Chapter 13, Problem 2MPS

The Fashion Rack is a retail merchandising business that sells brand-name clothing at discount prices. The firm is owned and managed by Teresa Lojay, who started the business on April 1, 2019. This project will give you an opportunity to put your knowledge of accounting into practice as you handle the accounting work of The Fashion Rack during the month of October 2019.

The Fashion Rack has a monthly accounting period. The firm’s chart of accounts is shown below. The journals used to record transactions are the sales journal, purchases journal, cash receipts journal, cash payments journal, and general journal. Postings are made from the journals to the accounts receivable ledger, accounts payable ledger, and general ledger. The employees are paid at the end of the month. A computerized payroll service prepares all payroll records and checks.

1. 1. Open the general ledger accounts and enter the balances for October 1, 2019. Obtain the necessary figures from the postclosing trial balance prepared on September 30, 2019, which is shown below. (If you are using the Study Guide & Working Papers, you will find that the general ledger accounts are already open.)
2. 2. Open the subsidiary ledger accounts and enter the balances for October 1, 2019. Obtain the necessary figures from the schedule of accounts payable and schedule of accounts receivable prepared on September 30, 2019, which appears below. (If you are using the Study Guide & Working Papers, you will find that the subsidiary ledger accounts are already open.)
3. 3. Analyze the transactions for October and record each transaction in the general journal. (Use 16 as the number for the first page of the general journal.)
4. 4. Post the individual entries from the general journal to the general ledger and subsidiary ledgers.
5. 5. Check the accuracy of the subsidiary ledgers by preparing a schedule of accounts receivable and a schedule of accounts payable as of October 31, 2019. Compare the totals with the balances of the Accounts Receivable account and the Accounts Payable account in the general ledger.

1. 6. Check the accuracy of the general ledger by preparing a trial balance in the first two columns of a 10-column worksheet. Make sure that the total debits and the total credits are equal.
2. 7. Complete the Adjustments section of the worksheet. Use the following data. Identify each adjustment with the appropriate letter.
   1. a. During October, the firm had net credit sales of $9,810. From experience with similar businesses, the previous accountant had estimated that 1.0 percent of the firm’s net credit sales would result in uncollectible accounts. Record an adjustment for the expected loss from uncollectible accounts for the month of October.
   2. b. On October 31, an inventory of the supplies showed that items costing $3,240 were on hand. Record an adjustment for the supplies used in October.
   3. c. On September 30, 2019, the firm purchased a six-month insurance policy for $8,400. Record an adjustment for the expired insurance for October.
   4. d. On October 1, 2019, the firm signed a three-month advertising contract for $4,800 with a local cable television station and paid the full amount in advance. Record an adjustment for the expired advertising for October.
   5. e. On April 1, 2019, the firm purchased equipment for $83,000. The equipment was estimated to have a useful life of five years and a salvage value of $12,500. Record an adjustment for depreciation on the equipment for October.

f.–g.    Based on a physical count, ending merchandise inventory was determined to be $81,260.

1. 8. Complete the Adjusted Trial Balance section of the worksheet.
2. 9. Determine the net income or net loss for October and complete the worksheet.
3. 10. Prepare a classified income statement for the month ended October 31, 2019. (The firm does not divide its operating expenses into selling and administrative expenses.)
4. 11. Prepare a statement of owner’s equity for the month ended October 31, 2019.
5. 12. Prepare a classified balance sheet as of October 31, 2019.
6. 13. Journalize and post the adjusting entries using general journal page 17.
7. 14. Prepare and post the closing entries using general journal page 18.
8. 15. Prepare a postclosing trial balance.

To determine

Prepare the general journal.

Explanation of Solution

General journal: This is a journal used to record infrequent transactions like adjusting entries, closing entries, accounting errors, sale of assets, or bad debts expense.

