Presented is information related to Hurley Co. for the month of January 2012. En

Question

Presented is information related to Hurley Co. for the month of January 2012.

Ending inventory per perpetual records $27,230
Ending inventory actually on hand 26,644
Cost of goods sold 222,470
Freight out 7,530
Insurance expense 12,350
Rent expense 29,230
Salary expense 64,890
Sales discounts 10,470
Sales returns and allowances 13,620
Sales 388,540

Instructions

(a) Prepare the necessary adjusting entry for inventory.

Description/Account Debit Credit



(b) Prepare the necessary closing entries. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)

Description/Account Debit Credit


(To close income statement accounts with credit balances.)








(To close income statement accounts with debit balances.)


(To close net income to capital.)

Explanation / Answer

(a) Prepare the necessary adjusting entry for inventory Dr COGS - Inventory shrinkage 600 Cr Inventory 600 (b) Prepare the necessary closing entries Dr Sales 350,000 Cr Income summary 327,000 Cr Sales returns and allowances 13,000 Cr Sales discounts 10,000 to close net sales to income summary Dr Income summary 318,600 Cr Cost of goods sold 218,600 Cr Salary expense 61,000 Cr Rent expense 20,000 Cr Insurance expense 12,000 Cr Freight out 7,000 to close costs and expenses to income summary (you can also close sales discounts and sales returns here, but if you do that, you don't get to see the net sales amount) Dr Income summary 8,400 Cr Retained earnings 8,400 to close net income to retained earnings

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