Reference no: EM132748965
Question - The Blossom Shop, owned by Andrew John, sells skateboards in the summer and snowboards in the winter. The shop has an August 31 fiscal year end, and uses a perpetual inventory system and the earnings approach. On August 1, 2021, the company had the following balances in its general ledger:
Cash $21,385
A. John, drawings $ 52,800
Merchandise inventory 64,125
Sales 485,500
Supplies 3,750
Rent revenue 1,200
Equipment 70,800
Sales returns and allowances 11,420
Accumulated depreciation-equipment 13,275
Cost of goods sold 301,010
Accounts payable 12,650
Salaries expense 68,200
Unearned revenue 4,680
Rent expense 18,150
Notes payable 42,000
Insurance expense 4,140
A. John, capital 58,400
Interest expense 1,925
During August, the last month of the fiscal year, the company had the following transactions:
Aug. 1 Paid $1,650 for August's rent.
Aug. 2 Paid $6,500 of the amount included in Accounts Payable.
Aug. 4 Sold merchandise costing $7,900 for $11,960 cash.
Aug. 5 Purchased merchandise on account from Orange Line Co., n/30, FOB shipping point, for $23,500.
Aug. 5 Paid freight charges of $480 on merchandise purchased from Orange Line Co.
Aug. 8 Purchased supplies on account for $325.
Aug. 9 Refunded a customer $425 cash for returned merchandise. The merchandise had cost $260 and was returned to inventory.
Aug. 10 Sold merchandise on account to Spider Company for $15,450, terms 2/10, n/30, FOB shipping point. The merchandise had a cost of $9,565.
Aug. 11 Paid Orange Line Co. for half of the merchandise purchased on August 5.
Aug. 12 Spider Company returned $750 of the merchandise it purchased. Board Shop issued Spider a credit to its account. The merchandise had a cost of $460 and was returned to inventory.
Aug. 15 Paid salaries, $3,100.
Aug. 19 Spider Company paid the amount owing.
Aug. 21 Purchased $9,700 of merchandise from Rainbow Option Co. on account, terms 2/10, n/30, FOB destination.
Aug. 23 Returned $800 of the merchandise to Rainbow Option Co. and received a credit on the account.
Aug. 24 Received $520 cash in advance from customers for merchandise to be delivered in September.
Aug. 30 Paid salaries, $3,100.
Aug. 30 Paid Rainbow Option Co. the amount owing.
Aug. 31 Andrew John withdrew $4,600 cash.
Adjustment and additional data:
1. A count of supplies on August 31 shows $755 on hand.
2. The equipment has an estimated eight-year useful life. Remember that adjusting entries are done annually, not monthly.
3. Of the notes payable, $6,000 must be paid on September 1 each year.
4. An analysis of the Unearned Revenue account shows that $3,750 has been earned by August 31. A corresponding entry of $2,325 for Cost of Goods Sold will also need to be recorded for these sales.
5. Interest accrued on the note payable to August 31 was $175.
6. A count of the merchandise inventory on August 31 shows $76,560 of inventory on hand.
Instructions -
a. General ledger account for each of the above accounts and enter the August 1 balances.
b. Record and post the August transactions.
d. Record and post the adjustments required at August 31, 2021, and update the account balances as required.
e. Adjusted trial balance at August 31, 2021.
f. Multiple-step income statement, statement of owner's equity, and classified balance sheet. Remember that the owner made no capital contributions in the year.
g. Record and post closing entries.
h. Post-closing trial balance at August 31, 2021.