Question

Valley Company’s adjusted trial balance on August 31, its fiscal year-end, follows. It categorizes the following accounts as selling expenses: sales salaries expense, rent expense—selling space, store supplies expense, and advertising expense. It categorizes the remaining expenses as general and administrative.
  

			Debit			Credit
Merchandise inventory (ending)		$	41,000
Other (noninventory) assets			130,400
Total liabilities					$	25,000
Common stock						10,000
Retained earnings						94,550
Dividends			8,000
Sales						225,600
Sales discounts			2,250
Sales returns and allowances			12,000
Cost of goods sold			74,500
Sales salaries expense			32,000
Rent expense—Selling space			8,000
Store supplies expense			1,500
Advertising expense			13,000
Office salaries expense			28,500
Rent expense—Office space			3,600
Office supplies expense			400
Totals		$	355,150		$	355,150

  
Beginning merchandise inventory was $25,400. Supplementary records of merchandising activities for the year ended August 31 reveal the following itemized costs.
  

Invoice cost of merchandise purchases	$	92,000
Purchases discounts received		2,000
Purchases returns and allowances		4,500
Costs of transportation-in		4,600

  
Required:

Prepare closing entries as of August 31 (the perpetual inventory system is used).

Answer 1

Solution:

Date	General Journal	Debit($)	Credit($)
Aug 31	Sales a/c Dr	225,600
	To Income Summary a/c		225,600
	(Being close of revenue accounts)
Aug 31	Income summary a/c Dr	175,750
	To Sales Discounts a/c		2,250
	To sales returns and allowances a/c		12,000
	To Cost of goods sold a/c		74,500
	To Sales salaries expense a/c		32,000
	To Rent expense-sellling space a/c		8,000
	To Store supplies expense a/c		1,500
	To Advertising expense a/c		13,000
	To Office salaries expense a/c		28,500
	To Rent expense-Office space a/c		3,600
	To Office supplies expense a/c		400
	(Being close of expense account)
Aug 31	Income summary a/c Dr(225600-175750)	49,850
	To Retained earnings a/c		49,850
	(Being close net income to retained earnings)
Aug 31	Retained earnings a/c Dr	8,000
	To Dividends a/c		8,000
	(Being record the close of dividends)