Question

1.

Design Your Own T-Shirt
Trial Balance
September 30, 2019
	DR	CR
Cash	575,000
Prepaid Insurance	1,890,000
Office Equipment	4,500,000
Accumulated Depreciation, Office Equipment		680,000
Inventory	2,250,000
Accounts Receivable	1,500,000
Estimated Returns Inventory	175,000
Notes Payable (Due in 6 months)		339,900
Notes Payable (Due in 2025)		2,360,000
Office Supplies	395,000
Store Equipment	5,000,000
Accumulated Depreciation, Store Equipment		1,825,000
Accounts Payable		1,025,000
Salaries Payable		295,600
Customer Refunds Payable		210,000
Retained Earnings, January 1		3,000,000
Dividends	100,000
Cost of Goods Sold	5,000,000
Sales		12,500,000
Common Stock		3,500,000
Office Supplies Expense	65,000
Depreciation Expense, Store Equipment	225,000
Depreciation Expense, Office Equipment	80,000
Interest Expense	97,600
Miscellaneous Selling Expense	80,000
Sales Salaries Expense	950,000
Rent Expense	1,200,000
Office Salaries Expense	315,000
Advertising Expense Insurance Expense	1,250,000
	87,900
Totals	25,735,500	25,735,500

2.

Transactions for October-December:

October 5, the company purchased $35,000 of inventory on account from ABC Company. The invoice terms were 2/20, n/60. October 10, Design Your Own T-Shirt sold $185,000 of merchandise to Sony, Inc. The inventory cost was $74,000, and the invoice terms were 1.5/20, n/60. October 11, the company hired three additional workers for the office.

The employees will all be paid $200 each per day for a 5-day work week (pay date is the end of each month). October 15, returned $5,000 of the merchandise purchased from ABC Company. October 25, received the electric bill. The total bill was for $8,000 and is due on November 5. The company’s policy is to accrue for expenses at the end of each month. Also, October 25, paid for the ABC Company merchandise purchased less the return.

Two transactions occurred on October 30: received the total payment from Sony, Inc. and Design Your Own T-Shirt purchased merchandise from XYZ Company, the invoice amount was $50,000, terms FOB Shipping Point, 2/20 n/60. Prepaid freight of $500 was added to the invoice amount.

Two transactions occurred on October 31: paid the employee salaries for the month of October (employees worked for 15 days in October), and accrued for the monthly electric bill.

November 1, sold $250,000 of merchandise to Walt Disney. The cost of the merchandise was $100,000 with terms 1.5/20, n/60. November 5, paid for the accrued electric bill. November 19, paid the XYZ invoice. November 21, received the total amount due from Walt Disney. November 30, paid the monthly salaries (employees worked for 21 days in November).

Four transactions occurred in the month of December. December 5 purchased merchandise for $75,000 cash from ABC Company. December 10, Walt Disney returned merchandise, the customer was paid a cash refund of $45,000. The cost of the returned merchandise was $18,000. December 15 sold $110,000 of merchandise to Indy Film Group. The inventory cost was $44,000 with terms 1.5/20, n/60. December 31, paid the monthly salaries for the employees (employees worked for 22 days in December).

3

Instructions

Design Your Own T-Shirt has hired you to do the following [Please complete the steps in the order presented]:

1. Prepare a corrected Trial Balance for September 30, 2019 (see Exhibit 1).
2. Prepare the required journal entries for October, November & December (See the attached General Journal Working Papers).
3. After preparing the journal entries, open the following T Accounts. (Please note that all of the below accounts have a beginning balance on the September 30 Trial Balance). See the attached General Ledger Working Papers:

a. Cash
b. Accounts Receivable
c. Inventory
d. Estimated Returns Inventory

e. Accounts Payable

f. Customer Refunds Payable

g. Sales
h. Cost of Goods Sold

i. Office Salaries Expense

j. Utilities Expense

4. Prepare the following statements for the Year Ended December 31, 2019:

a. Trial Balance

b. Multiple Step Income Statement

c. Retained Earnings Statement
d. Classified Balance Sheet

Answer 1

1.Trial Balance

Particulars	Adjusted trail balance
Cash a/c	761775
Prepaid Insurance a/c	1890000
Office equipment a/c	4500000
Accumulated depreciation, office equipment a/c		680000
Inventory a/c	2205000
Accounts receivable a/c	1610000
Estimated returns inventory a/c	130000
payables(due in 6 months) a/c		339900
payables(due in 2025) a/c		2360000
Office aupplies a/c	395000
Store equipment a/c	5000000

2. Journal Entries

Date	Particulars	Debit (Dr)	Credit (Cr)
05-Oct	Inventory a/c	35000
	To accounts payable a/c		35000
10-Oct	Accounts receivable a/c	185000
	To sales a/c		185000
10-Oct	Cost of goods sold a/c	74000
	To inventory a/c		74000
15-Oct	Accounts payable a/c	5000
	To inventory a/c		5000
15-Oct	Accounts payable a/c	30000
	To cash a/c		29400
	To discount a/c		600
30-Oct	Cash a/c	182225
	Discount a/c	2775
	To accounts receivable a/c		185000
30-Oct	Inventory a/c	50000
	Freight a/c	500
	To accounts payable a/c		50500
31-Oct	Salaries a/c	9000
	To cash a/c		9000
			.
31-Oct	Electricity expenses a/c	8000
	To Accured expenses a/c		8000
01-Nov	Accounts receivable a/c	250000
	To sales a/c		250000
01-Nov	Cost of goods sold a/c	100000
	To inventory a/c		100000
05-Nov	Accrued expenses a/c	8000
	To cash a/c		8000
19-Nov	Accounts payable a/c	50500
	To cash a/c		49500
	To discount a/c		1000
21-Nov	Cash a/c	246250
	Discount a/c	3750
	To accounts receivable a/c		250000
30-Nov	Salaries a/c	12600
	To cash a/c		12600
05-Dec	Inventory a/c	75000
	To cash a/c		75000
10-Dec	Sales return a/c	45000
	Estimated returns inventory a/c		45000
10-Dec	Customer refunds payable a/c	45000
	To cash a/c		45000
10-Dec	Inventory a/c	18000
	To cost of goods sold a/c		18000
15-Dec	Accounts receivable a/c	110000
	To sales a/c		110000
15-Dec	Cost of goods sold a/c	44000
	To inventory a/c		44000
31-Dec	Salaries a/c	13200
	To cash a/c		13200

3. T- accounts

a.Cash a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
Beginning balance	575000	accounts payable a/c	29400
accounts receivable a/c	182225	Salaries a/c	9000
accounts receivable a/c	246250	Accrued expense a/c	8000
		accounts payable a/c	49500
		Salaries a/c	12600
		Inventory a/c	75000
		Sales return a/c	45000
		Salaries a/c	13200
		Balance	761775
	1003475		1003475
b. Accounts receivable a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
Beginning balance	1500000	Cash a/c	182225
Sales a/c	185000	Discount a/c	2775
Sales a/c	250000	Cash a/c	246250
Sales a/c	110000	Discount a/c	3750
		balance	1610000
	2045000		2045000
c. Inventory a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
Beginning balance	2250000	Cost of goods sold a/c	74000
accounts payable a/c	35000	accounts payable a/c	5000
accounts payable a/c	50000	Cost of goods sold a/c	100000
cash a/c	75000	Cost of goods sold a/c	44000
cost of goods sold a/c	18000	balance	2205000
	2428000		2428000
d .Estimated returns inventory a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
Beginning balance	175000	sales return a/c.	45000
		balance	130000
	175000		175000

