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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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

On December 31, 2019, the balances of the accounts appearing in the ledger of Wyman

Company are as follows:

Cash $13,500
Accounts Receivable 72,000
Merchandise Inventory, January 1,2019 257,000
Estimated Returns Inventory 35,000
Office Supplies 3,000
Prepaid Insurance 4,500
Land 150,000
Store Equipment 270,000
Accumulated Depreciation—Store Equipment 55000
Office Equipment 78,500
Accumulated Depreciation—Office Equipment 16000
Accounts Payable 27,800
Customer Refunds Payable 50,000
Salaries Payable 3,000
Unearned Rent 8,300
Notes Payable 50,000
Shirley Wyman, Capital 515,600
Shirley Wyman, Drawing 25,000
Sales 3280000
Purchases 2650000
Purchases Returns and Allowances 93,000
Purchases Discounts 37,000
Freight In 48,000
Sales Salaries Expense 300,000
Advertising Expense 45,000
Delivery Expense 9,000
Depreciation Expense—Store Equipment 6,000
Miscellaneous Selling Expense 12,000
Office Salaries Expense 175,000
Rent Expense 28,000
Insurance Expense 3,000
Office Supplies Expense 2,000
Depreciation Expense-Office Equipment 1,500
Miscellaneous Administrative Expense 3,500
Rent Revenue 7,000
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, 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. 3. Prepare the closing entries for Wyman Company as of December 31, 2019.
  4. 4. What would the net income have been if the perpetual inventory system had been used?

(1)

To determine

Multi step income statement: A multiple step income statement refers to the income statement that shows the operating, and non-operating activities of the business, under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.

To Explain: Whether Company W use a periodic inventory system or perpetual inventory system.

Explanation

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis suc...

(2)

To determine

To Prepare: The income statement of Company W for the year ended December 31, 2019.

3.

To determine

Closing entries: These refers to the journal entries that are recorded at the end of an each accounting period. It closes all revenue accounts earned, and all expenses account incurred during the current accounting year to the company’s capital account.

To Record: The closing entries of Company W.

4.

To determine

To Mention: The net income of W Company under the perpetual inventory system.

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