Chapter 5 - Accounting

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5.4 The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Aug.	1	Summit Company sold merchandise on account to Beartooth Co., $48,000, terms FOB destination , n/15. The cost of the goods sold was $28,800.
	2	Summit Company paid freight of $1,150 for delivery of merchandise sold to Beartooth Co. on August 1.
	5	Summit Company sold merchandise on account to Beartooth Co., $66,000, terms FOB shipping point , n/eom. The cost of the goods sold was $40,000.
	9	Beartooth Co. paid freight of $2,300 on August 5 purchase from Summit Company.
	15	Summit Company sold merchandise on account to Beartooth Co., $58,700, terms FOB shipping point, n/45. Summit paid freight of $1,675, which was added to the invoice. The cost of the goods sold was $35,000.
	16	Beartooth Co. paid Summit Company for purchase of August 1.
	20	Summit Company paid Beartooth Co. a cash refund of $1,000 for defective merchandise purchased on August 1. Beartooth Co. kept the merchandise.
	31	Beartooth Co. paid Summit Company on account for purchase of August 5.
	31	Summit Company issued Beartooth Co. a credit memo for merchandise with an invoice amount of $4,000 that was returned from the August 15 sale. The cost of the merchandise returned was $2,500.

Required:

Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.

Chart of Accounts-Summit Company

CHART OF ACCOUNTS

Summit Company

General Ledger

	ASSETS
110	Cash
121	Accounts Receivable-Beartooth Co.
125	Notes Receivable
130	Inventory
131	Estimated Returns Inventory
140	Office Supplies
141	Store Supplies
142	Prepaid Insurance
180	Land
192	Store Equipment
193	Accumulated Depreciation-Store Equipment
194	Office Equipment
195	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
216	Salaries Payable
218	Sales Tax Payable
219	Customer Refunds Payable
221	Notes Payable
	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue
	EXPENSES
510	Cost of Goods Sold
521	Delivery Expense
522	Advertising Expense
524	Depreciation Expense-Store Equipment
525	Depreciation Expense-Office Equipment
526	Salaries Expense
531	Rent Expense
533	Insurance Expense
534	Store Supplies Expense
535	Office Supplies Expense
536	Credit Card Expense
539	Miscellaneous Expense
710	Interest Expense

Chart of Accounts-Beartooth Co.

CHART OF ACCOUNTS

Beartooth Co.

General Ledger

	ASSETS
110	Cash
120	Accounts Receivable
125	Notes Receivable
130	Inventory
131	Estimated Returns Inventory
140	Office Supplies
141	Store Supplies
142	Prepaid Insurance
180	Land
192	Store Equipment
193	Accumulated Depreciation-Store Equipment
194	Office Equipment
195	Accumulated Depreciation-Office Equipment

	LIABILITIES
211	Accounts Payable-Summit Company
216	Salaries Payable
218	Sales Tax Payable
219	Customer Refunds Payable
221	Notes Payable
	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue
	EXPENSES
510	Cost of Goods Sold
521	Delivery Expense
522	Advertising Expense
524	Depreciation Expense-Store Equipment
525	Depreciation Expense-Office Equipment
526	Salaries Expense
531	Rent Expense
533	Insurance Expense
534	Store Supplies Expense
535	Office Supplies Expense
536	Credit Card Expense
539	Miscellaneous Expense
710	Interest Expense

General Journal-Summit Company

(1) Journalize the August transactions for Summit Company.

General Journal Instructions

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
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General Journal-Beartooth Co.

(2) Journalize the August transactions for Beartooth Co.

General Journal Instructions

PAGE 15

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
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5.5

The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 20Y2:

Cash	$240,000
Accounts receivable	966,000
Inventory	1,690,000
Estimated returns inventory	22,500
Office supplies	13,500
Prepaid insurance	8,000
Office equipment	830,000
Accumulated depreciation-office equipment	550,000
Store equipment	3,600,000
Accumulated depreciation-store equipment	1,820,000
Accounts payable	321,000
Salaries payable	41,500
Customer refunds payable	40,000
Estimated coupons payable	5,000
Note payable (final payment due in 6 years)	300,000
Common stock	500,000
Retained earnings	2,949,100
Dividends	100,000
Sales	11,343,000
Cost of goods sold	7,850,000
Sales salaries expense	916,000
Advertising expense	550,000
Depreciation expense-store equipment	140,000
Miscellaneous selling expense	38,000
Office salaries expense	650,000
Rent expense	94,000
Depreciation expense-office equipment	50,000
Insurance expense	48,000
Office supplies expense	28,100
Miscellaneous administrative expense	14,500
Interest expense	21,000
	Required:
1.	Prepare a multiple-step income statement.
2.	Prepare a statement of stockholders’ equity. Additional common stock of $75,000 was issued during the year ended May 31, 20Y2.
3.	Prepare a balance sheet, assuming that the current portion of the note payable is $50,000.
4.	Briefly explain how multiple-step and single-step income statements differ.

Labels and Amount Descriptions

Labels
Administrative expenses
Current assets
Current liabilities
For the Year Ended May 31, 20Y2
Long-term liabilities
May 31, 20Y2
Operating expenses
Other revenue and expense
Property, plant, and equipment
Selling expenses
Amount Descriptions
Balances, June 1, 20Y1
Balances, May 31, 20Y2
Book value-office equipment
Book value-store equipment
Dividends
Gross profit
Issued common stock
Net income
Net loss
Note payable (current portion)
Operating income
Total administrative expenses
Total assets
Total current assets
Total current liabilities
Total liabilities
Total liabilities and stockholders’ equity
Total operating expenses
Total property, plant, and equipment
Total selling expenses
Total stockholders’ equity

Income Statement

1. Prepare a multiple-step income statement.

Income Statement Instructions

Clairemont Co.

Income Statement


1
2
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Statement of Stockholders’ Equity

2. Prepare a statement of stockholders’ equity. Additional common stock of $75,000 was issued during the year ended May 31, 20Y2.

Statement of Stockholders’ Equity Instructions

Clairemont Co.

Statement of Stockholders’ Equity


1	Common Stock	Retained Earnings	Total
2
3
4
5
6

Balance Sheet

3. Prepare a balance sheet, assuming that the current portion of the note payable is $50,000.

Balance Sheet Instructions

Clairemont Co.

Balance Sheet


1	Assets
2
3
4
5
6
7
8
9
10
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12
13
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19	Liabilities
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30	Stockholders’ Equity
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Final Question

Briefly explain how multiple-step and single-step income statements differ.

Which type of income statement shows intermediate balances?

Multiple-step

Single-step