The Fashion Rack has a monthly accounting period. The firms chart of accounts is shown below and on the next page. The journals used to record transactions are the sales journal, purchases journal, cash receipts journal, cash payments journal, and general journal. Postings are made from the journals to the accounts receivable ledger, accounts payable ledger, and general ledger. The employees are paid at the end of the month. A computerized payroll service prepares all payroll records and checks.

1. Open the general ledger accounts and enter the balances for October 1, 2016. Obtain the necessary figures from the postclosing trial balance prepared on September 30, 2016, which is shown on page 454. (If you are using the Study Guide & Working Papers, you will find that the general ledger accounts are already open.)

2. Open the subsidiary ledger accounts and enter the balances for October 1, 2016. Obtain the necessary figures from the schedule of accounts payable and schedule of accounts receivable prepared on September 30, 2016, which appear on page 455 (If you are using the Study Guide & Working Papers, you will find that the subsidiary ledger accounts are already open.)

3. Analyze the transactions for October and record each transaction in the general journal. (Use 16 as the number for the first page of the general journal.)

4. Post the individual entries from the general journal to the general ledger and the subsidiary ledgers.

The Fashion Rack

Chart of Accounts

Assets Liabilities

101 Cash

111 Accounts Receivable

112 Allowance for Doubtful Accounts

121 Merchandise Inventory

131 Supplies

133 Prepaid Insurance

135 Prepaid Advertising

141 Equipment

142 Accumulated DepreciationEquipme

203 Accounts Payable

221 Social Security Tax Payable

222 Medicare Tax Payable

223 Employee Income Tax Payable

225 Federal Unemployment Tax Payable

227 State Unemployment Tax Payable

229 Salaries Payable

231 Sales Tax Payable

Owners Equity

301 Teresa Lojay, Capital

302 Teresa Lojay, Drawing

399 Income Summary

Revenues

401 Sales

402 Sales Returns and Allowances

Cost of Goods Sold

501 Purchases

502 Freight In

503 Purchases Returns and Allowances

504 Purchases Discounts

Expenses

611 Advertising Expense

614 Depreciation ExpenseEquipment

617 Insurance Expense

620 Uncollectible Accounts Expense

623 Janitorial Services Expense

626 Payroll Taxes Expense

629 Rent Expense

632 Salaries Expense

635 Supplies Expense

638 Telephone Expense

644 Utilities Expense

5. Check the accuracy of the subsidiary ledgers by preparing a schedule of accounts receivable and a schedule of accounts payable as of October 31, 2016. Compare the totals with the balances of the Accounts Receivable account and the Accounts Payable account in the general ledger.

6. Check the accuracy of the general ledger by preparing a trial balance in the first two columns of a 10-column worksheet. Make sure that the total debits and the total credits are equal.

7. Complete the Adjustments section of the worksheet. Use the following data. Identify each adjustment with the appropriate letter.

a. During October, the firm had net credit sales of $9,810. From experience with similar businesses, the previous accountant had estimated that 1.0 percent of the firms net credit sales would result in uncollectible accounts. Record an adjustment for the expected loss from uncollectible accounts for the month of October.

b. On October 31, an inventory of the supplies showed that items costing $3,240 were on hand. Record an adjustment for the supplies used in October.

c. On September 30, 2016, the firm purchased a six-month insurance policy for $8,400. Record an adjustment for the expired insurance for October.

d. On October 1, the firm signed a three-month advertising contract for $4,800 with a local cable television station and paid the full amount in advance. Record an adjustment for the expired advertising for October.

e. On April 1, 2016, the firm purchased equipment for $83,000. The equipment was estimated to have a useful life of five years and a salvage value of $12,500. Record an adjustment for depreciation on the equipment for October.

f.g. Based on a physical count, ending merchandise inventory was determined to be $81,260.

8. Complete the Adjusted Trial Balance section of the worksheet.

9. Determine the net income or net loss for October and complete the worksheet.

10. Prepare a classified income statement for the month ended October 31, 2016. (The firm does not divide its operating expenses into selling and administrative expenses.)

11. Prepare a statement of owners equity for the month ended October 31, 2016.

12. Prepare a classified balance sheet as of October 31, 2016.

13. Journalize and post the adjusting entries using general journal page 17.

14. Prepare and post the closing entries using general journal page 18.

15. Prepare a postclosing trial balance.

DATE TRANSACTIONS

Oct. 1 Issued Check 601 for $4,200 to pay City Properties the monthly rent.

1 Signed a three-month radio advertising contract with Cable Station KOTU for $4,800; issued Check 602 to pay the full amount in advance.

2 Received $520 from Megan Greening, a credit customer, in payment of her account.

2 Issued Check 603 for $17,820 to remit the sales tax owed for July through September to the State Tax Commission.

2 Issued Check 604 for $7,673.40 to A Fashion Statement, a creditor, in payment of Invoice 9387 ($7,830), less a cash discount ($156.60).

