Approach

This is a straightforward problem in making adjusting and closing entries. Students may raise the
possibility of recording social security taxes on accrued sales salaries; this has not been done in the
accompanying solution.

Questions 1-4
The journal entries and accounts for Questions 1-3 are as indicated on the worksheet that follows.
(Because only one entry per account is involved, to save space we have used a worksheet here, even
though the students were asked to use T-accounts.) The financial statements for Question 4 are shown
below.
SAVE-MART COMPANY
Balance Sheet as of February 28

Assets
Current assets:....................................................................................................................................................................
Cash...............................................................................................................................................................................
$ 88,110
Accounts receivable.......................................................................................................................................................
127,430
Merchandise inventory..................................................................................................................................................
298,347
Supplies inventory.........................................................................................................................................................
3,877
Prepaid insurance...........................................................................................................................................................
5,305
Toted current assets...................................................................................................................................................
523,069
Plant and Equipment:..........................................................................................................................................................
Store equipment.............................................................................................................................................................
$ 70,970
Less: Accumulated depreciation....................................................................................................................................
( 21,559)
49,411
Total assets..........................................................................................................................................................................
$572,480
Equities
Liabilities
Accounts payable...........................................................................................................................................................
$ 88,970
Notes and wages payable...............................................................................................................................................
90,840
Interest payable..............................................................................................................................................................
865
Total liabilities..........................................................................................................................................................
180,675
Stockholders equity:..........................................................................................................................................................
Common stock
$100,000
Retained earnings
291,805
391,805
Total equities......................................................................................................................................................................
$572,480

SAVE-MART COMPANY
Income Statement for the Year Ended February 28
Gross sales..........................................................................................................................................................................
$988,700
Less: Sales discount
3,340
Net sales.............................................................................................................................................................................
985,360
Less: Cost of goods sold.....................................................................................................................................................
604,783
Gross margin......................................................................................................................................................................
380,577
Less: Expenses
Selling expense..............................................................................................................................................................
$10,880
Sales salaries..................................................................................................................................................................
49,480
Miscellaneous general expense......................................................................................................................................
18,930
Interest Expense.............................................................................................................................................................
7,965
Social security tax expense............................................................................................................................................
3,400
Depreciation expense....................................................................................................................................................
10,139
Supplies used.................................................................................................................................................................
13,603
Insurance expenses........................................................................................................................................................
7,125
Bank services charges....................................................................................................................................................
750
Total expenses...........................................................................................................................................................
122,272
Net income.........................................................................................................................................................................
$258,305

SAVE-MART
Worksheet

Balances
Adjusted
February 28
Adjustments
Balances
dr.
cr.
dr.
cr.
dr.
cr.
Cash....................................................................................................................................................................................
88,860
(7)
750
88,110
Accounts receivable............................................................................................................................................................
127,430
127,430
Merchandise inventory.......................................................................................................................................................
903,130
(1)
604,783
298,347
Store equipment..................................................................................................................................................................
70,970
70,970
Supplies inventory..............................................................................................................................................................
17,480
(3)
13,603
3,877
Prepaid insurance................................................................................................................................................................
12,430
(4)
7,125
5,305
Accumulated
11,420
(2)
10,139
21,559
depreciation........................................................................................................................................................................
Accounts payable
88,970
88,970
Notes and wages
88,500
(6)
2,340
90,840
payable...............................................................................................................................................................................
Interest payable...................................................................................................................................................................
(5)
865
865
Common stock....................................................................................................................................................................
100,000
100,000
Retained earnings...............................................................................................................................................................
33,500
_______
33,500
594,039
335,734
Sales...................................................................................................................................................................................
988,700
988,700
Sales discounts...................................................................................................................................................................
3,340
3,340
Selling expense..................................................................................................................................................................
10,880
10,880
Sales salaries.......................................................................................................................................................................
47,140
(6) 2,340
49,480
Miscellaneous general
expense............................................................................................................................................................................
18,930
18,930
Interest expense..................................................................................................................................................................
7,100
(5)
865
7,965
Social security tax...............................................................................................................................................................
3,400
3,400
Bank service charges..........................................................................................................................................................
(7)
750
750

Cost of goods sold..............................................................................................................................................................

