Basic transactions: Periodic system, single cycle (Appendix)
The following transactions apply to Sarah’s Specialties Shop for 2012, its first year of operations:
1. Acquired $70,000 cash from the issue of common stock.
2. Acquired $16,000 of merchandise from Sarah Hill, the owner, who had acquired the merchandise prior to opening the shop. Issued common stock to Sarah in exchange for the merchandise inventory.
3. Purchased $90,000 of inventory on account.
4. Paid $3,000 for radio ads.
5. Sold inventory for $220,000 cash.
6. Paid $20,000 in salary to a part-time salesperson.
7. Paid $65,000 on accounts payable (see Event 3).
8. Physically counted inventory, which indicated that $40,000 of inventory was on hand at the end of the accounting period.
Required
a. Record each of these transactions in general journal form using the periodic method.
b. Post each of the transactions to ledger T-accounts.
c. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for 2012.
d. Prepare the necessary closing entries at the end of 2012, and post them to the appropriate T-accounts.
e. Prepare a post-closing trial balance.
f. Give an example of a business that may want to use the periodic system. Give an example of a business that may use the perpetual system.
g. Give some examples of assets other than cash that are commonly contributed to a business in exchange for stock.
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