ACCOUNTING
You are asked to answer all the questions in the proposed two cases.
This task assesses the following learning outcomes:
o Identify the steps in the accounting cycle
o Demonstrate understanding of the balance sheet and the accounting equation
o Apply acquired knowledge and skills to prepare an income statement and a statement of retained earnings.
CASE
Computer Empire sells computer peripherals. At December 31, 2018, the company's inventory amounted to $600,000. During the year 2019, the company made only one purchase and two sales. These transactions were as follows:
January 17. Purchased merchandise from Digital Masters. The price of the merchandise was 130.000, discount terms 3/10; n/60
February 15. Paid the accounts payable to Digital Masters.
March 25. Sold merchandise to Carrefour for $257.000 who paid cash. The cost of these items was $128.250
December 18.Sold equipment to Medical Association for $425.000. The cost of said equipment was $235.000, with discount terms 5/10; n/30. Said invoice was still unpaid at December 31, 2019
Instructions
• Prepare journal entries to record these transactions, assuming that Computer Empire uses a perpetual inventory system. Provide with a developed explanation of the different entries and a justification of the amounts recorded.
• Compute the ending balance in the Inventory account at the close of business on December 31. Explain your answer.
• Prepare the company's income statement for the year 2019 taking into account that the remaining expenses of the company during the whole year amounted to 83.500. Explain the different entries of the income statement and in particular the effects of the discount terms on the operations where applicable.
• Explain the main differences between the perpetual and periodic inventory system and record the transactions using a periodic inventory system.
• Prepare the company's trial balance at January 1, 2020 taking into account a Balance sheet at January 1, 2019 as follows:
|
Computer Empire
Balance Sheet
January 1, 2019
|
|
Cash
|
235.000
|
|
|
Inventory
|
600.000
|
|
|
Equipment
|
96.000
|
|
|
Accumulated depreciation Equipment
|
-96.000
|
|
|
Land
|
153.000
|
|
|
Building
|
95.000
|
|
|
Accumulated depreciation Building
|
-95.000
|
|
|
Capital
|
|
650.000
|
|
Retained earnings
|
|
338.000
|
|
Total
|
988.000
|
988000
|
Format your homework according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.