CASE 4-1 PC Depot

PC Depot was a retail store for personal computers and hand-held calculators, selling
several national brands in each product line. The store was opened in early September 
 by Barbara Thompson, a young woman previously employed in direct computer sales
for a national firm specialiing in business computers.
Thompson !new the importance of ade"uate records. #ne of her first decisions,
therefore, was to hire Chris $arrard, a local accountant, to set up her boo!!eeping
system.
$arrard wrote up the store%s preopening financial transactions in &ournal form to
serve as an e'ample ()'hibit *+. Thompson agreed to write up the remainder of the
store%s September financial transactions for $arrard%s later review.

)ntry ccount mount

 umber  Dr. Cr.
(*+ Cash 21,;;;
Ban! 5oan Payable (*16+ *;;,;;;
Proprietor%s Capital 21,;;;
(+ 7ent )'pense (September+ *,041
Cash *,041
(/+ 8erchandise 9nventory */3,1;;
ccount Payable */3,1;;
(0+ :urniture and :i'tures (*;-year life+ *1,1;;
Cash *1,1;;
(1+ dvertising )'pense *,/;
Cash *./;
(2+ <ages )'pense >/1
Cash >/1
(3+ #ffice Supplies )'pense *,*;;
Cash *,*;;
(4+ =tilities )'pense 31
Cash 31

t the end of September. Thompson had the following items to record?

)ntry ccount mount

 umber  Cr.
Cr.
(>+ Cash sales for September  @/4,;;;
(*;+ Credit sales for September    *0,41;
(**+ Cash received from credit customers /,2*0
(*+ Bills paid to merchandise supplier  >2,*>1
(*/+  ew merchandise received on credit from
from supplier  0>,>0;
(*0+ 8s. Thompson ascertained the cost of merchandise sold was /4,*0;
(*1+ <ages paid to assistant 244
(*2+ <ages earned but unpaid at the end of September  00;
(*3+ 7ent paid for #ctober  *,041
(*4+ 9nsurance bill paid for one year (September *-ugust /*+ ,/*;
(*>+ Bills received, but unpaid, from electric company 2
(;+ Purchased sign, paying @22; cash and agreeing to pay the
@*,*;; balance by December /* *,32;
Auestions
*. )'plain the events that probably gave rise to &ournal entries * through 4 of 
)'hibit *.
. Set up a ledger account (in T account form+ for each account named in the
general &ournal. Post entries * through 4 to these accounts, using the entry
number as a crows-reference.
/. nalye the facts listed as > through ;, resolving them into their debit and
credit elements. Prepare &ournal entries and post to the ledger accounts. (Do not
 prepare closing entries.+
0. Consider any other transactions that should be recorded. <hy are these ad&usting
entries re"uired Prepare &ournal entries for them and post to ledger accounts.
1. Prepare closing entries and post to ledger accounts. <hat new ledger accounts
are re"uired <hy
2. Prepare an income statement for September and a balance sheet as of September 
/;.
 Answer of Case 4-1 PC Depot

Answer of No. 1
*. #n September Barbara Thompson as owner of PC Depot invested @ 21.;;; in
the business and the firm borrowed @ *;;.;;; from a ban! on *16 note payable
. The firm paid @ *.041 rent for September period
/. 8archandise inventory was purchased on account @ */3.1;;
0. :urniture and fi'tures was purchased with cash @ *1.1;;. The e'pected life of 
these was *; years
1. dvertising e'pense paid with cash @*./;
2. <ages of employee paid by cash @ >/1
3. #ffice supplies purchased by cash @ *.*;;
4. =tilities e'pense (i.e water, telephone, electricity+ paid with cash @ 31.
Answer of No. 3

Entry Amount ($)

Account
Number
Dr Cr
(>+ Cash /4,;;;
Sales revenue on September /4,;;;
(*;+ ccounts receiveble *0,41;
Sales revenue on September *0,41;
(**+ Cash /,2*0
ccounts receiveble /,2*0
(*+ ccounts payable >2,*>1
Cash >2,*>1
(*/+ 8archandise inventory 0>,>0;
ccounts payable 0>,>0;
(*0+ Cost of marchandise sales /4,*0;
8archandise inventory /4,*0;
(*1+ <ages e'pense 244
Cash 244
(*2+ <ages e'pense 00;
ccrued wages payable 00;
(*3+ 7ent e'pense (#ctober+ *041
Cash *041
(*4+ 9nsurance e'pense (September+ *>.1
Prepaid insurance **3.1
Cash /*;
(*>+ =tilities e'pense (electricity+ 2
ccrued utilities payable 2
(;+ Sign *32;
Cash 22;
otes payable **;;

