P3-10. (Adjusting and Closing) (LO 2, 3, 5, 6) Presented below is the December 31 trial balance of New York Boutique. NEW YORK BOUTIQUE TRIAL BALANCE DECEMBER 31 Credit Cash Debit $ 18,500 32,000 Accounts Receivable Allowance for Doubtful Accounts $ 700 Inventory, December 31 80,000 5,100 Prepaid Insurance Equipment 84,000 Accumulated Depreciation Equipment Notes Payable Common Stock 35,000 28,000 80,600 Retained Earnings 10,000 600,000 408,000 Sales Revenue Cost of Goods Sold Salaries and Wages Expense (sales) Advertising Expense Salaries and Wages Expense administrative) 50,000 6,700 65,000 Supplies Expense 5,000 $754,300 $754,300 Instructions (a) Construct T-accounts and enter the balances shown. (b) Prepare adjusting journal entries for the following and post to the T-accounts. (Omit explanations.) Open additional T-accounts as necessary. (The books are closed yearly on December 31.) (i) Bad debt expense is estimated to be $1,400. (ii) Equipment is depreciated based on a 7-year life (no salvage value). (iii) Insurance expired during the year $2,550. (iv) Interest accrued on notes payable $3,360. (v) Sales salaries and wages earned but not paid $2,400. (vi) Advertising paid in advance $700. (vii) Office supplies on hand $1,500, charged to Supplies Expense when purchased. (c) Prepare closing entries and post to the accounts. P3-11. * (Cash and Accrual Basis) (LO *7) On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January. 1. Pays $6,000 in advance for 3 months' rent of office, showroom, and repair space. 2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery. 3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January. 4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis. 5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31. Instructions (a) Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January. (b) Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2017. (c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements
