Question

On December 1, 2017, Splish Brothers Inc. had the account balances shown below.

		Debits				Credits
Cash		$5,200		Accumulated Depreciation—Equipment		$1,390
Accounts Receivable		3,830		Accounts Payable		3,050
Inventory (3,100 x $0.60)		1,860		Common Stock		9,500
Equipment		21,700		Retained Earnings		18,650
		$32,590				$32,590

The following transactions occurred during December.

Dec. 3		Purchased 4,100 units of inventory on account at a cost of $0.67 per unit.
5		Sold 4,500 units of inventory on account for $0.90 per unit. (It sold 3,100 of the $0.60 units and 1,400 of the $0.67.)
7		Granted the December 5 customer $270 credit for 300 units of inventory returned costing $240. These units were returned to inventory.
17		Purchased 2,000 units of inventory for cash at $0.80 each.
22		Sold 1,900 units of inventory on account for $0.91 per unit. (It sold 1,900 of the $0.67 units.)

Adjustment data:

1.		Accrued salaries and wages payable $440.
2.		Depreciation on equipment $180 per month.
3.		Income tax expense was $190, to be paid next year.

1. Journalize the December transactions and adjusting entries, assuming Harrisen uses the perpetual inventory method. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2. Enter the December 1 balances in the ledger T-accounts and post the December transactions. (Post entries in the order of journal entries presented above.)

3. Prepare an adjusted trial balance as of December 31, 2017.

4. Prepare an income statement for December 2017.

5. Prepare a classified balance sheet at December 31, 2017. (List current assets in order of liquidity.)

6. (a) Compute ending inventory and cost of goods sold under FIFO, assuming Harrisen Company uses the periodic inventory system.

Answer 1

1. Journal entries

Date	Particulars	Debit	Credit
Dec.3	Inventory	2747
	account payable		2747
5	account receivable	4050
	inventory		2798
	profit and loss		1252
7	inventory	240
	profit and loss	30
	account receivable		270
17	inventory	1600
	cash		1600
22	account receivable	1729
	inventory		1273
	profit and loss		456
	adjusting entries
1.	salaries	440
	salaries payable		440
2.	depreciation	180
	accumulated depreciation		180
3.	income tax	190
	income tax payable		190

2. cash account

debit			credit
balance b/d	5200		inventory	1600
			balance c/d	3600

account receivable

debit			credit
balanceb/d	3830		inventory	240
inventory (2798+1273)	4071		profit and loss	30
profit and loss(1252+456)	1708
			balance c/d	9339

account payable

debit			credit
			balance b/d	3050
			inventory	2747
balance c/d	5797

inventory

debit			credit
balance b/d	1860		account receivable	2798
account receivable	240		account receivable	1273
cash	1600
account payable	2747		balance c/d	2376

3. adjusted trial balance

debit			credit
account receivable	9339		account payable	5797
inventory	2376		accumuated depreciation	1390
cash	3600		common stock	9500
equipment	21700		retained earnings	20328
	37015			37015

4. Income statement

particulars	amount
revenue(4050+1729-270)	5509
less: cost ( 2798-240+1273-1600)	2231
gross profit	3278
less: salaries payable	440
accumulated depreciation	180
income tax payable	190
net profit	2468