Question

Nix’It Company’s ledger on July 31, its fiscal year-end, includes the following selected accounts that have normal balances (Nix’It uses the perpetual inventory system). Merchandise inventory $ 44,800 Sales returns and allowances $ 5,100 Retained earnings 129,300 Cost of goods sold 109,200 Dividends 7,000 Depreciation expense 11,700 Sales 161,600 Salaries expense 39,500 Sales discounts 4,300 Miscellaneous expenses 5,000 A physical count of its July 31 year-end inventory discloses that the cost of the merchandise inventory still available is $42,950.Prepare journal entries to close the balances in temporary revenue and expense accounts. Remember to consider the entry for shrinkage.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Sales Dr, $161,600

          To Income summary $161,600

(Being To close a temporary account with credit balances is recorded)

2. Income summary Dr, $176,650

      To Sales discount $4,300

       To Sales return and allowance $5,100

        To Cost of good sold $111,050

        To Depreciation expenses $11,700

        To Salaries expenses $39,500

        To Miscellaneous expenses $5,000

(Being to close a temporary account with a debit balance is recorded)

Working note:-

shrinkage based on physical count = $44,800 - $42,950

= $1,850

Cost of good sold = $109,200 + $1,850

= $111,050