CASE 4-1 PC Depot

PC Depot was a retail store for personal computers and hand-held calculators, selling
several national brands in each product line. The store was opened in early September
by Barbara Thompson, a young woman previously employed in direct computer sales
for a national firm specializing in business computers.
Thompson knew the importance of adequate records. One of her first decisions,
therefore, was to hire Chris Jarrard, a local accountant, to set up her bookkeeping
system.
Jarrard wrote up the store’s preopening financial transactions in journal form to
serve as an example (Exhibit 1). Thompson agreed to write up the remainder of the
store’s September financial transactions for Jarrard’s later review.

Entry Account Amount

Number Dr. Cr.
(1) Cash 65,000
Bank Loan Payable (15%) 100,000
Proprietor’s Capital 65,000
(2) Rent Expense (September) 1,485
Cash 1,485
(3) Merchandise Inventory 137,500
Account Payable 137,500
(4) Furniture and Fixtures (10-year life) 15,500
Cash 15,500
(5) Advertising Expense 1,320
Cash 1.320
(6) Wages Expense 935
Cash 935
(7) Office Supplies Expense 1,100
Cash 1,100
(8) Utilities Expense 275
Cash 275

At the end of September. Thompson had the following items to record:

Entry Account Amount

Number Cr.
(9) Cash sales for September $38,000
(10) Credit sales for September 14,850
(11) Cash received from credit customers 3,614
(12) Bills paid to merchandise supplier 96,195
(13) New merchandise received on credit from supplier 49,940
(14) Ms. Thompson ascertained the cost of merchandise sold was 38,140
(15) Wages paid to assistant 688
(16) Wages earned but unpaid at the end of September 440
(17) Rent paid for October 1,485
(18) Insurance bill paid for one year (September 1-August 31) 2,310
(19) Bills received, but unpaid, from electric company 226
(20) Purchased sign, paying $660 cash and agreeing to pay the
$1,100 balance by December 31 1,760
Questions
1. Explain the events that probably gave rise to journal entries 1 through 8 of
Exhibit 1.
2. Set up a ledger account (in T account form) for each account named in the
general journal. Post entries 1 through 8 to these accounts, using the entry
number as a crows-reference.
3. Analyze the facts listed as 9 through 20, resolving them into their debit and
credit elements. Prepare journal entries and post to the ledger accounts. (Do not
prepare closing entries.)
4. Consider any other transactions that should be recorded. Why are these adjusting
entries required? Prepare journal entries for them and post to ledger accounts.
5. Prepare closing entries and post to ledger accounts. What new ledger accounts
are required? Why?
6. Prepare an income statement for September and a balance sheet as of September
30.
 Answer of Case 4-1 PC Depot

Answer of No. 1
1. On September Barbara Thompson as owner of PC Depot invested $ 65.000 in
the business and the firm borrowed $ 100.000 from a bank on 15% note payable;
2. The firm paid $ 1.485 rent for September period;
3. Marchandise inventory was purchased on account $ 137.500;
4. Furniture and fixtures was purchased with cash $ 15.500. The expected life of
these was 10 years;
5. Advertising expense paid with cash $1.320;
6. Wages of employee paid by cash $ 935;
7. Office supplies purchased by cash $ 1.100;
8. Utilities expense (i.e water, telephone, electricity) paid with cash $ 275.
Answer of No. 3

Entry Amount ($)

Account
Number
Dr Cr
(9) Cash 38,000
Sales revenue on September 38,000
(10) Accounts receiveble 14,850
Sales revenue on September 14,850
(11) Cash 3,614
Accounts receiveble 3,614
(12) Accounts payable 96,195
Cash 96,195
(13) Marchandise inventory 49,940
Accounts payable 49,940
(14) Cost of marchandise sales 38,140
Marchandise inventory 38,140
(15) Wages expense 688
Cash 688
(16) Wages expense 440
Accrued wages payable 440
(17) Rent expense (October) 1485
Cash 1485
(18) Insurance expense (September) 192.5
Prepaid insurance 2117.5
Cash 2310
(19) Utilities expense (electricity) 226
Accrued utilities payable 226
(20) Sign 1760
Cash 660
Notes payable 1100

