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Case 4- 1: PC Depot

Note: This case is unchanged from the Twelfth Edition.


Approach
This is a way of easing gently into the debit-credit mechanism and the complete accounting cycle.
Students usually need such a simple problem to build up their confidence in journalizing and posting
transactions.
Comments on Questions
Question 1
Students should describe each transaction along the lines: Barbara Thompson started PC Depot by
investing $65,000 of her own money and $100,000 borrowed from the bank, so her initial cash balance
was $165,000.
Question 2
(These accounts are shown under question 3.)
Question 3

General Journal (contd)


(9) Cash...................................................................................................................................................................
38,000
Sales..............................................................................................................................................................
38,000
(10) Accounts Receivable..........................................................................................................................................
14,850
Sales..............................................................................................................................................................
14,850
(11) Cash...................................................................................................................................................................
3,614
Accounts Receivable.....................................................................................................................................
3,614
(12) Accounts Payable...............................................................................................................................................
96,195
Cash...............................................................................................................................................................
96,195
(13) Merchandise Inventory......................................................................................................................................
49,940
Accounts Payable..........................................................................................................................................
49,940
(14) Cost of Sales......................................................................................................................................................
38,140
Merchandise Inventory..................................................................................................................................
38,140
(15) Wages Expense..................................................................................................................................................
688
Cash...............................................................................................................................................................
688
(16) Wages Expense..................................................................................................................................................
440
Accrued Wages.............................................................................................................................................
440
(17) Prepaid Rent......................................................................................................................................................
1,485
Cash...............................................................................................................................................................
1,485
(18) Prepaid Insurance...............................................................................................................................................
2,310
Cash...............................................................................................................................................................
2,310
(19) Utilities Expense................................................................................................................................................
226
Accounts Payable..........................................................................................................................................
226
(20) Furniture and Fixtures........................................................................................................................................
1,760
Cash...............................................................................................................................................................
660
Accounts Payable..........................................................................................................................................
1,100

4-1

PC DEPOT
Balance Sheet as of September 30
Assets
Cash................................................................................................................................................................................................
$84,661
Accounts receivable........................................................................................................................................................................
11,236
Merchandise inventory....................................................................................................................................................................
149,300
Prepaid insurance............................................................................................................................................................................
2,117
Prepaid rent.....................................................................................................................................................................................
1,485
Furniture and fixtures......................................................................................................................................................................
$17,260
Accumulated depreciation..........................................................................................................................................................
( 144)
17,116
Total Assets................................................................................................................................................................................
$265,915
Liabilities ant Owners Equity
Accounts payable............................................................................................................................................................................
$92,571
Accrued wages................................................................................................................................................................................
440
Bank loan payable...........................................................................................................................................................................
100,000
Interest payable...............................................................................................................................................................................
1,250
Proprietors capital..........................................................................................................................................................................
65,000
Retained earnings............................................................................................................................................................................
6,654
Total Liabilities and Owners Equity.........................................................................................................................................
$265,915

PC DEPOT
Income Statement for September
Sales................................................................................................................................................................................................
$52,850
Cost of sales....................................................................................................................................................................................
38,140
Gross margin..............................................................................................................................................................................
14,710
Expenses:
Wages....................................................................................................................................................................................
$2,063
Advertising............................................................................................................................................................................
1,320
Office supplies.......................................................................................................................................................................
1,100
Utilities..................................................................................................................................................................................
501
Rent.......................................................................................................................................................................................
1,485
Insurance...............................................................................................................................................................................
193
Interest...................................................................................................................................................................................
1,250
Depreciation..........................................................................................................................................................................
144
8,056
Net income......................................................................................................................................................................................
$ 6,654

4-2

LEDGER
(1)
(9)
(11)

Cash
165,000 (2)
38,000 (4)
3,614 (5)
(6)
(7)
(8)
(12)
(15)
(17)
(18)
(20)

(18)

Prepaid Insurance
2,310 (23)

(4)
(20)

Furniture and Fixtures


15,500
1,760

(10)

Accounts Receivable
14,850 (11)

1,485
15,500
1,320
935
1,100
275
96,195
688
1,485
2,310
660

(3)
(13)

(12)

193

3,614

Rent Expenses
1,485
(24)

(5)

Accounts Payable
96,195 (3)
(13)
(19)
(20)
Accrued Wages
(16)

(17)
(2)

Merchandise Inventory
137,500 (14)
49,940

Advertising Expense
1,320

137,500
49,940
226
1,100
440

Bank Loan Payable


(1)

100,000

Proprietors Capital
(1)

65,000

Prepaid Rent
1,485
Sales
52,850 (9)
(10)

(14)

Cost of Sales
38,140

(21)

Depreciation Expense
144

(6)
(15)
(16)

Wages Expense
935
688
440

(7)

Office Supplies Expense


1,100

Accumulated Depreciation
(21)

(8)
(19)

Utilities Expense
275
226

Interest Payable
(22)

4-3

38,140

38,000
14,850

144
1,250

Interest Expense
1,250

(22)

(23)

Retained Earnings
(25)

Income Summary
6,654 (24)
52,850
(other closing entries
not shown here)

(25)

Insurance Expense
193
6,654

Question 4
Other adjusting entries:
(21)
(22)
(23)

Depreciation Expense [($15,500 + $1,760) / 10] / 12.............................................................................................


144
Accumulated Depreciation.................................................................................................................................
144
Interest Expense ($100,000 x 15%) / 12)................................................................................................................
1,250
Interest Payable..................................................................................................................................................
1,250
Insurance Expense ($ 2,310 / 12)............................................................................................................................
193
Prepaid Insurance...............................................................................................................................................
193

Postings to the ledger are shown under Question 3. Note that five additional T accounts, not required for
entries (1) - (20), must be created in order to post these adjusting entries.
Question 5
For reasons of space, we shall illustrate only one of the entries closing the temporary accounts, plus the
final closing entry:
(24)

Sales........................................................................................................................................................................
52,850
Income Summary...............................................................................................................................................
52,850
(25) Income Summary....................................................................................................................................................
6,654
Retained Earnings...............................................................................................................................................
6,654
Note that two more T accounts have been created for the closing process.
Question 6
The statements appear above.

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