Question

Selected balance sheet information for the Wolf Company at November 30, and December 31, 2021, is presented below. The company uses the perpetual inventory system and all sales to customers are made on credit.
Nov. 30 Dec. 31
Debits Credits Debits Credits
Accounts receivable 9,700 2,700
Prepaid insurance 4,700 7,200
Inventory 6,700 5,700
Accounts payable 11,700 14,700
Salaries payable 4,700 2,700

The following cash flow information also is available: Cash collected from credit customers, $77,000. Cash paid for insurance, $4,700. Cash paid to suppliers of inventory, $57,000 (the entire accounts payable amounts relate to inventory purchases). Cash paid to employees for salaries, $9,700.

Required:
a. Determine the following for the month of December:
b. Prepare summary journal entries to record the month’s sales and cost of those sales.

Answer 1

Answer:

A.

(i) 70,000

(ii) 61,000

(iii) 2200

(iv) 7700

Explanation:

To calculate the sales revenue we will add cash collected from customers and we will deduct the opening balance in the closing balance. To calculate the cost of goods sold we will add a decrease in inventory and an increase in account payable in the cash payment for purchases.

Requirement A:

SALES REVENUE

Closing Balance                                2700

Add:

Cash collected from customer       77,000

Less:

Opening balance                               (9700)

Sales revenue                               70,000

COST OF GOODS SOLD:

Cash payment for purchase                                  57000

Add:

Decrease in inventory (6700-5700)                   1000

Add:

Increase in account payable (14700-11700)           3000

Cost of goods sold                                           61,000

INSURANCE EXPENSES :

Insurance expenses = 4700 + 4700 - 7200

Insurance expenses = 2200

SALARIES AND WAGES EXPENSES :

Salaries and wages expenses = 2700+9700-4700

Salaries and wages expenses = 7700

Requirement B: JOURNAL ENTRIES

To record sales revenue

                                                      DEBIT       CREDIT

Income summary                          70,000

Sales revenue                                                70,000

To record the cost of sales

                                                          DEBIT    CREDIT

Cost of goods sold                          61,000  

Insurance expenses                         2200  

Salaries and wages expense          7700  

Income summary                                             70,900