Financial Accounting
Financial Accounting
15th Edition
ISBN: 9781337272124
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 6, Problem 2CPP

Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2019 (unless otherwise indicated), are as follows:

Chapter 6, Problem 2CPP, Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account , example  1

Chapter 6, Problem 2CPP, Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account , example  2

During May, the last month of the fiscal year, the following transactions were completed:

Chapter 6, Problem 2CPP, Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account , example  3

Instructions

  1. 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section and place a check mark (✓) in the Posting Reference column. Journalize the transactions for May, starting on Page 20 of the journal.
  2. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers.
  3. 3. Prepare an unadjusted trial balance.
  4. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6).

Chapter 6, Problem 2CPP, Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account , example  4

  1. 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet.
  2. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal.
  3. 7. Prepare an adjusted trial balance.
  4. 8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
  5. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. Insert the new balance in the owner’s capital account.
  6. 10. Prepare a post-closing trial balance.

1, 2, 6, and 9.

Expert Solution
Check Mark
To determine

Post the balance of each of the accounts.

Explanation of Solution

Enter the balances of each of the accounts.

Cash Account:

Cash AccountAccount No. 110
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018      
May1Balance✓    83,600 
 1 20 5,000  
 4 20 600  
 7 2022,300   
 10 2054,000   
 13 20 35,280  
 15 20 11,000  
 16 2067,130   
 19 20 18,700  
 19 20 33,450  
 20 20 13,230  
 21 21 2,300  
 21 2142,900   
 26 21 7,500  
 28 21 85,000  
 29 21 2,400  
 30 21111,200   
 31 21 82,17084,500 

Table (1)

Accounts Receivable Account:

Accounts ReceivableAccount No. 112
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    233,900 
 6 2067,130   
 7 20 22,300  
 16 20 67,130  
 20 21108,900   
 21 212,300   
 21 21 42,900  
 30 2177,175   
 30 21 111,200245,875 

Table (2)

Inventory Account:

InventoryAccount No. 115
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    624,400 
 3 2035,280   
 4 20600   
 6 20 41,000  
 10 20 32,000  
 19 2018,700   
 20 208,000   
 20 21 70,000  
 21 2187,120   
 24 21 4,950  
 26 214,800   
 30 21 47,000583,950 
 31Adjusting22 13,950570,000 

Table (3)

Estimated Returns Inventory Account:

Estimated Returns InventoryAccount No. 116
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    28,000 
 20 20 8,000  
 26 21 4,80015,200 
 31Adjusting2235,000 50,200 

Table (4)

Prepaid Insurance Account:

Prepaid InsuranceAccount No. 117
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    16,800 
 31Adjusting22 12,0004,800 

Table (5)

Store Supplies Account:

Store SuppliesAccount No. 118
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    11,400 
 29 212,400 13,800 
 31Adjusting22 9,8004,000 

Table (6)

Store Equipment Account:

Store EquipmentAccount No. 123
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    569,500 

Table (7)

Accumulated Depreciation – Store Equipment Account:

Accumulated Depreciation – Store EquipmentAccount No. 124
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓     56,700
 31Adjusting22 14,000 70,700

Table (8)

Accounts Payable Account:

Accounts PayableAccount No. 210
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓     96,600
 3 20 35,280  
 13 2035,280   
 19 2033,450   
 21 21 87,120  
 24 214,950   
 31 2182,170  63,150

Table (9)

Salaries Payable Account:

Salaries PayableAccount No. 211
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May31Adjusting22 13,600 13,600

Table (10)

Customers Refunds Payable Account:

Customers Refunds PayableAccount No. 212
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓     50,000
 20 2013,230   
 26 217,500  29,270
 31Adjusting22 60,000 89,270

Table (11)

Common Stock Account:

Common StockAccount No. 310
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓     100,000

Table (12)

Retained Earnings Account:

Retained EarningsAccount No. 311
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2017       
June1Balance✓     585,300
2018       
May31Closing23 741,855  
 31Closing23135,000  1,192,155

Table (13)

Dividends Account:

DividendsAccount No. 312
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    135,000 
 31Closing23 135,000  

Table (14)

Income Summary Account:

Income SummaryAccount No. 313
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May31Closing23 5,316,205  
 31Closing234,574,350  741,855
 31Closing23741,855   

Table (15)

Sales Account:

SalesAccount No. 410
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓     5,069,000
 6 20 67,130  
 10 20 54,000  
 20 21 108,900  
 30 21 77,175 5,376,205
 31Adjusting2260,000  5,316,205
 31Closing235,316,205   

Table (16)

Cost of Goods Sold Account:

Cost of Goods SoldAccount No. 510
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    2,823,000 
 6 2041,000   
 10 2032,000   
 20 2170,000   
 30 2147,000 3,013,000 
 31Adjusting2213,950   
 31Adjusting22 35,0002,991,950 
 31Closing23 2,991,950  

Table (17)

Sales Salaries Expense Account:

Sales Salaries ExpenseAccount No. 520
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    664,800 
 28 2156,000 720,800 
 31Adjusting227,000 727,800 
 31Closing23 727,800  

Table (18)

Advertising Expense Account:

Advertising ExpenseAccount No. 521
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    281,000 
 15 2011,000 292,000 
 31Closing23 292,000  

Table (19)

Depreciation Expense Account:

Depreciation ExpenseAccount No. 522
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May31Adjusting2214,000 14,000 
 31Closing23 14,000  

Table (20)

Stores Supplies Expense Account:

Stores Supplies ExpenseAccount No. 523
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May31Adjusting229,800 9,800 
 31Closing23 9,800  

Table (21)

Miscellaneous Selling Expense Account:

Miscellaneous Selling ExpenseAccount No. 529
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    12,600 
 31Closing23 12,600  

Table (22)

Office Salaries Expense Account:

Office Salaries ExpenseAccount No. 530
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    382,100 
 28 2129,000 411,100 
 31Adjusting226,600 417,700 
 31Closing23 417,700  

Table (23)

Rent Expense Account:

Rent ExpenseAccount No. 531
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    83,700 
 1 205,000 88,700 
 31Closing23 88,700  

Table (24)

Insurance Expense Account:

Insurance ExpenseAccount No. 532
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May31Adjusting2212,000 12,000 
 31Closing23 12,000  

Table (25)

Miscellaneous Administrative Expense Account:

Miscellaneous Administrative ExpenseAccount No. 539
DateItem

Post.

Ref.

DebitCreditBalance ($)
DebitCredit
2018       
May1Balance✓    7,800 
 31Closing23 7,800  

Table (26)

1. And 2.

Expert Solution
Check Mark
To determine

Record the journal entries.

Explanation of Solution

DateParticularsPost. Ref.Page 20
Debit ($)Credit ($)
2018     
May1Rent Expense5315,000 
  Cash110 5,000
      
 3Inventory11535,280 
  Accounts Payable210 35,280
      
 4Inventory115600 
  Cash110 600
      
 6Accounts Receivable11267,130 
  Sales410 67,130
      
 6Cost of Goods Sold51041,000 
  Inventory115 41,000
      
 7Cash11022,300 
  Accounts Receivable112 22,300
      
 10Cash11054,000 
  Sales410 54,000
      
 10Cost of Goods Sold51032,000 
  Inventory115 32,000
      
 13Accounts Payable21035,280 
  Cash110 35,280
      
 15Advertising Expense52111,000 
  Cash110 11,000
      
 16Cash11067,130 
  Accounts Receivable112 67,130
      
 19Inventory11518,700 
  Cash110 18,700
      
 19Accounts Payable21033,450 
  Cash110 33,450
      
 20Customers Refunds Payable21213,230 
  Cash110 13,230
      
 20Inventory1158,000 
  Estimated Returns Inventory116 8,000
DateParticularsPost. Ref.Page 21
Debit ($)Credit ($)
 20Accounts Receivable112108,900 
  Sales410 108,900
      
 20Cost of Goods Sold51070,000 
  Inventory115 70,000
      
 21Accounts Receivable1122,300 
  Cash110 2,300
      
 21Cash11042,900 
  Accounts Receivable112 42,900
      
 21Inventory11587,120 
  Accounts Payable210 87,120
      
 24Accounts Payable2104,950 
  Inventory115 4,950
      
 26Customers Refunds Payable2127,500 
  Cash110 7,500
      
 26Inventory1154,800 
  Estimated Returns Inventory116 4,800
      
 28Sales Salaries Expense52056,000 
  Office Salaries Expense53029,000 
  Cash110 85,000
      
 29Store Supplies1182,400 
  Cash110 2,400
      
 30Accounts Receivable11277,175 
  Sales410 77,175
      
 30Cost of Goods Sold51047,000 
  Inventory115 47,000
      
 30Cash110111,200 
  Accounts Receivable112 111,200
      
 31Accounts Payable21082,170 
  Cash110 82,170

Table (27)

3.

Expert Solution
Check Mark
To determine

Prepare the unadjusted trial balance of Company P.

Explanation of Solution

Prepare an unadjusted trial balance.

                                                       P Company

                                            Unadjusted Trial Balance

                                   As on May 31, 2018

Accounts

Account

No.

