Income		$145,000

2)

Date	Accounts	Debit	Credit
Dec-31	Sales revenue	$566,000
	Income Summary		$566,000
	( To close revenues)
Dec-31	Income Summary	$421,000
	Sales returns and allowances		$36,000
	Cost of goods sold		$250,000
	Selling expenses		$92,000
	Administrative expenses		$43,000
	( To close expenses)
Dec-31	Income Summary	$145,000
	Withers, Capital		$145,000
	( To close income summary)
Dec-31	Withers, Capital	$100,000
	Withers, Withdrawal		$100,000
	( To transfer the owner drawings)

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