Question

Problem 5-4A

Adjusting entries and multi-step income statement—perpetual

CHECK FIGURES: 1. Income statement columns = $529,310;

2. Profit = $5,025

Information from the unadjusted trial balance of Jumbo's on December 31, 2017, the end of the annual accounting period, is as follows:

		Debit	Credit
Cash		8,100
Accounts receivable		22,665
Merchandise inventory		34,600
Store supplies		2,415
Office supplies		775
Prepaid insurance		3,255
Equipment		74,490
Accumulated depreciation, equipment			13,655
Accounts payable			8,000
Salaries payable			0.0
Sally Fowler, capital			168,965
Sally Fowler, withdrawals		62,000
Interest income			310
Sales			529,000
Sales returns and allowances		5,670
Cost of goods sold		381,160
Salaries Expense		96,300
Rent expense		29,100
Supplies Expense		0.0
Depreciation expense, equipment		0.0
Insurance expense		0.0
Totals		719,930	719,930

Required

1. Record adjusting entries for the following in format.

a.         A review of the store supplies on December 31, 2017, revealed a balance on hand of $2,000; a similar examination of the office supplies showed that $640 had been used.

b.         The balance in the Prepaid Insurance account was reviewed and it was determined that $255 was unused at December 31, 2017.

c.         The records show that the equipment was estimated to have a total estimated useful life of 10 years with a resale value at the end of its life of $14,490.

d.         Accrued salaries payable, $1,800.

e.         A count of the merchandise inventory revealed a balance on hand

December 31, 2017, of $33,800.

2. Using adjusted trial balance numbers, prepare multiple-step income statement showing the expenses in detail.

                       

Analysis Component:

Explain why Interest income is shown under Other revenues and expenses on the multiple-step income statement.

Answer 1

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	8,100				8,100
Accounts receivable	22,665				22,665
Merchandise inventory	34,600			800	33,800
Store supplies	2,415			415	2000
Office supplies	775			640	135
Prepaid insurance	3,255			3000	255
Equipment	74,490				74,490
Accumulated depreciation, equipment		13,655		6000		19655
Accounts payable		8,000				8,000
Salaries payable		0		1800		1800
Sally Fowler, capital		1,68,965				1,68,965
Sally Fowler, withdrawals	62,000				62,000
Interest income		310				310
Sales		5,29,000				5,29,000
Sales returns and allowances	5,670				5,670
Cost of goods sold	3,81,160		800		3,81,960
Salaries Expense	96,300		1800		98,100
Rent expense	29,100				29,100
Supplies Expense	0		1055		1055
Depreciation expense, equipment	0		6000		6000
Insurance expense	0		3000		3000
Totals	7,19,930	7,19,930	12655	12655	7,28,330	727730
	7,20,530	7,19,930
Difference		600				600
NOTE: THERE IS A DIFFERENCE OF $600 IN THE UN-ADJUSTED TRIAL BALANCE.
INCOME STATEMENT
Revenues:
Sales	5,29,000
Sales returns and allowances	5,670
Net sales		5,23,330
Cost of goods sold		3,81,960
Gross profit		1,41,370
Operating expenses
Salaries Expense	98,100
Rent expense	29,100
Supplies Expense	1055
Depreciation expense, equipment	6000
Insurance expense	3000
Total operating expenses		1,37,255
Operating income		4,115
Other income/(expenses)
Interest income		310
Net income		4,425