Question

Comprehensive Accounting Cycle Review 6

On December 1, 2017, Shamrock, Inc. had the account balances shown below.

		Debits				Credits
Cash		$5,230		Accumulated Depreciation—Equipment		$1,490
Accounts Receivable		3,590		Accounts Payable		3,260
Inventory (2,900 x $0.60)		1,740		Common Stock		9,500
Equipment		20,300		Retained Earnings		16,610
		$30,860				$30,860

The following transactions occurred during December.

Dec. 3		Purchased 3,900 units of inventory on account at a cost of $0.68 per unit.
5		Sold 4,300 units of inventory on account for $0.80 per unit. (It sold 2,900 of the $0.60 units and 1,400 of the $0.68.)
7		Granted the December 5 customer $240 credit for 300 units of inventory returned costing $210. These units were returned to inventory.
17		Purchased 2,200 units of inventory for cash at $0.90 each.
22		Sold 2,100 units of inventory on account for $0.93 per unit. (It sold 2,100 of the $0.68 units.)

Adjustment data:

1.		Accrued salaries and wages payable $420.
2.		Depreciation on equipment $210 per month.
3.		Income tax expense was $220, to be paid next year.

Prepare an income statement for December 2017.

Answer 1

Shamrock Inc. Income statement For the month ended December 31, 2017 Sales revenue Less: Sales returna and allowances Net sales Less: Cost of goods sold Gross profit Less: Operating expenses Salaries and wages expense Depreciation expense 5,393 -240 5,153 -3,910 1,243 420 210 630 Income before income tax Less: Income tax expense Net profit 613 -220 393

Workings:

Journal:

Account title Debit Credit Date Inventory Accounts payabale (3,900x$0.68) Dec. 3 2,652 2,652 Accounts receivable Sales revenue (4,300x$0.80) Dec. 5 3,440 3,440 Cost of goods sold Inventory (2,900x$0.60)+(1,400x$0.68) 2,692 2,692 Sales return and allowances Dec. 7 240 Accounts receivable 240 Inventory Cost of goods sold 210 210 Inventory Cash (2,200x$0.90) Dec. 17 1,980 1,980 Accounts receivable Sales revenue (2,100x$0.93) Dec. 22 1,953 1,953 Cost of goods sold 1,428 Inventory (2,100x$0.68) 1,428

Adjusting entries:

Account title Debit Credit Date Salaries and wages expense Salaries and wages payable Dec. 31 420 420 Depreciation expense Accumulated dep. Dec. 31 210 Equipment 210 Dec. 31 Income tax expense 220 Income taxes payable 220

T-accounts:

Cash 5,230 Dec. 17 Dec. 1 1,980 Dec. 31 3,250 Accounts receivable 3,590 Dec. 7 Dec. 1 Dec. 5 240 3,440 Dec. 22 1,953 Dec. 31 8,743 Inventory 1,740 Dec. 5 2,652 Dec. 22 Dec. 1 2,692 Dec. 3 1,428 Dec. 7 210 Dec. 17 1,980 Dec. 31 2,462 Equipment Dec. 1 20,300 Dec. 31 20,300 Accounts payable Dec. 1 3,260 Dec. 3 2,652 Dec. 31 5,912

Accumulated depreciation-Equipment Dec. 1 1,490 Dec. 31 210 Dec. 31 1,700 Salaries and wages payable Dec. 31 420 Dec. 31 420 Common stock Dec. 1 9,500 Dec. 1 9,500 Income taxes payable Dec. 31 220 Dec. 31 220 Retained earnings Dec. 1 16,610 Dec. 31 16,610 Sales revenue Dec. 5 3,440 Dec. 22 1,953 Dec. 31 5,393

Salaries and wages expense Dec. 31 Dec. 31 420 420 Cost of goods sold 2,692 Dec. 7 Dec. 5 Dec. 22 Dec. 31 210 1,428 3,910 Sales return and allowances Dec. 7 240 Dec. 7 240 Depreciation expense Dec. 31 Dec. 31 210 210 Income tax expense Dec. 31 Dec. 31 220 220 ПT