Taylor Department Store uses a periodic inventory system. The adjusted trial balance of Taylor Department Store at December 31, 2018, follows:

TAYLOR DEPARTMENT STORE

Adjusted Trial Balance

December 31, 2018

Balance

Account Title Debit Credit

Cash \(7,900

Accounts Receivable 85,300

Merchandise Inventory (beginning) 37,600

Office Supplies 300

Furniture 83,000

Accumulated Depreciation-Furniture \)18,500

Accounts Payable 28,500

Salaries Payable 2,900

Unearned Revenue 14,500

Notes Payable, long-term 32,000

Common Stock 20,000

Retained Earnings 45,400

Dividends 89,000

Sales Revenue 380,800

Purchases 284,000

Purchase Returns and Allowances 110,000

Purchase Discounts 7,000

Freight-In 100

Selling Expense 42,900

Administrative Expense 26,300

Interest Expense 3,200

Total \(659,600 \)659,600

Requirements

1. Prepare Taylor Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,700.

2. Journalize Taylor Department Store’s closing entries.

Step by step solution

01

Meaning of Income Statement

An income statement is one of the components of financial statements that business entities prepare annually to ascertain theprofits generated or losses incurred during oneaccounting period through theiroperating and non-operating events.

02

Preparation of multi-step income statement 

TAYLOR DEPARTMENT STORE
Multi-step Income Statement
For the year ended December 31, 2018
Particulars	Amounts ($)
Sales revenue	380,800
Less: Cost of goods sold(Working note)	(168,000)
Gross profit	212,800
Less: Operating expenses
Selling expenses	(42,900)
Administrative expense	(26,300)
Income from operations	143,600
Less: Other expenses and losses
Interest expense	(3,200)
Net income	$140,400

Working Note:

Computation of Cost of goods sold

Particulars	Amounts ($)
Merchandise inventory (beginning)	37,600
Add: Purchases	284,000
Less: Purchase returns and allowances	(110,000)
Less: Purchase discounts	(7,000)
Add: Freight-in	100
Less: Merchandise inventory (ending)	(36,700)
Cost of goods sold	$168,000

03

Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
2018
Dec 31	Sales revenue	380,800
	Income summary		380,800
	(To close revenue account)
Dec 31	Income summary	240,400
	Cost of goods sold		168,000
	Selling expense		42,900
	Administrative expense		26,300
	Interest expense		3,200
	(To close expense accounts)
Dec 31	Income summary	140,400
	Retained earnings		140,400
	(To close income summary account)
Dec 31	Retained earnings	89,000
	Dividends		89,000
	(To close dividend account)

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