Introduction: Brookes Books is a retail book store. The company is owned by Brooke Riley, the only shareholder (to be). Brooke has asked you to keep the records for the store, and to prepare its financial statements at the end of the month. You decide to use a simple manual accounting system consisting of: A General Journal A General Ledger Books of the company are adjusted and closed, with financial statements prepared on a monthly basis. Reversing entries ARE NOT made. The General Ledger is empty, as this is the first month of operations. It is October, the start of the busiest retail season of the year, and there are going to be many entries to reflect all the activity necessary to get the business started. Brooke will sell merchandise inventory to two types of customers: Walkin customers: These are customers who come to the physical store location, browse the selection of merchandise inventory, and purchase goods while onsite. Brooke decides to accept CASH ONLY for inperson sales to walkin customers. Online customers: These customers place orders on account. Sales of merchandise inventory which are made on account are made on strict terms of 2/10, N/30, unless otherwise stated. Additionally, purchases of merchandise inventory are made on strict terms of 2/10, N/30, unless otherwise stated. You have decided to account for sales and purchases using the GROSS METHOD. Use the perpetual inventory system to account for inventory. Brookes Books depreciates assets according to the straightline method of depreciation, and uses the halfmonth convention for asset purchases occurring during the month. Brooke hires one employee P. Anderson, who works in the retail store as a salesperson.

Required: Journalize the following transactions for October. Entries should be posted daily/immediately. Due to the order of posting, it is possible that an account with a normal debit balance may temporarily have a credit balance (and vice versa). Do not worry at the end of the month, after all the posting has been completed, everything will work out properly. Remember a journal entry is not complete without a description! Transactions: Oct 1 Brooke Riley contributes the following to start the business: Cash, $15,000; Merchandise Inventory (she has saved up certain rare books and other items over the years), $42,000. Ms. Riley is the only stockholder and is issued 5,700 shares of $10 par common stock. Oct 1 Paid first and last months rent, $5,000 total (this amount covers two months rent October, Year 1 and some future month at the end of the business operations), to Vromans Property Co. (Assume the entire rent amount is paid for the retail store space; no rent is to be allocated to office space.) Oct 1 Borrowed $40,000 from Page Bank, on a fiveyear, 12% note, with interest only to be paid at each yearend (December 31) and principal due October 1, Year 6. Oct 1 Purchased office furniture from Bailey Furniture Company, $16,100, cash. The useful life is ten years and the salvage value is $1,100. Brookes Books uses straight line depreciation. Oct 1 Purchased some inventory on account from Arbitrary House Publishers, $50,500, terms 2/10, N/30. Oct 1 As soon as the store opens the doors, ten customers walk in ready to spend money, and they do. Total cash sales for the day, $1,000. The cost of the related merchandise sold was $846. Oct 1 As soon as the online store opens, we sell three online customers merchandise on account: J. Rowling, first edition, autographed copy of The Velveteen Rabbit sold for $1,450. The cost of the merchandise was $1,160. R. Rowell, antique rotary telephone sold for $1,700. The cost of the merchandise was $1,190. M. Twain, upcycled white picket fence bookcase sold for $4,400. The cost of the merchandise was $2,000.

Oct 2 Purchased cash registers (Store Equipment) on account from Ring Up Company, $7,200, with terms N/30. Useful life is three years, salvage value is $0, straightline depreciation. Oct 3 Purchased office supplies on account with terms N/30 from Office Max, $2,500. Oct 4 Paid cash for three months of insurance for October through December in advance, $3,600 to Book Worm Insurance Company. Debit the entire amount to one account. Oct 5 Sold some merchandise on account to the following new corporate customers: Polytechnic Academy purchased 100 textbooks for $180, each. The cost of the merchandise was $72 each. Arcadia City College purchased 1,000 textbooks for $150, each. The cost of the merchandise was $50 each. Sunshine Preschool purchased 200 picture books for $16 each. The cost of the merchandise was $6 each. Oct 6 Received a check on account from J. Rowling in payment of her Oct 1 invoice. (Reminder, all sales on account are made with terms 2/10, n/30. It will be up to you to determine whether or not payment is made within the discount period.) Oct 7 Recorded cash sales for the rest of the first week, $2,620. The cost of the related merchandise sold was $2,096. Oct 8 Some of the units sold to Polytechnic Academy are defective. Issued a $3,000 sales allowance. (Polytechnic keeps the damaged merchandise inventory.) Oct 9 Sold some merchandise on account to the following businesses: S. King, $3,800. The cost of the merchandise was $2,600 D. Steele, $8,600. The cost of the merchandise was $6,600 Oct 10 Due to a power surge, all the bulbs in our store had to be replaced. Purchased store supplies from Bells & Bulbs, on account, $1,250, terms, n/30. Oct 11 Paid balance due to Arbitrary House. for purchase made on October 1. Oct 12 Purchased some inventory on account from Panda Publishers, $6,750, terms 2/10, n/30. Oct 12 Issued a credit memorandum to Sunshine Preschool for the return of some merchandise (50 picture books). The merchandise was in good condition. Oct 13 Received payment from R. Rowell on account. Oct 13 Sold some store supplies (at our cost) to the pharmacy next door. They paid us in cash, $190.

