Chapter 5, Problem 1COP

Comprehensive Problem

The Accounting Cycle for a Merchandiser, Including Inventory Valuation

Bike World, Inc., wholesales a line of custom road bikes. Bike World s inventory as of November 30, 2018. consisted of 22 mountain bikes costing $1,650 each. Bike World's trial balance as of November 30 appears as follows:

Bike World. Inc. Trial Balance November 30, 2018
		ACCOUNT	DEBIT	CREDIT
		Cash	$ 9,150
		Accounts Receivable	12,300
		Inventory	36,300
		Supplies	900
		Office Equipment	18,000
		Accumulated Depreciation, Office Equipment		$ 3,000
		Accounts Payable		1,325
		Note Payable, Long-Term		5,000
		Common Stock		8,500
		Retained Earnings		21,425
		Dividends	4,250
		Sales Revenue		147,975
		Cost of Goods Sold	78,900
		Sales Commissions Expense	11,300
		Office Salaries Expense	7,425
		Office Rent Expense	5,500
		Shipping Expense	3,200
		Total	$187,225	$187,225

During the month of December 2018. Bike World, Inc , had the following transactions:

Dec 4	Purchased 10 hikes for $1,575 each from Truspoke Bicycle, Co., on account. Terms, 2/15, n/45, FOB destination.
6	Sold 14 bikes for $2,100 each on account to Allsport. Inc. Terms, 3/10, n/30, FOB destination.
8	Paid $375 freight charges to deliver goods to Allsport, Inc.
10	Received $7,200 from Cyclemart as payment on a November 17 sale. Terms were n/30.
12	Purchased $450 of supplies on account from Office Express. Terms, 2/10, n/30, FOB destination.
14	Received payment In full from Allsport, Inc., for the December 6 sale.
16	Purchased 15 hikes for $1,600 each from Truspoke Bicycle, Co., on account. Terms, 2/15, n/45, FOB destination.
18	Paid Truspoke Bicycle, Co., the amount due tram the December 4 purchase in full.
19	Sold 18 bikes for $2,125 each on account to Columbia Cycle, Inc. Terms, 2/15, n/45, FOB shipping point.
20	Paid for the supplies purchased on December 12.
22	Paid sales commissions, $1,850.
30	Paid current month’'s rent, $500.
31	Paid Truspoke Bicycle, Co., the amount due from the December 16 purchase in full.

Requirements

1. 1. Using the transactions previously listed, prepare a perpetual inventory record for Bike World, Inc., for the month of December Bike World, Inc., uses the FIFO inventory costing method. (Bike World records inventory in the perpetual inventory record net of any discounts, as it is company policy to take advantage of all purchase discounts.)
2. 2. Open four-column general ledger accounts and enter the balances from the November 30 trial balance.
3. 3. Record each transaction in the general journal using the “net” method for purchases and sales. Explanations are not required Post the journal entries to the general ledger, creating new ledger accounts as necessary. Omit posting references. Calculate the new account balances.
4. 4. Prepare an unadjusted trial balance as of December 31, 2018.
5. 5. Journalize and post the adjusting journal entries based on the following information, creating new ledger accounts as necessary:

   Depreciation expense on office equipment, $1,875

   Supplies on hand, $245

   Accrued salary expense for the office receptionist, $845

   Estimated refund liability, $1,320

   Cost of estimated inventory returns, $742

6. 6. Prepare an adjusted trial balance as of December 31, 2018. Use the adjusted trial balance to prepare Bike World, Inc.’s multistep income statement and statement of retained earnings for the year ending December 31, 2018. Also, prepare the balance sheet at December 31, 2018.
7. 7. Journalize and post the closing entries.
8. 8. Prepare a post-closing trial balance at December 31, 2018.