Question

The Best Clothing Company, a retail corporation, had the following post closing trial balance, December 31, 2016 (in thousands of dollars).

ACCOUNT

NUMBER         NAME OF ACCOUNT                                         DEBIT           CREDIT

10                       CASH                                                                           30

20                       ACCOUNTS RECEIVABLE                                    91

34                       NOTES RECEIVABLE, CURRENT                     100

35                       ACCRUED INTEREST RECEIVABLE                 16

40                       MERCHANDISE INVENTORY                            160

52                       PREPAID FIRE INSURANCE                                   3

62                       NOTES RECEIVABLE LONG TERM                 100

74                       EQUIPMENT                                                           120

74A                    ACCUMULATED DEPREC. EQUIP.                                                76

100                     ACCOUNTS PAYABLE                                                                      90

111                     ACCRUED WAGES PAYABLE                                                           8

123                     ACCRUED INCOME TAXES PAYABLE                                           4

137                     UNEARNED SALES REVENUE                                                        10

200                     PAID IN CAPITAL                                                                             110

230                     RETAINED INCOME                                             ___                     322

                                                                                                               620                     620

The following summarized transactions occurred during 2017 and are shown in thousands of dollars.

a.         Merchandise inventory purchased on open account was $480.

b.         Total sales were $890, of which 80% were on credit.

c.         The sales in (b) were exclusive of the deliveries of goods to customers who had paid in advance as of December 31, 2016. See account # 137 on the above trial balance. All of those goods ordered in advance were all delivered in 2017.

d.         The cost of goods sold including those in (c), was $440.

e.         Collections from credit customers were $682.

f.          The notes receivable are from a major supplier of belts.  Interest on all notes was collected on May 1, 2017.  The rate is 12% per annum.  The accounting system provides for cash collections of interest to be credited first to existing accrued interest receivable (see account #35) carried over from the preceding period.

g.         The principal of the current notes receivable was collected on May 1, 2017.  The principal of the remaining notes is payable on May 1, 2018 (see entry [r]).

h.         As of December 31, 2017, customers had made a total of $7 in advance cash payments for "layaway"plans and for merchandise not yet in stock.  These payments were exclusive of any other transactions described above.

CASH DISBURSEMENTS WERE:

i.          To trade creditors for accounts payable, $470.

j.          To employees for wages, $193.  The accounting system for wages is to debit any existing accrued payables (see account #111) first and debit any remainder of a disbursement to wage expense.

k.         For miscellaneous expenses such as store rents, advertising, utilities, and suppliers, which were paid in cash, $189. It is not necessary to establish separate accounts for these items.

l.          New equipment was acquired on July 1, 2017 for $74.

m.           A new fire insurance policy for 36 months was secured and paid in full on September 1, 2017. The effective date of the policy was September 1, 2017 and the cost is $36.

n.            Income taxes were paid to the Federal and State governments in the amount of $19.  Only $15 of the $19 was debited to income tax expense because the company pays taxes on a quarterly basis (see account #123).

o.         The board of directors declared a cash dividend of $26 on December 15, 2017 to stockholders of record, January 5, 2018 and payable January 26, 2018.  This company uses an account called DIVIDENDS DECLARED to record the declaration of dividends. This means that your debit would be to Dividends Declared.  Do not debit retained earnings.

THE FOLLOWING ADJUSTMENTS WERE MADE ON DECEMBER 31, 2016:

p.         For the interest on notes receivable.

q.         For current fire insurance policy and the prepaid insurance of December 31, 2016, has expired too.  See account # 52 on the opening trial balance.

r.         For reclassification of the note receivable. This is necessary because the notes become payable the following year.

s.         For depreciation: depreciation expense for the year is $30.

t.          Wages earned but UNPAID, at December 31, 2017, $15.

u.         Total income tax expense for 2017is $20, computed as 40% of pretax income of $50.  Note: part of the 2016 income tax has already been recorded and paid, as indicated by transaction [n].  This is a MAJOR HINT: You must arrive at $50 as your Net Income before Income Tax Expense, if you DO NOT, there is a problem with your journal entries and/or postings.

You are the unfortunate accountant who must record all of the transactions listed above because the bookkeeper was fired for stealing from the store.  Therefore, you must do the following to close the books:

Post all balances as shown on the trial balance of 12/31/16 to T ACCOUNTS and indicate that they are opening balances for 1/1/17.  Then journalize all of the transactions from a. to u.  For any accounts not shown in the trial balance establish new accounts and USE ACCOUNT NUMBERS IN THE 300 SERIES.

Post all transactions that you have journalized to the T ACCOUNTS. All postings must contain posting references to the transaction codes, i.e., the letters a. - u.