Debit

Balances ($)

Credit

Balances ($)

Cash11084,500 
Accounts Receivable112245,875 
Inventory115583,950 
Estimated Returns Inventory11615,200 
Prepaid Insurance11716,800 
Store Supplies11813,800 
Store Equipment123569,500 
Accumulated Depreciation—Store Equipment124 56,700
Accounts Payable210 63,150
Salaries Payable211 
Customers Refunds Payable212 29,270
Common Stock310 100,000
Retained Earnings311 585,300
Dividends312135,000 
Sales410 5,376,205
Cost of Goods Sold5103,013,000 
Sales Salaries Expense520720,800 
Advertising Expense521292,000 
Depreciation Expense522 
Store Supplies Expense523 
Miscellaneous Selling Expense52912,600 
Office Salaries Expense530411,100 
Rent Expense53188,700 
Insurance Expense532 
Miscellaneous Administrative Expense5397,800 
Total 6,210,6256,210,625

Table (28)

4. and 6.

Expert Solution
Check Mark
To determine

Record the adjusting entry.

Explanation of Solution

DateParticulars

Post.

Ref.

Page 22
Debit ($)Credit ($)
2018 Adjusting Entries   
May31Cost of Goods Sold51013,950 
  Inventory115 13,950
      
 31Insurance Expense53212,000 
  Prepaid Insurance117 12,000
      
 31Store Supplies Expense5239,800 
  Store Supplies118 9,800
      
 31Depreciation Expense52214,000 
  

            Accumulated. Depreciation

                       —Store Equipment

124 14,000
      
 31Sales Salaries Expense5207,000 
  Office Salaries Expense5306,600 
  Salaries Payable211 13,600
      
 31Sales41060,000 
  Customer Refunds Payable212 60,000
      
 31Estimated Returns Inventory11635,000 
  Cost of Goods Sold510 35,000

Table (29)

7.

Expert Solution
Check Mark
To determine

Prepare the adjusted trial balance of Company P.

Explanation of Solution

Prepare the adjusted trial balance.

P Company

                                                Adjusted Trial Balance

                                                As on  May 31, 2018

Particulars

Account

No.

Debit

Balances ($)

Credit

Balances ($)

Cash11084,500 
Accounts Receivable112245,875 
Inventory115570,000 
Estimated Returns Inventory11650,200 
Prepaid Insurance1174,800 
Store Supplies1184,000 
Store Equipment123569,500 
Accumulated Depreciation—Store Equipment124 70,700
Accounts Payable210 63,150
Salaries Payable211 13,600
Customers Refunds Payable212 89,270
Common Stock310 100,000
Retained Earnings311 585,300
Dividends312135,000 
Sales410 5,316,205
Cost of Goods Sold5102,991,950 
Sales Salaries Expense520727,800 
Advertising Expense521292,000 
Depreciation Expense52214,000 
Store Supplies Expense5239,800 
Miscellaneous Selling Expense52912,600 
Office Salaries Expense530417,700 
Rent Expense53188,700 
Insurance Expense53212,000 
Miscellaneous Administrative Expense5397,800 
Total 6,238,2256,238,225

Table (30)

8.

Expert Solution
Check Mark
To determine

Prepare the income statement, retained earnings, and balance sheet of P Company.

Explanation of Solution

Prepare the income statement.

                                                         P Company

                                                   Income Statement

                                        For the Year Ended May 31, 2018

ParticularsAmount ($)Amount ($)Amount ($)
Sales  5,316,205
Cost of goods sold  (2,991,950)
Gross profit  2,324,255
Expenses:   
Selling expenses:   
Sales salaries expense727,800  
Advertising expense292,000  
Depreciation expense14,000  
Store supplies expense9,800  
Miscellaneous selling expense12,600  
Total selling expenses 1,056,200 
Administrative expenses:   
Office salaries expense417,700  
Rent expense88,700  
Insurance expense12,000  
Miscellaneous administrative expense7,800  
Total administrative expenses 526,200 
Total expenses  (1,582,400)
Net income  741,855

Table (31)

Prepare the retained earnings statement.

P Company

  Retained Earnings Statement

For the Year Ended May 31, 2018

Retained earnings, June 1, 2017 585,300
Net income741,855 
Dividends(135,000) 
Change in retained earnings 606,855
Retained earnings, May 31, 2018 1,192,155

Table (32)

Prepare the balance sheet of P Company.

