Chapter 5, Problem 5.10BPR

Appendix

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

On June 30, 2018, the balances of the accounts appearing in the ledger of Simkins Company are as follows:

Cash $ 125,000	Dividends $ 275,000
Accounts Receivable 72,000	Sales 6,590,000
Inventory, July 1, 2017 415,000	Purchases 4,100,000
Estimated Returns Inventory, July 1,2017 25,000	Purchases Returns and Allowances 32,000
Purchases Discounts 13,000
Office Supplies 9,000	Freight In 45,000
Prepaid Insurance 18,000	Sales Salaries Expense 580,000
Land 300,000	Advertising Expense 315,000
Store Equipment 550,000	Delivery Expense 18,000
Accumulated Depreciation— Store Equipment 190,000	Depreciation Expense— Store Equipment 12,000
Office Equipment 250,000	Miscellaneous Selling Expense 28,000
Accumulated Depreciation— Office Equipment 110,000	Office Salaries Expense 375,000
Rent Expense 43,000
Accounts Payable 85,000	Insurance Expense 17,000
Salaries Payable 30,000	Office Supplies Expense 5,000
Customer Refunds Payable 9,000	Depreciation Expense— Office Equipment 4,000
Unearned Rent 6,000
Notes Payable 50,000	Miscellaneous Administrative Expense 16,000
Common Stock 300,000	Rent Revenue 32,500
Retained Earnings 520,000	Interest Expense 2,500

Instructions

1. 1. Does Simkins Company use a periodic or perpetual inventory system? Explain.
2. 2. Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2018. The inventory as of June 30, 2018, was $508,000. The estimated cost of customer returns inventory for June 30, 2018, is estimated to increase to $33,000.
3. 3. Prepare the closing entries for Simkins Company as of June 30, 2018.
4. 4. What would be the net income if the perpetual inventory system had been used?