On April 30, 2008, the balances of the accounts appearing in the ledger of Headwinds Company are as follows:

Cash

$ 18,300

Sales Discounts

$ 9,375

Accounts Receivable

72,125

Purchases

536,500

Merchandise Inventory, May 1, 2007

87,725

Purchases Returns and Allowances

6,000

Office Supplies

3,025

Purchases Discounts

4,500

Prepaid Insurance

4,500

Transportation In

10,900

Land

35,000

Sales Salaries Expense

156,250

Store Equipment

170,775

Advertising Expense

55,000

Accumulated Depreciation—

 

Delivery Expense

9,000

Store Equipment

55,900

Depreciation Expense—

 

Office Equipment

78,500

Store Equipment

5,900

Accumulated Depreciation—

 

Miscellaneous Selling Expense

10,700

Office Equipment

16,250

Office Salaries Expense

100,000

Accounts Payable

27,825

Rent Expense

31,250

Salaries Payable

2,950

Insurance Expense

3,000

Unearned Rent

8,300

Office Supplies Expense

2,300

Notes Payable

12,500

Depreciation Expense—

 

Kasey Kurtz, Capital

190,050

Office Equipment

1,500

Kasey Kurtz, Drawing

18,750

Miscellaneous Administrative Expense

5,850

Sales

1,106,450

Rent Revenue

6,250

Sales Returns and Allowances

10,000

Interest Expense

750

Instructions

1. Does Headwinds Company use a periodic or perpetual inventory system? Explain.

2. Prepare a multiple step income statement for Headwinds Company for the year ended April 30, 2008. The merchandise inventory as of April 30, 2008, was $94,100.

3. Prepare the closing entries for Headwinds Company as of April 30, 2008.