Prepare the sales journal:

SALES JOURNAL						Page - 10
Date	Sales Slip	Customer Name	Post. Ref.	Accounts receivable Debit	Sales Tax Payable Credit	Sales Credit
2019
October 3	241	DS	✔	$2,604.00	$124.00	$ 2,480.00
October 9	242	EM	✔	$2,152.50	$102.50	$ 2,050.00
October 15	243	JH	✔	$2,037.00	$97.00	$ 1,940.00
October 24	244	MG	✔	$861.00	$41.00	$ 820.00
October 29	245	ET	✔	$3,276.00	$156.00	$ 3,120.00
October 31				$10,930.50	$520.50	$10,410.00

Table (1)

Prepare the purchases journal:

PURCHASES JOURNAL						Page - 10
Date	Description	Invoice Number	Invoice Date	Terms	Post. Ref.	Accounts Payable Credit
2019
October 11	AFS	9422	10.8.16	2/10, n/30	✔	$ 4,820.00
October 25	CT	3418	10.23.16	2/10, n/30	✔	$ 3,380.00
October 30	TW	5821	10.26.16	1/10, n/30	✔	$ 4,020.00
October 31						$12,220.00

Table (2)

Prepare the cash receipt journal:

Figure (1)

Prepare the cash payment journal:

Figure (2)

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Pass the journal entries for the given transactions:

	General Journal			Page - 16
Date	Description	Post Ref.	Debit	Credit
2019
October 5	Sales Returns and Allowances	402	$ 600.00
	Sales Tax Payable	231	$ 30.00
	Accounts receivable	111		$ 630.00
	(To record the sales returns from DS using sales slip 241, the credit memorandum is 18)
October 29	Accounts payable	203	$430
	Purchases Returns and Allowances	503		$430
	(To record the return of defective goods purchased on October 25, invoice 37418 and Credit Memo 175)
October 29	Salaries Expense	632	$10,800
	Salaries Payable	229		$8,916
	Social Security Tax Payable	221		$702.00
	Medicare Tax Payable	222		$162.00
	Employee Income Tax Payable	223		$1,020.00
	(To record the payroll)
October 29	Payroll Taxes Expense	626	$1,566.00
	Social Security Tax Payable	221		$702.00
	Medicare Tax Payable	222		$162.00
	Federal Unemployment Tax Payable	225		$118.00
	State Unemployment Tax Payable	227		$584.00
	(To record the payroll taxes)
October 31	Uncollectible Accounts Expense	620	$98.10
	Allowance for Doubtful Accounts	112		$98.10
	(To record the estimated loss on the net credit sale)

Table (3)

	General Journal			Page - 17
Date	Description	Post Ref.	Debit	Credit
2019
October 31	Supplies Expense	635	$1,910
	Supplies	131		$1,910
	(To record the Supplies used)
October 31	Insurance expense	617	$1,400
	Prepaid Insurance	133		$1,400
	(To record the prepaid insurance)
October 31	Advertising expense	611	$1,600
	Prepaid Advertising	135		$1,600
	(To record the prepaid insurance)
October 31	Depreciation Expense - Equipment	614	$1,175
	Accumulated Depreciation - Equipment	142		$1,175
	(To record the depreciation on equipment)
October 31	Income Summary	399	$88,996
	Merchandise Inventory	121		$88,996
	(To record the beginning inventory)
October 31	Merchandise Inventory	121	$81,260
	Income Summary	399		$81,260
	(To record the closing inventory)

Table (4)

	General Journal			Page - 18
Date	Description	Post Ref	Debit	Credit
2019
October 31	Sales	401	$70,750.00
	Purchases Returns and allowances	503	$430.00
	Purchases Discounts	504	$462.40
	Income Summary	399		$71,642.40
	(To record the closing entry for the income)
October 31	Income Summary	399	$46,176.10
	Sales Returns and Allowances	402		$600
	Purchases	501		$18,640
	Freight In	502		$375
	Advertising Expense	611		$3,045
	Depreciation Expense—Equipment	614		$1,175
	Insurance Expense	617		$1,400.00
	Uncollectible Accounts Expense	620		$98.10
	Janitorial Services Expense	623		$475
	Payroll Taxes Expense	626		$1,566
	Rent Expense	629		$4,200
	Salaries Expense	632		$10,800
	Supplies Expense	635		$1,910
	Telephone Expense	638		$780
	Utilities Expense	644		$1,112
	(To record the closing entry for the expenses)
October 31	Income Summary	399	$17,730.30
	TL Capital	301		$17,730.30
	(To record the closing entry for the capital)
October 31	TL Capital	301	$7,200
	TL Drawings	302		$7,200
	(To record the closing entry for the capital)

