The Best Clothing Company, a retail corporation, had the following post closing trial balance, December 31,...

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Accounting

The Best Clothing Company, a retail corporation, had thefollowing post closing trial balance, December 31, 2016 (inthousands of dollars).
ACCOUNT
NUMBER         NAMEOFACCOUNT                                         DEBIT           CREDIT
10                       CASH                                                                           30
20                       ACCOUNTSRECEIVABLE                                    91
34                       NOTESRECEIVABLE,CURRENT                     100
35                       ACCRUEDINTERESTRECEIVABLE                 16
40                       MERCHANDISEINVENTORY                            160
52                       PREPAIDFIREINSURANCE                                   3
62                       NOTESRECEIVABLE LONGTERM                 100
74                       EQUIPMENT                                                           120
74A                    ACCUMULATEDDEPREC.EQUIP.                                                76
100                     ACCOUNTSPAYABLE                                                                      90
111                     ACCRUEDWAGESPAYABLE                                                           8
123                     ACCRUEDINCOME TAXESPAYABLE                                           4
137                     UNEARNEDSALESREVENUE                                                        10
200                     PAIDINCAPITAL                                                                             110
230                     RETAINEDINCOME                                             ___                     322
                                                                                                               620                     620
The following summarized transactions occurred during2017 and are shown in thousands of dollars.
a.         Merchandiseinventory purchased on open account was $480.
b.         Totalsales were $890, of which 80% were on credit.
c.         Thesales in (b) were exclusive of the deliveries of goods to customerswho had paid in advance as of December 31, 2016. See account # 137on the above trial balance. All of those goods ordered in advancewere all delivered in 2017.
d.         Thecost of goods sold including those in (c), was $440.
e.         Collectionsfrom credit customers were $682.
f.          Thenotes receivable are from a major supplier ofbelts.  Interest on all notes was collected on May 1,2017.  The rate is 12% per annum.  Theaccounting system provides for cash collections of interest to becredited first to existing accrued interest receivable (see account#35) carried over from the preceding period.
g.         Theprincipal of the current notes receivable was collected on May 1,2017.  The principal of the remaining notes is payable onMay 1, 2018 (see entry [r]).
h.         Asof December 31, 2017, customers had made a total of $7 in advancecash payments for "layaway"plansand for merchandise not yet in stock.  These paymentswere exclusive of any other transactions describedabove.
CASH DISBURSEMENTS WERE:
i.          Totrade creditors for accounts payable, $470.
j.          Toemployees for wages, $193.  The accounting system forwages is to debit any existing accrued payables (see account #111)first and debit any remainder of a disbursement to wageexpense.
k.         Formiscellaneous expenses such as store rents, advertising, utilities,and suppliers, which were paid in cash, $189. It is not necessaryto establish separate accounts for these items.
l.          Newequipment was acquired on July 1, 2017 for $74.
m.           Anew fire insurance policy for 36 months was secured and paid infull on September 1, 2017. The effective date of the policy wasSeptember 1, 2017 and the cost is $36.
n.            Incometaxes were paid to the Federal and State governments in the amountof $19.  Only $15 of the $19 was debited to income taxexpense because the company pays taxes on a quarterly basis (seeaccount #123).
o.         Theboard of directors declared a cash dividend of $26 on December 15,2017 to stockholders of record, January 5, 2018 and payable January26, 2018.  This company uses an account called DIVIDENDSDECLARED to record the declaration of dividends. This means thatyour debit would be to Dividends Declared.  Do not debitretained earnings.
THE FOLLOWING ADJUSTMENTS WERE MADE ON DECEMBER 31,2016:
p.         Forthe interest on notes receivable.
q.         Forcurrent fire insurance policy and the prepaid insurance of December31, 2016, has expired too.  See account # 52 on theopening trial balance.
r.         Forreclassification of the note receivable. This is necessary becausethe notes become payable the following year.
s.         Fordepreciation: depreciation expense for the year is$30.
t.          Wagesearned but UNPAID, at December 31, 2017, $15.
u.         Totalincome tax expense for 2017is $20, computed as 40% of pretax incomeof $50.  Note: part of the 2016 income tax has alreadybeen recorded and paid, as indicated by transaction[n].  This is a MAJOR HINT: You must arrive at $50 asyour Net Income before Income Tax Expense, if you DO NOT, there isa problem with your journal entries and/or postings.
You are the unfortunate accountant who must record allof the transactions listed above because the bookkeeper was firedfor stealing from the store.  Therefore, you must do thefollowing to close the books:
Post all balances as shown on the trial balance of12/31/16 to T ACCOUNTS and indicate that they are opening balancesfor 1/1/17.  Then journalize all of the transactions froma. to u.  For any accounts not shown in the trial balanceestablish new accounts and USE ACCOUNT NUMBERS IN THE 300SERIES.
Post all transactions that you have journalized to the TACCOUNTS. All postings must contain posting references to thetransaction codes, i.e., the letters a. - u.
Prepare a trial balance as of December 31,2017.
Journalize and post the closing entries to CLOSE THEBOOKS
Prepare a multi step income statement as of December 31,2017.
Prepare a statement of retained earnings as of December31, 2017.
Prepare a classified comparative balance sheet forDecember 31, 2016 and December 31, 2017.

