Question

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.)

Answer 1

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