Table (5)

	General Journal			Page - 19
Date	Description	Post Ref	Debit	Credit
2020
January 1	Interest Payable		$325
	Interest Expense			$325
	(To record the reversing entry for interest payable)
January 1	Salaries Payable		$2,100
	Salaries Expense - Office			$2,100
	(To record the reversing entry for salaries payable)
January 1	Social Security Tax Payable		$130.20
	Medicare Tax Payable		$30.45
	Payroll Taxes Expense			$160.65
	(To record the reversing entry for payroll taxes payable)

Table (6)

To determine

Prepare the general ledger and the necessary subsidiary ledger.

Explanation of Solution

General ledger:

General ledger is a record of all accounts of assets, liabilities, and stockholders’ equity, necessary to prepare financial statements. In the ledger all the entries are recorded in the account order, for which the transactions actually take place.

Post the journal entries in the General Ledger:

GENERAL LEDGER
ACCOUNT: Cash					Account No.: 101
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$59,800.00
October 31		CR10	$66,919.00		$126,719.00
October 31		CP10		$79,134.60	$47,584.40
ACCOUNT: Accounts receivable					Account No.: 111
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$6,210.00
October 5	Credit Memo 18	J16		$630.00	$5,580.00
October 31			$10,930.50		$16,510.50
October 31				$3,562.00	$12,948.50
ACCOUNT: Allowances and doubtful debts					Account No.: 112
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$420.00
October 31	Adjusting	J16		$98.10		$518.10
ACCOUNT: Merchandise Inventory					Account No.: 121
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$88,996.00
October 31	Adjusting	J17		$88,996.00	$0.00
October 31	Adjusting	J17	$81,260.00		$81,260.00

Table (7)

GENERAL LEDGER
ACCOUNT: Supplies					Account No.: 131
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$4,100.00
October 4		CP10	$1,050.00		$5,150.00
October 31	Adjusting	J17		$1,910.00	$3,240.00
ACCOUNT: Prepaid Insurance					Account No.: 133
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$8,400.00
October 31	Adjusting	J17		$1,400.00	$7,000.00
ACCOUNT: Prepaid Advertising					Account No.: 135
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1		CP10	$4,800.00		$4,800.00
October 31	Adjusting	J17		$1,600.00	$3,200.00
ACCOUNT: Equipment					Account No.: 141
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔			$83,000.00
ACCOUNT: Accumulated Depreciation - Equipment					Account No.: 142
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$7,050.00
October 31	Adjusting	J17		$1,175.00		$8,225.00

Table (8)

GENERAL LEDGER
ACCOUNT: Accounts payable					Account No.: 203
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$18,300.00
October 29		J16	$430.00			$17,870.00
October 31		P10		$12,220.00		$30,090.00
October 31		CP10	$23,120.00			$6,970.00
ACCOUNT: Social Security Tax Payable					Account No.: 221
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$702.00
October 8		CP10	$702.00			$0.00
October 29		J16		$702.00		$702.00
October 29		J16		$702.00		$1,404.00
ACCOUNT: Medicare Tax Payable					Account No.: 222
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$162.00
October 8		CP10	$162.00			$0.00
October 29		J16		$162.00		$162.00
October 29		J16		$162.00		$324.00
ACCOUNT: Employee Income Tax Payable					Account No.: 222
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$1,020.00
October 8		CP10	$1,020.00			$0.00
October 29		J16		$1,020.00		$1,020.00

Table (9)

