Question

Golden Wedding Dress Company designs custom wedding dresses for brides to be. The person preparing the adjusting entries at year-end was unable to complete the adjustments due to illness. You have been given the following unadjusted trial balance along with some additional information for the December 31, 2020, year-end.

Account	Unadjusted Balance			Account		Unadjusted Balance
Accounts receivable	$	72,000		Land	$	122,000
Accum. deprec., building		117,000		Merchandise inventory		70,000
Accum. deprec., equipment		333,000		Mortgage payable		218,809
Advance sales		217,000		Sarah Golden, capital		212,191
Allowance for doubtful accounts		600		Note payable		154,000
Building		417,000		Other operating expenses		1,162,000
Cash		87,200		Sales		1,346,000
Equipment		621,000		Salaries & admin expense		43,000
Estimated warranty liability		3,300		Sales returns and allowances		7,700

Other information:

1. Assume all accounts have a normal balance.
2. 70% of the balance in the Advance Sales account is for wedding dresses to be made and delivered by Golden during 2021; the remaining 30% is from sales earned during 2020.
3. Golden warranties its wedding dresses against defects and estimates its warranty liability to be 2% of adjusted net sales.
4. The 3%, 5-year note payable was issued on October 1, 2020; interest is payable annually each September 30.
5. The mortgage is paid annually on the first day of the next year. The next mortgage payment will be paid consisting of $8,752 interest and $23,727 principal for a total of $32,479.
6. Uncollectible accounts are estimated to be 1.5% of outstanding receivables.
7. A physical count of the inventory showed a balance actually on hand of $61,700.
8. Sarah promised her operations manager a year-end performance bonus of $3,715, which would be paid with her salary in January for high sales achieved this year.

Required:
1. Based on the information provided, journalize the adjusting entries at December 31, 2020.

2. Prepare a classified balance sheet. (Be sure to list the assets and liabilities in order of their liquidity. Round the final answers to the nearest whole dollar amount.)

Answer 1

1.

No.	Date	Account Titles and Explanation	Debit	Credit
1	Dec. 31	Advance sales	65100
		Sales (30% x $217000)		65100
		(To record adjustment for earned sales)
2	Dec. 31	Warranty expense*	28068
		Estimated warranty liability		28068
		(To record estimated warranty liability)
3	Dec. 31	Interest expense ($154000 x 3% x 3/12)	1155
		Interest payable		1155
		(To record accrual of interest on note payable)
4	Dec. 31	Interest expense	8752
		Mortgage payable	23727
		Interest payable		8752
		Mortgage payable-current portion		23727
		(To record accrual of interest on mortgage payable)
5	Dec. 31	Bad debts expense**	480
		Allowance for doubtful accounts		480
		(To record estimated uncollectible accounts)
6	Dec. 31	Other operating expenses	8300
		Merchandise inventory ($70000 - $61700)		8300
		(To record inventory shrinkage)
7	Dec. 31	Salaries and admin expense	3715
		Salaries payable		3715
		(To record accrual of bonus payable)

*Warranty expense = 2% x ($1346000 + $65100 - $7700) = 2% x $1403400 = 28068

**Bad debts expense = (1.5% x $72000) - $600 = $1080 - $600 = $480

2.

Golden Wedding Dress Company
Balance Sheet
December 31, 2020
Assets
Current assets:
Cash		87200
Accounts receivable	72000
Less: Allowance for doubtful accounts	1080	70920
Merchandise inventory		61700
Total current assets			219820
Property, plant, and equipment:
Land		122000
Building	417000
Less: Accumulated depreciation	117000	300000
Equipment	621000
Less: Accumulated depreciation	333000	288000
Total property, plant, and equipment			710000
Total assets			929820
Liabilities
Current liabilities:
Salaries payable	3715
Advance sales ($217000 - $65100)	151900
Estimated warranty liability ($3300 + $28068)	31368
Interest payable ($1155 + $8752)	9907
Mortgage payable-current portion	23727
Total current liabilities		220617
Non-current liabilities:
Mortgage payable ($218809 - $23727)	195082
Notes payable	154000	349082
Total liabilities			569699
Equity
Sarah Golden, capital*			360121
Total liabilities and equity			929820

Working:

Net sales ($1346000 + $65100 - $7700)	1403400
Less: Expenses
Salaries and admin expense ($43000 + $3715)	46715
Bad debts expense	480
Warranty expense	28068
Other operating expenses ($1162000 + $8300)	1170300
Interest expense ($1155 + $8752)	9907
Total expenses	1255470
Net income $	147930

*Sarah Golden, capital = $212191 + $147930 = $360121