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Chapter 5: Q24E (page 302)
The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:
The net income of the Quality Office is$83,750.
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Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.
Requirements
1. Journalize The Textbook Store’s October 2018 transactions.
2. Journalize Piranha.com’s October 2018 transactions. The company estimates sales returns at the end of each month.
D & T Printing Supplies’ accounting records include the following accounts at December 31, 2018.
Purchases \( 185,200 Accumulated Depreciation—Building \) 21,000
Accounts Payable 7,700 Cash 18,100
Rent Expense 8,600 Sales Revenue 257,800
Building 42,800 Depreciation Expense—Building 4,700
Common Stock 55,000 Dividends 26,500
Retained Earnings 30,400 Interest Expense 1,900
Merchandise Inventory,
Beginning 119,000 Merchandise Inventory,
Ending 102,100
Notes Payable 11,300 Purchase Returns and Allowances 20,700
Purchase Discounts 2,900
Requirements
1. Journalize the required closing entries for D & T Printing Supplies assuming that D & T uses the periodic inventory system.
2. Determine the ending balance in the Retained Earnings account.
The unadjusted trial balance for Tuttle Electronics Company follows:
TUTTLE ELECTRONICS COMPANY
Unadjusted Trial Balance
October 31, 2018
Balance
Account Title Debit Credit
Cash \(4,200
Accounts Receivable 33,800
Merchandise Inventory 45,700
Office Supplies 5,700
Equipment 129,500
Accumulated Depreciation-Equipment \)37,200
Accounts Payable 15,600
Unearned Revenue 13,400
Notes Payable, long-term 53,000
Common Stock 48,000
Retained Earnings 6,700
Dividends 27,000
Sales Revenue 300,300
Cost of Goods Sold 171,600
Salaries Expense (Selling) 26,000
Rent Expense (Selling) 15,400
Salaries Expense (Administrative) 4,800
Utilities Expense (Administrative) 10,500
Total \(474,200 \)474,200
Requirements
1. Journalize the adjusting entries using the following data:
a. Interest revenue accrued, \(550.
b. Salaries (Selling) accrued, \)2,800.
c. Depreciation Expense—Equipment (Administrative), \(1,295.
d. Interest expense accrued, \)1,500.
e. A physical count of inventory was completed. The ending Merchandise Inventory should have a balance of \(45,300.
f. Tuttle estimates that approximately \)6,200 of merchandise sold will be returned with a cost of $2,480.
2. Prepare Tuttle Electronics’s adjusted trial balance as of October 31, 2018.
3. Prepare Tuttle Electronics’s multi-step income statement for year ended October 31, 2018.
When recording purchase returns and purchase allowances under the periodic inventory system, what account is used?
Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement:
PARTY-TIME T-SHIRTS
Income Statement
Year Ended December 31, 2017
Net Sales Revenue \(350,000
Cost of Goods Sold 210,000
Gross Profit 140,000
Operating Expenses:
Selling Expense 40,000
Administrative Expense 25,000
Net Income \)75,000
Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to \(100,000 during 2018.
a. Hildebrand believes he should advertise more heavily. He believes additional advertising costing \)20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately.
b. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for \(40 each; Party-Time can mark these dresses up 100% and sell them for \)80. Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year.
Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan.
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