Question

Appendix 2 PR 5-10A Periodic inventory accounts, multiple-step income statement, closing entries On December 31, 2045, the balances of the accounts appearing in the ledger of Wyman Company are as follows: $ 13,500 72,000 257,000 35,000 3,000 4,500 150,000 270,000 Cash Accounts Receivable Inventory, January 1, 2045 Estimated Returns Inventory, January 1, 2015 Office Supplies Prepaid Insurance Land Store Equipment Accumulated Depreciation- Store Equipment Office Equipment Accumulated Depreciation- Office Equipment Accounts Payable Salaries Payable Customer Refunds Payable Unearned Rent Notes Payable Common Stock Retained Earnings 55,900 78,500 Dividends $ 25,000 Sales 3,280,000 Purchases 2,650,000 Purchases Returns and Allowances 93,000 Purchases Discounts 37,000 Freight in 48,000 Sales Salaries Expense 300,000 Advertising Expense 45,000 Delivery Expense 9,000 Depreciation Expense- Store Equipment 6,000 Miscellaneous Selling Expense 12,000 Office Salaries Expense 175,000 Rent Expense 28,000 Insurance Expense 3,000 Office Supplies Expense 2,000 Depreciation Expense- Office Equipment 1,500 Miscellaneous Administrative Expense 3,500 Rent Revenue 7,000 Interest Expense 2,000 16,000 77,800 3,000 50,000 8,300 50,000 150,000 365,600 Instructions 1. Does Wyman Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Wyman Company for the year ended Dece 31, 20Y5. The inventory as of December 31, 2045, was $305,000. The estimated costo tomer returns inventory for December 31, 2045, is estimated to increase to $40,000. 3. Prepare the closing entries for Wyman Company as of December 31, 2045. 4. What would be the net income if the perpetual inventory system had been used?

Answer 1

1.   

Periodic inventory system. Wyman Company uses a periodic inventory system because it maintains accounts for purchases, purchases returns and allowances, purchases discounts, and freight in.

2.

Wyman Company Income Statement For the Year Ended December 31, 20Y5
Sales			$ 3,280,000
Cost of goods sold:
Inventory, January 1, 20Y5		$ 257,000
Cost of merchandise purchased:
Purchases	$2,650,000
Purchases returns and allowances	(93,000)
Purchases discounts	(37,000)
Freight in	48,000
Total cost of merchandise purchased		2,568,000
Inventory available for sale		$2,825,000
Inventory, December 31, 20Y5		(305,000)
Cost of goods sold before estimated returns		$2,520,000
Increase in estimated returns inventory		(5,000)
Cost of goods sold			(2,515,000)
Gross profit			$ 765,000
Expenses:
Selling expenses:
Sales salaries expense	$ 300,000
Advertising expense	45,000
Delivery expense	9,000
Depreciation expense—store equipment	6,000
Miscellaneous selling expense	12,000
Total selling expenses		$ 372,000
Administrative expenses:
Office salaries expense	$ 175,000
Rent expense	28,000
Insurance expense	3,000
Office supplies expense	2,000
Depreciation expense—office equipment	1,500
Miscellaneous administrative expense	3,500
Total administrative expenses		213,000
Total operating expenses			(585,000)
Operating income			$ 180,000
Other revenue and expense:
Rent revenue		$ 7,000
Interest expense		(2,000)	5,000
Net income			$ 185,000

3.

		Closing Entries
Dec.	31	Inventory	305,000
		Estimated Returns Inventory	5,000
		Sales	3,280,000
		Purchases Returns and Allowances	93,000
		Purchases Discounts	37,000
		Rent Revenue	7,000
		Inventory		257,000
		Purchases		2,650,000
		Freight In		48,000
		Sales Salaries Expense		300,000
		Advertising Expense		45,000
		Delivery Expense		9,000
		Depreciation Expense—Store Equipment		6,000
		Miscellaneous Selling Expense		12,000
		Office Salaries Expense		175,000
		Rent Expense		28,000
		Insurance Expense		3,000
		Office Supplies Expense		2,000
		Depreciation Expense—Office Equipment		1,500
		Miscellaneous Administrative Expense		3,500
		Interest Expense		2,000
		Retained Earnings		185,000
		Retained Earnings	25,000
		Dividends		25,000

4.

$185,000. The same net income as under the periodic inventory system.