Question

The Boston Trading Company, whose accounting year ends on December 31, had the following normal balances in its general ledger at December 31.

Cash	$19,500
Accounts Receivable	84,900
Inventory	109,500
Prepaid Insurance	9,000
Office Supplies	6,300
Furniture & Fixtures	31,500
Accumulated Depreciation - Furn. & Fixtures	7,500
Delivery Equipment	126,000
Accumulated Depreciation - Delivery Equipment	18,000
Accounts Payable	61,500
Long-term Notes Payable	45,000
Common Stock	112,500
Retained Earnings	77,100
Sales Revenue	945,000
Cost of Goods Sold	606,000
Utilities Expense	7,200
Sales Salaries Expense	120,000
Delivery Expense	16,200
Advertising Expense	8,400
Rent Expense	21,600
Office Salaries Expense	87,000
Income Tax Expense	13,500

During the year, the accounting department prepared monthly statements but no adjusting entries were made in the journals and ledgers. Data for the year-end procedures are as follows:

Prepaid insurance, December 31	$1,200
Depreciation Expense on furniture and fixures for year	1,800
Depreciation Expense on delivery equip. for the year	14,000
Salaries Payable, December 31 ($1,800 Sales and $1,200 Office)	3,000
Unused office supplies on December 31	1,000

Required
a. Record the necessary adjusting entries at December 31.
b. Prepare a multi-step income statement for the year. Combine all the operating expenses into one line on the income statement for selling, general and administrative expenses.

General Journal Description Date DEC 31 Ref Credit To recand cxpired insurance to record depr. expenses for Furniture ho could depr. passe for dann dup to record accured salaries at decat! Income statement Gross profit on sales Operating expenses Income befart income taxes Iver income

Answer 1

Journal Entries as at 31st Dec   

(In $)

1. Insurance Expense A/C Dr. 7800

To Prepaid Insurance A/C 7800

(Being adjustment entry for prepaid Insurance transferred to Insurance expenses A/C)

2. Depreciation Expense A/C Dr. 1800

To Accumulated dep. - Furniture and Fixtures 1800

(Being adjustment entry for depreciation on furniture and fixtures)

3. Depreciation Expense A/C Dr. 14000

To accumulated dep. on delivery Equip. A/C 14000

(Being adjustment entry for depreciation on delivery equipment)

4. Sales Salary Expense A/C Dr. 1800

Office Salary Expense A/C Dr. 1200

To Salary Payable A/C 3000

(Being salary payable)

5. Office Supply Expense A/C Dr. 5300

To Office Supply A/C 5300

(Being office supply (6300-1000) used in office)

B) Income Statement

in $

Sales 945000

Less Cost of good sold 606000

Gross Profit 339000

Less: Operating Expenses 292300

Income before taxes 46700

Less: Income Taxes 13500

Net Income 33200

Notes:

Operating Expenses:

Utilities Expense	7,200
Sales Salaries Expense (120000+1800)	121,800
Delivery Expense	16,200
Advertising Expense	8,400
Rent Expense	21,600
Office Salaries Expense (87000+1200)	88200

Supplies Expense 5300

Depreciation Expense 15800

(1800+14000)

Insurance Expenses 7800

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292300