GENERAL LEDGER
ACCOUNT: Federal Unemployment Tax Payable					Account No.: 222
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$512.00
October 29		J16		$118.00		$630.00
ACCOUNT: State Unemployment Tax Payable					Account No.: 227
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$1,268.00
October 29		J16		$584.00		$1,852.00
ACCOUNT: Salaries Payable					Account No.: 229
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 29		J16		$8,916.00		$8,916.00
October 31		CP10	$8,916.00			$0.00
ACCOUNT: Sales Tax Payable					Account No.: 520
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$17,820.00
October 2		CP10	$17,820.00			$0.00
October 5		J16	$30.00		$30.00
October 31		S10		$520.50		$490.50
October 31		CR10		$3,017.00		$3,507.50

Table (10)

GENERAL LEDGER
ACCOUNT: TL Capital					Account No.: 301
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Balance	✔				$203,252.00
October 31	Closing	J18		$17,730.30		$220,982.30
October 31	Closing	J18	$7,200.00			$213,782.30
ACCOUNT: TJ Drawing					Account No.: 302
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 18		CP10	$7,200.00		$7,200.00
October 31	Closing	J18		$7,200.00	$0.00
ACCOUNT: Income Summary					Account No.: 399
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1	Adjusting	J17	$88,996.00		$88,996.00
October 2	Adjusting	J17		$81,260.00	$7,736.00
October 5	Closing	J18		$71,642.40		$63,906.40
October 31	Closing	J18	46176.10			$17,730.30
October 31	Closing	J18	$17,730.30			$0.00
ACCOUNT: Sales					Account No.: 401
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31		S10		$10,410.00		$10,410.00
October 31		CR10		$60,340.00		$70,750.00
October 31	Closing	J18	$70,750.00			$0.00

Table (11)

GENERAL LEDGER
ACCOUNT: Sales Returns and Allowances					Account No.: 402
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 5		J16	$600.00		$600.00
October 31	Closing	J18		$600.00	$0.00
ACCOUNT: Purchases					Account No.: 501
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 16		CP10	$6,420.00		$6,420.00
October 31		P10	$12,220.00		$18,640.00
October 31	Closing	J18		$18,640.00	$0.00
ACCOUNT: Freight In					Account No.: 502
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 12		CP10	$375.00		$375.00
October 31	Closing	J18		$375.00	$0.00
ACCOUNT: Purchases Returns and Allowances					Account No.: 503
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 29		J16		$430.00		$430.00
October 31	Closing	J18	$430.00			$0.00
ACCOUNT: Purchases Discounts					Account No.: 504
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31		CP10		$462.40		$462.40
October 31	Closing	J18	$462.40			$0.00

Table (12)

GENERAL LEDGER
ACCOUNT: Advertising Expense					Account No.: 611
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 10		CP10	$1,445.00		$1,445.00
October 31	Adjusting	J17	$1,600.00		$3,045.00
October 31	Closing	J18		$3,045.00	$0.00
ACCOUNT: Depreciation Expense - Equipment					Account No.: 614
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31	Adjusting	J17	$1,175.00		$1,175.00
October 31	Closing	J18		$1,175.00	$0.00
ACCOUNT: Insurance Expense - Equipment					Account No.: 617
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31	Adjusting	J17	$1,400.00		$1,400.00
October 31	Closing	J18		$1,400.00	$0.00
ACCOUNT: Uncollectible Accounts Expense					Account No.: 620
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31	Adjusting	J17	$98.10		$98.10
October 31	Closing	J18		$98.10	$0.00
ACCOUNT: Janitorial Services Expense					Account No.: 623
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31		CP10	$475.00		$475.00
October 31	Closing	J18		$475.00	$0.00

Table (13)

GENERAL LEDGER
ACCOUNT: Payroll Taxes Expense					Account No.: 626
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 29		J16	$1,566.00		$1,566.00
October 31	Closing	J18		$1,566.00	$0.00
ACCOUNT: Rent Expense					Account No.: 629
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1		CP10	$4,200.00		$4,200.00
October 31	Closing	J18		$4,200.00	$0.00
ACCOUNT: Salaries Expense					Account No.: 632
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 1		J16	$10,800.00		$10,800.00
October 31	Closing	J18		$10,800.00	$0.00
ACCOUNT: Supplies Expense					Account No.: 635
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 31	Adjusting	J17	$1,910.00		$1,910.00
October 31	Closing	J18		$1,910.00	$0.00
ACCOUNT: Rent Expense					Account No.: 638
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 26		CP10	$780.00		$780.00
October 31	Closing	J18		$780.00	$0.00

