Question

Bledsoe has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is requesting 2017 financial statements prepared on the accrual basis of accounting from Bledsoe. During the course of a review engagement of Bledsoe, your firm, obtained the following information:

1.Amounts due from customers totaled $142,000 at 12/31/2017. During the year the company wrote off $7,400 of receivables that were deemed to be uncollectible. An analysis of the receivables revealed that an estimated 3% of the balance will probably not be collected in 2018. There were no uncollectable receivables estimated at 12/31/2016. 2.Unpaid invoices for flower purchases totaled $20,500 at December 31, 2017.

3. The inventory totaled $76,800 based on a physical count of the goods at December 31, 2017. The inventory was priced at cost, which approximates market value.

4. On May 1, 2017, Bledsoe paid $8,700 to renew its comprehensive insurance coverage for one year. The premium on the previous one-year policy, which expired on April 30, 2017, was $7,800. No adjustment was made in the prior year, Bledsoe had never heard of a prepaid.

5. On January 2, 2017, Bledsoe entered into a 25 year operating lease for the vacant lot adjacent to Bledsoe's North retail store for use as a parking lot. As agreed in the lease, Bledsoe paved and fenced in the lot at a cost of $50,000. The improvements were completed on July 2, 2017, and have an estimated useful life of 10 years. Depreciation on furniture and fixtures was $15,000 for 2017.

6. Bledsoe is being sued for $100,000. The coverage under the comprehensive insurance policy is limited to $50,000. Bledsoe's attorney believes that an unfavorable outcome is probable and that a reasonable settlement is $65,000.

7. All employees are paid weekly on Friday. The average payroll is $3,000 (6 day work week) per week. Employees were last paid on Friday, December 29th, 2017 for the week ended December 22nd.

8. Bledsoe's has made estimated tax payments of $15,000 per quarter for the first three quarters of 2017. Bledsoe's estimated tax rate is 35%.

9.Bledsoe's took out a 2 year note payable on April 1, 2017. The note bears interest at 4%. Principal and interest are due at maturity.

10.The company had two locations and due to poor performance, they decided to discontinue operations related to the south location. The revenue for this location (which is included in the above trial balance) amounted to $83,000 and the expenses, $91,000 (purchases $50,000, salaries $26,000 and rent $15,000). The company disposed of all assets of the south location for a loss of $10,000 ($31,000 original cost with accumulated depreciation of $17,000).

11. The investments account is comprised of two investments. One $100,000 bond was purchased at face value and Bledsoe’s intends to hold until it matures. The interest on these bonds are 3% and is paid annually on January 31. Bledsoe purchased these bonds on September 1st of the current year. The fair value of these bonds are $96,000. The other investment are shares of Google stock, which were purchased on 10/20/16 for $797/share. Assume the closing price of Google on 12/31/16, was $814/share.

Prepare the adjusting Journal entries

Answer 1

Adjusting Journal Entries:
Date	Account Tittle	Debit	Credit
2017
Dec. 31	Allowance for doubtful Account	$        7,400
	Account Receivable		$       7,400
	To record Bad debts written of
Dec. 31	Bad Expense
	Allowance for Doubtful Account	$        4,038
	For Recording provision for uncollectible		$       4,038
	(142,000 -7,400) x 3%
	Purchases
	Account Payable
	To record unpaid invoice for purchase of inventory
Dec. 31	Inventory	$       76,800
	Purchases		$      76,800
Dec. 31	Insurance Expenses	$        8,400
	Prepaid Insurance		$       8,400
	To record expired Ins. Expense(2,600+5,800)
Dec. 31	Lease amortization expense-	$        5,000
	Depreciation expense- Furniture	$       15,000
	Accumulated Lease Amortization		$       5,000
	Accumulated Depreciation- Furniture		$      15,000
	To Record lease amortization of 6 months and Dep.
Dec. 31	Lawsuit Expense	$         15,000
	Estimated lawsuit Liability		$        15,000
	To record the estimated lawsuit expense
Dec. 31	Wages Expenses	$            4,000
	Wages Payable		$          4,000
	To record accrued wages of one week two days
Dec. 31	Tax Expenses	$         15,000
	Tax Payable		$        15,000
	To record estimated tax of last quarter
Dec. 31	Interest Expenses	?
	Interest Payable		?
	To Record accrued interest for 9 months
	* Principal amount not given for calculation
Dec. 31	Income Summary- Discontinued operation	$         10,000
	Loss from Discontinued operation		$          8,000
	Loss from sale of assets		$        10,000
Dec. 31	Interest Revenue	$            2,750
	Interest Receivable		$          2,750
	To record accrued interest for 11 months on bonds
Dec. 31	Loss on Available for sale securities	$            4,000
	Available for Sale Securities-Bonds		$          4,000
	To record loss on available for sale securities
	this is recorded in Comprehensive I.S
Dec. 31	Available for Sale Securities-Google stock	$                  17
	Gain on Available for sale securities		$                17
	The number of stock not given, so recorded only
	for one stock