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Ex. 185
The following information is available for Siler Company:
Debit Credit
Siler, Capital $ 50,000
Siler, Drawing $ 32,000
Sales 510,000
Sales Returns and Allowances 20,000
Sales Discounts 7,000
Cost of Goods Sold 347,000
Freight-out 2,000
Advertising Expense 15,000
Interest Expense 19,000
Store Salaries Expense 45,000
Utilities Expense 18,000
Depreciation Expense 7,000
Interest Revenue 25,000

Instructions
Using the above information, prepare the closing entries for Siler Company.

Solution 185 (10 min.)

Dec. 31 Interest Revenue ................................................................... 25,000
Sales ...................................................................................... 510,000
Income Summary ......................................................... 535,000

31 Income Summary .................................................................. 480,000

Sales Returns and Allowances ..................................... 20,000
Sales Discounts............................................................. 7,000
Cost of Goods Sold ....................................................... 347,000
Freight-out ................................................................... 2,000
Advertising Expense ..................................................... 15,000
Interest Expense .......................................................... 19,000
Store Salaries Expense ................................................. 45,000
Utilities Expense ........................................................... 18,000
Depreciation Expense .................................................. 7,000

31 Income Summary .................................................................. 55,000

Siler, Capital ................................................................. 55,000

31 Siler, Capital ......................................................................... 32,000

Siler, Drawing .............................................................. 32,000
Ex. 189
The adjusted trial balance of Notson Company contained the following information:
Debit Credit
Sales $560,000
Sales Returns and Allowances $ 20,000
Sales Discounts 7,000
Cost of Goods Sold 386,000
Freight-out 2,000
Advertising Expense 15,000
Interest Expense 18,000
Store Salaries Expense 55,000
Utilities Expense 28,000
Depreciation Expense 7,000
Interest Revenue 30,000

Instructions
1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2008.

2. Prepare a single-step income statement for the year ended December 31, 2008.
Solution 189 (20 min.)
1. NOTSON COMPANY
Income Statement
For the Year Ended December 31, 2008
Sales revenues
Sales .......................................................................... $560,000
Less: Sales returns and allowances ........................ $ 20,000
Sales discounts .............................................. 7,000 27,000
Net sales .................................................................... 533,000
Cost of goods sold ..................................................... 386,000
Gross profit ............................................................... 147,000
Operating expenses
Selling expenses
Store salaries expense .................................. $55,000
Advertising expense ...................................... 15,000
Freight-out .................................................... 2,000
Total selling expenses ............................. 72,000
Administrative expenses
Utilities expense ............................................ 28,000
Depreciation expense ................................... 7,000
Total administrative expenses ................ 35,000
Total operating expenses .................. 107,000
Income from operations ........................................... 40,000
Other revenues and gains
Interest revenue.................................................. 30,000
Other expenses and losses
Interest expense ................................................. 18,000 12,000
Net income ........................................................... $ 52,000

2. NOTSON COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues
Net sales ...................................................................................... $533,000
Interest revenue.......................................................................... 30,000
Total revenues ...................................................................... 563,000
Expenses
Cost of goods sold ....................................................................... $386,000
Selling expenses .......................................................................... 72,000
Administrative expenses ............................................................. 35,000
Interest expense ......................................................................... 18,000
Total expenses ...................................................................... 511,000
Net income .............................................................................................. $ 52,000

a
Ex. 195
The adjusted trial balance of Gorman Music Company appears below. Gorman Music Company prepares monthly
financial statements and uses the perpetual inventory method.
Instructions
Complete the worksheet below.
GORMAN MUSIC COMPANY
Worksheet
For the Month Ended April 30, 2008

Adjusted
Trial Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit
Cash 11,000
Merchandise Inventory 21,000
Supplies 3,500
Equipment 80,000
Accum. Depreciation—
Equipment 15,000
Accounts Payable 20,000
Gorman, Capital 92,000
Gorman, Drawing 8,000
Sales 39,000
Sales Discounts 2,000
Cost of Goods Sold 23,000
Advertising Expense 7,000
Supplies Expense 6,000
Depreciation Expense 1,000
Rent Expense 2,500
Utility Expense 1,000
166,000 166,000
a
Solution 195 (15 min.)
GORMAN MUSIC COMPANY
Worksheet
For the Month Ended April 30, 2008