Oct 13 Received credit memorandum from Panda Publishers for damaged merchandise, $1,000. Oct 14 Sold merchandise on account to K. Hannah, $2,300. The cost of the merchandise was $1,380. Oct 14 Accrued the semimonthly salary expense for our only employee, P. Anderson, as follows (record this entry and the next one, as is, in the general journal): Salary Expense $500 Federal Income Tax Payable $101 FICA Tax Payable 40 State Income Tax Payable 12 Medical Insurance Payable 3 Salaries Payable 344 Oct 14 Recorded employers payroll taxes as follows: Payroll Tax Expense $67 FICA Tax Payable $40 FUI Tax Payable 4 SUI Tax Payable 23 Oct 14 Recorded cash sales for the week, $10,400. The cost of the merchandise was $6,240. Oct 15 Issued payroll check to our employee, P. Anderson, for the entire amount due. Oct 16 Received the following checks from customers on account: S. King in full payment of their Oct 9 invoice Sunshine Preschool in full payment of their Oct 5 invoice Oct 17 Received a check from Polytechnic Academy in full payment of their Oct 5 invoice. Oct 17 Purchased delivery vehicle from Petrol People Movers, $18,000 cash. (Useful life of five years, salvage value of $1,500, straightline depreciation) Oct 18 Purchased some merchandise inventory for resale from each of the following suppliers on account: Page Publishing $15,000 Collins Harper $24,000 Symon & Simon $36,000 Oct 19 Paid Bells & Bulbs the amount due from the Oct 10 purchase. Oct 20 Ms. Riley, the owner, took home merchandise inventory for her own personal use, $10,000. This should be recorded as a dividend.

Oct 21 Recorded cash sales for the week, $20,000. The cost of the merchandise was $10,000. Oct 22 Paid the amount due to Panda Publishers from the Oct 12 purchase. Oct 24 We sold merchandise on account to three new clients: L. Wingate, set of canoe paddles to be used for research purposes for her next novel sold for $19,000. The cost of the merchandise was $11,600. H. Fielding, typewriter sold for $1,750. The cost of the merchandise was $1,300. J. Tolkien, single golden ring sold for $28,000. The cost of the merchandise was $20,000. Oct 25 Returned for cash some merchandise previously purchased from Panda Publishers for $1,000. (Hint: In recording this entry, we do not receive a cash refund in full, because we took advantage of the cash discount when we originally paid for the goods.) Oct 26 Received check from L. Wingate in payment of their balance due from the Oct 24 invoice. Oct 27 Issued a full credit memorandum to H. Fielding for the return of the merchandise from her Oct 24 purchase. The merchandise was in good condition. Oct 28 Our delivery truck needed repairs. We had it fixed at Four Wheels Drive, where we paid the bill with cash, $1,200. Oct 29 In honor of her birthday, Ms. Riley closed the shop today, after taking home cash of $5,000 for her own personal use. Oct 30 Returned for credit, office supplies purchased from Office Max on Oct 3, $800. Oct 30 Recorded cash sales for the week, $12,340. The cost of merchandise was $5,678. Oct 30 Accrued the semimonthly salary expense and employers payroll taxes for our only employee, P. Anderson (repeat both the entries from Oct 14) Oct 31 Issued payroll check to our employee, P. Anderson, for the entire amount due. Oct 31 Paid Office Max balance due.

Required: MONTH END CLOSING AND ADJUSTMENTS 1. Post all items from the general journal as of Oct 31 to the general ledger (if not already done) and total each account. Label this total as Balance in each TAccount in the general ledger. 2. Prepare an unadjusted trial balance of the general ledger, using the worksheet on pg. 3738. 3. In the general journal, record any necessary periodend adjusting journal entries on Oct 31 considering the following information: a. Ending inventory of office supplies is $255. b. Ending inventory of store supplies is $498. c. Utility bill received for Oct 1 31, $796 (Assume the entire amount is to be paid for retail store utilities) d. One months rent is expired e. One months insurance is expired f. Depreciate office furniture if necessary g. Depreciate store equipment if necessary h. Depreciate delivery equipment if necessary i. Accrue interest payable if necessary 4. Post the periodend adjusting journal entries from Item 3 above to the general ledger, and total each account. Label this total as Adjusted Balance. 5. Also post the periodend adjusting journal entries from Item 3 above to the worksheet on pg. 3738 and complete the adjusted income statement and adjusted balance sheet columns. 6. Use the adjusted balances from the worksheet to prepare the following basic financial statements as of (or for the month ending) October 31: a. MultipleStep Income Statement (Expenses should be classified as either selling or G&A expenses on the Income statement) b. Statement of Changes in Retained Earnings c. Classified Balance Sheet 7. Journalize and post all closing journal entries to the general ledger, and total each account which is required to be closed. Label this total as Closed Balance. Some accounts are not required to be closed, and therefore such accounts will not have/need a Closed Balance. (It is up to you to identify which accounts need to be closed at the end of each period.)

GENERAL JOURNAL Date Description Account # Debit Credit