Comprehensive Problem 2

Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek as of May 1, 2018 (unless otherwise indicated), are as follows: Net income: $741,855

110 Cash $ 83,600 112 Accounts Receivable 233,900 115 Inventory 624,400 116 Estimated Returns Inventory 28,000 117 Prepaid Insurance 16,800 118 Store Supplies 11,400 123 Store Equipment 569,500 124 Accumulated Depreciation Store Equipment 56,700 210 Accounts Payable 96,600 211 Salaries Payable 212 Customers Refunds Payable 50,000 310 Common Stock 100,000 311 Retained Earnings 585,300 312 Dividends $ 135,000 313 Income Summary 410 Sales 5,069,000 510 Cost of Goods Sold 2,823,000 520 Sales Salaries Expense 664,800 521 Advertising Expense 281,000 522 Depreciation Expense 523 Store Supplies Expense 529 Miscellaneous Selling Expense 12,600 530 Oce Salaries Expense 382,100 531 Rent Expense 83,700 532 Insurance Expense 539 Miscellaneous Administrative Expense 7,800

During May, the last month of the fiscal year, the following transactions were completed: May 1. Paid rent for May, $5,000. 3. Purchased merchandise on account from Martin Co., terms 2/10, n/30, FOB shipping point, $36,000. May 4. Paid freight on purchase of May 3, $600. 6. Sold merchandise on account to Korman Co., terms 2/10, n/30, FOB shipping point, $68,500. The cost of the goods sold was $41,000. 7. Received $22,300 cash from Halstad Co. on account. 10. Sold merchandise for cash, $54,000. The cost of the goods sold was $32,000. 13. Paid for merchandise purchased on May 3. 15. Paid advertising expense for last half of May, $11,000. 16. Received cash from sale of May 6. 19. Purchased merchandise for cash, $18,700. 19. Paid $33,450 to Buttons Co. on account. 20. Paid Korman Co. a cash refund of $13,230 for returned merchandise from sale of May 6. The invoice amount of the returned merchandise was $13,500 and the cost of the returned merchandise was $8,000. Record the following transactions on Page 21 of the journal: May 20. Sold merchandise on account to Crescent Co., terms 1/10, n/30, FOB shipping point, $110,000. The cost of the goods sold was $70,000. 21. For the convenience of Crescent Co., paid freight on sale of May 20, $2,300. 21. Received $42,900 cash from Gee Co. on account. 21. Purchased merchandise on account from Osterman Co., terms 1/10, n/30, FOB destination, $88,000. 24. Returned of damaged merchandise purchased on May 21, receiving a credit memo from the seller for $5,000. 26. Refunded cash on sales made for cash, $7,500. The cost of the merchandise returned was $4,800. 28. Paid sales salaries of $56,000 and oce salaries of $29,000. 29. Purchased store supplies for cash, $2,400. 30. Sold merchandise on account to Turner Co., terms 2/10, n/30, FOB shipping point, $78,750. The cost of the goods sold was $47,000. 30. Received cash from sale of May 20 plus freight paid on May 21. 31. Paid for purchase of May 21, less return of May 24. 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 ( Balance in the item section, and place a check mark ( Balance ) 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 At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). A. Inventory on May 31 $570,000 B. Insurance expired during the year 12,000 C. Store supplies on hand on May 31 4,000 D. Depreciation for the current year 14,000 E. Accrued salaries on May 31: Sales salaries $7,000 Oce salaries 6,600 13,600 F. The adjustment for customer returns and allowances is $60,000 for sales and $35,000 for cost of goods sold. 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 retained earnings statement, 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 retained earnings account. 10. Prepare a post-closing trial balance.