Case Study: Save-Mart

PRESENTATION BY

April Sherman
Crystal McNair
Linda Stevenson
Naveen Kumar

September 28, 2010

1
 Save-Mart

Case Overview
• Save-Mart was a retail store
•It’s Fiscal year ended February 28
•T- Accounts
•Journalizing and post Adjusting Entries
•Income and Retained Earnings Statement
•Balance Sheet

2
1. Set up T Accounts with the balances given above.
DEBIT BALANCES Save-Mart
Cash Accounts Receivable Merchandise Inventory Store Equipment
88,860 127,430 903,130 70,970
       
       

Supplies Inventory Prepaid Insurance Selling Expenses Sales Salaries

17,480 12,4307,125 10,880 47,140
     
       
       

Misc. General Exp. Sales Discount Interest Expenses Social Sec. Tax Exp.
18,930 3,340 7,100 3,400
       
       
       

CREDIT BALANCES

Accum. Dep. Equip. Notes Payable Accounts Payable Common Stock

  11,420   88,500   88,970   100,000
       
       
       

Retained Earnings Sales Revenue

  33,500   988,700
   
   
3
   
 Save-Mart
2. Journalize and post adjusting entries, adding other T accounts as necessary.
3. Supplies inventory, February 28, $3,877.
(purchases of supplies during the year were
1.Cost of merchandise Sold $604,783
debited to the Supplies Inventory account).
Cost of Goods Sold
Supplies Expenses
604,783 13,603
   
13,603
604,783  
 
Answer: Subtracted the current amount of
Answer: Debit to Cost of Goods Sold inventory from the beginning inventory.

Supplies Expenses 13,603

2. Store equipment had a useful life of seven years.
Supplies Inventory 13,603
(All equipment was less than seven years old.)
4. Expired insurance, $7,125.
Depreciation Exp. Insurance Expenses
10,139 7,125
   
10,139 7,125
   
Answer: Divide the total value of the equipment Answer: Subtracted insurance expense from prepaid insurance
by seven years.
Depreciation 10,139 Insurance Expenses 7,125
Prepaid Insurance 7,125
Accumulated Dep. 10,139
4
2. Journalize and post adjusting entries, adding other T accounts as necessary. Save-Mart
Cont.
5. The note payable was a an interest rate of 9 percent,

payable monthly. It had been outsanding throughout the year.

7. The statement sent by the bank, adjusted for checks
Interest Payable
  7,965 outstanding showed a balance of $88,110. The difference
   
  7,965 represented bank service charges.
 

Answer: Divide Total Notes Payable by nine percent. Bank Charges

750
Interest Payable 7,965
 
Interest Expenses 7,965 750
 

Answer: Subtract adjusted balance from current balance.

6. Sales salaris earned but not paid to employes $2,340.

Salaries Payable
  2,340 Bank Charges 750
   
  2,340 Cash 750
 

Salaries Payable 2,340

Salaries Expenses 2,340

5
 Save-Mart
All T Accounts with adjusting entries

Cash Accounts Receivable Merchandise Inventory Store Equipment

88,860 750 127,430 903,130 604,786 70,970
       
88,110 127,430 298,347 70,970
       

Supplies Inventory Prepaid Insurance Selling Expenses Sales Salaries

17,480 13,603 12,430 7,125 10,880 47,140
      2,340
3,877 5,305 10,880 49,480
       

Misc. General Exp. Sales Discount Interest Expenses Social Sec. Tax Exp.
18,930 3,340 7,100 3,400
    7,965  
18,930 3,340 15,065 3,400
       
6
 Save-Mart
All T Accounts with adjusting entries. cont.

Accum. Dep. Equip. Notes Payable Accounts Payable Common Stock

  11,420   88,500   88,970   100,000
  10,139            
  21,559   88,500   88,970   100,000
       

Retained Earnings Sales Revenue Cost of Goods Sold Depreciation Exp.

  33,500   988,700 604,783 10,139
           
  33,500   988,700 604,783 10,139
       

Supplies Expenses Insurance Expenses Interest Payable Salaries Payable

13,603 7,125   7,965   2,340
           
13,603 7,125   7,965   2,340
       

Bank Charges
750
 
750
 

7
 Save-Mart

3. Journalize and post closing entries.

Save-Mart
Adjusted Trial Balance Sheet
as of February 28, xxxx

Cash 88,110
Accounts Receivables 127,430
Merchandise Inventory 298,347
Store Equipments 70,970
Supplies Inventory 3,877
Prepaid Insurance 5,305
Selling Exps 10,880
Sales Salaries 49,480
Misc General Exps 18,930
Sales Discount 3,340
Interest Exps 15,065
Social Security Tax 3,400
Accumulated Depreciation 21,559
Notes Payables 88,500
Accounts Payables 88,970
Common Stock 100,000
Retained Earnings 33,500
Sales 988,700
Cost of Goods Sold 604,783
Depreciation 10,139
Supply Exps 13,603
Insurance Exps 7,125
Interest Payable 7,965
Salaries Payables 2,340
Bank Charges 750
1,331,534 1,331,534

8
 Save-Mart
4. Prepare an income statement for the year
and a balance sheet as of February 28.

Save-Mart
Income Statement
For Month Ended February 28, xxxx

Sales 988,700
Less: Discount 3,340
Net Sales 985,360

Cost of goods sold 604,783

Gross Margin 380,577

Operating Expenses
Selling Expense 10,880
Salaries Expense 49,480
Misc Expenses 18,930
Social Security Tax Expense 3,400
Depreciation 10,139
Supply Expense 13,603
Insurance Expense 7,125
Bank Charges 750

Total Expenses 114,307

Operating Income 266,270

Interest Expense 15,065  

9
 Save-Mart

Save-Mart: Statement of Retained Earnings

4. Prepare an income statement for the year Ending February 28, xxxx
and a balance sheet as of February 28.
Cont. Beginnig Retained Earnings 33,500
Net Income 251,205

Ending Retained Earnings 284,705

Save-Mart
Balance Sheet
As of February 28, xxxx

Assests Liabilities and Shareholder's Equity

Cash 88,110 Accounts Payables 88,970
Accounts Receivables 127,430 Notes payables 88,500
Merchandise Inventory 298,347 Interest Payables 7965
Supplies Inventory 3,877 Salaries Payables 2340
Prepaid Insurance 5,305
523,069 Total Liabilities 187,775
Fixed Assets
Store equipments 70970 Shareholder's Equity
Less: Accumulated
Depreciation 21559  
Net Equipment 49,411 Common stock 100,000
Retained Earnings 284705  
Shareholder's Equity 384,705

Total Assests 572,480 Total 572,480

10
 Save-Mart

Questions ?

11