Merchandising Operations and the Accounting Cycle - Pearson

2. The note payable signed on May 26 requires Salimi to pay $90 interest expense.
Was the decision to borrow funds to take advantage of the cash discount wise or
unwise? Support your answer by comparing the discount to the interest paid.
Problem 5-4A Preparing a merchandiser’s work sheet under the perpetual inventory system
(Obj. 3)
The trial balance of Monica’s Jewellery Ltd. pertains to December 31, 2004.
MONICA’S JEWELLERY LTD.
Trial Balance
December 31, 2004
Cash..................................................................... $ 2,540
Accounts receivable.......................................... 8,860
Inventory............................................................ 147,800
Prepaid rent ....................................................... 8,800
Jewellery-making equipment.......................... 44,200
Accumulated amortization.............................. $ 16,760
Accounts payable.............................................. 12,580
Salary payable ...................................................
Interest payable .................................................
Note payable, long-term .................................. 36,000
Common stock................................................... 40,000
Retained earnings ............................................. 71,840
Dividends........................................................... 79,100
Sales revenue ..................................................... 340,300
Cost of goods sold............................................. 135,740
Advertising expense......................................... 9,020
Amortization expense ......................................
Insurance expense............................................. 5,540
Interest expense................................................. 3,320
Rent expense...................................................... 15,400
Salary expense ................................................... 49,400
Utilities expense ................................................ 7,760
Total..................................................................... $517,480 $517,480
Additional data at December 31, 2004:
a. Rent expense for the year, $20,400.
b. Jewellery-making equipment has an estimated useful life of ten years and is expected
to have no value when it is retired from service.
c. Accrued salaries at December 31, $1,800.
d. Accrued interest expense at December 31, $720.
e. Inventory based on the inventory count on December 31, $146,400.
Required
Complete Monica’s Jewellery Ltd.’s work sheet for the year ended December 31, 2004.
Problem 5-5A Journalizing the adjusting and closing entries of a merchandising business
under the perpetual inventory system (Obj. 3)
Refer to the data in Problem 5-4A.
Required
1. Journalize the adjusting and closing entries.
2. Determine the December 31, 2004, balance of Retained Earnings for Monica’s
Jewellery Ltd.
Chapter Five Merchandising Operations and the Accounting Cycle 265