Question

Part II. Journal, ledger, trial balance and financial statements (10’*4=40’) Shine King Cleaning has decided that, in addition to providing cleaning services, it will sell cleaning products. Shine King uses the perpetual inventory system. During December 2015, Shine King completed the following transactions: Dec. 2 Purchased 600 units of inventory for $3,600 on account from Sparkle, Co. on terms, 3/10, n/20. 7 Returned 100 units of inventory to Sparkle from the December 2 purchase (cost $600). 11 Sold 350 units of goods to happy Maids for $5,250 on account with terms 5/10, n/30. Shine King’s cost of the goods was $2,100. 11 Paid the freight charge of $30. 12 Paid Sparkle. 15 Received 30 units with a retail price of $450 of goods back from customer happy Maids. The goods cost Shine King $180. 21 Received payment from happy Maids, settling the amount due in full. 23 Customer Apron paid $1,500 for 100 units of inventory. The delivery date is not determined. 29 Paid cash for Utilities of $150. 30 Paid cash for Sales Commission expense of $225. 31 Recorded the following adjusting entries: a. Delivered 50 units of products to customer A b. Physical count of inventory on December 31 showed 198 units of goods on hand, $1,488 c. depreciation, $170 d. Accrued salaries expense of $500 e. Accrued interest expense of $50 f. The company paid for one-year rent of 600 for a small office, which will be put into operation in July 1 in 2015. Requirements: 1. Prepare the journal entries for the transactions that happened in December. 2. Prepare a multi-step income statement depending on the journals you record (35% of tax rate and 20% of dividend payout ratio).

Answer 1

	Books of Shing King Cleaning
	Journal entries
	For the month of Dec 2015
date	Account Title	Debit	Credit
2-Dec	Merchandise inventory	3600
	Accounts payable		3600
	(600 units,Terms 3/10,n/20)
7-Dec	Accounts payable	600
	Merchandise inventory		600
	(100 units)
11-Dec	Accounts receivable	5250
	Sales revenue		5250
	(350 units,terms 5/10,n/30)
	COGS	2100
	Merchandise inventory		2100
	(350 units)
	Selling expense	30
	Cash		30
12-Dec	Accounts payable(3600-600)	3000
	Merchandise inventory(3000*3%)		90
	Cash(3000-90)		2910
15-Dec	Sales returns	450
	Accounts receivable		450
	Merchandise inventory	162
	COGS		162
	(30 units)(as per wkgs.)
21-Dec	Cash(4800-240)	4560
	Sales discounts(4800*5%)	240
	Accounts receivable(5250-450)		4800
23-Dec	Cash	1500
	Unearned revenue		1500
	(100 units)
29-Dec	Utilities expense	150
	Cash		150
30-Dec	Sales commission	225
	Cash		225
	Adjusting Entries
31-Dec	Unearned revenue	750
	Sales revenue		750
	(1500/100*50)
	COGS	270
	Merchandise inventory		270
	(as per wkgsFor perp.inv.)
	Merchandise inventory	786
	Cash		786
	(as per wkgs.)
	Depreciation expense	170
	Acc. Depn.		170
	Salaries expense	500
	Salaries payable		500
	Interest expense	50
	Interest payable		50
	Prepaid rent	600
	Cash		600
		24993	24993

Workings for perpetual inventory
	Units	$	$/units
Purchase	600	3600	6
P/R	-100	-600	6
Sales	-350	-2100	6
P/disc.		-90
Total	150	810	5.4
S/Ret	30	162	5.4
Total	180	972	5.4
adj. a.	-50	-270	5.4
Total	130	702	5.4
Addl.J/E needed	68	786
Physical count	198	1488

Trial balance	Debit	Credit
Cash	1359
Merchandise inventory	1488
Prepaid rent	600
Acc. Depn.		170
Salaries payable		500
Unearned revenue		750
Interest payable		50
Sales revenue		6000
Sales discounts	240
Sales returns	450
COGS	2208
Utilities expense	150
Selling expense	30
Sales commission	225
Salaries expense	500
Depreciation expense	170
Interest expense	50
Totals	7470	7470

Multi-step income statement
Sales revenue	6000
Less:Sales discounts	240
Less:Sales returns	450
Net sales		5310
Less:COGS		2208
Gross profit		3102
Less: Operating expenses:
Utilities expense	150
Selling expense	30
Sales commission	225
Salaries expense	500
Depreciation expense	170	1075
Operating Income		2027
Less:Interest expense		50
Income before tax		1977
Less: Income tax expense at 35%		692
Net Income		1285