Problem 5-4 (40 minutes)

July 3 Merchandise Inventory .................................... 15,000

Accounts Payable—CAP..........................
15,000
(Purchased goods on credit)

July 4 Accounts Payable—CAP ................................. 250

Cash ...........................................................
250
(Paid freight for CAP Corp.)

July 7 Accounts Receivable—Morris......................... 10,500

Sales.........................................................
.. 10,500
(Sold goods on credit).

July 7 Cost of sales ..................................................... 7,500

Merchandise Inventory.............................
7,500
(To record cost of the 7 July sale).

July 10 Merchandise Inventory .................................... 14,800

Accounts Payable—Murdock ..................
14,800
(Purchased goods on credit). 14,200 +600 (transportation)

July 11 Delivery Expense.............................................. 300

Cash .........................................................
.. 300
(Paid shipping charges on 7 July sale).

July 12 Sales Returns and Allowances ....................... 1,750

Accounts Receivable—Morris .................
1,750
(Customer returned merchandise).

July 12 Merchandise Inventory .................................... 1,250

Cost of sales..............................................
1,250
(Returned goods to inventory).
July 14 Accounts Payable—Murdock.......................... 2,000
Merchandise Inventory.............................
2,000
(Received a credit memorandum for 10 July purchase).

July 17 Cash...................................................................
8,575
Sales Discounts
(2%) ....................................... 175
Accounts Receivable—Morris ................. 8,750
(Collected receivable within discount period). 10500-1750
=8,750

July 20 Accounts Payable—Murdock.......................... 12,800

Merchandise Inventory.............................
122
Cash ........................................................
... 12,678
(Paid payable within discount period).
$14,200 + $600transportation - $2,000return = $12,800
($14,200 - $2,000) x 1% = $122

July 21 Accounts Receivable—Ulsh............................ 9,000

Sales..........................................................
. 9,000
(Sold goods on credit).

July 21 Cost of Sales..................................................... 6,250

Merchandise Inventory.............................
6,250
(To record cost of the 21 July sale.)

July 24 Sales Returns and Allowances ....................... 1,500

Accounts Receivable—Ulsh ....................
1,500
(Issued credit memo.)

July 30 Cash................................................................... 7,425

Sales Discounts
(1%) ....................................... 75
Accounts Receivable—Ulsh ....................
7,500
(Collected receivable within discount period). 9,000-1500=7,500
July 31 Accounts Payable—CAP ................................. 14,750
Cash ..........................................................
. 14,750
(Paid payable). 15,000 -250 freight cost= 14,750

Problem AP5-2

Journal entries (periodic inventory system)

Date Accounts and Explanation Debit

Credit
June1 Cash 50,000
Capital
50,000

June 2 Furniture & equipment 8,000

Cash
8,000

June 3 Purchases ($5,400 + $3,100) 8,500

Account payable - Zee Company
5,400
Account payable - Sykt Meerah
3,100
Freight in 125
 Cash
125

June 9 Account receivable - Kolej Tunas Baru 2,500

Account receivable - Sekolah Tinggi Chiang 3,000
Sales revenue
5,500

June 10 Account payable - Sykt Meerah 300

Purchase return
300

June 12 Account payable - Zee Company 5,400

Purchase Discount ($5,400 x 6%)
324
Cash
5,076

June 15 Account receivable - Sakti College 4,100

($4,000 + $100)
Sales revenue
4,000
Cash
100

June 16 Cash 2,850

Sales discount ($3,000 x 5%) 150
Account receivable - Sekolah Tinggi Chiang
3,000

June 17 Sales return 400

Account receivable - Sakti College
400

June 24 Cash 2,500

Account receivable - Kolej Tunas Baru
2,500

June 27 Salary expense 3,200

 Cash
1,600
Salary accrued
1,600

Calculation of gross profit

Revenue
Sales revenue ($5,500 + $4,000) $ 9,500
Sales discount (150)
Sales return (400)
Net sales $ 8,950

Cost of sales
Purchases $ 8,500
Freight in 150
Purchase return (300)
Discount received (324)
$ 8,026
Ending inventories (2,900)
$ (5,126)
Gross profit $ 3,824
Problem AP5-6

1. Journal entries
Date Accounts and Explanation Debit
Credit
May 1 Merchandise inventories 2,500
A.Payable – Alladin Company
2,500
Merchandise inventories 200
Cash
200

May 3 A.Receivable – Jingle Enterprise 18,700

Sales
18,700
Cost of sales 7,900
Merchandise inventories
7,900

May 5 A.Payable – Alladin Company 500

Merchandise inventories
500

May 6 Advertising expense 390

Cash
390

May 9 A.Payable – Alladin Company 2,000

Merchandise inventories
100
Cash
1,900
2,500 -500 return = 2,000

May 10 A.Receivable – Dragon Tales Company 17,000

Sales
17,000
20,000 *85% =17,000

Cost of sales 6,800

Merchandise inventories
6,800
May 12 Merchandise inventories 5,000
A.Payable – Kassim Baba
5,000

