Reference no: EM132570890

Question - The Board Shop, owned by Andrew John, sells skateboards in the summer and snowboards in the winter. The shop has an August 31 fiscal year end, and uses a perpetual inventory system and the earnings approach. On August 1, 2021, the company had the following balances in its general ledger:

Cash $21,385

A. John, drawings $52,800

Merchandise inventory 64,125

Sales 485,500

Supplies 3,750

Rent revenue 1,200

Equipment 70,800

Sales returns and allowances 11,420

Accumulated depreciation-equipment 13,275

Cost of goods sold 301,010

Accounts payable 12,650

Salaries expense 68,200

Unearned revenue 4,680

Rent expense 18,150

Notes payable 42,000

Insurance expense 4,140

A. John, capital 58,400

Interest expense 1,925

During August, the last month of the fiscal year, the company had the following transactions:

Aug. 1 Paid $1,650 for August's rent.

Aug. 2 Paid $6,500 of the amount included in Accounts Payable.

Aug. 4 Sold merchandise costing $7,900 for $12,260 cash.

Aug. 5 Purchased merchandise on account from Orange Line Co., n/30, FOB shipping point, for $24,500.

Aug. 5 Paid freight charges of $500 on merchandise purchased from Orange Line Co.

Aug. 8 Purchased supplies on account for $345.

Aug. 9 Refunded a customer $425 cash for returned merchandise. The merchandise had cost $265 and was returned to inventory.

Aug. 10 Sold merchandise on account to Spider Company for $15,750, terms 2/10, n/30, FOB shipping point. The merchandise had a cost of $9,765.

Aug. 11 Paid Orange Line Co. for half of the merchandise purchased on August 5.

Aug. 12 Spider Company returned $750 of the merchandise it purchased. Board Shop issued Spider a credit to its account. The merchandise had a cost of $465 and was returned to inventory.

Aug. 15 Paid salaries, $3,100.

Aug. 19 Spider Company paid the amount owing.

Aug. 21 Purchased $9,900 of merchandise from Rainbow Option Co. on account, terms 2/10, n/30, FOB destination.

Aug. 23 Returned $800 of the merchandise to Rainbow Option Co. and received a credit on the account.

Aug. 24 Received $525 cash in advance from customers for merchandise to be delivered in September.

Aug. 30 Paid salaries, $3,100.

Aug. 30 Paid Rainbow Option Co. the amount owing.

Aug. 31 Andrew John withdrew $4,800 cash.

Adjustment and additional data:

1. A count of supplies on August 31 shows $755 on hand.

2. The equipment has an estimated eight-year useful life. Remember that adjusting entries are done annually, not monthly.

3. Of the notes payable, $6,000 must be paid on September 1 each year.

4. An analysis of the Unearned Revenue account shows that $3,750 has been earned by August 31. A corresponding entry of $2,325 for Cost of Goods Sold will also need to be recorded for these sales.

5. Interest accrued on the note payable to August 31 was $175.

6. A count of the merchandise inventory on August 31 shows $76,560 of inventory on hand.

Instructions -

a. General ledger account for each of the above accounts and enter the August 1 balances.

b. Record and post the August transactions. Update the balances in the general ledger accounts.

c. Trial balance at August 31, 2021.

d. Record and post the adjustments required at August 31, 2021, and update the account balances as required.

e. Adjusted trial balance at August 31, 2021.

f. Multiple-step income statement, statement of owner's equity, and classified balance sheet. Remember that the owner made no capital contributions in the year.

g. Record and post closing entries.

h. Post-closing trial balance at August 31, 2021.