Question

Value Vintage Corp. is a second-hand thrift store. During the December 31, 2018 fiscal year end, the following accounts appeared in two of its trial balances:

	Unadjusted	Adjusted
Accounts payable	$ 79,300	$ 79,300
Accounts receivable	95,300	95,300
Accumulated depreciation—building	42,100	52,500
Accumulated depreciation—equipment	29,600	42,900
Buildings	190,000	190,000
Cash	68,000	68,000
Common shares	160,000	160,000
Cost of goods sold	412,700	412,700
Depreciation expense	0	23,700
Dividends	28,000	28,000
Equipment	110,000	110,000
Insurance expense	0	7,200
Interest expense	3,000	11,000
Interest income	4,000	4,000
Interest payable	0	8,000
Inventory	75,000	75,000
Mortgage payable	80,000	80,000
Prepaid insurance	9,600	2,400
Property tax expense	0	4,800
Property tax payable	0	4,800
Retained earnings	16,600	16,600
Salaries and wages expense	108,000	108,000
Sales commission expense	11,000	14,500
Sales commission payable	0	3,500
Sales returns and allowances	8,000	8,000
Sales revenue	718,000	718,000
Utilities expense	11,000	11,000

Analysis information pertaining to the accounts are as follows:

- Insurance expense and utilities expense are 60% selling and 40% administrative.

- In the next year, $20,000 of the mortgage payable will be due for payment.

- Property tax expense and depreciation on the building are administrative expenses; depreciation on the equipment is a selling expense; and $32,000 of the salaries and wages expense related to office salaries and the remainder related to sales salaries. Depreciation expense includes $10,400 relating to the building and $13,300 relating to equipment.

Required

1. Journalize the adjusting entries.   (2 marks/entry x 6=12)

2. Journalize the closing entries.   (8 marks [-2 per entry error])

3. Prepare a classified balance sheet.   (20 marks [-2 per error])

Answer 1

Answer 1					Answer 3
Adjusting journal entries					Classified Balance Sheet
Entry No.	Account Titles	Debit	Credit		Assets
1	Depreciation Expense	$23,700			Accounts Receivables	$95,300
	Accumulated depreciation—building		$10,400		Cash	$68,000
	Accumulated depreciation—equipment		$13,300		Inventory	$75,000
					Prepaid Insurance	$2,400
2	Insurance Expense	$7,200			Total Current Assets		$240,700
	Prepaid Insurance		$7,200		Buildings	$190,000
					Less : Accumulated depreciation—building	$52,500
3	Interest Expense	$8,000			Buildings (Net)		$137,500
	Interest Payable		$8,000		Equipment	$110,000
					Less : Accumulated depreciation—Equipment	$42,900
4	Property Tax expense	$4,800			Equipment (Net)		$67,100
	Property Tax Payable		$4,800		Total Assets		$445,300
					Equity and Liabilities
5	Sales Commission Expense	$3,500			Accounts Payable	$79,300
	Sales Commission Payable		$3,500		Interest Payable	$8,000
					Mortgage Payable (due in 12 months)	$20,000
					Property Tax Payable	$4,800
Answer 2					Sales Commission payable	$3,500
Closing Journal Entries					Total Current Liabilities		$115,600
Entry No.	Account Titles	Debit	Credit		Long term Liabilities
1	Income Summary	$600,900			Mortgage Payable		$60,000
	Sales Return and allowances		$8,000		Equity
	Cost of goods sold		$412,700		Common shares	$160,000
	Selling Expenses		$114,720		Retained Earnings	$109,700
	Administrative Expenses		$54,480		Total Equity		$269,700
	Interest Expense		$11,000		Total Equity and Liabilities		$445,300
2	Sales Revenue	$718,000			Working
	Interest Income	$4,000			Income Statement
	Income Summary		$722,000		Sales Revenue (Gross)	$718,000
					Less : Sales Return and Allowances	$8,000
3	Income Summary	$121,100			Sales Revenue (Net)		$710,000
	Retained Earnings		$121,100		Less : Cost of goods sold		$412,700
					Gross Margin		$297,300
4	Retained Earnings	$28,000			Less : Selling and Administrative Expenses
	Dividend		$28,000		Selling Expenses
					Depreciation Expense - Equipment	$13,300
					Insurance Expense	$4,320
					Utilities Expenses	$6,600
					Sales Commission Expense	$14,500
					Salaries and Wages Expense	$76,000
					Total Selling Expenses		$114,720
					Administrative Expenses
					Depreciation Expense - Building	$10,400
					Insurance Expense	$2,880
					Utilities Expenses	$4,400
					Property Tax Expense	$4,800
					Salaries and Wages Expense	$32,000
					Total Administrative Expenses		$54,480
					Add : Interest Income		$4,000
					Earnings before interest and tax		$132,100
					Less : Interest Expense		$11,000
					Net Income		$121,100