Question

In: Accounting

Whispering Winds Warehouse Store has an August 31 fiscal year end and uses a perpetual inventory...

Whispering Winds Warehouse Store has an August 31 fiscal year end and uses a perpetual inventory system. An alphabetical list of its account balances at August 31, 2021, follows: All accounts have normal balances.
Accounts payable $29,500 Interest revenue $930
Accounts receivable 21,000 Merchandise inventory 58,000
Accumulated depreciation—equipment 26,920 Notes payable 49,710
Notes receivable 32,500
Cash 13,500 Rent expense 16,500
Cost of goods sold 575,500 Sales 700,000
Depreciation expense 6,730 Sales discounts 3,800
Equipment 67,300 Sales returns and allowances 14,400
Freight out 5,100 Supplies expense 6,000
Insurance expense 2,800 Unearned revenue 6,200
Interest expense 2,300 V. Whispering Winds, capital 72,500
Interest receivable 230 V. Whispering Winds, drawings 60,100

Additional information:
1. All adjustments have been recorded and posted except for the inventory adjustment. According to the inventory count, the company has $55,900 of merchandise on hand.
2. Last year Whispering Winds Warehouse Store had a gross profit margin of 19% and a profit margin of 9%.

Prepare the closing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Post above entries in the Income Summary account. (Post entries in the order of journal entries presented in the previous part.)

Solutions

Expert Solution

1. Closing Entries:

Date Account title and explanation Debit Credit
Aug 31 Sales $700,000
Interest revenue $930
Income summary $700,930
[To close revenue accounts]
Aug 31 Income summary $635,230
Sales discounts $3,800
Sales returns and allowances $14,400
Cost of goods sold [575500+2100*] $577,600
Depreciation expense $6,730
Freight out $5,100
Insurance expense $2,800
Interest expense $2,300
Rent expense $16,500
Supplies expense $6,000
[To close expenses accounts]
Aug 31 Income summary [700930-635230] $65,700
V. Whispering Winds, Capital $65,700
[To close income summary]
Aug 31 V. Whispering Winds, Capital $60,100
V. Whispering Winds, Drawings $60,100
[To close drawings account]

*Inventory shrinkage = $58,000-$55,900 = $2,100

2. Income summary Account:

Income Summary
Aug 31 $635,230 Aug 31 $700,930
Aug 31 $65,700
Aug 31 End. Bal. $0

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