Question

Multi-step Income Statement and Adjusting Entries
Oregon Distributors, whose accounting year ends on December 31, had the following normal balances in its ledger accounts at December 31.

Cash	$36,080
Accounts Receivable	101,200
Inventory	90,200
Prepaid Insurance	7,920
Office Supplies	5,280
Furniture & Fixtures	30,800
Accumulated Depreciation - Furn. & Fixtures	11,880
Delivery Equipment	77,000
Accumulated Depreciation - Delivery Equipment	26,840
Accounts Payable	76,340
Long-term Notes Payable	33,000
Common Stock	110,000
Retained Earnings	46,200
Sales Revenue	1,269,400
Cost of Goods Sold	903,320
Utilities Expense	9,460
Sales Salaries Expense	119,000
Delivery Expense	40,480
Advertising Expense	28,820
Rent Expense	33,000
Income Tax Expense	12,100
Office Salaries Expense	79,000

During the year, the accounting department prepared monthly statements but no adjusting entries were made in the journals and ledgers. Data for the year-end procedures are as follows:

Prepaid Insurance, December 31	$2,400
Depreciation Expense on furniture and fixures for year	2,100
Depreciation Expense on delivery equip. for the year	11,000
Salaries Payable, December 31	1,600
Office Supplies on hand, December 31	1,800

Required
a. Record the necessary adjusting entries at December 31.
b. Prepare a multi-step income statement for the year. Combine all the operating expenses into one line on the income statement for selling, general and administrative expenses.

a.

General Journal
Date		Description	Ref.	Debit	Credit
Dec.	31	AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses	1	Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furniture & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		To record expired insurance.
	31	AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses	2	Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		To record depreciation expense for furniture for the year.
	31	AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses	3	Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		To record depreciation expense for delivery equip. for the year.
	31	Sales Salaries Expense	4	Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsOffice Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		To record accrued salaries at December 31.
	31	AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses	5	Answer	Answer
		AnswerAccounts PayableAccounts ReceivableAccumulated Depreciation - Furn. & FixturesCashCommon StockCost of Goods SoldAccumulated Depreciation - Delivery EquipmentDepreciation Expense - Delivery EquipmentDepreciation Expense - Furniture & FixturesFurniture & FixturesIncome Tax ExpenseInsurance ExpenseInventoryLong-Term Notes PayableOffice SuppliesOffice Supplies ExpensePrepaid InsuranceRetained EarningsSales Salaries ExpenseSalaries PayableSales RevenueSelling, General and Administrative Expenses		Answer	Answer
		To record office supplies used.

b. Do not use negative signs with your answers.

OREGON DISTRIBUTORS Income Statement For the Year Ended December 31
AnswerSales RevenueCost of Goods SoldSelling, General, and Administrative ExpenseIncome Tax Expense	$Answer
AnswerSales RevenueCost of Goods SoldSelling, General, and Administrative ExpenseIncome Tax Expense	Answer
Gross Profit on Sales	Answer
Operating Expenses
AnswerSales RevenueCost of Goods SoldSelling, General, and Administrative ExpenseIncome Tax Expense	Answer
Income before Income Taxes	Answer
AnswerSales RevenueCost of Goods SoldSelling, General, and Administrative ExpenseIncome Tax Expense	Answer
Net Income	$Answer

Answer 1

a.

General Journal
Date	Description	Ref.	Debit	Credit
Dec. 31	Insurance expense ($7920 - $2400)	1	5520
	Prepaid insurance			5520
	To record expired insurance.
Dec. 31	Depreciation expense-Furniture & Fixtures	2	2100
	Accumulated depreciation-Furn. & Fixtures			2100
	To record depreciation expense for furniture for the year.
Dec. 31	Depreciation expense-Delivery Equipment	3	11000
	Accumulated depreciation-Delivery Equipment			11000
	To record depreciation expense for delivery equip. for the year.
Dec. 31	Salaries expense*	4	1600
	Salaries payable			1600
	To record accrued salaries at December 31.
Dec. 31	Office supplies expense ($5280 - $1800)	5	3480
	Office supplies			3480
	To record office supplies used.

*Break-up of accrued salaries into sales salaries and office salaries is not given in the question hence, only salaries expense account has been debited. Kindly re-confirm and modify accordingly prior to submission.

b.

OREGON DISTRIBUTORS
Income Statement
For the Year Ended December 31
Sales revenue $	1269400
Cost of goods sold	903320
Gross profit	366080
Operating expenses
Selling, general, and administrative expense	333460
Income before income taxes	32620
Income tax expense	12100
Net income	20520

Working: Selling, general, and administrative expense:
Utilities expense	9460
Sales salaries expense	119000
Delivery expense	40480
Advertising expense	28820
Rent expense	33000
Office salaries expense	79000
Insurance expense	5520
Depreciation expense-Furniture & Fixtures	2100
Depreciation expense-Delivery Equipment	11000
Salaries expense	1600
Office supplies expense	3480
Total selling, general, and administrative expense $	333460