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Perpetual Inventory System: Extreme Adventures

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Extreme Adventures has the following account balances on July 31, 2010:
Accounts Payable..............................................................$10,800
Accounts Receivable..........................................................11,600
Accumulated Amortization-Furniture............................32,300
Cash........................................................................................4,200
Cost of Goods Sold............................................................343,500
E.Buono, Capital................................................................201,000
E.Buono, Withdrawals.......................................................46,000
Equipment............................................................................90,000
Interest Earned......................................................................2,000
Inventory..............................................................................71,500
Operating Expenses..........................................................177,500
Sales Discounts.......................................................................5,150
Sales Returns and Allowances...........................................16,450
Sales Revenue.....................................................................522,600
Supplies....................................................................................7,300
Unearned Sales Revenue.........................................................4,500

Note: For simplicity, all operating expenses have been summarized in the account Operating Expenses.

Additional data at July 31,2010:
a) A physical count of items showed $1,500 of supplies on hand.
b) An inventory count showed inventory on hand at July 31, 2010, of $68,400.
c) The equipment has an estimated useful life of eight years and is expected to have no value at the end of its life.
d) Unearned sales revenue of $2,800 was earned by July 31,2010.

Required:
1. Record all adjustments and closing entries that would be required on July 31,2010.
2. Prepare the financial statements of Extreme Adventures for the year ended July 31,2010.

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Solution Summary

The attached MS Excel spreadsheet contains a detailed examination of the financial effects of changes in a company's perpetual inventory system. Beginning with unadjusted trial balance sheet, the exercise continues through the creation of GAAP approved financial statements, and then utilizes the statements (along with appropriate adjustments) to determine the ending inventory accounts of the Extreme Adventures Company.

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