PR 6-10A Periodic inventory accounts, multiple-step income statement, closing entries
On July 31, 2012, the balances of the accounts appearing in the ledger of Sagebrush Company are as follows:
| Cash | $ 18,300 | Sales Discounts | $ 8,000 |
| Accounts Receivable | 72,000 | Purchases | 700,000 |
| Merchandise Inventory, | Purchases Returns and Allowances | 6,000 | |
| August 1, 2011 | 90,000 | Purchases Discounts | 4,000 |
| Office Supplies | 3,000 | Freight In | 30,000 |
| Prepaid Insurance | 4,500 | Sales Salaries Expense | 300,000 |
| Land | 300,000 | Advertising Expense | 55,000 |
| Store Equipment | 270,000 | Delivery Expense | 9,000 |
| Accumulated Depreciation— | Depreciation Expense— | ||
| Store Equipment | 55,900 | Store Equipment | 6,000 |
| Office Equipment | 78,500 | Miscellaneous Selling Expense | 10,000 |
| Accumulated Depreciation— | Office Salaries Expense | 150,000 | |
| Office Equipment | 16,000 | Rent Expense | 30,000 |
| Accounts Payable | 27,800 | Insurance Expense | 3,000 |
| Salaries Payable | 3,000 | Office Supplies Expense | 2,000 |
| Unearned Rent | 8,300 | Depreciation Expense— | |
| Notes Payable | 50,000 | Office Equipment | 1,500 |
| Peter Richards, Capital | 355,300 | Miscellaneous Administrative Expense | 3,500 |
| Peter Richards, Drawing | 35,000 | Rent Revenue | 7,000 |
| Sales | 1,660,000 | Interest Expense | 2,000 |
| Sales Returns and Allowances | 12,000 |
Instructions
1. Does Sagebrush Company use a periodic or perpetual inventory system? Explain.
2. Prepare a multiple-step income statement for Sagebrush Company for the year ended
July 31, 2012. The merchandise inventory as of July 31, 2012, was $80,000.
3. Prepare the closing entries for Sagebrush Company as of July 31, 2012.
4. What would be the net income if the perpetual inventory system had been used?
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