12
Completion of the
Accounting Cycle For
a Merchandise
Company Using the
Perpetual Inventory
Method
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
2. In a periodic inventory system:
Beginning Inventory
3. Selling and Administrative Expenses
4. Current Assets—Cash and assets converted into cash or used during normal
or services.
5. Time period it takes a company to buy and sell merchandise and then collect
accounts receivable.
6. To bring ledger up to date.
7. A) Debit all the balances of accounts on the income statement credit column
of the worksheet, and credit the Income Summary account.
8. Disagree. Only permanent accounts are on a post-closing trial balance.
9. Reversing entries are not mandatory. Reversing entries helps avoid potential
10. Answers will vary from student to student. Be sure they back up their key
SOLUTIONS TO CONCEPT CHECKS
1.
2.
a.
Net Sales
$173
– Cost of Goods Sold
= Gross Profit
b.
Gross Profit
= Net Income
3. 1. a
4. a.
Jan.
1
Salaries Payable
3
8
0
00
3
8
0
00
Jan.
8
Salaries Expense
7
6
0
00
7
6
0
00
SOLUTIONS TO SET A EXERCISES
12A–1.
a.
Salaries Payable: Liability, Current Liability, Balance Sheet
b.
Accounts Payable: Liability, Current Liability, Balance Sheet
d.
Unearned Legal Fees: Liability, Current Liability, Balance Sheet
e.
Income Tax Payable: Liability, Current Liability, Balance Sheet
f.
Office Equipment: Asset, Plant and Equipment, Balance Sheet
12A-2.
Dec.
31
Sales
5
5
2
0
00
Income Summary
5
5
2
0
00
31
Income Summary
4
8
0
3
00
Sales Returns & Allowances
2
2
3
00
Sales Discounts
1
0
8
00
Cost of Goods Sold
2
5
4
3
00
Salaries Expense
1
0
8
3
00
Insurance Expense
6
9
6
00
Utilities Expense
4
8
00
Plumbing Expense
5
7
00
Advertising Expense
1
5
00
Depreciation Expense, Office Equip.
3
0
00
31
Income Summary
7
1
7
00
7
1
7
00
12A-3.
A. SLOW COMPANY
PARTIAL BALANCE SHEET
DECEMBER 31, 2019
Current Assets:
Cash
$
1
9
3
00
Merchandise Inventory
3
6
2
00
Prepaid Advertising
5
6
1
00
Prepaid Insurance
3
0
00
1
4
6
00
Plant and Equipment:
0
8
0
00
1
0
8
7
0
00
0
1
6
00
EXERCISES (CONTINUED)
12A-4.
(a)
Dec.
31
Salaries Expense
3
0
0
00
Salaries Payable
3
0
0
00
(b)
Jan.
1
Salaries Payable
3
0
0
00
Salaries Expense
3
0
0
00
0 Bal.
(c)
Feb.
3
Salaries Expense
6
0
0
0
00
Cash
6
0
0
0
00
SOLUTIONS TO SET B EXERCISES
12B–1.
a.
Mortgage Payable-current portion: Liability, Current Liability, Balance Sheet
Accounts Receivable: Asset, Current Asset, Balance Sheet
c.
Prepaid Rent: Asset, Current Asset, Balance Sheet
d.
Unearned Accounting Fees: Liability, Current Liability, Balance Sheet
e.
Income Tax Payable: Liability, Current Liability, Balance Sheet
f.
Vehicles: Asset, Plant and Equipment, Balance Sheet
g.
Accumulated Depreciation, Vehicles: Contra Asset, Plant and Equipment, Balance Sheet
12B-2.
Dec.
31
Sales
7
7
2
0
00
Income Summary
7
7
2
0
00
31
Income Summary
6
2
8
1
00
Sales Returns & Allowances
3
6
4
00
Sales Discounts
2
7
7
00
Cost of Goods Sold
3
1
4
2
00
Salaries Expense
1
5
7
6
00
Insurance Expense
5
7
8
00
Utilities Expense
1
3
5
00
Plumbing Expense
8
8
00
Advertising Expense
5
6
00
Depreciation Expense, Office Equip.