e. Accounts payable a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
inventory a/c	5000	Beginning balance	1025000
Cash a/c	29400	inventory a/c	35000
Discount a/c	600	inventory a/c	50000
Cash a/c	49500	freight a/c	500
Discount a/c	1000
balance	1025000
	1110500		1110500
f. Customer refunds payable a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
cash a/c	45000	beginning balance	210000
balance	165000
	210000		210000
g. Sales a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
		Beginning	12500000
		accounts receivable a/c	185000
		accounts receivable a/c	250000
		accounts receivable a/c	110000
	0		13045000
h. Cost of goods sold a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
Beginnings	5000000	Inventory a/c	18000
Inventory a/c	74000
Inventory a/c	100000	balance	5200500
Inventory a/c	44000
Freight a/c	500
	5218500		5218500
i.Office salaries expense a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
beginning	315000	balance	349800
Cash a/c	9000
Cash a/c	12600
Cash a/c	13200
	349800
j. Utilities expense a/c
Particulars	Debit (Dr)	Particulars	Credit (Cr)
beginning	0
accrued a/c	8000

.4.

a) Trial balance

Trial balance
Particulars	Adjusted Trail balance
Cash a/c	761775
Prepaid Insurance a/c	1890000
Office equipment a/c	4500000
Accumulated depreciation, office equipment a/c		680000
Inventory a/c	2205000
Accounts receivable a/c	1610000
Estimated returns inventory a/c	130000
payables(due in 6 months) a/c		339900
payables(due in 2025) a/c		2360000
Office aupplies a/c	395000
Store equipment a/c	5000000
Accumulated depreciation, store equipment a/c		1825000
accounts payable a/c		1025000
Salaries payable a/c		295600
Customer refunds payable a/c		165000
Retained earnings, Jan1 a/c		3000000
Dividends a/c	100000
Cost of goods sold a/c	5200500
Sales a/c		13045000
Sales return a/c	45000
Common Stock a/c		3500000
Office supplies expense a/c	65000
Depreciation exp, store equipement a/c	225000
Depreciation exp,office equipement a/c	80000
Inerest exp a/c	97600
Misc selling exp a/c	80000
Sales Salaries exp a/c	950000
Rent exp a/c	1200000
Office salaries exp a/c	349800
Advertising exp a/c	1250000
Insurance exp a/c	87900
Utilities a/c	8000
Discount allowed a/c	6525
Discount received a/c		1600
	26237100	26237100

b) Income statement

Particulars	Amount	Amount
Sales	13045000
Less: Sales Return	45000	13000000
Cost of goods sold (inc freight 500 rs)		5200500
Discount given		6525
Gross margin		7792975
Less: operating expenses
Office supplies expense	65000
Depreciation expense, store equipement	225000
Depreciation expense,office equipement	80000
Misc selling exp	80000
Sales Salaries expense	950000
Rent expense	1200000
Office salaries expense	349800
Advertising expense	1250000
Insurance expense	87900
Utilities	8000
Total operating expense		4295700
Other income: discount received		1600
Total operating income		3498875
Interest expense		97600
Profit before taxes		3401275

c) Retained Earnings Statement

Particulars	Amount	Amount
Beginning balance	3000000
Net income	3401275
Dividends	-100000
Ending balance		6301275

d) Classified Balance Sheet

Particulars	Amount	Amount
Assets
Current assets
Cash	761775
Prepaid Insurance	1890000
Inventory	2205000
Accounts receivable	1610000
Estimated returns inventory	130000
Office aupplies	395000
Total current assets	6991775
Non-current assets
Office equipment	4500000
Accumulated depreciation, office equipment	-680000
Store equipment	5000000
Accumulated depreciation, store equipment	-1825000
Total non-current assets	6995000
Total assets		13986775
Liabilities
Current liabilities
Notes payable (due in 6 months)	339900
accounts payable	1025000
Salaries payable	295600
Customer refunds payable	165000
Total current liabilities	1825500
Non-current liabilities
Notes payable due in 2025	2360000
Total liabilities	4185500
Stockholders' equity
Common stock	3500000
Retained earnings	6301275
Total stockholders' equity	9801275
Total liabilities+stockholders' equity		13986775