Chapter 6, Problem 2CPP

Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2019 (unless otherwise indicated), are as follows:

During May, the last month of the fiscal year, the following transactions were completed:

Instructions

1. 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section and place a check mark (✓) in the Posting Reference column. Journalize the transactions for May, starting on Page 20 of the journal.
2. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers.
3. 3. Prepare an unadjusted trial balance.
4. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6).

1. 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet.
2. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal.
3. 7. Prepare an adjusted trial balance.
4. 8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
5. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. Insert the new balance in the owner’s capital account.
6. 10. Prepare a post-closing trial balance.

To determine

Post the balance of each of the accounts.

Explanation of Solution

Enter the balances of each of the accounts.

Cash Account:

Cash Account						Account No. 110
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			83,600
	1		20		5,000
	4		20		600
	7		20	22,300
	10		20	54,000
	13		20		35,280
	15		20		11,000
	16		20	67,130
	19		20		18,700
	19		20		33,450
	20		20		13,230
	21		21		2,300
	21		21	42,900
	26		21		7,500
	28		21		85,000
	29		21		2,400
	30		21	111,200
	31		21		82,170	84,500

Table (1)

Accounts Receivable Account:

Accounts Receivable						Account No. 112
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			233,900
	6		20	67,130
	7		20		22,300
	16		20		67,130
	20		21	108,900
	21		21	2,300
	21		21		42,900
	30		21	77,175
	30		21		111,200	245,875

Table (2)

Inventory Account:

Inventory						Account No. 115
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			624,400
	3		20	35,280
	4		20	600
	6		20		41,000
	10		20		32,000
	19		20	18,700
	20		20	8,000
	20		21		70,000
	21		21	87,120
	24		21		4,950
	26		21	4,800
	30		21		47,000	583,950
	31	Adjusting	22		13,950	570,000

Table (3)

Estimated Returns Inventory Account:

Estimated Returns Inventory						Account No. 116
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			28,000
	20		20		8,000
	26		21		4,800	15,200
	31	Adjusting	22	35,000		50,200

Table (4)

Prepaid Insurance Account:

Prepaid Insurance						Account No. 117
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			16,800
	31	Adjusting	22		12,000	4,800

Table (5)

Store Supplies Account:

Store Supplies						Account No. 118
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			11,400
	29		21	2,400		13,800
	31	Adjusting	22		9,800	4,000

Table (6)

Store Equipment Account:

Store Equipment						Account No. 123
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			569,500

Table (7)

Accumulated Depreciation – Store Equipment Account:

Accumulated Depreciation – Store Equipment						Account No. 124
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓				56,700
	31	Adjusting	22		14,000		70,700

Table (8)

Accounts Payable Account:

Accounts Payable						Account No. 210
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓				96,600
	3		20		35,280
	13		20	35,280
	19		20	33,450
	21		21		87,120
	24		21	4,950
	31		21	82,170			63,150

Table (9)

Salaries Payable Account:

Salaries Payable						Account No. 211
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	31	Adjusting	22		13,600		13,600

Table (10)

Customers Refunds Payable Account:

Customers Refunds Payable						Account No. 212
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓				50,000
	20		20	13,230
	26		21	7,500			29,270
	31	Adjusting	22		60,000		89,270

Table (11)

Common Stock Account:

Common Stock						Account No. 310
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓				100,000

Table (12)

Retained Earnings Account:

Retained Earnings						Account No. 311
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2017
June	1	Balance	✓				585,300
2018
May	31	Closing	23		741,855
	31	Closing	23	135,000			1,192,155

Table (13)

Dividends Account:

Dividends						Account No. 312
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			135,000
	31	Closing	23		135,000

Table (14)

Income Summary Account:

Income Summary						Account No. 313
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	31	Closing	23		5,316,205
	31	Closing	23	4,574,350			741,855
	31	Closing	23	741,855

Table (15)

Sales Account:

