Question

Valley Company’s adjusted trial balance on August 31, its fiscal year-end, follows. It categorizes the following accounts as selling expenses: sales salaries expense, rent expense—selling space, store supplies expense, and advertising expense. It categorizes the remaining expenses as general and administrative.

		Debit			Credit
Merchandise inventory (ending)		$	40,700
Other (noninventory) assets			61,340
Total liabilities					$	26,000
Common stock						15,440
Retained earnings						19,300
Dividends			8,400
Sales						226,000
Sales discounts			2,300
Sales returns and allowances			12,500
Cost of goods sold			74,300
Sales salaries expense			32,000
Rent expense—Selling space			8,100
Store supplies expense			1,600
Advertising expense			13,000
Office salaries expense			28,600
Rent expense—Office space			3,400
Office supplies expense			500
Totals		$	286,740		$	286,740

Beginning merchandise inventory was $25,100. Supplementary records of merchandising activities for the year ended August 31 reveal the following itemized costs.

Invoice cost of merchandise purchases	$	92,700
Purchases discounts received		2,600
Purchases returns and allowances		4,900
Costs of transportation-in		4,700

Required:
Prepare closing entries as of August 31 (the perpetual inventory system is used).

Answer 1

Closing Entries:

Date	Accounts Titles and Explanation	Debit	Credit
Dec. 31	Sales	$226,000
	Income Summary		$226,000
	(To close the revenue accounts)
Dec. 31	Income Summary	$176,300
	Sales discounts		$2,300
	Sales returns and allowances		$12,500
	Cost of Goods Sold		$74,300
	Sales salaries expense		$32,000
	Rent expense - Selling space		$8,100
	Store supplies expense		$1,600
	Advertising expense		$13,000
	Office salaries expense		$28,600
	Rent expense - Office space		$3,400
	Office supplies expense		$500
	(To close the expense accounts)
Dec. 31	Income Summary ($226,000 - $176,300)	$49,700
	Retained Earnings		$49,700
	(To close net income to retained earnings)
Dec. 31	Retained Earnings	$8,400
	Dividends		$8,400
	(To record the close of dividends)