Chapter 5: 5-40PGA (page 311)

Triton Department Store uses a periodic inventory system. The adjusted trial balance of Triton Department Store at December 31, 2018, follows:
TRITON DEPARTMENT STORE
Adjusted Trial Balance
December 31, 2018
Balance
Account Title Debit Credit
Cash $8,200
Accounts Receivable 84,600
Merchandise Inventory (beginning) 37,800
Office Supplies 850
Furniture 86,000
Accumulated Depreciation-Furniture $18,500
Accounts Payable 29,400
Salaries Payable 2,300
Unearned Revenue 14,900
Notes Payable, long-term 36,000
Common Stock 60,000
Retained Earnings 22,850
Dividends 88,600
Sales Revenue 374,000
Purchases 295,000
Purchase Returns and Allowances 109,000
Purchase Discounts 6,400
Freight-In 300
Selling Expense 41,700
Administrative Expense 26,600
Interest Expense 3,700
Total $673,350 $673,350
Requirements
1. Prepare Triton Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,300.
2. Journalize Triton Department Store’s closing entries.

Short Answer

Expert verified

The net income of the company is $120,600.

Step by step solution

Meaning of Closing Entries

In accounting, recording closing entries in the books is an approach used by business entities at the end of an accounting period. Under this process, all revenue and expense accounts are closed and transferred to the income summary account

Preparation of multi-step income statement

TRITON DEPARTMENT STORE
Multi-step Income Statement
For the year end December 31, 2018
Particulars	Amounts ($)
Sales revenue	374,000
Less: Cost of goods sold (Working notes)	(181,400)
Gross profit	192,600
Less: Operating expenses
Selling expenses	(41,700)
Administrative expenses	(26,600)
Income from operations	124,300
Less: Other expenses and losses
Interest expense	(3,700)
Net Income	$120,600

Working Notes:

Computation of cost of goods sold:

Particulars	Amounts ($)
Beginning inventory	37,800
Add: Purchases	295,000
Less: Purchase returns and allowances	(109,000)
Less: Purchase discounts	(6,400)
Add: Freight-In	300
Less: Ending inventory	(36,300)
Cost of goods sold	$181,400

Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
2018
Dec 31	Sales revenue	374,000
	Purchase returns and allowances	109,000
	Purchase discounts	6,400
	Merchandise inventory (ending)	36,300
	Income summary		525,700
	(To close revenue and other credit accounts)
Dec 31	Income summary	405,100
	Purchases		295,000
	Freight-in		300
	Merchandise inventory (beginning)		37,800
	Selling expenses		41,700
	Administrative expenses		26,600
	Interest expenses		3,700
	(To close expenses and other debit accounts)
Dec 31	Income summary (525700-405100)	120,600
	Retained earnings		120,600
	(To close income summary)
Dec 31	Retained earnings	88,600
	Dividends		88,600
	(To close dividends accounts)