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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 June 30, 2019, the balances of the accounts appearing in the ledger of Simkins Company are as follows:

Cash $125,000
Accounts Receivable 340,000
Merchandise Inventory. July 1,2018 415,000
Estimated Returns Inventory 25,000
Office Supplies 9,000
Prepaid Insurance 18,000
Land 300,000
Store Equipment 550,000
Accumulated Depreciation—Store Equipment 190,000
Office Equipment 250,000
Accumulated Depreciation—Office Equipment 110,000
Accounts Payable 85,000
Customer Refunds Payable 20,000
Salaries Payable 9,000
Unearned Rent 6,000
Notes Payable 50,000
Amy Gant, Capital 820,000
Amy Gant, Drawing 275,000
Sales 6,590,000
Purchases $4,100,000
Purchases Returns and Allowances 32,000
Purchases Discounts 13,000
Freight In 45,000
Sales Salaries Expense 580,000
Advertising Expense 315,000
Delivery Expense 18,000
Depreciation Expense—Store Equipment 12,000
Miscellaneous Selling Expense 28,000
Office Salaries Expense 375,000
Rent Expense 43,000
Insurance Expense 17,000
Office Supplies Expense 5,000
Depreciation Expense-Office Equipment 4,000
Miscellaneous Administrative Expense 16,000
Rent Revenue 32,500
Interest Expense 2,500

Instructions

1.    Does Simkins Company use a periodic or perpetual inventory system? Explain.

2.    Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2019. The merchandise inventory as of June 30, 2019, was $508,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was $33,000.

3.    Prepare the closing entries for Simkins Company as of June 30, 2019.

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 S 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 S for the year ended June 30, 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 S.

4.

To determine

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

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