6-1 Problem Solution -- OverPriced Jeans, Inc. March Accounting Period General Journal
Date Mar 01 Account Cash - Big Bank Common Stock Issue additional common stock Mar 01 Note Payable - Little Bank Cash - Big Bank Pay-off Little Bank note Mar 01 Interest Payable - Little Bank Cash - Big Bank Pay February interest on Little Bank note Mar 01 Rent Expense Cash - Big Bank Pay March rent Mar 02 Cash - Big Bank Accounts Receivable Collect accounts receivable Mar 10 Cash - Little Bank Sales Revenue Cost of Goods Sold Inventory Sell inventory to customer for cash Mar 15 Wages Expense Cash - Little Bank Pay wages Mar 16 Inventory Accounts Payable Purchase inventory on credit Mar 17 Accounts Receivable Sales Revenue Cost of Goods Sold Inventory Sell inventory to customer on credit 27,000 27,000 120,000 120,000 70,000 70,000 26,000 26,000 12,000 12,000 65,000 65,000 75,000 75,000 3,000 3,000 200 200 35,000 35,000 Debit 55,000 55,000 Credit
Problem 6-1 Solution (continued)
General Journal
Date Mar 20 Account Accounts Receivable Cash - Little Bank Sales Revenue Cost of Goods Sold Inventory Sell inventory to customer for cash & credit Mar 22 Inventory Cash - Big Bank Purchase inventory for cash Mar 26 Accounts Payable Cash - Big Bank Pay cash to vendor on account Mar 30 Wages Expense Cash - Little Bank Pay wages Mar 31 Interest Expense Interest Payable - Big Bank Accrue March interest on Big Bank note 600 600 25,000 25,000 35,000 35,000 30,000 30,000 14,000 14,000 Debit 55,000 15,000 70,000 Credit
Mar 31
Sales Revenue Retained Earnings Close the revenue account
255,000 255,000
Mar 31
Retained Earnings Cost of Goods Sold Rent Expense Wages Expense Interest Expense Close the expense accounts
107,600 53,000 3,000 51,000 600
Problem 6-1 Solution (continued)
General Ledger
Assets
Cash Dr. Beg. Balance Mar 01 Mar 01 Mar 01 Mar 01 Mar 02 Mar 22 Mar 26 Ending Balance 102,800 75,000 30,000 35,000 Big Bank 76,000 55,000 35,000 200 3,000 Cr.
=
Liabilities
Accounts Dr. Beg. Balance Mar 16 Mar 26 Ending Balance 35,000 35,000 Payable Cr. 0 70,000
+
Owners' Equity
Common Dr. Beg. Balance Mar 01 Ending Balance Stock Cr. 50,000 55,000 105,000 Retained
Note Payable Dr. Beg. Balance Ending Balance Big Bank Cr. 75,000 75,000 Note Payable Dr. Beg. Balance 26,000 Mar 01 Ending Balance 25,000 35,000 0 Little Bank Cr. 35,000 Beg. Balance Mar 31 Mar 31 Ending Balance
Dr.
Earnings
Cr.
143,425 255,000 107,600 290,825
Cash Dr. Beg. Balance Mar 10 Mar 15 Mar 20 Mar 30 Ending Balance 43,000 Interest Payable Accounts Dr. Beg. Balance Mar 02 Mar 17 Mar 20 Ending Balance 120,000 55,000 245,000 Beg. Balance Mar 1 Dr. Beg. Balance Mar 10 Mar 16 Mar 17 Mar 20 Mar 22 Ending Balance 30,000 71,000 70,000 27,000 14,000 Inventory 24,000 12,000 Cr. Ending Balance 200 0 Dr. Interest Payable Little Bank Cr. 200 Receivable 145,000 75,000 Cr. Beg. Balance Mar 31 Ending Balance Dr. Big Bank Cr. 375 600 975 15,000 Little Bank 14,000 65,000 Cr.
Revenue and Expense Accounts are on the Page
Dr. Next Beg. Balance Ending Balance
Equipment 45,000 45,000
Cr.
Problem 6-1 Solution (continued)
Assets
Asset Accounts are on the Prior Page
=
Liabilities
Liability Accounts are on the Prior Page
+
Owners' Equity
Common Stock and Retained Earnings Accounts are on the Prior Page
Sales Dr. Beg. Balance Mar 10 Mar 17 Mar 20 Ending Balance Mar 31 After Close Bal Cost of Goods Dr. Beg. Balance Mar 10 Mar 17 Mar 20 Ending Balance Mar 31 After Close Bal 0 Rent Dr. Beg. Balance Mar 01 Ending Balance Mar 31 After Close Bal 0 Wages Dr. Beg. Balance Mar 15 Mar 30 Ending Balance Mar 31 After Close Bal 0 Interest Dr. Beg. Balance Mar 31 Ending Balance Mar 31 After Close Bal 0 Expense 0 600 600 600 Cr. Expense 0 26,000 25,000 51,000 51,000 Cr. Expense 0 3,000 3,000 3,000 Cr. Sold 0 12,000 27,000 14,000 53,000 53,000 Cr. 255,000 0 Revenue Cr. 0 65,000 120,000 70,000 255,000
Problem 6-1 Solution (continued)
Pre-Closing Trial Balance Account Name Cash - Big Bank Cash - Little Bank Accounts Receivable Inventory Equipment Accounts Payable Note Payable - Big Bank Note Payable - Little Bank Interest Payable - Big Bank Interest Payable - Little Bank Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Rent Expense Wages Expense Interest Expense Total 53,000 3,000 51,000 600 614,400 614,400 Debit 102,800 43,000 245,000 71,000 45,000 35,000 75,000 0 975 0 105,000 143,425 255,000 Credit
Problem 6-1 Solution (continued)
OverPriced Jeans, Inc. Income Statement for the Period March 1 to 31, 2011 Sales Revenue Cost of Goods Sold Gross Profit Expenses: Rent Expense Wages Expense Interest Expense Total Expenses Net Income (3,000) (51,000) (600) (54,600) $147,400 $255,000 (53,000) 202,000
Problem 6-1 Solution (continued)
Calculation of Retained Earnings as of March 31 for the Balance Sheet Retained Earnings March 1 Beg. Balance Plus March Net Income Retained Earnings as of March 31 for Bal Sht 143,425 147,400
290,825
Problem 6-1 Solution (continued)
OverPriced Jeans, Inc. Balance Sheet as of March 31, 2011 Assets: Cash - Big Bank Cash - Little Bank Accounts Receivable Inventory Equipment Total Assets Liabilities: Accounts Payable Note Payable - Big Bank Note Payable - Little Bank Interest Payable - Big Bank Interest Payable - Little Bank Total Liabilities Equity: Common Stock Retained Earnings Total Equity Total Liabilities and Equity
$102,800 43,000 245,000 71,000 45,000 $506,800
$35,000 75,000 0 975 0 110,975 105,000 290,825 395,825 $506,800
Problem 6-1 Solution (continued)
Post-Closing Trial Balance Account Name Cash - Big Bank Cash - Little Bank Accounts Receivable Inventory Equipment Accounts Payable Note Payable - Big Bank Note Payable - Little Bank Interest Payable - Big Bank Interest Payable - Little Bank Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Rent Expense Wages Expense Interest Expense Total 0 0 0 0 506,800 506,800 Debit 102,800 43,000 245,000 71,000 45,000 35,000 75,000 0 975 0 105,000 290,825 0 Credit