Answer of No. 4
:or the case 0-* PC DepotE re"uire for the ad&usting entries due to ad&ust account
 balances into actual balances as of the end of the period. The !ind of transactions that
entered to ad&usting entries are deferred revenues, accrued revenues, deferred e'penses
and accrued e'penses. :or these case, the transaction that entered to &ournal ad&usting
are rent e'pense, depreciation of furniture and fi'tures, accrued wages e'pense, prepaid
insurance, accrued electricity e'penses and accrued interest e'pense.
$ournal )ntries
Entry Amount ($)
Account
Number Dr Cr
(*+ 7ent e'pense *,041
Prepaid rent *,041
(+ Depreciation of furniture
and fi'ture e'pense *>.*3
ccumulated depreciation *>.*3
(/+ <ages e'pense 00;
ccrued wages 00;
(0+ 9nsurance e'pense *>.1
Prepaid insurance *>.1
(1+ )lectricity e'pense 2
ccrued electricity 2
(2+ 9nterest e'pense *,1;
ccrued interest *,1;

!"A# A#ANCE of PC DEP%

on September 3&

ccount Balance @
Debit Credit
Cash 40,22*
ccounts receivable **,/2
8archandise inventory *0>,/;;
Sign *,32;
Prepaid 7ent *,041
Prepaid insurance **3.1
:urniture and fi'tures *1,1;;
Depreciation of furniture and fi'tures *>.*3
ccumulated depreciation *>.*3
ccounts payable >,/01
 otes payable *;;,;;;
ccrued wages payable 00;
ccrued utilities (electricity+ payable 2
ccrued interest *,1;
ProprietorFs capital 21,;;;
Sales revenue 1,41;
Cost of marchandise sales /4,*0;
dvertising e'pense *,/;
<ages e'pense ,;2/
=tilities e'pense 1;*
#ffice supplies e'pense *,*;;
9nsurance e'pense *>.1
7ent e'pense *,041
9nterest e'pense *,1;
31''4&.1 31''4&.1
Answer of No. *
Ges, we re"uire new ledger accounts that is an income summary. fter we close sales
revenue accounts and credit it into the income summary and also close e'penses
accounts and debit them into it also. Total debit and total credit to income summary
should match with total revenue and total e'pense into income statement.

"ncome Summary
(B+ /4,*0; (+ 1,41;
(C+ *,/;
(D+ ,;2/
()+ *,*;;
(:+ 1;*
(H+ *>.1
(I+ *,041
(9+ *>.*3
($+ *,1;
02,*4;.23 1,41;
  +++,.33

nswer of o. 2
"NC%E SAEEN
for e ont September

Sa/es re0enue $ *'*&

Cost of marchandise sales @ /4,*0;
2ross arn @ *0,3*;

E5penses6
dvertising e'pense @ *,/;
<ages e'pense ,;2/
=tilities e'pense 1;*
#ffice supplies e'pense *,*;;
9nsurance e'pense *>.1
7ent e'pense *,041
9nterest e'pense *,1;
Depreciation of furniture and fi'tures *>.*3
ota/ E5penses @ 4,;0*
Net "ncome $ +++,.33

A#ANCE S7EE
 As of September 3&

Assets #ab/tes
Cash @ 40,22* ccounts payable @ >,/01
ccounts receivable **,/2 otes payable *;;,;;;
8archandise inventory *0>,/;; ccrued wages payable 00;
ccrued utilities (electricity+
Sign *,32;  payable 2
Prepaid 7ent *,041 ccrued interest *,1;
Prepaid insurance **3.1 ota/ #ab/tes $ 1,4'+1
ota/ Current Assets $ '*&**,.*& %wner8s E9uty
:urniture and fi'tures *1,1;; ProprietorFs capital @ 21,;;;
ccumulated depreciation *>.*3 7etained earnings 2,22>.//
ota/ :5 Assets $ 1*3&.3 ota/ %wner8s E9uty $ 1++,.33
ota/ Assets $ '+*,3&.33 ota/ #ab/tes ; %wner8s E9uty $ '+*,3&.33