Chapter 5, Problem 5.10APR

Appendix

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

On December 31, 2018, the balances of the accounts appearing in the ledger of Wyman Company are as follows:

Cash $ 13,500	Dividends $ 25,000
Accounts Receivable 72,000	Sales 3,280,000
Inventory, January 1, 2018 257,000	Purchases 2,650,000
Estimated Returns Inventory, January 1,2018 35,000	Purchases Returns and Allowances 93,000
	Purchases Discounts 37,000
Office Supplies 3,000	Freight In 48,000
Prepaid Insurance 4,500	Sales Salaries Expense 300,000
Land 150,000	Advertising Expense 45,000
Store Equipment 270,000	Delivery Expense 9,000
Accumulated Depreciation— Store Equipment 55,900	Depreciation Expense— Store Equipment 6,000
Office Equipment 78,500	Miscellaneous Selling Expense 12,000
Accumulated Depreciation— Office Equipment 16,000	Office Salaries Expense 175,000
	Rent Expense 28,000
Accounts Payable 77,800	Insurance Expense 3,000
Salaries Payable 3,000	Office Supplies Expense 2,000
Customer Refunds Payable 50,000	Depreciation Expense— Office Equipment 1,500
Unearned Rent 8,300
Notes Payable 50,000	Miscellaneous Administrative Expense 3,500
Common Stock 150,000	Rent Revenue 7,000
Retained Earnings 365,600	Interest Expense 2,000

Instructions

1. 1. Does Wyman Company use a periodic or perpetual inventory system? Explain.
2. 2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2018. The inventory as of December 31, 2018, was $305,000. The estimated cost of customer returns inventory for December 31, 2018, is estimated to increase to $40,000.
3. 3. Prepare the closing entries for Wyman Company as of December 31, 2018.
4. 4. What would be the net income if the perpetual inventory system had been used?