6
5
00
31
Income Summary
1
4
3
9
00
1
4
3
9
00
12B-3.
A. SLOW COMPANY
PARTIAL BALANCE SHEET
DECEMBER 31, 2019
Current Assets:
Cash
$
2
0
3
00
Merchandise Inventory
5
7
5
00
Prepaid Advertising
6
8
0
00
Prepaid Insurance
3
6
0
00
1
8
00
Plant and Equipment:
9
8
0
00
6
0
1
6
2
0
00
$3
4
3
8
00
EXERCISES (CONTINUED)
12B-4.
(a)
Dec.
31
Salaries Expense
7
0
0
00
Salaries Payable
7
0
0
00
Salaries Expense
Salaries Payable
(b)
Jan.
1
Salaries Payable
7
0
0
00
Salaries Expense
7
0
0
00
(c)
Feb.
3
Salaries Expense
7
5
0
0
00
Cash
7
5
0
0
00
SOLUTIONS TO SET A PROBLEMS
PROBLEM 12A-1
MALORIE’S DENTAL SUPPLY CO.
INCOME STATEMENT
FOR YEAR ENDED DECEMBER 31, 2018
Revenue:
Gross Sales
$2
8
0
0
00
$
1
1
9
00
6
4
00
1
8
3
00
Cost of Goods Sold:
Gross Profit
$1
9
4
1
00
Operating Expenses:
Salaries Expense
$
3
0
0
00
Insurance Expense
2
0
0
00
Advertising Expense
1
5
5
00
Rent Expense
2
1
5
00
Depreciation Exp., Store Equip.
2
0
0
00
Other Income:
Rental Income
2
0
0
PROBLEM 12A-2
GOODS CO.
STATEMENT OF OWNER’S EQUITY
FOR YEAR ENDED DECEMBER 31, 2020
Goods, Capital, 1/1/2020
$7
4
0
0
00
Less: Net Loss
($3
7
1
0
Less: Withdrawals
0
0
Decrease in Capital
8
1
0
Goods, Capital, 12/31/2020
$3
5
9
0
00
PROBLEM 12A-2 (CONCLUDED)
GOODS CO.
BALANCE SHEET
DECEMBER 31, 2020
Assets
Current Assets:
Cash
$8
5
0
0
00
Petty Cash
9
0
3
5
0
00
Merchandise Inventory
0
0
0
Supplies
3
2
5
00
5
0
0
00
Plant and Equipment:
Store Equipment
$2
8
0
0
00
7
0
0
00
1
0
0
2
2
5
00
4
7
5
00
Liabilities
Current Liabilities:
Accounts Payable
$2
8
0
0
00
Taxes Payable
5
0
0
6
0
0
00
2
0
0
00
2
5
0
00
3
5
9
0
Dep. Exp., Equip.
PROBLEM 12A-3
(a)
Balance Sheet
Credit
Debit
Income Statement
Credit
JAY’ S SUPPLIES
WORKSHEET
FOR THE YEAR ENDED DECEMBER 31, 2019
Debit
11,400
10,000
Adjusted Trial
Balance
Credit
Debit
11,400
10,000
Adj. Entries
Credit
Debit
Trial Balance
Credit
Debit
11,400
10,000
Account Titles
Advertising Expense
Rent Expense
95,800
12,000
11,000
Merchandise Inventory
Accounts Payable
Sales
PROBLEM 12A-3 (CONTINUED)
(b)
JAY’S SUPPLIES
INCOME STATEMENT
FOR YEAR ENDED DECEMBER 31, 2019
Revenue:
Sales
$95
8
0
0
00
Less: Sales Ret. and Allow.
2
0
0
00
6
0
0
00
Cost of Goods Sold
Operating Expenses:
Advertising Expense
11
4
0
0
00
Rent Expense
10
0
0
0
00
Salaries Expense
13
6
0
0
00
Insurance Expense
5
0
0
00
Depreciation Expense, Equip.
