In: Accounting
Comprehensive Problem 2
Palisade Creek Co. is a merchandising business that uses the
perpetual inventory system. The account balances for Palisade Creek
as of May 1, 2018 (unless otherwise indicated), are as
follows:
Net income: $741,855
110 Cash $ 83,600 112 Accounts Receivable 233,900 115 Inventory
624,400 116 Estimated Returns Inventory 28,000 117 Prepaid
Insurance 16,800 118 Store Supplies 11,400 123 Store Equipment
569,500 124 Accumulated Depreciation— Store Equipment 56,700 210
Accounts Payable 96,600 211 Salaries Payable — 212 Customers
Refunds Payable 50,000 310 Common Stock 100,000 311 Retained
Earnings 585,300
312 Dividends $ 135,000 313 Income Summary — 410 Sales 5,069,000
510 Cost of Goods Sold 2,823,000 520 Sales Salaries Expense 664,800
521 Advertising Expense 281,000 522 Depreciation Expense — 523
Store Supplies Expense — 529 Miscellaneous Selling Expense 12,600
530 Office Salaries Expense 382,100 531 Rent Expense 83,700 532
Insurance Expense — 539 Miscellaneous Administrative Expense
7,800
During May, the last month of the fiscal year, the following
transactions were completed: May 1. Paid rent for May, $5,000. 3.
Purchased merchandise on account from Martin Co., terms 2/10, n/30,
FOB shipping point, $36,000.
May 4. Paid freight on purchase of May 3, $600. 6. Sold merchandise
on account to Korman Co., terms 2/10, n/30, FOB shipping point,
$68,500. The cost of the goods sold was $41,000. 7. Received
$22,300 cash from Halstad Co. on account. 10. Sold merchandise for
cash, $54,000. The cost of the goods sold was $32,000. 13. Paid for
merchandise purchased on May 3. 15. Paid advertising expense for
last half of May, $11,000. 16. Received cash from sale of May 6.
19. Purchased merchandise for cash, $18,700. 19. Paid $33,450 to
Buttons Co. on account. 20. Paid Korman Co. a cash refund of
$13,230 for returned merchandise from sale of May 6. The invoice
amount of the returned merchandise was $13,500 and the cost of the
returned merchandise was $8,000. Record the following transactions
on Page 21 of the journal: May 20. Sold merchandise on account to
Crescent Co., terms 1/10, n/30, FOB shipping point, $110,000. The
cost of the goods sold was $70,000. 21. For the convenience of
Crescent Co., paid freight on sale of May 20, $2,300. 21. Received
$42,900 cash from Gee Co. on account. 21. Purchased merchandise on
account from Osterman Co., terms 1/10, n/30, FOB destination,
$88,000. 24. Returned of damaged merchandise purchased on May 21,
receiving a credit memo from the seller for $5,000. 26. Refunded
cash on sales made for cash, $7,500. The cost of the merchandise
returned was $4,800. 28. Paid sales salaries of $56,000 and office
salaries of $29,000. 29. Purchased store supplies for cash, $2,400.
30. Sold merchandise on account to Turner Co., terms 2/10, n/30,
FOB shipping point, $78,750. The cost of the goods sold was
$47,000. 30. Received cash from sale of May 20 plus freight paid on
May 21. 31. Paid for purchase of May 21, less return of May
24.
Instructions 1. Enter the balances of each of the accounts in the
appropriate balance column of a four-column account. Write Balance
in the item section, and place a check mark ( Balance in the item
section, and place a check mark ( Balance ) in the Posting
Reference column. Journalize the transactions for July, starting on
Page 20 of the journal. 2. Post the journal to the general ledger,
extending the month-end balances to the appropriate balance columns
after all posting is completed. In this problem, you are not
required to update or post to the accounts receivable and accounts
payable subsidiary ledgers. 3. Prepare an unadjusted trial balance.
4. At the end of May, the following adjustment data were assembled.
Analyze and use these At the end of May, the following adjustment
data were assembled. Analyze and use these data to complete (5) and
(6).
A. Inventory on May 31 $570,000 B. Insurance expired during the
year 12,000 C. Store supplies on hand on May 31 4,000 D.
Depreciation for the current year 14,000 E. Accrued salaries on May
31: Sales salaries $7,000 Office salaries 6,600 13,600 F. The
adjustment for customer returns and allowances is $60,000 for sales
and $35,000 for cost of goods sold.
5. (Optional) Enter the unadjusted trial balance on a 10-column
end-of-period spreadsheet (work sheet), and complete the
spreadsheet. 6. Journalize and post the adjusting entries. Record
the adjusting entries on Page 22 of the journal. 7. Prepare an
adjusted trial balance. 8. Prepare an income statement, a retained
earnings statement, and a balance sheet. 9. Prepare and post the
closing entries. Record the closing entries on Page 23 of the
journal. Indicate closed accounts by inserting a line in both the
Balance columns opposite the closing entry. Insert the new balance
in the retained earnings account. 10. Prepare a post-closing trial
balance.