Question

At the beginning of Year 2, the Redd Company had the following balances in its accounts:

Cash	$	17,300
Inventory		7,500
Land		2,700
Common stock		16,000
Retained earnings		11,500

During Year 2, the company experienced the following events:

1. Purchased inventory that cost $11,900 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $870 were paid in cash.
2. Returned $800 of the inventory it had purchased from Ross Company because the inventory was damaged in transit. The seller agreed to pay the return freight cost.
3. Paid the amount due on its account payable to Ross Company within the cash discount period.
4. Sold inventory that had cost $8,000 for $16,000 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $1,550 and was sold to the customer for $2,800 cash. The customer was paid $2,800 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $760 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Sold the land for $4,900.
9. Recognized accrued interest income of $600.
10. Took a physical count indicating that $7,200 of inventory was on hand at the end of the accounting period. (Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down.)\

A Record the events in general journal format. Assume that the perpetual inventory method and gross method is used.

B Post the beginning balances and the events to the T-accounts. Note that these ledger accounts will also be used when posting the closing entry that is created in Part e.

C Use a single general journal to close all revenue, gain, and expense accounts to the retained earnings account. Post the journal entry to the ledger accounts created in Part c and prepare a post-closing trial balance. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

A)

PREPARE THE JOURNAL ENTRIES :
EVENT	GENERAL JOURNAL	DEBIT	CREDIT
1) a	Merchandise inventory	$ 11,900
	Accounts payable		$ 11,900
	( to record purchase of merchandise inventory )
1) b	Merchandise inventory	$ 870
	Cash		$ 870
	( to record freight paid is added to inventory )
2)	Accounts payable	$ 800
	Merchandise inventory		$ 800
	( to record the purchase return )
3) a	Accounts payable { $ 11,900 * 2% )	$ 238
	Merchandise inventory		$ 238
	( to record cash discount on purchase )
3) b	Accounts payable ( $ 11,900 - ( $ 800 + $238 ))	$ 10,862
	Cash		$ 10,862
	( to record amount paid to Ross company after deductions )
4) a	Accounts receivable	$ 16,000
	Sales revenue		$ 16,000
	( To record sold inventory for $ 16,000)
4) b	Cost of goods sold	$ 8,000
	Merchandise inventory		$ 8,000
	( to record cost of goods sold )
5) a	Sales revenue	$ 2,800
	Cash		$ 2,800
	( to record inventory return from customer)
5) b	Merchandise inventory	$ 1,550
	Cost of goods sold		$ 1,550
	( to record cost of return inventory for $ 1,550 )
6)	Transportation -out	$ 760
	Cash		$ 760
	( to record freight paid   )
7) a	Sales revenue ( $ 16,000 * 2% )	$ 320
	Accounts receivable		$ 320
	( to record the cash discount on sales )
7) b	Cash	$ 15,680
	Accounts receivable ( $ 16,000 - $ 320 )		$ 15,680
	( to record received amount due on accounts receivable )
8)	Cash	$ 4,900
	Land		$ 2,700
	gain on sale of land ( $ 4,900 - $ 2,700 )		$ 2,200
	( to record land sold at gain )
9)	Interest receivable	$ 600
	Interest revenue		$ 600
	( to record accrued interest income )
10)	Cost of goods sold ( inventory loss)	$ 5,582
	Merchandise inventory		$ 5,582
	(( $7,500+ $11,900+ $ 870 - $800 - $238 -$ 8000+ $ 1550 ) - $ 7200 )
	( to record the loss on inventory )

B) PREPARE THE T- ACCOUNTS :

CASH
Beg. Bal.	$ 17,300
7) b	$ 15,680	$ 870	1) b
8)	$ 4900	$ 10,862	3) b
		$ 2,800	5) a
		$ 760	6)
End. Bal	$ 22,588
MERCHANDISE INVENTORY
Beg. Bal.	$ 7500
1) a	$ 11,900	$ 800	2)
1) b	$ 870	$ 238	3) a
5) b	$ 1,550	$ 8000	4)b
		$ 5,582	10)
End. Bal	$ 7,200
ACCOUNTS RECEIVABLE
Beg. Bal.	$ 0
4) a	$ 16,000	$ 320	7) a
		$ 15,680	7) b
End. Bal	$ 0
INTEREST RECEIVABLE
Beg. Bal.	$ 0
9)	$ 600
End. Bal	$ 600
LAND
Beg. Bal.	$ 2700
		$ 2700	8)
End. Bal	$ 0
ACCOUNTS PAYABLE
Beg. Bal.		$ 0
2)	$ 800	$ 11,900	1) a
3) a	$ 238
3) b	$ 10,862
End. Bal		$ 0
COMMON STOCK
Beg. Bal.		$ 16,000
End.Bal.		$ 16,000
RETAINED EARNINGS
Beg. Bal.		$ 11,500
End.Bal.		$ 11,500
SALES REVENUE
Beg. Bal.		$ 0
		$ 16,000	4) a
5) a	$ 2,800
7) a	$ 320
End.Bal.		$ 12,880
COST OF GOODS SOLD
Beg. Bal.	$ 0
4) b	$ 8000
10) ( loss)	$ 5,582	$ 1,550	5) b
End.Bal.	$ 12,032
TRANSPORTATION -OUT
Beg. Bal.	$ 0
6)	$ 760
End.Bal.	$ 760
INTEREST REVENUE
Beg. Bal.		$ 0
		$ 600	9)
End.Bal.		$ 600
GAIN ON SALE OF LAND
Beg. Bal.		$ 0
		$ 2,200	8)
End.Bal.		$ 2,200

C) PREPARE THE POST CLOSING TRIAL BALANCE FOR YEAR 2 :

RED COMPANY
POST CLOSING TRIAL BALANCE
FOR THE YEAR 2
	DEBIT	CREDIT
cash	$ 22,588
Merchandise inventory	$ 7,200
Accounts receivable	$ 0
Interest receivable	$ 600
Land	$ 0
Accounts payable		$ 0
Common stock		$ 16,000
Retained earnings		$ 11,500
Sales revenue		$ 12,880
Cost of goods sold	$ 12,032
Transportation -out	$ 760
Interest revenue		$ 600
Gain on sale of land		$ 2,200
TOTAL	$ 43,180	$ 43,180