Cash $ 13,500 Purchases $2,650,000 Accounts Receivable 72,000 Purchases Returns and Allowances 93,000 Merchandise Inventory,Purchases Discounts 37,000 January 1, 2019 257,000 Freight In 48,000 Estimated Returns Inventory 35,000 Sales Salaries Expense 300,000 Office Supplies 3,000 Advertising Expense 45,000 Prepaid Insurance 4,500 Delivery Expense 9,000 Land 150,000 Depreciation Expense — Store Equipment 270,000 Store Equipment 6,000 Accumulated Depreciation — Miscellaneous Selling Expense 12,000 Store Equipment 55,900 Office Salaries Expense 175,000 Office Equipment 78,500 Rent Expense 28,000 Accumulated Depreciation— Insurance Expense 3,000 Office Equipment 16,000 Office Supplies Expense 2,000 Accounts Payable 27,800 Depreciation Expense— Customer Refunds Payable 50,000 Office Equipment 1,500 Salaries Payable 3,000 Miscellaneous Administrative Expense 3,500 Unearned Rent 8,300 Rent Revenue 7,000 Notes Payable 50,000 Interest Expense 2,000 Shirley Wyman, Capital 515,600 Shirley Wyman, Drawing 25,000 Sales 3,280,000
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 December 31, 2019. The merchandise inventory as of December 31, 2019, was $305,000. The adjustment for estimated returns inventory for sales for the year ending December 31, 2019, was $30,000.
3. Prepare the closing entries for Wyman Company as of December 31, 2019.
4. What would the net income have been if the perpetual inventory system had been used?
Answer:
1. Wyman Company uses a periodic inventory system because it maintains
accounts for purchases, purchases returns and allowances, purchases discounts,
and freight in.
2. See page 6-38.
2.
Sales$3,280,000
Cost of merchandise sold:
Merchandise inventory, January 1, 2019 $ 257,000
Cost of merchandise purchased:
Purchases$2,650,000
Purchases returns and allowances (93,000)
Purchases discounts(37,000)
Net purchases$2,520,000
Freight in48,000
Total cost of merchandise purchased 2,568,000
Merchandise available for sale$2,825,000
Merchandise inventory, December 31, 2019 (305,000)
Cost of merchandise sold before estimated returns $2,520,000
Increase in estimated returns inventory(30,000)
Cost of merchandise sold2,490,000
Gross profit$ 790,000
Expenses:
Selling expenses:
Sales salaries expense $ 300,000
Advertising expense45,000
Delivery expense9,000
Depreciation expense—store equipment 6,000
Miscellaneous selling expense 12,000
Total selling expenses$ 372,000
Administrative expenses:
Office salaries expense $ 175,000
Rent expense28,000
Insurance expense3,000
Office supplies expense2,000
Depreciation expense—office equipment 1,500
Miscellaneous administrative expense 3,500
Total administrative expenses213,000
Total operating expenses585,000
Income from operations$ 205,000
Other revenue and expense:
Rent revenue$ 7,000
Interest expense(2,000) 5,000
Net income$ 210,000
3.
Dec. 31 Merchandise Inventory (December 31) 305,000
Estimated Returns Inventory 30,000
Sales3,280,000
Purchases Returns and Allowances 93,000
Purchases Discounts37,000
Rent Revenue7,000
Merchandise Inventory (January 1) 257,000
Purchases2,650,000
Freight In48,000
Sales Salaries Expense300,000
Advertising Expense45,000
Delivery Expense9,000
Depreciation Expense—Store Equipment 6,000
Miscellaneous Selling Expense12,000
Office Salaries Expense175,000
Rent Expense28,000
Insurance Expense3,000
Office Supplies Expense2,000
Depreciation Expense—Office Equipment 1,500
Miscellaneous Administrative Expense 3,500
Interest Expense2,000
Shirley Wyman, Capital210,000
Shirley Wyman, Capital25,000
Shirley Wyman, Drawing25,000
4. $210,000, the same net income as under the periodic inventory system