Question

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2017, unadjusted trial balance of Emiko Co., a business owned by Kumi Emiko. Emiko Co. uses a perpetual inventory system.

		Debit			Credit
Merchandise inventory	$	32,000
Prepaid selling expenses		6,000
K. Emiko, Withdrawals		37,000
Sales				$	545,000
Sales returns and allowances		18,300
Sales discounts		5,400
Cost of goods sold		220,000
Sales salaries expense		52,000
Utilities expense		17,000
Selling expenses		38,000
Administrative expenses		109,000

Additional Information

Accrued sales salaries amount to $1,600. Prepaid selling expenses of $3,400 have expired. A physical count of year-end merchandise inventory shows $29,900 of goods still available.

(a) Use the above account balances along with the additional information, prepare the adjusting entries.
(b) Use the above account balances along with the additional information, prepare the closing entries.

Answer 1

EMIKO CO.

(A). ADJUSTING ENTRIES

Date	Account	Debit	Credit
12/31	Sales Salary Expenses	1600
	Accrued Salary Expenses		1600
	(Sales salary payable accounted)
12/31	Selling Expenses	3400
	Prepaid Selling Expenses		3400
	(Selling expenses accounted through prepaid selling exps.)
12/31	Inventory Loss (Shortage)	2100
	Inventory		2100
	(Difference between book inventory of $32000 and physical inventory of $29900 writtten off as loss)

B. CLOSING ENTRIES

Date	Account	Debit	Credit
12/31	Sales	545000
	Income Summery		545000
	(Revenue trfd. to income A/c)
12/31	Income Summery	466800
	Sales Return & Allowance		18300
	Sales Discount		5400
	Cost of goods sold		220000
	Sales Salary Exps.(52000 + 1600)		53600
	Utility Expenses		170000
	Selling Expenses (38000 + 3400)		41400
	Administrative Expenses		109000
	Inventory Loss (Shortage)		2100
	(All expenses trfd. to income A/c)
12/31	Income Summery	78200
	Retained Earnings		78200
	(net income 545000 - 466800 trfd. to retained earnings)
12/31	Retained Earnings	37000
	K Emiko Withdrawals		37000
	(Withdrawals Trfd. to retained earnings)

After these entries all temprorery accounts will have zero balance and all permanent acccount like inventory, prepaid expenses accrued salaries and retained earning will be reflected in balance sheet with there balances.