Bayer Lamp Company

Trial Balance

December 31

Account Title Debits Credits

Cash $ 228,800

Accounts Receivable 193,200

Merchandise Inventory 222,000

Prepaid Insurance 11,600

Land 240,000

Building 440,000

Accumulated Depreciation – Building $ 132,000

Store Fixtures 222,400

Accumulated Depreciation – Store Fixtures 44,480

Accounts Payable 151,600

Common Stock 400,000

Retained Earnings, January 1 480,720

Sales 2,206,000

Sales Discounts 14,800

Sales Returns and Allowances 8,000

Interest Revenue 1,600

Cost of Goods Sold 1,209,200

Advertising Expense 48,000

Sales Salaries Expense 256,000

Office Salaries Expense 296,000

Delivery Expense 18,400

Interest Expense 8,000

Totals $ 3,416,400 $ 3,416,400

Problem 2 (perpetual) The following data are for Bayer Lamp Company:
 Depreciation expense on the store building is $8,800.
 Depreciation expense on the store fixtures is $22,240.
 Accrued sales salaries are $5,600.
  Insurance expired for the year is $10,000.
 Cost of merchandise inventory on hand December 31 is $221,000.
Prepare the following:
1. The required adjusting journal entries under the perpetual inventory method.
2. A multi-step income statement. The only administrative expenses are office
salaries and insurance. The building depreciation is on the store building.
3. A statement of retained earnings.
4. The required closing entries.

Adjusting Entries
General Journal Page 1
Dec. 31 Depreciation Expense 8,800
20x1
Accumulated Depreciation - Store Building 8,800
To record the depreciation expense acquired during
the period.

Depreciation Expense 22,240

 Accumulated Depreciation - Store Fixtures 22,240
To record the depreciation expense acquired during
the period.

Sales Salaries Expense 5,600

Sales Salaries Payable 5,600
To record accrued sales salaries.

Insurance Expense 10,000

Prepaid Insurance 10,000
To record the expired portion of the insurance.

We have a difference in inventory of $1,000 (222,000 unadjusted inventory – $221,000

physical count) that needs to be recorded. We want to reduce our inventory and
increase our expense account Cost of Goods Sold. The journal entry would be:
Cost of Goods Sold 1,000
Merchandise Inventory 1,000
To adjust inventory to match the physical count.

Bayer Lamp Company

Income Statement
For the month ended December 31, 20x1

Sales 2,206,000
Less: Sales discount 14,800
Sales returns and allowances 8,000 22,800
Net Sales 2,183,200
Less: Cost of Goods Sold 1,210,200
Gross Profit 973,000
Less: Administrative Expenses
Advertising Expense 48,000
Sales Salaries Expense 261,600
Office Salary Expense 296,000
Delivery Expense 18,400
Interest Expense 8,000
Depreciation Expense 31,040
Insurance Expense 10,000 673,040
Gross Profit 299,960
Add: Other Revenue
Interest Revenue 1,600
Net Income 301,560

Bayer Lamp Company

Closing Entries

Sales 2,206,000
Sales discount 14,800
Sales returns and allowances 8,000
Income Summary 2,183,200
To close nominal revenue accounts.

Income Summary 673,040

Advertising Expense 48,000
Sales Salaries Expense 261,600
Office Salary Expense 296,000
Delivery Expense 18,400
Interest Expense 8,000
Depreciation Expense 31,040
Insurance Expense 10,000
 To close nominal expense and cost of goods sold
accounts.

Income Summary 222,000

Merchandise inventory, beg. 222,000
To set up merchandise inventory beginning.

Merchandise Inventory, end 221,000

Income Summary 221,000
To set up merchandise inventory ending.

Income Summary 1,509,160

B Company, Capital 1,509,160