Question

Davis Uniform Corporation operates a store that sells uniforms. The following are the transactions that occurred during the first quarter of operation- Jan. 1 to Mar. 31, 2019.

Jan.     1   Davis issues 20,000 shares of $1 par value common stock with an issuing price of $10

per share.

Jan.     2   Purchased furniture and fixtures from Acme Furniture for $14,400 cash.

Jan.     4   Purchased $1,600 of office supplies for cash.

Jan.   15   Paid $36,000 in advance for one year’s rent on the store building. The rent begins with

                Jan 15. The company counts January for half a month.

Jan.   31   Paid salaries to employees for the first month, $3,600.

Feb.    1    Purchased $62,400 of uniforms inventory on account from the Birdwell Uniforms

                 Manufacturing Company.

Feb.    1    Borrowed $66,000 from a local bank and signed two notes. The first note of                  

                $21,000 requires payment of principal in six months with annual interest rate at 4%.

                The second note of $45,000 requires the payment of principal in two years and annual

interest payment with annual interest rate at 5%.

Feb.    6    Sold uniforms on account to St. Jude’s School for $7,200. Cost of the uniforms sold

is $4,800.

Feb.    9   Paid Birdwell Uniforms Manufacturing Company $50,000 for the purchase on Feb. 1.

Feb. 20    Sold uniforms to a chemical factory for $79,200 cash. Cost of the uniforms sold is

                 $47,520.

Feb. 23    Purchased $10,000 of uniforms inventory on account from the Birdwell Uniforms

                 Manufacturing Company.

Feb. 28    Paid salaries to employees for the month of February, $4,200.

Mar.   1   Sold uniforms to the football team of Robert Lee High School, and accepted a $12,000,

three-month, note receivablewith annual interest rate at 5%. Cost of the uniforms

sold is $9,600.

Mar.   1   Subleased a portion of the building to a jewelry store. Received $3,000 in advance

for three months’ rent beginning on Mar. 1.

Mar.   3   Some uniforms were returned by the chemical factory which made a purchase on

                Feb. 20. The selling price and cost of the returned uniforms is $7,200 and 4,320,

respectively. Cash of $7,200 is refunded to the customer.

Mar. 23   Paid Birdwell Uniforms Manufacturing Company $14,400 for the purchases in Feb.

Mar. 25   Received $5,800 cash from St. Jude’s School.

Mar. 30   The corporation announced and paid its shareholders cash dividends of $2,500.

Requirements:

1. Analyze the transactions and record journal entries in General Journal.

2. Open accounts in General Ledger and post from the General Journal to the general ledger accounts.

3. Record adjusting entries in General Journal and post to the general ledger accounts.

Additional information:

1. At the end of March, $900 of supplies remained.

2. The furniture and fixtures have a useful life of six years and will be worthless at the end of their useful life.

3.    Salaries for the month of March are $4,600, and will be paid in April.

4.    The company’s management estimated that of the $1,400 remaining on account from St.

Jude’s School, $200 would be uncollectible.

5. Income tax rate applied to the company is 21%.

4. Prepare a worksheet as of Mar 31, 2019.

5. For Davis Uniform Corporation as of Mar 31, 2019, prepare the financial statements

including Income Statement (multiple-step with EPS section), Classified Balance Sheet,

and Statement of Stockholders’ Equity. Statement of Cash Flows is not required.

6. Prepare closing entries to close the temporary accounts and post to the general ledger accounts.

Answer 1

1. In the books of Davis Uniforms Corporation:

Date	General Journal	Debit	Credit
		$	$
Jan 1	Cash	200,000
	Common Stock		200,000
Jan 2	Furniture and Fixtures	14,400
	Cash		14,400
Jan 4	Office Supplies	1,600
	Cash		1,600
Jan 15	Prepaid Rent	36,000
	Cash		36,000
Jan 31	Salaries Expense	3,600
	Cash		3,600
Feb 1	Uniforms Inventory	62,400
	Accounts Payable		62,400
Feb 1	Cash	66,000
	Notes Payable ( short term )		21,000
	Notes Payable ( long term )		45,000
Feb 6	Accounts Receivable	7,200
	Sales Revenue		7,200
Feb 6	Cost of Goods Sold	4,800
	Uniforms Inventory		4,800
Feb 9	Accounts Payable	50,000
	Cash		50,000
Feb 20	Cash	79,200
	Sales Revenue		79,200
Feb 20	Cost of Goods Sold	47,520
	Uniforms Inventory		47,520
Feb 23	Uniforms Inventory	10,000
	Accounts Payable		10,000
Feb 28	Salaries Expense	4,200
	Cash		4,200
March 1	Notes Receivable	12,000
	Sales		12,000
March 1	Cost of Goods Sold	9,600
	Uniforms Inventory		9,600
March 1	Cash	3,000
	Unearned Rent		3,000
March 3	Sales Returns and Allowances	7,200
	Cash		7,200
March 3	Uniforms Inventory	4,320
	Cost of Goods Sold		4,320

Contd:

March 23	Accounts Payable	14,400
	Cash		14,400
March 25	Cash	5,800
	Accounts Receivable		5,800
March 31	Dividends	2,500
	Cash		2,500

3. Adjusting entries:

Date	General Journal	Debit	Credit
		$	$
a.	Supplies Expense	700
	Office Supplies		700
b.	Depreciation Expense ( 14,400 / ( 6 x 12 ) ) * 3	600
	Accumulated Depreciation : Furniture and Fixtures		600
c.	Salaries Expense	4,600
	Salaries Payable		4,600
d.	Bad Debt Expense	200
	Accounts Receivable		200
e.	Rent Expense	7,500
	Prepaid Rent		7,500
f.	Unearned Rent	1,000
	Rent Revenue		1,000
g.	Interest Expense	515
	Interest Payable		515
h.	Interest Receivable	50
	Interest Revenue		50
i.	Income Tax Expense
	Income Taxes Payable