Prepare a trial balance as of December 31, 2017.

Journalize and post the closing entries to CLOSE THE BOOKS

Prepare a multi step income statement as of December 31, 2017.

Prepare a statement of retained earnings as of December 31, 2017.

Prepare a classified comparative balance sheet for December 31, 2016 and December 31, 2017.

Answer 1

1. Journalize each of transactions in the General Journal.
JOURNAL
Date	Account			Debit	Credit
a.	Merchandise Inventory			480
	Account Payable				480
b.	Accounts Receivable			712
	Cash			178
	Sales				890
c.	Unearned Sales revenue			10
	Sales				10
d.	Cost of goods sold			440
	Merchandise Inventory				440
e.	Cash			682
	Accounts Receivable				682
f.	Cash			24
	Interest revenue				8
	Accrued Interest receivable				16
g.	Cash			100
	Note receivable - Current				100
h.	Cash			7
	Unearned sales revenue				7
i.	Accounts payable			470
	Cash				470
j.	Wages expense			185
	Accrued wages payable			8
	Cash				193
k.	Miscellaneous expense			189
	Cash				189
l.	Equipment			74
	Cash				74
m.	Prepaid Fire Insurance			36
	Cash				36
n.	ACCRUED INCOME TAXES PAYABLE			4
	Income tax expense			15
	Cash				19
o.	Dividend Declared			26
	Dividend payable				26
p.	Accrued Interest receivable			8
	Interest revenue				8
q.	Insurance Expense			7
	Prepaid Fire Insurance				7
r.	Note receivable - Current			100
	Note receivable - long term				100
s.	Depreciation expense			30
	Accumulated Dep. Equipment				30
t.	Wages expense			15
	Accrued wages Payable				15
u.	Income tax expense			5
	ACCRUED INCOME TAXES PAYABLE				5
2. Open the following T- Accounts
T- Accounts
Cash
Balance	30	470	i.
b.	178	193	j.
e.	682	189	k.
f.	24	74	l.
g.	100	36	m.
h.	7	19	n
Balance	40
Accounts Receivable
Balance	91	682	e.
b.	712
Balance	121
Notes Receivable - Current
Balance	100	100	g.
r.	100
Balance	100
Accured Interest Receivable
Balance	16	16	f.
p.	8
Balance	8
Merchandise Inventory
Balance	160	440	d.
a.	480
Balance	200
Prepaid Fire Insurance
Balance	3	7	q.
m	36
Balance	32
Note Receivable - Long term
Balance	100	100	r.
Balance	0
Equipment
Balance	120
l.	74
Balance	194
Accumulated Dep. Equipment
		76	Balance
		30	s.
		106	Balance
Accounts Payable
i.	470	90	Balance
		480	a.
		100	Balance
Accrued Wages Payable
j.	8	8	Balance
		15	t.
		15	Balance
Accrued Income tax Payable
n.	4	4	Balance
		5	u.
		5	Balance
Unearned Sales Revenue
c.	10	10	Balance
		7	h.
		7	Balance
Paid in Capital
		110	Balance
		110	Balance
Retained Earnings
		322	Balance
		322	Balance
Sales
		890	b.
		10	c.
		900	Balance
Cost of goods sold
d.	440
Balance	440
Interest revenue
		8	f.
		8	p.
		16	Balance
Wages Expense
j.	185
t.	15
Balance	200
Miscellaneous expense
k.	189
Balance	189
Income Tax Expense
n.	15
u.	5
Balance	20
Insurance Expense
q.	7
Balance	7
Depreciation Expense
s.	30
Balance	30
Dividend Declared
o.	26
Balance	26
Dividend Payable
		26	o.
		26	Balance
3. Prepare an unadjusted trial balance as of November 30, 2018.
Unadjusted Trial Balance
As on Novemeber 30, 2018
Account			Debit	Credit
Cash			40
Accounts Receivable			121
Notes Receivable - Current			100
Accured Interest Receivable			8
Merchandise Inventory			200
Prepaid Fire Insurance			32
Note Receivable - Long term			0
Equipment			194
Accumulated Dep. Equipment				106
Accounts Payable				100
Accrued Wages Payable				15
Accrued Income tax Payable				5
Unearned Sales Revenue				7
Paid in Capital				110
Retained Earnings				322
Sales				900
Cost of goods sold			440
Interest revenue				16
Wages Expense			200
Miscellaneous expense			189
Income Tax Expense			20
Insurance Expense			7
Depreciation Expense			30
Dividend Declared			26
Dividend Payable				26
Totals			1607	1607	0

Note: For balance parts of this assignment, please put up a new question.