College Coasters is a San Antonio-based merchandiser specializing in logo-adorne
ID: 2517040 • Letter: C
Question
College Coasters is a San Antonio-based merchandiser specializing in logo-adorned drink coasters. The company reported the following balances in its unadjusted trial balance at December 1 Cash Accounts Receivable Inventory Prepaid Rent Equipment Accumulated Depreciation Accounts Payable Salaries and Wages Payable Income Taxes Pavable Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Rent Expense Salaries and Wages Expense Depreciation Expense Income Tax Expense Office Expenses $10,005 2,000 500 600 810 110 1,500 300 6,500 3,030 15,985 8,900 1,100 2,000 1,400 The company buys coasters from one supplier. All amounts in Accounts Payable on December 1 are owed to that supplier. The inventory o December 1, consisted of 1,000 coasters, all of which were purchased in a batch on July 10 at a unit cost of $0.50. College Coasters records its inventory using perpetual inventory accounts and the FIFO cost flow method During December, t he company entered into the following transactions. Some of these transactions are explained in greater detail below 1. Purchased 500 coasters on account from the regular supplier on 12/1 at a unit cost of $0.52, with terms of 2/10, n/30 2. Purchased 1,000 coasters on account from the regular supplier on 12/2 at a unit cost of S0.55, with terms of 2/10, n/30 3. Sold 2,000 coasters on account on 12/3 at a unit price of $0.90 4. Collected $1,000 from customers on account on 12/4 5. Paid the supplier $1,600 cash on account on 12/18 6. Paid employees $500 on 12/23, of which $300 related to work done in November and $200 was for wages up to December 22 7. Loaded 100 coasters on a cargo ship on 12/31 to be delivered to a customer in Hawaii. The sale was made FOB destination with terms of 2/10, n/30Explanation / Answer
Description Account Type 01-Dec Adjustment 31-Dec Comments Cash Asset 10,005 -1,100 8,905 Accounts Receivable Asset 2,000 800 2,800 A sale of $1800 was made on 4-Dec of which $1000 has been collected on 4-Dec. The remaining $800 is Accounts Receivable Inventory Asset 500 -170 330 280 represents net of 1500 purchased in december and 2100 sold in december. Refer Note 1 for details. Prepaid Rent Asset 600 -100 500 Rent Expense pertaining to Dec credited from prepaid rent and debited to expense Equipment Asset 810 - 810 Accumalated Depreciation Contra Asset 110 10 120 Depreciation on equipment for December at $ 10 credited Accounts Payable Liability 1,500 -590 910 Refer Note 3 Salaries & Wages Payable Liability 300 -200 100 Wages for Dec 21-31 is payable on jan 15. Hence credited here. Income Tax Payable Liability - 789 789 Income tax expense for the year $789 is unpaid. Hence credited Common Stock Equity 6,500 - 6,500 Retained Earnings Equity 3,030 - 3,030 Sales Revenue Revenue 15,985 1,800 17,785 Sale of 2000 coasters on 0.9 per unit is credited. The FOB destination sale on 31 December is not accounted for since the terms of revenue recognition are not met as of 31 Dec. Cost of Goods Sold Expense 8,900 980 9,880 Cost of goods sold is the value of coasters sold on3rd Dec($1035) and on 31st Dec($55). Refer Note 1 for details Rent Expense Expense 1,100 100 1,200 Rent Expense pertaining to Dec credited from prepaid rent and debited to expense Salaries & Wages Expense Expense 2,000 300 2,300 $100 Wages for Dec 21-31 debited to expense Depreciation Expense Expense 110 10 120 Depreciation on equipment for December at $ 10 debited to expense Income Tax Expense Expense - 789 789 Income tax expense for the year $789 Office Expense Expense 1,400 200 1,600 Office Expenses for December are Debited. Since this expense is on account, it is credited to accounts payable. Note 1 - Inventory Accounts Description Quantity Unit Price Value Comments Comments As at 1 December 1000 0.5 500 Opening Stock Purchase of Coasters on 1st December 500 0.52 260 Purchase Purchase of Coasters on 2nd December 1000 0.55 550 Purchase cost of coasters sold on 3rd December -2000 -1,035 Cost of Goods Sold 1000 from the 0.5 batch, 500 from 0.52 batch and 500 from the 0.55 batch as per FIFO accounting cost of coasters sold on 31st December 100 55 Since the Terms of this shipment is 'FOB Destination' it is not required to be accounted for until the goods reach the destination port which is after 31 Dec. Balance as at 31st December 600 0.55 330 Closing Stock Note 2 - Cash Account Description Amount Opening Balance 10,005 Add: Collection from customer of 4-Dec 1000 Less: Payment to supplier on $1600 -1600 Less: Payment to Employees -500 Closing Balance 8,905 Note 3 - Accounts Payable Description Amount Opening Balance 1,500 Add: Purchase of coasters on 1st December 260 Add: Purchase of coasters on 2nd December 550 Less: Payment to supplier 12/18 -1600 Since payment does not happen within 10 days no discount is application as per the 2/10, n/30 terms Add: Office Expenses payable 200 Closing Balance 910 Final Solution Income Statement 31-Dec Revenue Sales Revenue 17,785 Less: Expenses Cost of Goods Sold 9,880 Rent Expense 1,200 Salaries & Wages Expense 2,300 Depreciation Expense 120 Income Tax Expense 789 Office Expense 1,600 Net Income 1,896 Balance Sheet 31-Dec Assets Cash 8,905 Accounts Receivable 2,800 Inventory 330 Prepaid Rent 500 Equipment 810 Accumalated Depreciation -120 Total Assets 13,225 Liabilities Accounts Payable 910 Salaries & Wages Payable 100 Income Tax Payable 789 Total Liabilities 1799 Equity Common Stock 6,500 Retained Earnings 3,030 Add: Current Period Income - From Income Statement 1,896 Total Equity 11,426 Total Equity and Liabilitiies 13,225