(1)
604,783
604,783

Depreciation.......................................................................................................................................................................
(2)
10,139
10,139

Supplies expense................................................................................................................................................................
(3)
13,603
13,603
Insurance expense..............................................................................................................................................................
________ ________ (4)
7,125
_______
7,125 ________
1,311,090

1,311,090

639,605

639,605

1,324,434

1,324,434

Case 4- 3: Copies Express

Note: This case is updated from the Eleventh Edition.
Approach
This is a straightforward complete cycle accounting problem. The transactions and financial
statements follow.
Some students may develop a cost of sales amount, including wages, supplies, and perhaps some
other items. Actually, the case data are not complete enough to know which of Copies Express
expenses are analogous to cost of goods sold for a manufacturing firm, and which are definitely
period expenses (e.g., a portion of utilities). These students efforts should not be discouraged at this
point, as they are making good efforts to incorporate important concepts despite the limitations in the
data presented. Rather, the students efforts can be used to raise the question of whether it would be
useful for Copies Express to have a gross margin figure, assuming one could be developed with some
elaboration of the chart of accounts.

(1)
(2)

(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)

Journal Entries
Cash........................................................................................................................................................................
176,450
Sales....................................................................................................................................................................
176,450
Accounts Receivable...............................................................................................................................................
64,750
Sales....................................................................................................................................................................
64,750
Cash........................................................................................................................................................................
64,750
Accounts Receivable...........................................................................................................................................
64,750
Wages and Salaries (expense).................................................................................................................................
85,750
Cash....................................................................................................................................................................
85,750
Heat, Light, and Power (expense)...........................................................................................................................
15,000
Cash....................................................................................................................................................................
15,000
Supplies Inventory .................................................................................................................................................
52,600
Cash....................................................................................................................................................................
52,600
Selling and Administration (expense).....................................................................................................................
28,375
Cash....................................................................................................................................................................
28,375
Interest Expense......................................................................................................................................................
2,880
Cash....................................................................................................................................................................
2,880
Bank Loan...............................................................................................................................................................
12,000
Cash....................................................................................................................................................................
12,000
Accounts Payable....................................................................................................................................................
10,400
Cash....................................................................................................................................................................
10,400
Supplies Inventory..................................................................................................................................................
9,875
Accounts Payable................................................................................................................................................
9,875
Depreciation Expense.............................................................................................................................................
15,000
Accumulated Depreciation..................................................................................................................................
15,000
Accounts Receivable...............................................................................................................................................
11,000
Sales....................................................................................................................................................................
11,000
Cost of Supplies Used.............................................................................................................................................
60,250
Supplies Inventory..............................................................................................................................................
60,250
Tax Expense............................................................................................................................................................
11,593
Taxes Payable.....................................................................................................................................................
11,593
At this point, the above entries can be posted, and temporary accounts closed to
Income Summary. The final entry closes Income Summary to Retained Earnings
Income Summary....................................................................................................................................................
33,352
Retained Earnings...............................................................................................................................................
33,352

COPIES EXPRESS
Income Statement
For the Year Ended December 31, 2006
Sales...................................................................................................................................................................................
$252,200
Operating expenses:............................................................................................................................................................
Cost of supplies used.....................................................................................................................................................
$60,250
Wages and salaries.........................................................................................................................................................
85,750
Heat, light, and power...................................................................................................................................................
15,000
Selling and administration.............................................................................................................................................
28,375
Depreciation...................................................................................................................................................................
15,000
Total..........................................................................................................................................................................
204,375
Operating income...............................................................................................................................................................
47,825
Interest expense..................................................................................................................................................................
2,880
Income before taxes............................................................................................................................................................
44,945
Federal income taxes..........................................................................................................................................................
11,593
Net income.....................................................................................................................................................................
$ 33,352
COPIES EXPRESS
Balance Sheet as of December 31, 2006

Assets

Current assets.....................................................................................................................................................................
Cash (2,000 + 241,200 - 207,005).................................................................................................................................
$ 36,195
Accounts receivable.......................................................................................................................................................
11,000
Supplies inventory (24,400 + 52,600 + 9,875 - 60,250)................................................................................................
26,625
Total..........................................................................................................................................................................
$ 73,820
Property, plant and equipment............................................................................................................................................
Building and equipment................................................................................................................................................
$300,000
Less: Accumulated depreciation....................................................................................................................................
15,000
285,000
Land...............................................................................................................................................................................
12,000
Total Assets...............................................................................................................................................................
297,000
$370,820