5-40PGA - Horngren'S Financial And Managerial Accounting

Question

Triton Department Store uses a periodic inventory system. The adjusted trial balance of Triton Department Store at December 31, 2018, follows:

TRITON DEPARTMENT STORE

Adjusted Trial Balance

December 31, 2018

Balance

Account Title                                                           Debit                                      Credit 

Cash                                                                          \(8,200

Accounts Receivable                                            84,600

Merchandise Inventory (beginning)                  37,800

Office Supplies                                                       850     

Furniture                                                                   86,000

Accumulated Depreciation-Furniture                                                               \)18,500

Accounts Payable                                                                                                  29,400

Salaries Payable                                                                                                     2,300

Unearned Revenue                                                                                               14,900

Notes Payable, long-term                                                                                    36,000

Common Stock                                                                                                       60,000

Retained Earnings                                                                                                 22,850

Dividends                                                                 88,600

Sales Revenue                                                                                                        374,000

Purchases                                                                295,000

Purchase Returns and Allowances                                                                  109,000

Purchase Discounts                                                                                             6,400

Freight-In                                                                  300

Selling Expense                                                     41,700

Administrative Expense                                       26,600

Interest Expense                                                    3,700

Total                                                                          \(673,350                               \)673,350

 

Requirements 

1. Prepare Triton Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,300. 

2. Journalize Triton Department Store’s closing entries.

Step-by-Step Solution

Answer

The net income of the company is $120,600.

Meaning of Closing Entries

In accounting, recording closing entries in the books is an approach used by business entities at the end of an accounting period. Under this process, all revenue and expense accounts are closed and transferred to the income summary account

Preparation of multi-step income statement

TRITON DEPARTMENT STORE
Multi-step Income Statement
For the year end December 31, 2018
Particulars	Amounts ($)
Sales revenue	374,000
Less: Cost of goods sold (Working notes)	(181,400)
Gross profit	192,600
Less: Operating expenses
Selling expenses	(41,700)
Administrative expenses	(26,600)
Income from operations	124,300
Less: Other expenses and losses
Interest expense	(3,700)
Net Income	$120,600

 

Working Notes:

Computation of cost of goods sold:

Particulars	Amounts ($)
Beginning inventory	37,800
Add: Purchases	295,000
Less: Purchase returns and allowances	(109,000)
Less: Purchase discounts	(6,400)
Add: Freight-In	300
Less: Ending inventory	(36,300)
Cost of goods sold	$181,400

Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
2018
Dec 31	Sales revenue	374,000
	Purchase returns and allowances	109,000
	Purchase discounts	6,400
	Merchandise inventory (ending)	36,300
	Income summary		525,700
	(To close revenue and other credit accounts)
Dec 31	Income summary	405,100
	Purchases		295,000
	Freight-in		300
	Merchandise inventory (beginning)		37,800
	Selling expenses		41,700
	Administrative expenses		26,600
	Interest expenses		3,700
	(To close expenses and other debit accounts)
Dec 31	Income summary (525700-405100)	120,600
	Retained earnings		120,600
	(To close income summary)
Dec 31	Retained earnings	88,600
	Dividends		88,600
	(To close dividends accounts)