4
0
0
00
Other Income
JAY’S SUPPLIES
STATEMENT OF OWNER’S EQUITY
FOR YEAR ENDED DECEMBER 31, 2019
P. Jay, Capital, 1/1/2019
$10
5
6
0
00
Net Income
$5
9
4
0
00
Less: Withdrawals
2
8
0
PROBLEM 12A-3 (CONTINUED)
JAY’S SUPPLIES
BALANCE SHEET
DECEMBER 31, 2019
Assets
Current Assets:
Cash
$2
0
0
0
00
Accounts Receivable
0
0
0
00
Liabilities
Current Liabilities
Accounts Payable
$5
0
8
0
00
Owner’s Equity
P. Jay, Capital
12
PROBLEM 12A-3 (CONCLUDED)
(c)
GENERAL JOURNAL
PAGE 2
Date
Account Titles and Description
PR
Dr.
Cr.
Adjusting Entries
Dec.
31
Merchandise Inventory
1
0
0
0
00
Cost of Goods Sold
0
0
0
00
31
Unearned Training Fees
3
2
0
00
Training Fees Earned
3
2
0
00
31
Depreciation Expense, Equipment
4
0
0
00
Accumulated Depreciated, Equipment
4
0
0
00
31
Insurance Expense
5
0
0
00
Prepaid Insurance
5
0
0
00
Closing Entries
31
Sales
95
8
0
0
00
Training Fees Earned
3
2
0
00
Income Summary
96
1
2
0
00
31
Income Summary
90
1
8
0
00
Sales Returns and Allowances
2
0
0
00
Sales Discount
6
0
0
00
Cost of Goods Sold
48
4
8
0
00
Advertising Expense
11
4
0
0
00
Rent Expense
10
0
0
0
00
Salaries Expense
13
6
0
0
00
Depreciation Expense, Equipment
4
0
0
00
31
Income Summary
5
9
4
0
00
31
P. Jay, Capital
4
2
8
0
00
P. Jay, Withdrawals
2
8
0
00
PROBLEM 12A-4 (a)
Balance Sheet
Credit
Debit
1,680
960
Income Statement
Credit
Debit
159
120
MEYER LUMBER
WORKSHEET
FOR THE YEAR ENDED DECEMBER 31, 2019
Adjusted Trial Balance
Credit
Debit
1,680
960
159
120
Adjustments
Credit
Debit
(B) 159
(C) 120
Trial Balance
Credit
Debit
1,680
960
Account Titles.
Cash
Accounts Receivable
Lumber Supplies Exp,
Insurance Expense
PROBLEM 12A-4 (CONTINUED)
(b)
MEYER LUMBER
INCOME STATEMENT
FOR YEAR ENDED DECEMBER 31, 2019
Revenue:
Sales
8
0
0
00
Less: Sales Discounts
2
0
0
00
Cost of Goods Sold
Cost of Goods Sold
3
4
5
Gross Profit
$8
2
5
5
00
Operating Expenses:
Wages Expense
2
6
0
5
00
Advertising Expense
4
0
0
00
Rent Expense
8
3
0
00
Depreciation Expense, L. Equip.
3
0
0
00
Lumber Supplies Expense
1
5
9
00
Insurance Expense
1
2
0
00
MEYER LUMBER
STATEMENT OF OWNER’S EQUITY
FOR YEAR ENDED DECEMBER 31, 2019
L. Meyer, Capital, 1/1/2019
$7
3
5
2
00
Net Income
$3
8
4
1
00
Less: Withdrawals
(3
0
0
0
PROBLEM 12A-4 (CONTINUED)
MEYER LUMBER
BALANCE SHEET
DECEMBER 31, 2019
Assets
Current Assets:
Cash
$1
6
8
0
00
Accounts Receivable
9
6
0
00
Merchandise Inventory
4
2
0
00
Lumber Supplies
1
1
0
00
Prepaid Insurance
9
8
00
Plant and Equipment:
Lumber Equipment
0
0
0
00
Less: Acc. Depr., Lumber Equip.