Answer of No. 4
For the case 4-1 “PC Depot” require for the adjusting entries due to adjust account
balances into actual balances as of the end of the period. The kind of transactions that
entered to adjusting entries are deferred revenues, accrued revenues, deferred expenses
and accrued expenses. For these case, the transaction that entered to journal adjusting
are rent expense, depreciation of furniture and fixtures, accrued wages expense, prepaid
insurance, accrued electricity expenses and accrued interest expense.
Journal Entries
Entry Amount ($)
Account
Number Dr Cr
(21) Rent expense 1,485
Prepaid rent 1,485
(22) Depreciation of furniture
and fixture expense 129.17
Accumulated depreciation 129.17
(23) Wages expense 440
Accrued wages 440
(24) Insurance expense 192.5
Prepaid insurance 192.5
(25) Electricity expense 226
Accrued electricity 226
(26) Interest expense 1,250
Accrued interest 1,250

TRIAL BALANCE of PC DEPOT

on September 30

Account Balance $
Debit Credit
Cash 84,661
Accounts receivable 11,236
Marchandise inventory 149,300
Sign 1,760
Prepaid Rent 1,485
Prepaid insurance 2117.5
Furniture and fixtures 15,500
Depreciation of furniture and fixtures 129.17
Accumulated depreciation 129.17
Accounts payable 92,345
Notes payable 100,000
Accrued wages payable 440
Accrued utilities (electricity) payable 226
Accrued interest 1,250
Proprietor's capital 65,000
Sales revenue 52,850
Cost of marchandise sales 38,140
Advertising expense 1,320
Wages expense 2,063
Utilities expense 501
Office supplies expense 1,100
Insurance expense 192.5
Rent expense 1,485
Interest expense 1,250
312,240.17 312,240.17
Answer of No. 5
Yes, we require new ledger accounts that is an income summary. After we close sales
revenue accounts and credit it into the income summary and also close expenses
accounts and debit them into it also. Total debit and total credit to income summary
should match with total revenue and total expense into income statement.

Income Summary
(B) 38,140 (A) 52,850
(C) 1,320
(D) 2,063
(E) 1,100
(F) 501
(G) 192.5
(H) 1,485
(I) 129.17
(J) 1,250
46,180.67 52,850
6,669.33

Answer of No. 6
INCOME STATEMENT
for The Month September

Sales revenue $ 52,850

Cost of marchandise sales $ 38,140
Gross Margin $ 14,710

Expenses:
Advertising expense $ 1,320
Wages expense 2,063
Utilities expense 501
Office supplies expense 1,100
Insurance expense 192.5
Rent expense 1,485
Interest expense 1,250
Depreciation of furniture and fixtures 129.17
Total Expenses $ 8,041
Net Income $ 6,669.33

BALANCE SHEET
 As of September, 30

Assets Liabilities
Cash $ 84,661 Accounts payable $ 92,345
Accounts receivable 11,236 Notes payable 100,000
Marchandise inventory 149,300 Accrued wages payable 440
Accrued utilities (electricity)
Sign 1,760 payable 226
Prepaid Rent 1,485 Accrued interest 1,250
Prepaid insurance 2117.5 Total Liabilities $ 194,261
Total Current Assets $ 250,559.50 Owner's Equity
Furniture and fixtures 15,500 Proprietor's capital $ 65,000
Accumulated depreciation 129.17 Retained earnings 6,669.33
Total Fix Assets $ 15,370.83 Total Owner's Equity $ 71,669.33
Total Assets $ 265,930.33 Total Liabilities & Owner's Equity $ 265,930.33