Comprehensive Problem Part 1

Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2018, are as follows: Assume all accounts have normal balances.

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	Office 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:

Record the following transactions on page 20 of the journal. Refer to the Chart of Accounts for exact wording of account titles.

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.
	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. Refer to the Chart of Accounts for exact wording of account titles.

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 office 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.

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. Accounts with zero balances can be left blank.

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

Office salaries, $6,600

Total accrued salaries: $13,600

F.

The adjustment for customer returns and allowances is $60,000 for sales and $35,000 for cost of goods sold.

6.

A.	Journalize the adjusting entries. Record the adjusting entries on Page 22 of the journal.*
B.	Post the adjusting entries.

7.

Prepare an adjusted trial balance. Accounts with zero balances can be left blank.

9. A.	Prepare the closing entries. Record the closing entries on Page 23 of the journal. Refer to the Chart of Accounts for exact wording of account titles.
9. B.	Post the closing entries to the ledger of four-column accounts. Add the appropriate posting reference to the journal. Insert the new balance in the retained earnings account.

10. Prepare a post-closing trial balance. Accounts with zero balances can be left blank.