Gloria Company engages in purchase and sale of ladies and men apparels. The company adopts perpetual inventory system and closes its account annually on 31 December. The following information was extracted from the adjusted trial balance as at 30 November 2023:
Debit Credit
Sales 5,800 1,230,800
Sales returns
Cost of goods sold 980,000
Cash 106,000
Accounts receivable 66,000
Inventory 278,000
Unearned revenue 10,750
Accounts payable 53,000
The following transactions occurred in December 2023:
2 Dec Gloria purchased 180 pairs of pants at $30 each from Victory Company on account.
8 Dec Gloria sold 100 pairs of pants bought on 2 Dec to Z Generation Company at a gross profit rate of 20%. Z Generation had paid in advance the total amount in November 2023.
10 Dec Gloria returned 20 pairs of pants bought on 2 Dec to Victory Company due to bad quality.
15 Dec Z Generation returned 10 pairs of pants purchased on 8 Dec to Gloria due to incorrect colour. Gloria agreed to pay back Z Generation within 14 days and recorded the amount due to Z Generation in Accounts payable.
21 Dec Gloria paid to Victory half of the outstanding amount regarding the purchase in December.
27 Dec Gloria settled in full the amount due to Z Generation.
30 Dec A customer, Casual Wear placed an order for 150 lady skirts at $100 each. Gloria received a cash deposit of $5,000 from Casual Wear and will deliver them to Casual Wear in early January 2024.
31 Dec Gloria conducted a physical count of inventory and revealed $279,950 inventory was on hand.
Required:
(a) Prepare journal entries for Gloria for the above transactions in December 2023. If an item does not require an entry, state "No entry". Explanation is not required. (20 marks)
(b) Prepare the partial Income Statement of Gloria Company showing the gross profit for the year ended 31 December 2023 with the captions of Sales, Net Sales and Gross Profit. (10 marks)
Part II (5 marks)
Evergreen Inc. adopts periodic inventory system. At the year end of 31 December 2023, the accounting records include the following information:
Inventory, 31 December 2023 $40,000
Inventory, 31 December 2022 $38,000
Purchases $480,000
Sales $630,000
Required:
Prepare two closing entries to (1) create the Cost of Goods Sold account and (2) update the Inventory account. (5 marks)