Sales						Account No. 410
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓				5,069,000
	6		20		67,130
	10		20		54,000
	20		21		108,900
	30		21		77,175		5,376,205
	31	Adjusting	22	60,000			5,316,205
	31	Closing	23	5,316,205

Table (16)

Cost of Goods Sold Account:

Cost of Goods Sold						Account No. 510
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			2,823,000
	6		20	41,000
	10		20	32,000
	20		21	70,000
	30		21	47,000		3,013,000
	31	Adjusting	22	13,950
	31	Adjusting	22		35,000	2,991,950
	31	Closing	23		2,991,950

Table (17)

Sales Salaries Expense Account:

Sales Salaries Expense						Account No. 520
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			664,800
	28		21	56,000		720,800
	31	Adjusting	22	7,000		727,800
	31	Closing	23		727,800

Table (18)

Advertising Expense Account:

Advertising Expense						Account No. 521
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			281,000
	15		20	11,000		292,000
	31	Closing	23		292,000

Table (19)

Depreciation Expense Account:

Depreciation Expense						Account No. 522
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	31	Adjusting	22	14,000		14,000
	31	Closing	23		14,000

Table (20)

Stores Supplies Expense Account:

Stores Supplies Expense						Account No. 523
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	31	Adjusting	22	9,800		9,800
	31	Closing	23		9,800

Table (21)

Miscellaneous Selling Expense Account:

Miscellaneous Selling Expense						Account No. 529
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			12,600
	31	Closing	23		12,600

Table (22)

Office Salaries Expense Account:

Office Salaries Expense						Account No. 530
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			382,100
	28		21	29,000		411,100
	31	Adjusting	22	6,600		417,700
	31	Closing	23		417,700

Table (23)

Rent Expense Account:

Rent Expense						Account No. 531
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			83,700
	1		20	5,000		88,700
	31	Closing	23		88,700

Table (24)

Insurance Expense Account:

Insurance Expense						Account No. 532
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	31	Adjusting	22	12,000		12,000
	31	Closing	23		12,000

Table (25)

Miscellaneous Administrative Expense Account:

Miscellaneous Administrative Expense						Account No. 539
Date		Item	Post. Ref.	Debit	Credit	Balance ($)
						Debit	Credit
2018
May	1	Balance	✓			7,800
	31	Closing	23		7,800

Table (26)

To determine

Record the journal entries.

Explanation of Solution

Date		Particulars	Post. Ref.	Page 20
				Debit ($)	Credit ($)
2018
May	1	Rent Expense	531	5,000
		Cash	110		5,000
	3	Inventory	115	35,280
		Accounts Payable	210		35,280
	4	Inventory	115	600
		Cash	110		600
	6	Accounts Receivable	112	67,130
		Sales	410		67,130
	6	Cost of Goods Sold	510	41,000
		Inventory	115		41,000
	7	Cash	110	22,300
		Accounts Receivable	112		22,300
	10	Cash	110	54,000
		Sales	410		54,000
	10	Cost of Goods Sold	510	32,000
		Inventory	115		32,000
	13	Accounts Payable	210	35,280
		Cash	110		35,280
	15	Advertising Expense	521	11,000
		Cash	110		11,000
	16	Cash	110	67,130
		Accounts Receivable	112		67,130
	19	Inventory	115	18,700
		Cash	110		18,700
	19	Accounts Payable	210	33,450
		Cash	110		33,450
	20	Customers Refunds Payable	212	13,230
		Cash	110		13,230
	20	Inventory	115	8,000
		Estimated Returns Inventory	116		8,000
Date		Particulars	Post. Ref.	Page 21
				Debit ($)	Credit ($)
	20	Accounts Receivable	112	108,900
		Sales	410		108,900
	20	Cost of Goods Sold	510	70,000
		Inventory	115		70,000
	21	Accounts Receivable	112	2,300
		Cash	110		2,300
	21	Cash	110	42,900
		Accounts Receivable	112		42,900
	21	Inventory	115	87,120
		Accounts Payable	210		87,120
	24	Accounts Payable	210	4,950
		Inventory	115		4,950
	26	Customers Refunds Payable	212	7,500
		Cash	110		7,500
	26	Inventory	115	4,800
		Estimated Returns Inventory	116		4,800
	28	Sales Salaries Expense	520	56,000
		Office Salaries Expense	530	29,000
		Cash	110		85,000
	29	Store Supplies	118	2,400
		Cash	110		2,400
	30	Accounts Receivable	112	77,175
		Sales	410		77,175
	30	Cost of Goods Sold	510	47,000
		Inventory	115		47,000
	30	Cash	110	111,200
		Accounts Receivable	112		111,200
	31	Accounts Payable	210	82,170
		Cash	110		82,170

