Question

Exercise 4-10 Preparing adjusting and closing entries for a merchandiser LO P3 The following list includes selected permanent accounts and all of the temporary accounts from the December 31 unadjusted trial balance of Emiko Co., a business owned by Kumi Emiko. Emiko Co. uses a perpetual inventory system. Debit Credit Merchandise inventory $ 40,000 Prepaid selling expenses 7,600 Dividends 53,000 Sales $ 609,000 Sales returns and allowances 21,500 Sales discounts 7,000 Cost of goods sold 252,000 Sales salaries expense 68,000 Utilities expense 25,000 Selling expenses 46,000 Administrative expenses 125,000 Additional Information Accrued and unpaid sales salaries amount to $1,800. Prepaid selling expenses of $2,900 have expired. A physical count of year-end merchandise inventory is taken to determine shrinkage and shows $34,700 of goods still available. (a) Use the above account balances along with the additional information, prepare the adjusting entries. (b) Use the above account balances along with the additional information, prepare the closing entries.

Answer 1

To adjust and close the accounts for Emiko Co., one must create entries to account for accrued sales salaries, expired prepaid selling expenses, and merchandise inventory adjustments. Following this, the temporary accounts should be closed to the permanently retained earnings account.

Step-by-step explanation:

The student is working on preparing adjusting and closing entries for Emiko Co., which uses a perpetual inventory system. The adjusting entries will reflect unpaid sales salaries, expired prepaid selling expenses, and adjustments to merchandise inventory. Based on the additional information provided, the adjusting and closing entries for the permanent and temporary accounts can be prepared as follows:

1. Accrued sales salaries: Debit Sales Salaries Expense $1,800 and credit Salaries Payable $1,800.
2. Expired prepaid selling expense: Debit Selling Expenses $2,900 and credit Prepaid Selling Expenses $2,900.
3. Adjustment for merchandise inventory shrinkage: Debit Cost of Goods Sold $5,300 (the difference between recorded inventory of $40,000 and actual inventory of $34,700) and credit Merchandise Inventory $5,300.
4. Closing entries will involve debiting all revenue accounts (Sales, Sales Returns and Allowances, and Sales Discounts) and crediting all expense accounts (Cost of Goods Sold, Sales Salaries Expense, Utilities Expense, Selling Expenses, Administrative Expenses) including Dividends. Also, credit Income Summary and debit Retained Earnings for the balance of Income Summary after previous steps to close it to Retained Earnings.

These entries provide an updated and accurate reflection of the company's financial position at year-end.

Answer 2

Kumi Emiko Co.

a) Adjusting Journal Entries:

Debit Sales Salaries expense $1,800

Credit Sales Salaries Payable $1,800

To record accrued sales salaries.

Debit Selling expense $2,900

Credit Prepaid selling expense $2,900

To record expired selling expense.

Debit Cost of goods sold $5,300

Credit Merchandise Inventory $5,300

To record determined shrinkage in merchandise inventory.

b) Closing Journal Entries:

Debit Sales revenue $ 609,000

Credit Sales returns and allowances $21,500

Credit Sales discounts $7,000

Credit Income summary $580,500

To close the net sales revenue to the income summary.

Debit Income Summary $526,000

Debit:

Cost of goods sold $257,300

Sales salaries expense 69,800

Utilities expense 25,000

Selling expenses 48,900

Administrative expenses 125,000

To close cost of goods sold and expenses to the income summary.

Debit Income Summary $54,500

Credit Retained Earnings $54,500

To close the income summary to retained earnings.

Debit Retained Earnings $53,000

Credit Dividends $53,000

To close the dividend to retained earnings.

Step-by-step explanation:

a) Data and Calculations:

Debit Credit

Merchandise inventory $ 40,000

Prepaid selling expenses 7,600

Dividends 53,000

Sales $ 609,000

Sales returns and allowances 21,500

Sales discounts 7,000

Cost of goods sold 252,000

Sales salaries expense 68,000

Utilities expense 25,000

Selling expenses 46,000

Administrative expenses 125,000

Analysis of additional Information:

Sales Salaries expense $1,800 Sales Salaries Payable $1,800

Selling expense $2,900 Prepaid selling expense $2,900

Cost of goods sold $5,300 Merchandise Inventory $5,300

Adjusted accounts:

Debit Credit

Merchandise inventory $ 34,700

Prepaid selling expenses 4,700

Dividends 53,000

Sales Salaries Payable 1,800

Sales $ 609,000

Sales returns and allowances 21,500

Sales discounts 7,000

Cost of goods sold 257,300

Sales salaries expense 69,800

Utilities expense 25,000

Selling expenses 48,900

Administrative expenses 125,000