May 14 Freight out 270

Cash
270

May 17 Sales Return 500

A.Receivable – Dragon Tales Co.
500
Merchandise inventories 240
Cost of sales
240

May 20 Cash 18,700

A.Receivable – Jingle Enterprise
18,700

May 23 Cash 5,000

Sales
5,000
Cost of sales 2,300
Merchandise inventories
2,300

May 28 Utility expense 300

Salary expense 7,000
Miscellaneous expenses 5,000
Cash
12,300

May 29 Notes payable 15,000

Cash
15,000
2. Adjusting entries

No. Accounts and Explanation Debit

Credit
1. Depreciation expense – Store eq. 700
Accumulated Depr. – Store eq (8,400/12)
700

Depreciation expense – Delivery van 400

Accumulated Depr. – Delivery van
400
4,800/12=400

2. Store supplies expense 3,500

Store supplies
3,500
5,500-2000 =3,500

3. Utility expense 200

Utility payable
200

4. Insurance expense 250

Prepaid insurance
250
3,000 x 1/12 = 250

3. Adjusted trial balance

FAIRY TALES COMPANY
ADJUSTED TRIAL BALANCE
AS AT 30 MAY 2007
Debit
Credit
Cash $ 20,540
Accounts receivable 50,200
Merchandise inventories 15,140
Store supplies 2,000
Prepaid insurance 1,750
Store equipment 85,000
Accumulated depreciation – Store equipment
$ 18,700
Delivery van 48,000
Accumulated depreciation – Delivery van
12,400
Notes payable
22,900
Accounts payable
53,000
Utility payable
200
Capital
110,000
Sales
40,700
Cost of sales 16,760
Sales return 500
Advertising expense 390
Freight out 270
Utility expense 500
Salary expense 7,000
Miscellaneous expenses 5,000
Depreciation expense – Store equipment 700
Depreciation expense – Delivery van 400
Store supplies expense 3,500
Insurance expense 250
$ 257,900
$ 257,900
4. Income statement

FAIRY TALES COMPANY

INCOME STATEMENT
FOR THE MONTH ENDED 30 MAY 2007
Revenue
Sales revenue $
40,700
Sales return
(500)
Net sales $
40,200
Cost of sales
(16,760)
Gross profit $
23,440

Expenses
Advertising expense $
(390)
Freight out
(270)
Utility expense
(500)
Salary expense
(7,000)
Miscellaneous expenses
(5,000)
Depreciation expense – Store equipment
(700)
Depreciation expense – Delivery van
(400)
Store supplies expense
(3,500)
Insurance expense
(250)
Profit for the period $
5,430
5. Balance sheet
FAIRY TALES COMPANY
BALANCE SHEET
AS AT 30 MAY 2007
ASSETS
Non Current Assets
Store equipment $ 85,000
Accumulated depreciation (18,700)
$
66,300
Delivery van 48,000
Accumulated depreciation (12,400)
35,
600
Total non current assets
$101,900

Current Assets
Cash $
20,540
Accounts receivable
50,200
Merchandise inventories
15,140
Store supplies
2,000
Prepaid insurance
1,750
Total current assets $
89,630

Total Assets
$191,530

EQUITIES & LIABILITIES

Equity
Beginning capital $
110,000
Profit for the period
(5,430)
Total equity
115,430

Current Liabilities
Notes payable $
22,900
Accounts payable
53,000
Utility payable
200
Total current liabilities $
76,100

Total Equity and Liabilities $

191,530

6. Closing entries

No. Accounts and Explanation Debit

Credit
1. Sales 40,700
 Income summary
40,700

2. Income summary 35,270

Cost of sales
16,760
Sales return
500
Advertising expense
390
Freight out
270
Utility expense
500
Salary expense
7,000
Miscellaneous expenses
5,000
Depreciation exp – Store equipment
700
Depreciation exp – Delivery van
400
Store supplies expense
3,500
Insurance expense
250

3. Income summary 5,430

Capital
5,430

7. Post closing trial balance

FAIRY TALES COMPANY

POST-CLOSING TRIAL BALANCE
AS AT 30 MAY 2007
Debit
Credit
Cash $ 20,540
Accounts receivable 50,200
Merchandise inventories 15,140
Store supplies 2,000
Prepaid insurance 1,750
Store equipment 85,000
Accumulated depreciation – store Equipment
$18,700
Delivery van 48,000
Accumulated depreciation – delivery van
12,400
Notes payable
22,900
Accounts payable
53,000
Utility payable
200
Capital
115,430
$ 222,630
$ 222,630