During February: Sold merchandise costing $162,400 to various customers for $62,900 cash and…


Question Description:

33

Regaldo Department Stores opened for business on February 1, 2008. Transactions and events during February 2008 were as follows. (1) February 1: Purchased display counters and computer equipment for $90,000. The firm borrowed $90,000 from a local bank to finance the purchases. The bank loan bears interest at a rate of 12% each year and is repayable with interest on February 1, 2009. (2) During February: Purchased merchandise on account totaling $217,900. (3) During February: Sold merchandise costing $162,400 to various customers for $62,900 cash and $194,600 on account. (4) During February: Paid to employees compensation totaling $32,400 for services rendered during the month. (5) During February: Paid utility (electric, water, gas) bills totaling $2,700 for services received during February 2008. (6) During February: Collected $84,600 from customers for sales on account (see transaction (3) above). (7) During February: Paid invoices from suppliers of merchandise (see transaction (2) above) with an original purchase price of $210,000 in time to receive a 2% discountfor prompt payment and $29,000 to other suppliers after the discount period hadelapsed. The firm treats discounts taken as a reduction in the acquisition cost ofmerchandise. (8) February 28: Compensation that employees earned during the last several days in February and that the firm will pay early in March 2008 totaled $6,700. (9) February 28: Utility services that the firm used during February and that the firm will not pay until March 2008 totaled $800. (10) February 28: The display counters and computer equipment purchased in transaction (1) have an expected useful life of five years and zero salvage value at the end of the five years. The firm depreciates such equipment on a straight-line basis over the expected life and uses an Accumulated Depreciation account. (11) February 28: The firm recognizes an appropriate portion of the prepaid rent as of January 31,2008. (12) February 28: The firm recognizes an appropriate portion of the prepaid insurance as of January 31, 2008. (13) February 28: The firm amortizes (that is, recognizes as an expense) the patent over 60 months. The firm does not use a separate Accumulated Amortization account for the patent. (14) February 28: The firm recognizes an appropriate amount of interest expense on the loan in transaction (1) above. (15) February 28: The firm is subject to an income tax rate of 30% of net income before income taxes. The income tax law requires firms to pay income taxes on the 15 th day of the month after the end of each quarter (that is, April 15, 2008, June 15, October 15, and January 15). a. Using T-accounts, enter the balances in balance sheet accounts on February 1, 2008, from Problem 34 and the effects of the 15 transactions above. b. Prepare an income statement for the month of February 2008. c. Prepare a comparative balance sheet as of January 31, 2008, and February 28, 2008.

Answer

33