ACCT 325 MIDTERM NO.

1 REVIEW: JOURNALIZING TRANSACTIONS

The following transactions occurred during the month of June 2004 for the Stridewell Corporation. The
company owns and operates a retail shoe store.

1. Issued 100,000 shares of $1 par common stock in exchange for $500,000 cash.
2. Purchased furniture and fixtures at a cost of $100,000. $40,000 was paid in cash and a note payable was
signed for the balance owed.
3. Purchased inventory on account at a cost of $200,000. The company uses the perpetual inventory
system.
4. Credit sales for the month totaled $180,000. The cost of the goods sold was $90,000.
5. Paid $6,000 in rent on the store building for the month of June.
6. Paid $3,000 to an insurance company for fire and liability insurance for a one-year period
beginning June 1, 2004.
7. Paid $120,000 on account for the merchandise purchased in 3.
8. Collected $55,000 from customers on account.
9. Paid shareholders a cash dividend of $5,000.

Required:
Prepare journal entries to record each of the transactions listed above.

JE# Account Title and Explanation Debit Credit

1 Cash 500,000
Common stock 100,000
Paid-in capital in excess of par: common 400,000

2 Furnitures and fixtures 100,000

Cash 40,000
Notes payable 60,000

3 Inventory 200,000
Accounts payable 200,000

4 Accounts receivable 180,000

Cost of goods sold 90,000
Sales 180,000
Inventory 90,000

5 Rent expense 6,000

Cash 6,000

6 Prepaid insurance 3,000

Cash 3,000

7 Accounts payable 120,000

Cash 120,000

8 Cash 55,000
Accounts receivable 55,000

9 Retained earnings 5,000

Cash 5,000
ACCOUNTING 325: FIRST MID-TERM CH. 3 ADJUSTING JOURNAL ENTRY REVIEW PROBLEM
The following unadjusted trial balance was taken from the books of Fisk Corporation on December 31, 2004.

Account Debit Credit

Cash $12,000
Accounts Receivable 40,000
Allowance for Doubtful Accounts $100
Note Receivable 7,000
Merchandise Inventory 54,000
Unexpired Insurance 4,800
Furniture and Equipment 125,000
Accumulated Depreciation of F. & E. 15,000
Accounts Payable 11,290
Common Stock 45,000
Retained Earnings 65,000
Sales 300,000
Interest revenue 210
Cost of Goods Sold 131,000
Salaries Expense 50,000
Rent Expense 12,800 ______
Totals $436,600 $436,600

At year end, the following items have not yet been recorded.

a. Insurance expired during the year, $2,000.

b. Estimated bad debts, 1.5% of accounts receivable.
c. Depreciation on furniture and equipment, 10% per year.
d. Interest on the 9% receivable was last received on April 30, 2004.
e. Unexpired rent at December 31, 2004 is $5,400.
f. Accrued salaries at December 31, $5,800.
g. A physical inventory on December 31, 2004, indicated a cost of $52,400.
h. Income before income taxes was computed by the firm's CPA to be $79,030. The tax rate is 40%.

Instructions: Preparing adjusting entries.

Solution
JE Account Title and Explanation Debit Credit
a Insurance expense 2,000
Unexpired insurance 2,000

b Bad debts expense 500

Allowance for doubtfule accounts 500

c Depreciation expense 12,500

Accumulated depreciation 12,500

d Interest receivable 420

Interest revenue 420

e Prepaid rent 5,400

Rent expense 5,400
f Salaries expense 5,800
Salaries payable 5,800

g Inventory shortage 1,600

Inventory 1,600

h Income tax expense 31,612

Income taxes payable 31,612
ACCOUNTING 325: FIRST MID-TERM CH. 3 ADJUSTING JOURNAL ENTRY REVIEW PROBLEM
The December 31, 2004, adjusted trial balance for the Blueboy Cheese Corporation is presented
financial statements below.
Debit Credit
Cash 21,000
Accounts receivable 330,000
Allowance for uncollectible accounts 20,000
Prepaid rent 12,000
Inventory 91,000
Equipment 596,000
Accumulated depreciation 250,000
Accounts payable 30,000
Salaries payable 8,000
Dividends payable 10,000
Interest payable 2,000
Income taxes payable 39,000
Note payable (due 12-31-06) 60,000
Common stock (40,000 shares) 400,000
Retained earnings 100,000
Sales revenue 800,000
Extraordinary gains and losses, net of income taxes 72,000
Cost of goods sold 480,000
Salaries expense 120,000
Rent expense 30,000
Depreciation expense 60,000
Interest expense 4,000
Loss on sale of equipment 3,000
Bad debt expense 5,000
Income tax expense 39,000 ________
Totals 1,791,000 1,791,000

REQUIRED: Prepare the Blueboy's (a) multiple-step income statement and (b) statement of retained earnings.
Blueboy declared a $10,000 dividend during the year, that it will pay early next year.
 Blueboy Cheese Corporation
Income Statement
For the year ended December 31, 2004
Sales 800,000
Less: sales returns and allowances (5,000)
Net sales 795,000
Cost of goods sold 480,000
Gross profit 315,000
Selling and administrative expenses:
Salaries expense 115,000
Rent expense 30,000
Depreciation expense 60,000
Bad debt expense 5,000 210,000
Operating income 105,000
Miscellaneous items:
Interest expense 4,000
Loss on the sale of equipment 3,000 7,000
Income before income taxes 98,000
Income tax expense 39,000
Income before extraordinary item 59,000
Extraordinary gain, net of income taxes 72,000
Net income 131,000

Earnings per share

Income before extraordinary item $ 1.48
Extraordinary gain $ 1.80
Net income $ 3.28
 Blueboy Cheese Corporation
Statement of Shareholders' Equity
For the year ended December 31, 2004

Total
Common Retained Stockholders'
Description Stock Earnings Equity
$ 400,000 $ 110,000 $ 510,000
Net income 131,000 131,000
Dividends declared - (10,000) (10,000)
$ 400,000 $ 231,000 $ 631,000
 Blueboy Cheese Corporation
Balance Sheet
31-Dec-04
Assets
Current assets:
Cash 21,000
Accounts receivable 330,000
Allowance for uncollectible accounts 20,000 310,000
Prepaid rent 12,000
Inventory 91,000
Total current assets 434,000
Noncurrent assets:
Equipment 596,000
Accumulated depreciation 250,000 346,000
Total assets 780,000

Liabilities and Stockholders' Equity

Current Liabilities:
Accounts payable 30,000
Salaries payable 8,000
Dividends payable 10,000
Interest payable 2,000
Income taxes payable 39,000
Total current assets 89,000
Note payable (due 12-31-06) 60,000
Total liabilities 149,000
Stockholders' equity
Common stock 400,000
Retained earnings 231,000 631,000
Total liabilities and stockholders' equity 780,000
ACCOUNTING 325: FIRST MID-TERM CH. 3 CLOSING ENTRIES
From Blueboy's adjusted trial balance, prepare the year-end closing entries.

Date Account Title and Explanation Debit Credit

12/31/04 Sales revenue 800,000
Extraordinary gains and losses, net of income taxes 72,000
Income summary 872,000
To close revenue and gain acccounts.

12/31/04 Income summary 741,000

Cost of goods sold 480,000
Sales returns and allowances 5,000
Salaries expense 115,000
Rent expense 30,000
Depreciation expense 60,000
Interest expense 4,000
Loss on sale of equipment 3,000
Bad debt expense 5,000
Income tax expense 39,000
To close expense accounts.

12/31/04 Income summary 131,000

Retained earnings 131,000
To close income summary and transfer net income to retained earnings.