Question

Novak Corp. had the following account balances at year-end: Cost of Goods Sold $61,200; Inventory $14,550; Operating Expenses $29,960; Sales Revenue $120,310; Sales Discounts $1,080; and Sales Returns and Allowances $1,750. A physical count of inventory determines that merchandise inventory on hand is $12,180.
Prepare the adjusting entry necessary as a result of the physical count. prepare closing entries???

Answer 1

1. The preparation of the adjusting journal entry as a result of the physical count for Novak Corp. at the year-end is as follows:

Adjusting Journal Entry:

Debit Cost of goods sold $2,370

Credit Inventory $2,370

• To adjust the ending inventory value based on the physical count.

2. The preparation of the closing journal entries for Novak Corp. is as follows:

Closing Journal Entries:

Debit Income Summary $93,530

Credit Cost of goods sold $63,570 ($61,200 + $2,370)

Credit Operating Expenses $29,960

• To close the adjusted cost of goods sold and operating expenses to the income summary.

Debit Net Revenue $117,480

Credit Income Summary $117,480

• To close the net revenue to the income summary.

Debit Income Summary $23,950

Credit Retained Earnings $23,950

• To close the income summary to the retained earnings.

What are the closing entries?

The closing entries are used to close the temporary accounts to the income summary in order to determine the net income or loss. The closing entries include the following four journal entries:

• Closing revenues to income summary
• Closing expenses to income summary
• Closing income summary to retained earnings
• Closing dividends to retained earnings.

Data and Adjustment Analysis:

Cost of Goods Sold $61,200

Inventory $14,550

Operating Expenses $29,960

Sales Revenue $120,310

Sales Discounts $1,080

Sales Returns and Allowances $1,750

Physical count of inventory = $12,180

Overstatement of ending inventory based on physical count = $2,370 ($14,550 - $12,180).

Net Sales Revenue = $117,480 ($120,310 - $1,080 - $1,750)

Adjustment:

Cost of goods sold $2,370 Inventory $2,370

Closing Entries:

Income Summary $93,530 Cost of goods sold $63,570 ($61,200 + $2,370) Operating Expenses $29,960

Net Revenue $117,480 Income Summary $117,480

Income Summary $23,950 Retained Earnings $23,950

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