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    Adjusting entries and financial statements

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    Chapter 5: P5-3B Page 224

    P5-3A Moulton Department Store is located in midtown Metropolis. During the past several
    years, net income has been declining because of suburban shopping centers. At the end of the
    company's fiscal year on November 30, 2006, the following accounts appeared in two of its trial
    balances.

    Unadjusted Adjusted Unadjusted Adjusted
    Accounts Payable $ 47,310 $ 47,310 Interest Revenue $ 5,000 $ 5,000
    Accounts Receivable 11,770 11,770 Merchandise Inventory 36,200 36,200
    Accumulated Depr.-Delivery Equip. 15,680 18,816 Notes Payable 46,000 46,000
    Accumulated Depr.-Store Equip. 32,300 41,800 Prepaid Insurance 13,500 3,000
    Cash 8,000 8,000 Property Tax Expense 3,500
    Common Stock 60,000 60,000 Property Taxes Payable 3,500
    Cost of Goods Sold 633,220 633,220 Rent Expense 19,000 19,000
    Delivery Expense 8,200 8,200 Retained Earnings 24,200 24,200
    Delivery Equipment 57,000 57,000 Salaries Expense 120,000 120,000
    Depr. Expense-Delivery Equip. 3,136 Sales 850,000 850,000
    Depr. Expense-Store Equip. 9,500 Sales Commissions Expense 8,000 10,500
    Dividends 12,000 12,000 Sales Commissions Payable 2,500
    Insurance Expense 10,500 Sales Returns and Allowances 10,000 10,000
    Interest Expense 8,000 8,000 Store Equip. 125,000 125,000
    Utilities Expense 10,600 10,600
    (c) Gross profit $3,850

    Prepare financial statements
    and adjusting and closing
    entries.
    (SO 4, 5) SEE PAGE 201-203

    Analysis reveals the following additional data.

    1. Salaries expense is 75% selling and 25% administrative.
    2. Insurance expense is 50% selling and 50% administrative.
    Problems: Set A 225
    3. Rent expense, utilities expense, and property tax expense are administrative expenses.
    4. Notes payable are due in 2009.

    Instructions
    (a) Prepare a multiple-step income statement, a retained earnings statement, and a classified
    balance sheet.
    (b) Journalize the adjusting entries that were made.
    (c) Journalize the closing entries that are necessary.

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    Solution Summary

    The solution explains the adjusting entries and the preparation of financial statements for Moulton Department Store.

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