Question

PART A: Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2019 (unless otherwise indicated), are as follows:

110	Cash	$ 83,600
112	Accounts Receivable	233,900
115	Merchandise 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	Customers Refunds Payable	50,000
212	Salaries Payable	—
310	Lynn Tolley, Capital, June 1, 2018	685,300
311	Lynn Tolley, Drawing	135,000
410	Sales	5,069,000
510	Cost of Merchandise 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 merchandise 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 merchandise 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 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 merchandise 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 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 merchandise 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.
	Required:
1.	Download the spreadsheet in the Ledger panel and save the Excel file to your computer. Use the spreadsheet to post the May transactions from the journal to a ledger of four-column accounts. Be sure to save your work in Excel as it will be used to complete the following steps in Part 1 of this problem as well as steps in Part 2 of this problem. Your input into the spreadsheet will not be included in your grade in CengageNOW on this problem. A. Enter the May 1 balances of each of the accounts in the appropriate balance column of a four-column account. Enter May 1 in the date column. Write Balance in the item section, and enter “X” in the Posting Reference column. B. Journalize the transactions for May, 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. Add the appropriate posting reference to the journal.
3.	Prepare an unadjusted trial balance. Accounts with zero balances can be left blank.
4.	At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). • Merchandise inventory on May 31, $570,000 • Insurance expired during the year, $12,000 • Store supplies on hand on May 31, $4,000 • Depreciation for the current year, $14,000 • Accrued salaries on May 31: Sales salaries, $7,000 Office salaries, $6,600 Total accrued salaries: $13,600 • The adjustment for customer returns and allowances is $60,000 for sales and $35,000 for cost of merchandise sold.
5.	(Optional) On your own paper or spreadsheet, enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. Find a blank end-of-period work sheet in the Excel spreadsheet you previously downloaded.
6.	A. Journalize the adjusting entries. Record the adjusting entries on Page 22 of the journal.* B. Post the adjusting entries. Add the appropriate posting reference to the journal.
7.	Prepare an adjusted trial balance. Accounts with zero balances can be left blank. *Refer to the Chart of Accounts for exact wording of account titles.

PART 2: Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. During May, the last month of the fiscal year, transactions were completed. In Part 1 of this problem, the accounting cycle was completed up through the preparation of the adjusted trial balance.

	Required:
	8. If you completed the end-of-period work sheet in Part 1, use the adjusted trial balance figures to prepare an income statement, a statement of owner’s equity, and a balance sheet. If you didn’t complete the end-of-period work sheet in Part 1, use the ledger (the Excel spreadsheet) to prepare an income statement, a statement of owner’s equity, and a balance sheet.*
	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. B. Post the closing entries to the ledger of four-column accounts. Add the appropriate posting reference to the journal.
	10. Prepare a post-closing trial balance. Accounts with zero balances can be left blank. *For guidance in completing the financial statements, be sure to read the instructions above each statement carefully.

Labels
Administrative expenses
Current assets
Current liabilities
For the Year Ended May 31, 2019
Long-term liabilities
May 31, 2019
Expenses
Other income and expense
Property, plant, and equipment
Selling expenses
Amount Descriptions
Add withdrawals
Cost of merchandise purchased
Gross profit
Income from operations
Increase in owner’s equity
Lynn Tolley, capital, June 1, 2018
Lynn Tolley, capital, May 31, 2019
Withdrawals
Merchandise available for sale
Net income
Net income for the year
Net loss
Net purchases
Total administrative expenses
Total assets
Total current assets
Total current liabilities
Total liabilities
Total liabilities and owner’s equity
Total Expenses
Total property, plant, and equipment
Total selling expenses

Answer 1

6. In the books of Palisade Creek Co. :

Date	Account Titles	Debit	Credit
		$	$
May 1	Rent Expense	5,000
	Cash		5,000
May 3	Merchandise Inventory	35,280
	Accounts Payable		35,280
May 4	Merchandise Inventory	600
	Cash		600
May 6	Accounts Receivable	67,130
	Sales		67,130
May 6	Cost of Merchandise Sold	41,000
	Merchandise Inventory		41,000
May 7	Cash	22,300
	Accounts Receivable		22,300
May 10	Cash	54,000
	Sales		54,000
May 10	Cost of Merchandise Sold	32,000
	Merchandise Inventory		32,000
May 13	Accounts Payable	35,280
	Cash		35,280
May 15	Advertising Expense	11,000
	Cash		11,000
May 16	Cash	67,130
	Accounts Receivable		67,130
May 19	Merchandise Inventory	18,700
	Cash		18,700
May 19	Accounts Payable	33,450
	Cash		33,450
May 20	Customer Refunds Payable	13,230
	Cash		13,230
May 20	Merchandise Inventory	8,000
	Estimated Returns Inventory		8,000
May 20	Accounts Receivable	108,900
	Sales		108,900
May 20	Cost of Merchandise Sold	70,000
	Merchandise Inventory		70,000
May 21	Accounts Receivable	2,300
	Cash		2,300
May 21	Cash	42,900
	Accounts Receivable		42,900
May 21	Merchandise Inventory	87,120
	Accounts Payable		87,120
May 24	Accounts Payable	4,950
	Merchandise Inventory		4,950
May 26	Customer Refunds Payable	7,500
	Cash		7,500
May 26	Merchandise Inventory	4,800
	Estimated Returns Inventory		4,800
May 28	Sales Salaries Expense	56,000
	Office Salaries Expense	29,000
	Cash		85,000
May 29	Store Supplies	2,400
	Cash		2,400
May 30	Accounts Receivable	77,175
	Sales		77,175
May 30	Cost of Merchandise Sold	47,000
	Merchandise Inventory		47,000
May 30	Cash	111,200
	Accounts Receivable		111,200
May 31	Accounts Payable	82,170
	Cash		82,170
Adjusting Entries
May 31
a.	Cost of Merchandise Sold	13,950
	Merchandise Inventory		13,950
b.	Insurance Expense	12,000
	Prepaid Insurance		12,000
c.	Store Supplies Expense	9,800
	Store Supplies		9,800
d.	Depreciation Expense	14,000
	Accumulated Depreciation: Store Equipment		14,000
e.	Sales Salaries Expense	7,000
	Office Salaries Expense	6,600
	Salaries Payable		13,600
f.	Customer Returns and Allowances	60,000
	Customer Refunds Payable		60,000
g.	Estimated Returns Inventory	35,000
	Cost of Merchandise Sold		35,000

7.

Palisade Creek Co. Adjusted Trial Balance May 31
Account Titles	Debit	Credit
	$	$
Cash	84,500
Accounts Receivable	245,875
Merchandise Inventory	570,000
Estimated Returns Inventory	50,200
Prepaid Insurance	4,800
Store Supplies	4,000
Store Equipment	569,500
Accumulated Depreciation: Store Equipment		70,700
Accounts Payable		63,150
Salaries Payable		13,600
Customer Refunds Payable		89,270
Lynn Tolly, Capital		685,300
Lynn Tolly, Withdrawals	135,000
Sales		5,376,205
Customer Returns and Allowances	60,000
Cost of Merchandise Sold	2,991,950
Sales Salaries Expense	727,800
Advertising Expense	292,000
Depreciation Expense	14,000
Store Supplies Expense	9,800
Miscellaneous Selling Expense	12,600
Office Salaries Expense	417,700
Rent Expense	88,700
Insurance Expense	12,000
Miscellaneous Administrative Expense	7,800
Totals	$ 6,298,225	$ 6,298,225