Table (27)

To determine

Prepare the unadjusted trial balance of Company P.

Explanation of Solution

Prepare an unadjusted trial balance.

P Company                                             Unadjusted Trial Balance                                    As on May 31, 2018
Accounts	Account No.	Debit Balances ($)	Credit Balances ($)
Cash	110	84,500
Accounts Receivable	112	245,875
Inventory	115	583,950
Estimated Returns Inventory	116	15,200
Prepaid Insurance	117	16,800
Store Supplies	118	13,800
Store Equipment	123	569,500
Accumulated Depreciation—Store Equipment	124		56,700
Accounts Payable	210		63,150
Salaries Payable	211		—
Customers Refunds Payable	212		29,270
Common Stock	310		100,000
Retained Earnings	311		585,300
Dividends	312	135,000
Sales	410		5,376,205
Cost of Goods Sold	510	3,013,000
Sales Salaries Expense	520	720,800
Advertising Expense	521	292,000
Depreciation Expense	522	—
Store Supplies Expense	523	—
Miscellaneous Selling Expense	529	12,600
Office Salaries Expense	530	411,100
Rent Expense	531	88,700
Insurance Expense	532	—
Miscellaneous Administrative Expense	539	7,800
Total		6,210,625	6,210,625

Table (28)

To determine

Record the adjusting entry.

Explanation of Solution

Date		Particulars	Post. Ref.	Page 22
				Debit ($)	Credit ($)
2018		Adjusting Entries
May	31	Cost of Goods Sold	510	13,950
		Inventory	115		13,950
	31	Insurance Expense	532	12,000
		Prepaid Insurance	117		12,000
	31	Store Supplies Expense	523	9,800
		Store Supplies	118		9,800
	31	Depreciation Expense	522	14,000
		Accumulated. Depreciation                        —Store Equipment	124		14,000
	31	Sales Salaries Expense	520	7,000
		Office Salaries Expense	530	6,600
		Salaries Payable	211		13,600
	31	Sales	410	60,000
		Customer Refunds Payable	212		60,000
	31	Estimated Returns Inventory	116	35,000
		Cost of Goods Sold	510		35,000

Table (29)

To determine

Prepare the adjusted trial balance of Company P.

Explanation of Solution

Prepare the adjusted trial balance.

P Company                                                 Adjusted Trial Balance                                                 As on  May 31, 2018
Particulars	Account No.	Debit Balances ($)	Credit Balances ($)
Cash	110	84,500
Accounts Receivable	112	245,875
Inventory	115	570,000
Estimated Returns Inventory	116	50,200
Prepaid Insurance	117	4,800
Store Supplies	118	4,000
Store Equipment	123	569,500
Accumulated Depreciation—Store Equipment	124		70,700
Accounts Payable	210		63,150
Salaries Payable	211		13,600
Customers Refunds Payable	212		89,270
Common Stock	310		100,000
Retained Earnings	311		585,300
Dividends	312	135,000
Sales	410		5,316,205
Cost of Goods Sold	510	2,991,950
Sales Salaries Expense	520	727,800
Advertising Expense	521	292,000
Depreciation Expense	522	14,000
Store Supplies Expense	523	9,800
Miscellaneous Selling Expense	529	12,600
Office Salaries Expense	530	417,700
Rent Expense	531	88,700
Insurance Expense	532	12,000
Miscellaneous Administrative Expense	539	7,800
Total		6,238,225	6,238,225

Table (30)

To determine

Prepare the income statement, retained earnings, and balance sheet of P Company.

