Chapter 6, Problem 6.9BPR

Periodic inventory accounts, multiple-step income statement, closing entries

On June 30, 2019, the balances of the accounts appearing in the ledger of Simkins Company are as follows:

Cash	$125,000
Accounts Receivable	340,000
Merchandise Inventory. July 1,2018	415,000
Estimated Returns Inventory	25,000
Office Supplies	9,000
Prepaid Insurance	18,000
Land	300,000
Store Equipment	550,000
Accumulated Depreciation—Store Equipment	190,000
Office Equipment	250,000
Accumulated Depreciation—Office Equipment	110,000
Accounts Payable	85,000
Customer Refunds Payable	20,000
Salaries Payable	9,000
Unearned Rent	6,000
Notes Payable	50,000
Amy Gant, Capital	820,000
Amy Gant, Drawing	275,000
Sales	6,590,000
Purchases	$4,100,000
Purchases Returns and Allowances	32,000
Purchases Discounts	13,000
Freight In	45,000
Sales Salaries Expense	580,000
Advertising Expense	315,000
Delivery Expense	18,000
Depreciation Expense—Store Equipment	12,000
Miscellaneous Selling Expense	28,000
Office Salaries Expense	375,000
Rent Expense	43,000
Insurance Expense	17,000
Office Supplies Expense	5,000
Depreciation Expense-Office Equipment	4,000
Miscellaneous Administrative Expense	16,000
Rent Revenue	32,500
Interest Expense	2,500

Instructions

1.    Does Simkins Company use a periodic or perpetual inventory system? Explain.

2.    Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2019. The merchandise inventory as of June 30, 2019, was $508,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was $33,000.

3.    Prepare the closing entries for Simkins Company as of June 30, 2019.

4.    What would the net income have been if the perpetual inventory system had been used?