The balance sheet of Rybowiaks Building Supplies on June 30, Year 12, appears nearby. RYBOWIAKS BUILDING SUPPLIES

Question:

The balance sheet of Rybowiak’s Building Supplies on June 30, Year 12, appears nearby.

RYBOWIAK’S BUILDING SUPPLIES

Balance Sheet

June 30, Year 12

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,200

Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,250

Merchandise Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,150

Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000

Equipment—At Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $210,000

Less Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . (84,000)

Equipment—Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $126,000

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $266,000

Liabilities and Shareholders’ Equity

Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,100

Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250

Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,350

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000

Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,650

Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $226,650

Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . $266,000

The following transactions occurred during the month of July.

(1) Sold merchandise on account for a total selling price of $85,000.

(2) Purchased merchandise inventory on account from various suppliers for $46,300.

(3) Paid rent for the month of July of $11,750.

(4) Paid salaries to employees during July of $20,600.

(5) Collected accounts receivable of $34,150.

(6) Paid accounts payable of $38,950.

Information affecting adjusting entries at the end of July is as follows:

(7) The firm paid the premium on a one-year insurance policy on March 1, Year 12, with coverage beginning on that date. This is the only insurance policy in force on June 30, Year 12.

(8) The firm depreciates its equipment over a 10-year life. Estimated salvage value of the equipment is negligible.

(9) Employees earned salaries of $1,600 during the last two days of July but were not paid. These are the only unpaid salaries at the end of July.

(10) The note payable is a 90-day, 6% note issued on June 30, Year 12.

(11) Merchandise inventory on hand on July 31, Year 12, totals $77,950. The cost of goods sold for July equals merchandise inventory on June 30, Year 12, plus purchases of merchandise during July minus merchandise inventory on July 31, Year 12.

a. Prepare journal entries to reflect the transactions and other events during July. The firm classifies expenses by their nature (that is, insurance, depreciation). Revenues and expenses should appear in the Retained Earnings account but with an indication of the specific revenue or expense account debited or credited. Be sure to indicate whether each entry increases or decreases assets, liabilities, or shareholders’ equity.

b. Enter the amounts from the June 30, Year 12, balance sheet and the effects of the 11 items above in T-accounts.

c. Prepare an income statement for the month of July. Ignore income taxes.

d. Enter closing entries in the T-accounts from part b.

e. Prepare a comparative balance sheet as of June 30, and July 31, Year 12.

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