Table (14)

GENERAL LEDGER
ACCOUNT: Utilities Expense					Account No.: 644
Date	Description	Post. Ref.	Debit	Credit	Balance
					Debit	Credit
2019
October 22		CP10	$1,112.00		$1,112.00
October 31	Closing	J18		$1,112.00	$0.00

Table (15)

Prepare the Accounts Receivable Subsidiary Ledger:

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME: JB				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$795.00
NAME: MG				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$520.00
October 2		CR10		$520.00	$0.00
October 24	Sales Slip 244	S10	$861.00		$861.00
NAME: JH				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$832.00
October 8		CR10		$832.00	$0.00
October 15	Sales Slip 243	S10	$2,037.00		$2,037.00

Table (16)

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME: EM				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$232.00
October 9	Sales Slip 242	S10	$2,152.00		$2,384.00
NAME: JP				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$1,621.00
NAME: DS				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$510.00
October 3	Sales Slip 241	S10	$2,604.00		$3,114.00
October 5	Credit Memo 18	J16		$630.00	$2,484.00
October 16		CR10		$510.00	$1,974.00
NAME: ET				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$1,700.00
October 5		CR10		$1,700.00	$0.00
October 16	Sales Slip 245	S10	$3,276.00		$3,276.00

Table (17)

Prepare the Accounts Payable Subsidiary Ledger:

ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME: AFS				TERMS: 2/10, n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$7,830.00
October 2		CP10	$7,830.00		$0.00
October 11	Invoice 9422	P10		$4,820.00	$4,820.00
October 16		CP10	$4,820.00		$0.00

Table (18)

ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME: CT				TERMS: 2/10, n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$1,700.00
October 5		CP10	$1,700.00		$0.00
October 25	Invoice 3418	P10		$3,380.00	$3,380.00
October 29	Credit Memo 18	J16	$430.00		$2,950.00
NAME: TW				TERMS: n/30
Date	Description	Post. Ref.	Debit	Credit	Balance
2019
October 1	Balance	✔			$8,770.00
October 4		CP10	$8,770.00		$0.00
October 30	Invoice 5821	P10		$4,020.00	$4,020.00

Table (19)

Prepare the Schedule of Accounts Receivable:

Company TFR
Schedule of Accounts Receivable
October 31, 2019
Particulars	Amount ($)
JB	$795.00
MG	$861.00
JH	$2,037.00
EM	$2,384.50
JP	$1,621.00
DS	$1,974.00
ET	$3,276.00
Total accounts receivable	$12,948.50

Table (20)

Prepare the Schedule of Accounts Payable:

Company TFR
Schedule of Accounts Payable
October 31, 2019
Particulars	Amount ($)
AFS	$0.00
CT	$2,950.00
TW	$4,020.00
Total accounts receivable	$6,970.00

Table (21)

To determine

Prepare the 10 column Worksheet with all the adjustments.

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.

The worksheet is a supplementary device which helps to prepare the adjusting entries and the financial statements easier.  The worksheet is a working tool of the accountant but it is not a permanent accounting record.  The worksheet starts with two columns (debit and credit) of the trial balance, and ends with the income statement and the balance sheet.

Prepare the 10 column Worksheet with all the adjustments:

Figure (3)

Figure (4)

To determine

Prepare the Classified Income Statement.

Explanation of Solution

Classified Income statement: The classified income statement is a financial statement that shows the revenues, expenses with various classifications and sub-totals. The classified income statement is used for complex income statement as its more easily understandable.

