Cash $ 13,500 Sales Discounts $ 29,000
Accounts Receivable 72,000 Purchases 2,650,000
Merchandise Inventory, Purchases Returns and Allowances 93,000
January 1, 2014 257,000 Purchases Discounts 37,000
Office Supplies 3,000 Freight In 48,000
Prepaid Insurance 4,500 Sales Salaries Expense 300,000
Land 150,000 Advertising Expense 45,000
Store Equipment 270,000 Delivery Expense 9,000
Accumulated Depreciation— Depreciation Expense—
Store Equipment 55,900 Store Equipment 6,000
Office Equipment 78,500 Miscellaneous Selling Expense 12,000
Accumulated Depreciation— Office Salaries Expense 175,000
Office Equipment 16,000 Rent Expense 28,000
Accounts Payable 27,800 Insurance Expense 3,000
Salaries Payable 3,000 Office Supplies Expense 2,000
Unearned Rent 8,300 Depreciation Expense—
Notes Payable 50,000 Office Equipment 1,500
Shirley Wyman, Capital 580,500 Miscellaneous Administrative Expense 3,500
Shirley Wyman, Drawing 25,000 Rent Revenue 7,000
Sales 3,355,000 Interest Expense 2,000
Sales Returns and Allowances 46,000
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, 2014. The merchandise inventory as of December 31, 2014, was $305,000.
3. Prepare the closing entries for Wyman Company as of December 31, 2014.
4. What would be the net income if the perpetual inventory system had been used?
Answer:
1. Periodic inventory system. Wyman Company uses a periodic inventory system since it maintains accounts for purchases, purchases returns and allowances, purchases discounts, and freight in.
2.
WYMAN COMPANY
Income Statement
For the Year Ended December 31, 2014
Revenue from sales:
Sales $3,355,000
Less: Sales returns and allowances $ 46,000
Sales discounts 29,000 75,000
Net sales $3,280,000
Cost of merchandise sold:
Merchandise inventory, January 1, 2014 $ 257,000
Purchases $2,650,000
Less: Purchases returns and allowances 93,000
Purchases discounts 37,000
Net purchases $2,520,000
Add freight in 48,000
Cost of merchandise purchased 2,568,000
Cost of merchandise available for sale $2,825,000
Less merchandise inventory, 305,000
December 31, 2014
Cost of merchandise sold 2,520,000
Gross profit $ 760,000
Expenses:
Selling expenses:
Sales salaries expense $ 300,000
Advertising expense 45,000
Delivery expense 9,000
Depreciation expense—store equipment 6,000
Miscellaneous selling expense 12,000
Total selling expenses $ 372,000
Administrative expenses:
Office salaries expense $ 175,000
Rent expense 28,000
Insurance expense 3,000
Office supplies expense 2,000
Depreciation expense—office equipment 1,500
Miscellaneous administrative expense 3,500
Total administrative expenses 213,000
Total operating expenses 585,000
Income from operations $ 175,000
Other income and expense:
Rent revenue $ 7,000
Less interest expense 2,000 5,000
Net income $ 180,000
3. Merchandise Inventory 305,000
Sales 3,355,000
Purchases Returns and Allowances 93,000
Purchases Discounts 37,000
Rent Revenue 7,000
Income Summary 3,797,000
Income Summary 3,617,000
Merchandise Inventory 257,000
Sales Returns and Allowances 46,000
Sales Discounts 29,000
Purchases 2,650,000
Freight In 48,000
Sales Salaries Expense 300,000
Advertising Expense 45,000
Delivery Expense 9,000
Depreciation Expense—Store Equipment 6,000
Miscellaneous Selling Expense 12,000
Office Salaries Expense 175,000
Rent Expense 28,000
Insurance Expense 3,000
Office Supplies Expense 2,000
Depreciation Expense—Office Equipment 1,500
Miscellaneous Administrative Expense 3,500
Interest Expense 2,000
Income Summary 180,000
Shirley Wyman, Capital 180,000
Shirley Wyman, Capital 25,000
Shirley Wyman, Drawing 25,000
4. $180,000. The same net income as under the periodic inventory system.