7
9
0
00
2
1
0
Current Liabilities
Accounts Payable
$1
1
6
0
00
Wages Payable
1
2
5
00
L. Meyer, Capital
1
9
3
PROBLEM 12A-4 (CONTINUED)
(c)
GENERAL JOURNAL
PAGE 2
Date
201X
Account Titles and Description
PR
Dr.
Cr.
Adjusting Entries
31
Cost of Goods Sold
550
1
3
0
00
Merchandise Inventory
112
3
0
00
31
Lumber Supplies Expense
664
1
5
9
00
Lumber Supplies
113
5
9
00
31
Insurance Expense
665
1
2
0
00
Prepaid Insurance
114
2
0
00
31
Depreciation Expense, Lumber Equipment
663
3
0
0
00
Acc. Depreciation, Lumber Equipment
122
0
0
00
31
Wages Expense
660
1
2
5
00
Wages Payable
221
1
2
5
00
Closing Entries
31
Sales
440
22
8
0
0
00
Income Summary
332
22
8
0
0
00
31
Income Summary
332
18
9
5
9
00
Sales Returns and Allowances
441
2
0
0
00
COGS
550
3
4
5
00
Wages Expense
660
6
0
5
00
Advertising Expense
661
4
0
0
00
Rent Expense
662
8
3
0
00
Lumber Supplies Expense
664
1
5
9
00
Insurance Expense
665
1
2
0
00
Dep. Exp., Lumber Equipment
663
3
0
0
00
31
Income Summary
332
3
8
4
1
00
L. Meyer, Capital
330
8
4
1
00
31
L. Meyer, Capital
330
3
0
0
0
00
L. Meyer, Withdrawals
0
0
0
00
PROBLEM 12A-4 (CONTINUED)
MEYER LUMBER
GENERAL LEDGER
CASH
ACCOUNT NO. 110
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Balance
√
1
6
8
0
00
ACCOUNTS RECEIVABLE
ACCOUNT NO. 111
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Balance
√
9
6
0
00
MERCHANDISE INVENTORY
ACCOUNT NO. 112
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Balance
√
4
5
5
0
00
31
Adjusting
GJ2
1
3
0
00
4
4
2
0
00
LUMBER SUPPLIES
ACCOUNT NO. 113
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Balance
√
2
6
9
00
Adjusting
GJ2
1
5
9
1
1
0
PROBLEM 12A-4 (CONTINUED)
PREPAID INSURANCE
ACCOUNT NO. 114
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
2
1
8
Adjusting
GJ2
1
2
0
9
8
LUMBER EQUIPMENT
ACCOUNT NO. 121
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Balance
√
3
0
0
0
00
ACCUMULATED DEPRECIATION, LUMBER EQUIPMENT
ACCOUNT NO. 122
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
4
0
Adjusting
GJ2
3
0
0
7
9
0
ACCOUNTS PAYABLE
ACCOUNT NO. 220
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
1
1
6
0
WAGES PAYABLE
ACCOUNT NO. 221
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Adjusting
GJ2
1
2
5
1
2
5
PROBLEM 12A-4 (CONTINUED)
L. MEYER, CAPITAL
ACCOUNT NO. 330
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
7
3
5
2
Closing
GJ2
3
8
4
1
1
9
3
Closing
GJ2
3
0
0
8
1
9
3
L. MEYER, WITHDRAWALS
ACCOUNT NO. 331
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
3
0
0
0
INCOME SUMMARY
ACCOUNT NO. 332
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Closing
GJ2
8
0
0
8
0
0
Closing
GJ2
9
5
9
3
8
4
1
GJ2
3
8
4
1
SALES
ACCOUNT NO. 440
Date
201X
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Balance
8
0
0
GJ2
22
8
0
0