Chapter 5, Problem 5.45CP

Journalizing purchase and sale transactions, making dosing entries, preparing financial statements, and computing the gross profit percentage

This problem continues the Daniels Consulting situation from Problem P4-40 of Chapter 4. Daniels Consulting performs systems consulting. The company has also begun selling accounting software and uses the perpetual inventory system to account for software inventory. During January, Daniels Consulting completed the following transactions:

Jan. 2	Completed a consulting engagement and received cash of $5,700.
2	Prepaid three months office rent, $2.400.
7	Purchased 50 units software inventory on account, $1,050, plus freight in, $50.
18	Sold 40 software units on account, $2,625 (cost $880).
19	Consulted with a client for a fee of $2,500 on account.
20	Paid employee salaries, $1,885, which includes accrued salaries from December.
21	Paid on account, $1,100.
22	Purchased 185 units software inventory on account, $4,810.
24	Paid utilities, $375.
28	Sold 135 units software for cash, $5,265 (cost $3,470).
31	Recorded the following adjusting entries:
	a. Accrued salaries expense, $775
	b. Depreciation on Equipment, $60; Depreciation on Furniture, $50
	c. Expiration of prepaid rent, $800
	d. Physical count of software inventory, 50 units, $1,300

1. Open the following T-accounts in the ledger: Cash, $17,950; Accounts Receivable, $3,600; Software Inventory, $0; Office Supplies, $300; Prepaid Rent, $0; Equipment, $3,600; Accumulated Depreciation—Equipment, $60; Furniture, $3,000; Accumulated Depreciation—Furniture, $50; Accounts Payable, $3,600; Unearned Revenue, $1,800; Salaries Payable, $685; Common Stock, $20,000; Retained Earnings, $2,255; Dividends, $0; Income Summary, $0; Service Revenue, $0; Sales Revenue, $0; Cost of Goods Sold, $0; Salaries Expense, $0; Rent Expense, $0; Utilities Expense, $0; Depreciation Expense—Equipment, $0; and Depreciation Expense—Furniture, $0.

2. Journalize and post the January transactions. Compute each account balance, and denote the balance as Bal.

3. Prepare the month ended January 31, 2017, income statement of Daniels Consulting. Use the multi-step format. List Service Revenue under gross profit and ignore classifying the expenses as selling and administrative.

4. Journalize and post the closing entries. Denote each dosing amount as Clo. After posting all dosing entries, prove the equality of debits and credits in the ledger.

5. Compute the gross profit percentage of Daniels Consulting.