Question

Valley Company’s adjusted trial balance on August 31, 2017, its fiscal year-end, follows.

		Debit			Credit
Merchandise inventory		$	40,500
Other (noninventory) assets			62,090
Total liabilities					$	25,500
Common stock						17,200
Retained earnings						21,500
Dividends			8,800
Sales						226,200
Sales discounts			2,210
Sales returns and allowances			13,000
Cost of goods sold			74,300
Sales salaries expense			32,800
Rent expense—Selling space			8,800
Store supplies expense			1,800
Advertising expense			14,000
Office salaries expense			28,200
Rent expense—Office space			3,500
Office supplies expense			400
Totals		$	290,400		$	290,400

On August 31, 2016, merchandise inventory was $25,100. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.

Invoice cost of merchandise purchases	$	91,300
Purchases discounts received		2,200
Purchases returns and allowances		4,300
Costs of transportation-in		4,900

Required:

1. Prepare closing entries as of August 31, 2017 (the perpetual inventory system is used).

Answer 1

Ans.	Date	Accounts Titles and Explanations	Debit	Credit
	31-Aug-17	Sales	226200
		To Income summary		226200
		(amount of sales transferred to income summary)
	31-Aug-17	Income summary	179010
		To Sales discounts		2210
		To Sales returns and allowances		13000
		To cost of goods sold		74300
		To Sales salaries expenses		32800
		To Rent expenses - Selling space		8800
		To Store supplies expenses		1800
		To Advertising expenses		14000
		To Office salaries expenses		28200
		To Rent expenses - Office space		3500
		To Office supplies expenses		400
		(Expenses are charged from income summary)
	31-Aug-17	Income summary (Net income)	47190
		To Retained earnings		47190
		(Net income is transferred to retained earnings)
	31-Aug-17	Retained earnings	8800
		To Dividends		8800
		(Dividend is charged to retained earnings)
	*Calculation of Net income:
		Particulars	Amount	Amount
		Sales	226200
		Less: Sales discounts	-2210
		Less: Sales returns and allowances	-13000
		Net sales		210990
		Less: Cost of goods sold		-74300
		Gross income		136690
		Less: Selling and office expenses:
		Sales salaries expenses	-32800
		Rent expenses - Selling space	-8800
		Store supplies expenses	-1800
		Advertising expenses	-14000
		Office salaries expenses	-28200
		Rent expenses - Office space	-3500
		Office supplies expenses	-400	-89500
		Net Income		47190