Question

The adjusted trial balance of King Cornelius Company follows: KING CORNELIUS COMPANY Adjusted Trial Balance December 31, 2014 SS. 37.100 25.800 1.100 1,000 26,500 $ 23,800 10 2.400 35,000 22.200 Cash Accounts receivable Inventory Supplies Prepaid rent Furniture Accumulated depreciation Accounts payable Salary payable Interest payable Unearned sales revenue Note payable, long-term Cornelius, capital Cornelius, drawing Sales Interest revenue Sales discounts Sales returns and allowances Cost of goods sold Salary expense Rent expense Depreciation expense Utilities expense Supplies expense Interest expense Total 48,000 244,000 2,000 10,000 8,000 81,000 72,700 7,700 2,700 5,800 2.200 2.900 $338,300 $338,300 Requirements 1. Journalize the closing entries at December 31. Post to the Income summary account as an accuracy check on net income. Recall that the credit balance closed out of Income summary should equal net income as computed on the income statement. Also post to Cornelius, capital, whose balance should agree with the amount reported on the balance sheet. 2. Prepare the company's multi-step income statement, statement of owner's equity, and balance sheet in account form. Draw arrows linking the state ments. Note: King Cornelius doesn't separate its operating expenses as either selling or general. 3. Compute the inventory turnover and days in inventory for 2014. Inventory at December 31, 2013, was $21,000. Turnover for 2013 was 3.0 times. Would you expect King Cornelius Company to be more profitable or less profitable in 2014 than in 2013? Why?

Answer 1

King Cornelius Company Statement of Income For the period ending 31.12.2014 Sales Revenue Sales Discount Sales Return and allowances Net Sales Cost of goods sold Gross Profit 244000 -10000 -8000 226000 -81000 145000 72700 7700 2700 5800 2200 Salary Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Operating Income Non Operating Items Interest Revenue Interest Expense Net Income 91100 53900 2000 -2900 -900 53000 Statement of Owner's Equity For the period ending 31.12.2014 Cornelius, Capital Add:Net Income 22200 53000 75200 -48000 27200 Cornelius, drawing

Balance sheet As at 31.12.2014 Assets Current Assets Cash Accounts Receivable Inventory Supplies Prepaid Rent Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities 5600 Accounts Payable 6300 37100 Salary Payable 2000 25800 Interest Payable 600 1300 Unearned Sales Revenue 2400 11300 1000 70800 Non Current Liabilities Note Payable Long Term 35000 26500 -23800 2700 Owner's Equity Boston Capital 27200 73500 Total Liabilities & Shareholders Equity 73500 Non Current Assets Furniture Accumulated Depreciation Total Assets

Credit in $ Debit in $ 193000 Closing Enteries Date Particulars 31.12.2014 Income Summary a/c Dr. To Sales Discount To Sales Return and allowances To Cost of goods sold To Salary Expense To Rent Expense To Depreciation Expense To Utilities Expense To Supplies Expense To Interest Expense (Expense accounts closed) 10000 8000 81000 72700 7700 2700 5800 2200 2900 244000 2000 31.12.2014 Sales Revenue a/c Dr. Interest Revenue a/c Dr. To Income Summary (Revenue accounts closed) 246000 53000 31.12.2014 Income Summary a/c Dr. To Retained Earnings (Profits Transferred) 53000 Inventory Turnover = Cost of goods sold / Avg. Inventory = 81000 / ( 21000 + 25800 )/2 = 81000 / 23400 = 3.46 Inventory Turnover Days = 365 / Inventory Turnover = 365/3.46 = 105.49 Days