Prepare the classified income statement:

Company TFR
Income Statement
For the Month Ended October 31, 2019
Particulars	Amount ($)	Amount ($)	Amount ($)	Amount ($)
Operating Revenue
Sales				$70,750.00
Less: Sales Returns and Allowances				$600.00
Net Sales				$70,150.00
Cost of Goods Sold
Merchandise Inventory, October 1, 2019			$88,996.00
Purchases		$18,640.00
Freight In		$375.00
Delivered Cost of Purchases		$19,015.00
Less: Purchases Returns and Allowances	$430.00
Purchases Discount	$462.40	$892.40
Net Delivered Cost of Purchases			$18,122.60
Total Merchandise Available for sale			$107,118.60
Less: Merchandise Inventory, closing			$81,260.00
Cost of Goods Sold				$25,858.60
Gross Profit on Sales				$44,291.40
Operating Expenses
Advertising Expense		$3,045.00
Depreciation Expense - Equipment		$1,175.00
Insurance Expense		$1,400.00
Uncollectible accounts expense		$98.10
Janitorial Services Expense		$475.00
Payroll Taxes Expense		$1,566.00
Rent Expense		$4,200.00
Salaries Expense		$10,800.00
Supplies Expense		$1,910.00
Telephone Expense		$780.00
Utilities Expense		$1,112.00
Total Operating Expenses				$26,561.10
Net income for the month				$17,730.30

Table (22)

To determine

Show the Statement of Owner's equity.

Explanation of Solution

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 TFR
Statement of Owner's Equity
Year Ended October 31, 2019
Particulars	Amount ($)	Amount ($)
TL Capital, October 1, 2019		$203,252
Net income for the month	$17,730.30
Deduct - Withdrawals	$7,200.00
Increase in Capital		$10,530.30
TL Capital, October 31, 2019		$213,782.30

Table (23)

To determine

Show the Classified Balance Sheet.

Explanation of Solution

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Prepare the classified balance sheet:

Company TFR
Balance Sheet
October 31, 2019
Particulars	Amount ($)	Amount ($)	Amount ($)
Assets
Current Assets
Cash			$47,584.40
Accounts Receivable		$12,948.50
Less: Allowance for Doubtful Debts		$518.10	$12,430.40
Merchandise Inventory			$81,260.00
Supplies			$3,240.00
Prepaid expenses
Prepaid Insurance		$7,000.00
Prepaid Advertising		$3,200.00	$10,200.00
Total Current Assets			$154,714.80
Plant and Equipment
Equipment	$83,000.00
Less: Accumulated Depreciation	$8,225.00	$74,775.00
Total Plant and Equipment			$74,775.00
Total Assets			$229,489.80
Liabilities and Owner's Equity
Current Liabilities
Accounts Payable		$6,970.00
Social Security Tax Payable		$1,404.00
Medicare Tax Payable		$324.00
Employee Income Tax Payable		$1,020.00
Federal Unemployment Tax Payable		$630.00
State Unemployment Tax Payable		$1,852.00
Sales Tax Payable		$3,507.50
Total Current Liabilities			$15,707.50
Owner's Equity
TL Capital			$213,782.30
Total Liabilities and Owner's Equity			$229,489.80

Table (24)

To determine

Prepare the postclosing trial balance.

Explanation of Solution

Trial balance: Trial balance is a summary of all the ledger accounts balances presented in a tabular form with two column, debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts.

Postclosing trial balance: The postclosing trial balance is the summary of the ledger accounts, showing the debit and the credit balances after the closing entries are journalized and posted.

Prepare the postclosing trial balance:

Company TFR
Statement of Owner's Equity
Year Ended October 31, 2019
Account Name	Debit	Credit
Cash	$47,584.40
Accounts Receivable	$12,948.50
Allowance for Doubtful Accounts		$518.10
Merchandise Inventory	$81,260.00
Supplies	$3,240.00
Prepaid Insurance	$7,000.00
Prepaid Advertising	$3,200.00
Equipment	$83,000.00
Accumulated Depreciation - Equipment		$8,225.00
Accounts Payable		$6,970.00
Social Security Tax Payable		$1,404.00
Medicare Tax Payable		$324.00
Employee Income Tax Payable		$1,020.00
Federal Unemployment Tax Payable		$630.00
State Unemployment Tax Payable		$1,852.00
Sales Tax Payable		$3,507.50
TL Capital		$213,782.30
Total	$238,232.90	$238,232.90

Table (25)