3 Sold merchandise on credit for $2,480 plus sales tax of $124 to Dimitri Sayegh, Sales Slip 241.

4 Issued Check 605 for $1,050 to BMX Supply Co. for supplies.

4 Issued Check 606 for $8,594.60 to Todays Woman, a creditor, in payment of Invoice 5671 ($8,770), less a cash discount ($175.40).

5 Collected $1,700.00 on account from Emily Tran, a credit customer.

5 Accepted a return of merchandise from Dimitri Sayegh. The merchandise was originally sold on Sales Slip 241, dated October 3; issued Credit Memorandum 18 for $630, which includes sales tax of $30.

5 Issued Check 607 for $1,666 to Classy Threads, a creditor, in payment of Invoice 3292 ($1,700), less a cash discount ($34).

6 Had cash sales of $18,600 plus sales tax of $930 during October 16.

8 Received a check from James Helmer, a credit customer, for $832 to pay the balance he owes.

8 Issued Check 608 for $1,884 to deposit social security tax ($702), Medicare tax ($162), and federal income tax withholding ($1,020) from the September payroll.Record this check in the cash payments journal.

9 Sold merchandise on credit for $2,050 plus sales tax of $102.50 to Emma Maldonado, Sales Slip 242.

10 Issued Check 609 for $1,445 to pay The City Dailyfor a newspaper advertisement that appeared in October.

11 Purchased merchandise for $4,820 from A Fashion Statement, Invoice 9422, dated October 8; the terms are 2/10, n/30.

12 Issued Check 610 for $375 to pay freight charges to Ace Freight Company, the trucking company that delivered merchandise from A Fashion Statement on September 27 and October 11.

13 Had cash sales of $12,300 plus sales tax of $615 during October 813.

15 Sold merchandise on credit for $1,940 plus sales tax of $97 to James Helmer, Sales Slip 243.

16 Purchased discontinued merchandise from Acme Jobbers; paid for it immediately with Check 611 for $6,420.

16 Received $510 on account from Dimitri Sayegh, a credit customer.

16 Issued Check 612 for $4,723.60 to A Fashion Statement, a creditor, in payment of Invoice 9422 ($4,820.00), less cash discount ($96.40).

18 Issued Check 613 for $7,200 to Teresa Lojay as a withdrawal for personal use.

20 Had cash sales of $13,500 plus sales tax of $675 during October 1520.

22 Issued Check 614 to City Utilities for $1,112 to pay the monthly electric bill.

24 Sold merchandise on credit for $820 plus sales tax of $41 to Megan Greening, Sales Slip 244.

25 Purchased merchandise for $3,380 from Classy Threads, Invoice 3418, dated October 23; the terms are 2/10, n/30.

26 Issued Check 615 to Regional Telephone for $780 to pay the monthly telephone bill.

27 Had cash sales of $14,240 plus sales tax of $712 during October 2227.

29 Received Credit Memorandum 175 for $430 from Classy Threads Inc. for defective goods that were returned. The original purchase was recorded on October 25.

Oct. 29 Sold merchandise on credit for $3,120 plus sales tax of $156 to Emily Tran, Sales Slip 245.

29 Recorded the October payroll. The records prepared by the payroll service show the following totals: earnings, $10,800; social security, $702.00; Medicare, $162.00; income tax, $1,020; and net pay, $8,916. The excess withholdings corrected an error made in withholdings in September.

29 Recorded the employers payroll taxes, which were calculated by the payroll service: social security, $702; Medicare, $162; federal unemployment tax, $118; and state unemployment tax, $584. This, too, reflects an understatement of taxes recorded in September and corrected in this month.

30 Purchased merchandise for $4,020 from Todays Woman, Invoice 5821, dated October 26; the terms are 1/10, n/30.

31 Issued Checks 616 through 619, totaling $8,916.00, to employees to pay October payroll.

31 Issued Check 620 for $475 to Handy Janitors for October janitorial services.

31 Had cash sales of $1,700 plus sales tax of $85 for October 2931.

The Fashion Rack Postclosing Trial Balance Septembar 30, 2016 59 8 00 00 210 00 Accounts Recevoble Allowance for Doubtful Accounts 85 996 00 100 00 400 00 83 000 00 id Insurance Equipment 7050 00 18300 00 71012| 00 162 00 1020 00 5 12 00 1268 00 1782 0 00 203 25 2 00 250 50 6 00 Accounts Payatle dedicure Tax Payable Employee Income Tox Payable Federal Unemployment Tax Payabie Soles Tax Payable Tereso Lojay, Capital 250 506 00 The Fashion Rack Schedule of Accounts Pavable Septembar 30, 2016 A Fashion Statement Classy Threods oday's Waman 830 00 1700 00 183 00 00 The Fashion Rack Schedule of Accounts Recaivabla Septembar 30, 2016 Jenrifer Brown Jomes Helmer Emma Maldanodo im Price Dimltri Sayegh Emily Tran 95 00 520 00 832 00 232 00 162 1 00 510 00 1700 00 62 1 0 00