Chapter 15, Problem 10SPA

END-OF-PERIOD SPREADSHEET, ADJUSTING, CLOSING, AND REVERSING ENTRIES Vicki’s Fabric Store shows the trial balance on page 601 as of December 31, 20-1.

At the end of the year, the following adjustments need to be made:

(a, b)    Merchandise inventory as of December 31, $31,600.

(c, d, e)    Vicki estimates that customers will be granted $2,500 in refunds of this year’s sales next year and the merchandise expected to be returned will have a cost of $1,800.

(f)    Unused supplies on hand, $350.

(g)    Insurance expired, $2,400.

(h)    Depreciation expense for the year on building, $20,000.

(i)    Depreciation expense for the year on equipment, $4,000.

(j)    Wages earned but not paid (Wages Payable), $520.

(k)    Unearned revenue on December 31, 20-1, $1,200.

PROBLEM 15-10A CONT.

REQUIRED

1. 1. Prepare an end-of-period spreadsheet.
2. 2. Prepare adjusting entries and post adjusting entries to an Income Summary T account.
3. 3. Prepare closing entries and post to a Capital T account. There were no additional investments this year.
4. 4. Prepare a post-closing trial balance.
5. 5. Prepare reversing entry(ies).

To determine

Prepare an end of period spreadsheet.

Explanation of Solution

Prepare an end of period spreadsheet.

Figure (1)

To determine

Prepare adjusting entries and post adjusting entries to an income summary T- Account.

Explanation of Solution

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Prepare adjusting entries and post adjusting entries:

Date	Account Titles and Explanation	Debit ($)	Credit ($)
	Adjusting Entries
December 31	Income Summary	30,000
	Merchandise Inventory		30,000
December 31	Merchandise Inventory	31,600
	Income Summary		31,600
December 31	Sales Returns and Allowances	1,700
	Customer Refunds Payable		1,700
December 31	Income Summary	3,000
	Estimated Returns Inventory		3,000
December 31	Estimated Returns Inventory	1,800
	Income Summary		1,800
December 31	Supplies Expense	1,250
	Supplies		1,250
December 31	Insurance Expense	2,400
	Prepaid Insurance		2,400
December 31	Depreciation Expense - Building	20,000
	Accumulated Depreciation - Building		20,000
December 31	Depreciation. Expense - Equipment	4,000
	Accumulated Depreciation - Equipment		4,000
December 31	Wages Expense	520
	Wages Payable		520
December 31	Unearned Costume Design Revenue	3,800
	Costume Design Revenue		3,800

Table (1)

To determine

Prepare closing entries and post to a Capital T- account.

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.

Prepare closing entries:

General Journal
Date	Account Titles and Explanation	Debit ($)		Credit ($)
	Closing Entries
December 31	Sales		374,500
	Costume Design Revenue		5,000
	Purchases Returns & Allowances		1,800
	Purchases Discounts		830
	Income Summary			382,130
December 31	Income Summary		255,030
	Sales Returns & Allowances			11,100
	Purchases			141,500
	Freight-In			800
	Wages Expense			65,520
	Advertising Expense			810
	Supplies Expense			1,250
	Phone Expense			1,210
	Utilities Expense			3,240
	Insurance Expense			2,400
	Depreciation Expense - Building			20,000
	Depreciation Expense- Equipment			4,000
	Interest Expense			3,200
December 31	Income Summary		127,500
	Person V, Capital			127,500
December 31	Person V, Capital		21,610
	Person V, Drawing			21,610

Table (2)

To determine

Prepare a post-closing trail balance.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare post-closing trial balance:

Table (3)

To determine

Prepare reversing entry.

Explanation of Solution

Reversing entries:

Several Adjusting entries are needed to update all the balances in the financial statements in order to project true financial information and to maintain the records according to accrual basis principle. Some of these adjusting entries must be reversed at the beginning of a next accounting period to simplify the recording of transactions. Reversing entry is the opposite of adjusting entry.

Prepare reversing entries:

	Reversing Entry
Date	Account Titles and Explanation	Debit ($)	Credit ($)
January 1	Wages Payable	520
	Wages Expense		520

Table (4)