P Company

Balance Sheet

As on May 31, 2018

AssetsAmount ($)Amount ($)
Current assets:  
Cash$    84,500 
Accounts receivable245,875 
Inventory570,000 
Estimated returns inventory50,200 
Prepaid insurance4,800 
Store supplies4,000 
Total current assets $  959,375
Property, plant, and equipment:  
Store equipment$  569,500 
Accumulated depreciation—store equipment(70,700) 
Total property, plant, and equipment 498,800
Total assets $1,458,175
Liabilities  
Current liabilities:  
Accounts payable$    63,150 
Salaries payable13,600 
Customers refunds payable89,270 
Total liabilities $  166,020
Stockholders’ Equity  
Common stock$  100,000 
Retained earnings1,192,155 
Total stockholders’ equity 1,292,155
Total liabilities and stockholders’ equity $1,458,175

Table (33)

9.

Expert Solution
Check Mark
To determine

Prepare the closing entries.

Explanation of Solution

Prepare the closing entries.

DateParticulars

Post.

Ref.

Page 23
Debit ($)Credit ($)
2018 Closing Entries   
May31Sales4105,316,205 
  Income Summary313 5,316,205
      
 31Income Summary3134,574,350 
  Cost of Goods Sold510 2,991,950
  Sales Salaries Expense520 727,800
  Advertising Expense521 292,000
  Depreciation Expense522 14,000
  Store Supplies Expense523 9,800
  Miscellaneous Selling Expense529 12,600
  Office Salaries Expense530 417,700
  Rent Expense531 88,700
  Insurance Expense532 12,000
  Miscellaneous Administrative Expenses539 7,800
      
 31Income Summary313741,855 
  Retained Earnings311 741,855
      
 31Retained Earnings311135,000 
  Dividends312 135,000

Table (34)

10.

Expert Solution
Check Mark
To determine

Prepare the post-closing trial balance.

Explanation of Solution

Prepare the post-closing trial balance.

P Company

Post-Closing Trial Balance

May 31, 2018

Accounts

Account

No.

Debit

Balances ($)

Credit

Balances ($)

Cash11084,500 
Accounts Receivable112245,875 
Inventory115570,000 
Estimated Returns Inventory11650,200 
Prepaid Insurance1174,800 
Store Supplies1184,000 
Store Equipment123569,500 
Accumulated Depreciation—Store Equipment124 70,700
Accounts Payable210 63,150
Salaries Payable211 13,600
Customers Refunds Payable212 89,270
Common Stock310 100,000
Retained Earnings311 1,192,155
Total 1,528,8751,528,875

Table (35)

5.

Expert Solution
Check Mark
To determine

Prepare the worksheet for Company P.

Explanation of Solution

Prepare the worksheet.

Financial Accounting, Chapter 6, Problem 2CPP

Figure (1)

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Chapter 6 Solutions

Financial Accounting

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  • Palisade Creek Co. is a retail business that uses the perpetual inventory system. The account balances for Palisade Creek as of May 1, 20Y6 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: Record the following transactions on Page 21 of the journal: Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark () in the Posting Reference column. Journalize the transactions for May, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of stockholders equity, and a balance sheet. Assume that additional common stock of 10,000 was issued in January 20Y6. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the retained earnings account. 10. Prepare a post-closing trial balance.
    Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2016 (unless otherwise indicated), are as follows: During May, the last month of the fiscal year, the following transactions were completed: Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark () in the Posting Reference column. Journalize the transactions for July, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the owners capital account. 10. Prepare a post-closing trial balance.
    On December 31, 2019, the balances of the accounts appearing in the ledger of Wyman Company are as follows: Instructions 1. Does Wyman Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2019. The merchandise inventory as of December 31, 2019, was 305,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was 30,000. 3. Prepare the closing entries for Wyman Company as of December 31, 2019. 4. What would the net income have been if the perpetual inventory system had been used?
  • Pappas Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the year, and the inventory count at December 31 are summarized as follows: Instructions 1. Determine the cost of the inventory on December 31 by the first-in, first-out method. Present data in columnar form, using the following headings: If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. 2. Determine the cost of the inventory on December 31 by the last-in, first-out method, following the procedures indicated in (1). 3. Determine the cost of the inventory on December 31 by the weighted average cost method, using the columnar headings indicated in (1). 4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
    Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory count at December 31 are summarized as follows: Instructions 1. Determine the cost of the inventory on December 31 by the first-in, first-out method. Present data in columnar form, using the following headings: If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. 2. Determine the cost of the inventory on December 31 by the last-in, first-out method, following the procedures indicated in (1). 3. Determine the cost of the inventory on December 31 by the weighted average cost method, using the columnar headings indicated in (1). 4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
    Jessie Stores uses the periodic system of calculating inventory. The following information is available for December of the current year when Jessie sold 500 units of inventory. Using the FIFO method, calculate Jessies inventory on December 31 and its cost of goods sold for December.
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