The post-closing trial balance
for Garza Auto Parts for December 31, 20x4 is given below:
Garza Auto Parts
Post-Closing Trial Balance
Dec 31, 20x4
Accounts Receivable 3,820
Allowance for Bad Debts - 0 -
Prepaid Rent - 0 -
Prepaid Insurance 640
Store Equipment 23,600
Accounts Payable 4,660
Short-term Notes Payable 16,000
Interest Payable (on the $16,000 note) 400
Salaries Payable 580
Unearned Revenue - 0 -Common Stock
($4 par) 1,000
Additional Paid in Capital 4,000
Retained Earnings ______ 8,530
1. During 20x5, the following transactions occurred. Prepare any necessary journal entries.
You will also post all journal entries to appropriate T-accounts. The post-closing trial
balance on the previous page lists the permanent (balance sheet) accounts which Garza
Auto Parts uses; you should set up T-accounts for the temporary accounts (e.g.,
revenues, expenses) and new accounts as needed.
DO NOT PREPARE MONTHLY ADJUSTING AND CLOSING ENTRIES; wait
until year-end to prepare these entries, unless otherwise directed in the transaction
description. Garza Auto Parts does not use reversing entries.
Jan 1 Sold store equipment for $9,000. The equipment originally cost $10,000 and had
a book value of $7,000. (Given this information, you should be able to derive the
accumulated depreciation on the equipment and determine the gain or loss on the
Ja 1 The company sold 1000 shares of common stock to the market. The par value was
$4 and market value of the stock was $10 per share.
Jan 5 Entered into a rental agreement with Cuellar, Inc. Garza paid $2,700 for an 18-
month lease of storage space. Garza debited a nominal (temporary) account at the
time of the transaction.
Jan 9 Purchased inventory on account for $26,500. Garza Auto Parts uses a periodic
system of inventory control. See Illustration 8-4 in your text for a discussion of
the periodic inventory system.
Jan 15 Paid salaries owed to employees at the end of 20x4.
Jan 21 Sold goods on account for $20,000. Made cash sales of $15,000.
Feb 19 Received payment of $16,000 from customers for previous sales made on
Feb 25 Paid $9,000 to vendors for previous purchases of inventory made on account.
Mar 8 Sold goods for $14,000 on account. Made cash sales of $11,000.
Mar 16 Credited customer accounts for $2,300 of merchandise returned.
Mar 31 Paid the remaining amounts owed to vendors for all goods and services purchased
on account. Hint: this amount should be $22,160.
April 1 Paid the $16,000 note and all interest accrued to date. The company had
borrowed the $16,000 on October 1, 20x4. Interest accrued on the note at rate of
April 1 Purchased additional store equipment for $12,000 (paid cash).
May 1 Borrowed $15,000 from the bank by issuing a 2 year note. Interest accrues on the
note at a rate of 10% annually. Interest is to be paid when the note is due.
May 16 Purchased inventory on account for $28,000.
June 13 Sold $16,000 worth of goods on account and made cash sales of $14,000.
June 30 Incurred and paid salaries and utilities expenses of $9,000 and $2,000,
July 8 Received payment of $23,000 from customers for previous sales made on
Aug 31 The prior insurance policy on Garza's operating assets expired on this date;
prepare a journal entry to record this event. Garza replaced this policy with a 12-
month policy by paying $12,000. Garza debited a permanent (real) account to
record the new policy.
Sept 17 Purchased supplies on account for $4,500. Garza debited a permanent account to
record the transaction.
Sept 30 Paid all amounts owed to vendors for inventory and supplies purchased on
Oct 8 Received $6,000 in advance for products to be shipped to customers by January
20, 20x6. Garza recognized this cash receipt by crediting a temporary account.
Nov 15 Sold $19,000 worth of goods to customers on account. Made cash sales of
Nov 24 The company declared and distributed cash dividends totaling $14,000 to its
shareholders. To record this transaction, they debited the Dividend account.
Dec 12 Received payment of $17,000 for previous sales made on account.
Dec 31 Incurred and paid salaries and utilities expenses of $8,000 and $1,250,
2. Based on (1) the previous transactions and (2) the following information, prepare and
post all necessary adjusting entries at year-end.
* A physical count revealed supplies on hand of $1,900 on December 31, 20x5.
* Depreciation on the store equipment is 10% per year (the equipment has an estimated life of 10
years). Salvage value on the equipment is zero. Record partial year depreciation on equipment
purchased during the year.
* All $6,000 worth of goods paid for in advance on Oct 8th were delivered to customers on
Jan 20, 20x6, as promised.
* Salaries and utilitie