Question

Appendix 2 PR 5-10B Periodic inventory accounts, multiple-step income statement, closing entries On June 30, 2019, the balances of the accounts appearing in the ledger of Simkins Company are as follows: Cash $125,000 Accounts Receivable Dividends $ 275,000 Inventory, July 1, 2048 340,000 Sales 6,590,000 415,000 Purchases Estimated Returns Inventory, 4,100,000 Purchases Returns and Allowances July 1, 2048 32,000 25,000 Purchases Discounts 13,000 Office Supplies 45,000 9,000 Freight In Prepaid Insurance 18,000 Sales Salaries Expense 580,000 Land 300,000 Advertising Expense 315,000 Store Equipment 550,000 Delivery Expense 18,000 Accumulated Depreciation- Depreciation Expense- Store Equipment 190,000 Store Equipment 12,000 Office Equipment 250,000 Miscellaneous Selling Expense 28,000 Accumulated Depreciation- Office Salaries Expense 375,000 Office Equipment 110,000 Rent Expense 43,000 Accounts Payable 85,000 Insurance Expense 17,000 5,000 30,000 Office Supplies Expense Customer Refunds Payable Salaries Payable 9,000 Depreciation Expense- 6,000 Unearned Rent 4,000 Office Equipment 16,000 50,000 Miscellaneous Administrative Expense Notes Payable 300,000 Rent Revenue 32,500 Common Stock 520,000 Interest Expense 2,500 Retained Earnings Instructions 1. Does Simkins Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2049. The inventory as of June 30, 2019, was $508,000. The estimated cost of customer returns inventory for June 30, 2099, is estimated to increase to $33,000. 3. Prepare the closing entries for Simkins Company as of June 30, 2049. 4. What would be the net income if the perpetual inventory system had been used?

Answer 1

Solution ;

1. Simkins company uses a periodic inventory system because it maintains accounts for purchases,

Purchase returns and allowances , purchase discounts , and freight in .

2.                     SIMKINS   COMPANY

               Income statement for the year ended June 30 , 2019

Revenue from sales:
Sales			6590,000
Inventory ,July 1 , 2018		415,000
Purchases	4100,000
Purchases returns and allowances	(32000)
Purchases discounts	(13000)
Net purchases	4055000
Freight in	45000
Total cost of merchandise purchased		4100,000
Merchandise inventory available for sale		4515,000
Merchandise inventory , June 30 2019		(508000)
Cost of merchandise sold before estimated returns		4007000
Increase in estimated returns inventory		(33000)
Cost of merchandise sold			3974,000
Gross profit			2616,000
Expenses:
Selling expenses
Sales salaries expenses	580,000
Advertising expenses	315000
Delivery expenses	18000
Depreciation expense - store equipment	12000
Miscellaneous expenses	28000
Total selling expenses		953,000
Office salaries expense	375000
Rent expense	43000
Insurance expense	17000
Office suppliers expense	5000
Depreciation expense - office equipment	4000
Miscellaneous administrative expense	16000
Total administrative expense		460,000
Total operating expenses			1413,000
Income from operation			1203000
Other revenue and expense :
Rent revenue		32500
Interest expense		(2500)	30,000
Net income			1233,000

3.                         Closing entries

Date	Particulars	Debit	Credit
June 30 ,2019	Merchandise inventory(June 30,2019)	508000
	Estimated returns inventory	33000
	Sales	6590,000
	Purchase return and allowance	32000
	Purchase discount	13000
	Rent revenue	32500
	To Merchandise inventory(July 1 ,2018)		415000
	To Purchases		4100,000
	To Freight in		45,000
	To Sales salaries expense		580,000
	To Advertising expense		315,000
	To Delivery expense		18000
	To Depreciation expense-store equipment		12000
	To Miscellaneous expense		28000
	To Office salaries expense		375,000
	To Rent expense		43000
	To Insurance expense		17000
	To Office suppliers expense		5000
	To Depreciation expense-office equipment		4000
	To Interest expense		2500
	To Miscellaneous administrative expense		16000
	To Amy Gant , Capital		1233000
	Amy Gant , Capital	275000
	To Amy Gant , Drawing		275000

   4. $ 1233,000 ,the same net income as under the periodic inventory system .