Explanation of Solution

Prepare the income statement.

P Company                                                    Income Statement                                         For the Year Ended May 31, 2018
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales			5,316,205
Cost of goods sold			(2,991,950)
Gross profit			2,324,255
Expenses:
Selling expenses:
Sales salaries expense	727,800
Advertising expense	292,000
Depreciation expense	14,000
Store supplies expense	9,800
Miscellaneous selling expense	12,600
Total selling expenses		1,056,200
Administrative expenses:
Office salaries expense	417,700
Rent expense	88,700
Insurance expense	12,000
Miscellaneous administrative expense	7,800
Total administrative expenses		526,200
Total expenses			(1,582,400)
Net income			741,855

Table (31)

Prepare the retained earnings statement.

P Company   Retained Earnings Statement For the Year Ended May 31, 2018
Retained earnings, June 1, 2017		585,300
Net income	741,855
Dividends	(135,000)
Change in retained earnings		606,855
Retained earnings, May 31, 2018		1,192,155

Table (32)

Prepare the balance sheet of P Company.

P Company Balance Sheet As on May 31, 2018
Assets	Amount ($)	Amount ($)
Current assets:
Cash	$    84,500
Accounts receivable	245,875
Inventory	570,000
Estimated returns inventory	50,200
Prepaid insurance	4,800
Store supplies	4,000
Total current assets		$  959,375
Property, plant, and equipment:
Store equipment	$  569,500
Accumulated depreciation—store equipment	(70,700)
Total property, plant, and equipment		498,800
Total assets		$1,458,175
Liabilities
Current liabilities:
Accounts payable	$    63,150
Salaries payable	13,600
Customers refunds payable	89,270
Total liabilities		$  166,020
Stockholders’ Equity
Common stock	$  100,000
Retained earnings	1,192,155
Total stockholders’ equity		1,292,155
Total liabilities and stockholders’ equity		$1,458,175

Table (33)

To determine

Prepare the closing entries.

Explanation of Solution

Prepare the closing entries.

Date		Particulars	Post. Ref.	Page 23
				Debit ($)	Credit ($)
2018		Closing Entries
May	31	Sales	410	5,316,205
		Income Summary	313		5,316,205
	31	Income Summary	313	4,574,350
		Cost of Goods Sold	510		2,991,950
		Sales Salaries Expense	520		727,800
		Advertising Expense	521		292,000
		Depreciation Expense	522		14,000
		Store Supplies Expense	523		9,800
		Miscellaneous Selling Expense	529		12,600
		Office Salaries Expense	530		417,700
		Rent Expense	531		88,700
		Insurance Expense	532		12,000
		Miscellaneous Administrative Expenses	539		7,800
	31	Income Summary	313	741,855
		Retained Earnings	311		741,855
	31	Retained Earnings	311	135,000
		Dividends	312		135,000

Table (34)

To determine

Prepare the post-closing trial balance.

Explanation of Solution

Prepare the post-closing trial balance.

P Company Post-Closing Trial Balance May 31, 2018
Accounts	Account No.	Debit Balances ($)	Credit Balances ($)
Cash	110	84,500
Accounts Receivable	112	245,875
Inventory	115	570,000
Estimated Returns Inventory	116	50,200
Prepaid Insurance	117	4,800
Store Supplies	118	4,000
Store Equipment	123	569,500
Accumulated Depreciation—Store Equipment	124		70,700
Accounts Payable	210		63,150
Salaries Payable	211		13,600
Customers Refunds Payable	212		89,270
Common Stock	310		100,000
Retained Earnings	311		1,192,155
Total		1,528,875	1,528,875

Table (35)

To determine

Prepare the worksheet for Company P.

Explanation of Solution

Prepare the worksheet.

Figure (1)