Answer & Explanation Solved by verified expert

4.2 Ratings (557 Votes)

1 Journalize each of transactions in the General Journal JOURNAL Date Account Debit Credit a Merchandise Inventory 480 Account Payable 480 b Accounts Receivable 712 Cash 178 Sales 890 c Unearned Sales revenue 10 Sales 10 d Cost of goods sold 440 Merchandise Inventory 440 e Cash 682 Accounts Receivable 682 f Cash 24 Interest revenue 8 Accrued Interest receivable 16 g Cash 100 Note receivable Current 100 h Cash 7 Unearned sales revenue 7 i Accounts payable 470 Cash 470 j Wages expense 185 Accrued wages payable 8 Cash 193 k Miscellaneous expense 189 Cash 189 l Equipment 74 Cash 74 m Prepaid Fire See Answer

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Transcribed Image Text

The Best Clothing Company, a retail corporation, had thefollowing post closing trial balance, December 31, 2016 (inthousands of dollars).ACCOUNTNUMBER NAMEOFACCOUNT DEBIT CREDIT10 CASH 3020 ACCOUNTSRECEIVABLE 9134 NOTESRECEIVABLE,CURRENT 10035 ACCRUEDINTERESTRECEIVABLE 1640 MERCHANDISEINVENTORY 16052 PREPAIDFIREINSURANCE 362 NOTESRECEIVABLE LONGTERM 10074 EQUIPMENT 12074A ACCUMULATEDDEPREC.EQUIP. 76100 ACCOUNTSPAYABLE 90111 ACCRUEDWAGESPAYABLE 8123 ACCRUEDINCOME TAXESPAYABLE 4137 UNEARNEDSALESREVENUE 10200 PAIDINCAPITAL 110230 RETAINEDINCOME ___ 322 620 620The following summarized transactions occurred during2017 and are shown in thousands of dollars.a. Merchandiseinventory purchased on open account was $480.b. Totalsales were $890, of which 80% were on credit.c. Thesales in (b) were exclusive of the deliveries of goods to customerswho had paid in advance as of December 31, 2016. See account # 137on the above trial balance. All of those goods ordered in advancewere all delivered in 2017.d. Thecost of goods sold including those in (c), was $440.e. Collectionsfrom credit customers were $682.f. Thenotes receivable are from a major supplier ofbelts. Interest on all notes was collected on May 1,2017. The rate is 12% per annum. Theaccounting system provides for cash collections of interest to becredited first to existing accrued interest receivable (see account#35) carried over from the preceding period.g. Theprincipal of the current notes receivable was collected on May 1,2017. The principal of the remaining notes is payable onMay 1, 2018 (see entry [r]).h. Asof December 31, 2017, customers had made a total of $7 in advancecash payments for "layaway"plansand for merchandise not yet in stock. These paymentswere exclusive of any other transactions describedabove.CASH DISBURSEMENTS WERE:i. Totrade creditors for accounts payable, $470.j. Toemployees for wages, $193. The accounting system forwages is to debit any existing accrued payables (see account #111)first and debit any remainder of a disbursement to wageexpense.k. Formiscellaneous expenses such as store rents, advertising, utilities,and suppliers, which were paid in cash, $189. It is not necessaryto establish separate accounts for these items.l. Newequipment was acquired on July 1, 2017 for $74.m. Anew fire insurance policy for 36 months was secured and paid infull on September 1, 2017. The effective date of the policy wasSeptember 1, 2017 and the cost is $36.n. Incometaxes were paid to the Federal and State governments in the amountof $19. Only $15 of the $19 was debited to income taxexpense because the company pays taxes on a quarterly basis (seeaccount #123).o. Theboard of directors declared a cash dividend of $26 on December 15,2017 to stockholders of record, January 5, 2018 and payable January26, 2018. This company uses an account called DIVIDENDSDECLARED to record the declaration of dividends. This means thatyour debit would be to Dividends Declared. Do not debitretained earnings.THE FOLLOWING ADJUSTMENTS WERE MADE ON DECEMBER 31,2016:p. Forthe interest on notes receivable.q. Forcurrent fire insurance policy and the prepaid insurance of December31, 2016, has expired too. See account # 52 on theopening trial balance.r. Forreclassification of the note receivable. This is necessary becausethe notes become payable the following year.s. Fordepreciation: depreciation expense for the year is$30.t. Wagesearned but UNPAID, at December 31, 2017, $15.u. Totalincome tax expense for 2017is $20, computed as 40% of pretax incomeof $50. Note: part of the 2016 income tax has alreadybeen recorded and paid, as indicated by transaction[n]. This is a MAJOR HINT: You must arrive at $50 asyour Net Income before Income Tax Expense, if you DO NOT, there isa problem with your journal entries and/or postings.You are the unfortunate accountant who must record allof the transactions listed above because the bookkeeper was firedfor stealing from the store. Therefore, you must do thefollowing to close the books:Post all balances as shown on the trial balance of12/31/16 to T ACCOUNTS and indicate that they are opening balancesfor 1/1/17. Then journalize all of the transactions froma. to u. For any accounts not shown in the trial balanceestablish new accounts and USE ACCOUNT NUMBERS IN THE 300SERIES.Post all transactions that you have journalized to the TACCOUNTS. All postings must contain posting references to thetransaction codes, i.e., the letters a. - u.Prepare a trial balance as of December 31,2017.Journalize and post the closing entries to CLOSE THEBOOKSPrepare a multi step income statement as of December 31,2017.Prepare a statement of retained earnings as of December31, 2017.Prepare a classified comparative balance sheet forDecember 31, 2016 and December 31, 2017.