Adjusted
Trial Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit
Cash 11,000 11,000
Merchandise Inventory 21,000 21,000
Supplies 3,500 3,500
Equipment 80,000 80,000
Accum. Depreciation—
Equipment 15,000 15,000
Accounts Payable 20,000 20,000
Gorman, Capital 92,000 92,000
Gorman, Drawing 8,000 8,000
Sales 39,000 39,000
Sales Discounts 2,000 2,000
Cost of Goods Sold 23,000 23,000
Advertising Expense 7,000 7,000
Supplies Expense 6,000 6,000
Depreciation Expense 1,000 1,000
Rent Expense 2,500 2,500
Utility Expense 1,000 1,000
166,000 166,000 42,500 39,000 123,500 127,000
Net Loss 3,500 3,500
42,500 42,500 127,000 127,000
MATCHING
207. Match the items below by entering the appropriate code letter in the space provided.

A. Net Sales F. FOB shipping point

B. Sales discounts G. Freight-out
C. Purchase invoice H. Gross profit
D. Periodic inventory system I. Selling expenses
E. FOB destination J. Income from operations

_____ 1. An incentive to encourage customers to pay their accounts early.

_____ 2. Expenses associated with making sales.

_____ 3. Freight terms that require the seller to pay the freight cost.

_____ 4. Sales less sales returns and allowances and sales discounts.

_____ 5. A document that supports each credit purchase.

_____ 6. Net sales less cost of goods sold.

_____ 7. Freight cost to deliver goods to customers reported as a selling expense.

_____ 8. Requires a physical count of goods on hand to compute cost of goods sold.

_____ 9. Gross profit less total operating expenses.

_____ 10. Freight terms that require the buyer to pay the freight cost.

Answers to Matching
1. B 6. H
2. I 7. G
3. E 8. D
4. A 9. J
5. C 10. F
Ex. 181
(a) Boden Company purchased merchandise on account from Office Suppliers for $86,000, with terms of 2/10, n/30.
During the discount period, Boden returned some merchandise and paid $78,400 as payment in full. Boden uses
a perpetual inventory system. Prepare the journal entries that Boden Company made to record:
(1) the purchase of merchandise.
(2) the return of merchandise.
(3) the payment on account.

(b) Boggs Company sold merchandise to Wilsey Company on account for $73,000 with credit terms of ?/10, n/30.
The cost of the merchandise sold was $43,800. During the discount period, Wilsey Company returned $3,000 of
merchandise and paid its account in full (minus the discount) by remitting $69,300 in cash. Both companies use
a perpetual inventory system. Prepare the journal entries that Boggs Company made to record:
(1) the sale of merchandise.
(2) the return of merchandise.
(3) the collection on account.

Solution 181 (20 min.)

(a) To compute the amount due after returns but before the discount, divide $78,400 by .98 (100% – 2%).
$78,400 ÷ .98 = $80,000.
Subtract $80,000 from $86,000 to determine that $6,000 of merchandise was returned.

(1) Merchandise Inventory ......................................................... 86,000

Accounts Payable ......................................................... 86,000

(2) Accounts Payable .................................................................. 6,000

Merchandise Inventory ................................................ 6,000

(3) Accounts Payable .................................................................. 80,000

Merchandise Inventory ................................................ 1,600
Cash .............................................................................. 78,400

(b) Wilsey Company returns $3,000 of merchandise and owes $70,000 to Boggs Company.
$69,300 ÷ $70,000 = .99
100% – 99% = 1%
The missing discount percentage is 1%. $70,000 × 1% = $700 sales discount.
$70,000 – $700 = $69,300 cash received on account.

(1) Accounts Receivable ............................................................. 73,000

Sales ............................................................................. 73,000
Cost of Goods Sold ................................................................ 43,800
Merchandise Inventory ................................................ 43,800

(2) Sales Returns and Allowances .............................................. 3,000

Accounts Receivable .................................................... 3,000
Merchandise Inventory $3,000 × ($43,800 ÷ $73,000) ........ 1,800
Cost of Goods Sold ....................................................... 1,800
Solution 181 (cont.)
(3) Cash ....................................................................................... 69,300
Sales Discounts...................................................................... 700
Accounts Receivable .................................................... 70,000