Chapter 12, Problem 1CTP

The unadjusted trial balance of Ben’s Jewelers on December 31, 2019, the end of its fiscal year, appears below.

INSTRUCTIONS

1. 1. Copy the unadjusted trial balance onto a worksheet and complete the worksheet using the following information:

   a.–b. Ending merchandise inventory, $98,700.

   c. Uncollectible accounts expense, $1,000.

   d. Store supplies on hand December 31, 2019, $625.

   e. Office supplies on hand December 31, 2019, $305.

   f. Depreciation on store equipment, $11,360.

   g. Depreciation on office equipment, $3,300.

   h. Accrued sales salaries, $4,000, and accrued office salaries, $1,000.

   i. Social security tax on accrued salaries, $326; Medicare tax on accrued salaries, $76. (Assumes that tax rates have increased.)

   j. Federal unemployment tax on accrued salaries, $56; state unemployment tax on accrued salaries, $270.

2. 2. Journalize the adjusting entries on page 30 of the general journal. Omit descriptions.
3. 3. Journalize the closing entries on page 32 of the general journal. Omit descriptions.
4. 4. Compute the following:
   1. a. net sales
   2. b. net delivered cost of purchases
   3. c. cost of goods sold
   4. d. net income or net loss
   5. e. balance of Ben Waites, Capital on December 31, 2019.

Analyze: What change(s) to Ben Waites, Capital will be reported on the statement of owner’s equity?

To determine

Prepare the worksheet and complete the sections of Trial balance, adjustments and compute the changes to the BW Capital that will be shown in the statement of owner's equity.

Explanation of Solution

Worksheet: A worksheet is the used in the preparation of the financial statement. It is a pre-defined form, having multiple columns, used in the adjustment process.

Prepare the classified income statement:

Figure (1)

Figure (2)

Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity.

Prepare the Statement of owner's’ equity:

Company BJ
Statement of Owner's Equity
Year Ended December 31, 2019
Particulars	Amount ($)	Amount ($)
BW Capital, January 1, 2019		$166,310
Net income for the year	$121,782.00
Deduct - Withdrawals	$30,000.00
Increase in Capital		$91,782.00
BW Capital, December 31, 2019		$258,092.00

Table (1)

The BW Capital increases by $91,782.

To determine

Journalize the adjusting entries as on December 31, 2019.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Pass the adjusting entry for the given transaction:

	General Journal			Page - 30
Date	Description	Post Ref.	Debit	Credit
2019
December 31	Income Summary		$105,900
	Merchandise Inventory			$105,900
	(To record the beginning inventory)
December 31	Merchandise Inventory		$98,700
	Income Summary			$98,700
	(To record the closing inventory)
December 31	Uncollectible Accounts Expense		$1,000
	Allowance for Doubtful Accounts			$1,000
	(To record the estimated loss on the net credit sale)
December 31	Store Supplies Expense		$3,605
	Store Supplies			$3,605
	(To record the Supplies used)
December 31	Office Supplies Expense		$2,645
	Office Supplies			$2,645
	(To record the Supplies used)
December 31	Depreciation Expense - Store Equipment		$11,360
	Accumulated Depreciation - Store Equipment			$11,360
	(To record the depreciation on equipment)
December 31	Depreciation Expense - Office Equipment		$3,300
	Accumulated Depreciation - Office Equipment			$3,300
	(To record the depreciation on equipment)

Table (2)

To determine

Journalize the closing entries as on December 31, 2019.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Pass the closing entries:

	General Journal			Page - 32
Date	Description	Post Ref	Debit	Credit
2019
December 31	Sales		$862,230
	Purchases Returns and allowances		$4,240
	Purchases Discounts		$10,770
	Income Summary			$877,240
	(To record the closing entry for the income)
December 31	Income Summary		$121,782
	BW Capital			$121,782
	(To record the closing entry for the capital)
December 31	BW Capital		$30,000
	BW Drawings			$30,000
	(To record the closing entry for the capital)

Table (3)

	General Journal			Page - 32
Date	Description	Post Ref	Debit	Credit
2019
December 31	Income Summary		$748,258.00
	Sales Returns and Allowances			$7,580
	Purchases			$504,810
	Freight In			$7,000
	Salaries Expense - Sales			$79,950
	Rent Expense			$35,500
	Advertising Expense			$12,300
	Store Supplies Expense			$3,605
	Depreciation Expense - Store Equipment			$11,360
	Salaries Expense - Office			$78,480
	Uncollectible Accounts Expense			$1,000
	Depreciation Expense - Office Equipment			$3,300
	Office Supplies Expense			$2,645
	Payroll Taxes Expense			$728
	(To record the closing entry for the expenses)

Table (4)

To determine

Calculate the required ratios.

Explanation of Solution

a. Net Sales:

Compute the net sales:

Particulars	Amount ($)
Sales	$862,230
Less: Sales Discount	7,580
Net Sales	$854,650

Table (5)

b. Net delivered cost of purchases

Compute the Net delivered cost of purchases:

Particulars	Amount ($)	Amount ($)
Purchases		$504,810
Freight In		$7,000
Delivered Cost of Purchases		$511,810
Less: Purchases Returns and Allowances	$4,240
Purchases Discount	$10,770	$15,010
Net Delivered Cost of Purchases		$496,800

Table (6)

c. Cost of Goods Sold:

Compute the cost of goods sold:

Particulars	Amount ($)
Merchandise Inventory, January 1, 2019	$105,900
Net Delivered Cost of Purchases	$496,800
Total Merchandise Available for sale	$602,700
Less: Merchandise Inventory, closing	$98,700
Cost of Goods Sold	$504,000

Table (7)

d. Net Income:

The net income for the year is $121,782.

e. Balance of BW capital on December 31, 2019

Compute the Balance of BW capital on December 31, 2019:

Particulars	Amount ($)	Amount ($)
BW Capital, January 1, 2019		$166,310
Net income for the year	$121,782
Deduct - Withdrawals	$30,000
Increase in Capital		$91,782
BW Capital, December 31, 2019		$258,092

Table (8)