Chapter 15, Problem 10SPA

WORK SHEET, ADJUSTING, CLOSING, AND REVERSING ENTRIES Vicki’s Fabric Store shows the trial balance on page 603 as of December 31, 20-1.

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

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

(c)    Unused supplies on hand, $1,150.

(d)    Insurance expired, $350.

(e)    Depreciation expense for the year; $700.

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

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

REQUIRED

1. 1. Prepare a work sheet.
2. 2. Prepare adjusting entries.
3. 3. Prepare closing entries.
4. 4. Prepare a post-closing trial balance.
5. 5. Prepare reversing entry(ies).

To determine

Prepare a worksheet of VFS.

Explanation of Solution

Prepare a worksheet of VFC.

Figure (1)

To determine

Prepare adjusting entries.

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 of VFS.

Date		Account titles and Explanation	Debit	Credit
20-1
December 31	(a)	Income Summary	$33,000
		Merchandise Inventory		$33,000
December 31	(b)	Merchandise Inventory	$31,600
		Income Summary		$31,600
December 31	(c)	Supplies Expense	$450
		Supplies		$450
December 31	(d)	Insurance Expense	$350
		Prepaid Insurance		$350
December 31	(e)	Depreciation expense - Equipment	$700
		Accumulated depreciation - Equipment		$700
December 31	(f)	Wages Expense	$520
		Wages Payable		$520
December 31	(g)	Unearned Revenue	$3,800
		Sales		$3,800

Table (1)

To determine

Prepare closing entries.

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 of VFS.

Date	Account titles and Explanation	Debit	Credit
20-1	Closing Entries
December 31	Sales	$78,300
	Interest Revenue	$1,200
	Purchases Returns & Allowances	$1,800
	Purchases Discounts	$830
	Income Summary		$82,130
December 31	Income Summary	$68,110
	Sales Returns & Allowances		$1,850
	Purchases		$41,500
	Freight-In		$660
	Wages Expense		$15,400
	Advertising Expense		$810
	Supplies Expense		$450
	Phone Expense		$1,210
	Utilities Expense		$3,240
	Insurance Expense		$350
	Depreciation Exp. - Equipment		$700
	Miscellaneous Expense		$920
	Interest Expense		$1,020
December 31	Income Summary	$12,620
	VRS's  Capital		$12,620
December 31	VRS's Capital	$21,610
	VRS's  Drawing		$21,610

Table (2)

To determine

Prepare 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 a post-closing trail balance of VFS.

VFS
Post-Closing Trial Balance
December 31, 20-1
Account Title	Debit	Credit
Cash	$28,000
Accounts Receivable	$14,200
Merchandise Inventory	$31,600
Supplies	$1,150
Prepaid Insurance	$550
Equipment	$6,600
Accumulated Depreciation—Equipment		$1,700
Accounts Payable		$15,620
Wages Payable		$520
Sales Tax Payable		$850
Unearned Revenue		$1,200
Vicki Roberts, Capital		$62,210
Total	$82,100	$82,100

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 entry of VFS.

Date	Account titles and Explanation	Debit	Credit
20-2	Reversing Entry
January 1	Wages Payable	$520
	Wages Expense		$520

Table (4)