Question

The following trial balance was taken from the books of Coyote Company as of December 31, 2019.

account	debit	credit
cash	30,000
accounts receivable	40,000
allowance for doubtful accounts		1,000
S-T notes receivable	20,000
Inventory, January 1, 2019	40,000
furniture and equipment	110,000
accumulated depreciation of F&E		20,000
patents	100,000
accounts payable		22,000
bonds payable		20,000
L-T notes payable		15.000
common stock		140,000
retained earnings		40,000
sales		550,000
purchase	278,000
insurance expense	20,000
salary expense	120,000
rent expense	50,000
totals	808,000	808,000

At the year end, the following items have not been recorded.

1. Prepaid insurance expired during the year, $8,000.
2. Estimated bad debts, 1.0% of sales.
3. Inventory as of 12/31/2019 turned out to be $60,000.
4. Five months’ rent of $50,000 was paid in advance on October 1, 2019 and charged to rent expense then.
5. Furniture and equipment have an average useful life of 4 years and salvage value of $10,000. Coyote Company uses the straight-line method of depreciation.
6. Utility bill of $1,600 for the month of December 2019 will be paid on its due date, January 10, 2020.
7. Salaries earned but not yet paid by December 31, 2019, $7,000.

Instruction: prepare

1. Any necessary adjusting entries at the end of 2019.
2. Income Statement and statement of retained earnings, and balance sheet of the company for the year 2019.
3. Any necessary closing entries at the end of 2019.

Answer 1

Adjusting Entries
Events	Particulars			Debit	Credit
a)	Prepaid Insurance			$ 12,000.00
	To Insurance Expense				$ 12,000.00
b)	Bad Debt Expense			$   5,500.00
	To Allowance for Doubtful A/c				$   5,500.00
	($ 550000 x 1%)
c)	No entry needed
d)	Prepaid Rent			$ 20,000.00
	To Rent Expense				$ 20,000.00
	($ 50000 x 2/5)
e)	Depreciation Expense			$ 25,000.00
	To Accumulated Depreciation				$ 25,000.00
	[($ 110000 - $ 10000) / 4]
f)	Utility Expense			$   1,600.00
	To Accounts Payable				$   1,600.00
g)	Salaries Expense			$   7,000.00
	To Salaries Payable				$   7,000.00

	Income Statement
	Sales				$ 550,000.00
Less:	Cost of Goods sold:
	Beginning Inventory			$   40,000.00
	Add: Purchase			$ 278,000.00
	Less: Ending Inventory			$   60,000.00
	Cost of Goods sold				$ 258,000.00
	Gross Margin				$ 292,000.00
Less:	Expenses:
	Insurance Expense			$     8,000.00
	Bad Debt Expense			$     5,500.00
	Rent Expense			$   30,000.00
	Depreciation Expense			$   25,000.00
	Utility Expense			$     1,600.00
	Salaries Expense			$ 127,000.00
	Total Expense				$ 197,100.00
	Net Income				$   94,900.00

	Statement of Retained Earnings
	Retained Earnings, as on Jan 1				$   40,000.00
Add:	Net Income				$   94,900.00
	Retained Earnings, as on Dec 31				$ 134,900.00

	Balance Sheet
	Assets
	Current Assets:
	Cash				$   30,000.00
	Accounts Receivable			$   40,000.00
Less:	Allowance for Doubtful A/c			$     6,500.00	$   33,500.00
	Prepaid Insurance				$   12,000.00
	Prepaid Rent				$   20,000.00
	Inventory				$   60,000.00
	Short Term Notes Receivable				$   20,000.00
	Total Current Assets				$ 175,500.00
	Furniture and Equipment			$ 110,000.00
Less:	Accumulated Depreciation			$   45,000.00	$   65,000.00
	Patent				$ 100,000.00
	Total Assets				$ 340,500.00
	Liabilities and Equity
	Current Liabilities:
	Accounts Payable			$   23,600.00
	Bonds Payable			$   20,000.00
	Salaries Payable			$     7,000.00
	Total Current Liabilities				$   50,600.00
	Non- Current Liabilities:
	Long- Term Notes Payable				$   15,000.00
	Total Liabilities				$   65,600.00
	Equity
	Common Stock			$ 140,000.00
	Retained Earnings			$ 134,900.00
	Total Equity				$ 274,900.00
	Total Liabilities and Equity				$ 340,500.00

Closing Entries
Particulars			Debit	Credit
Sales			$ 550,000.00
To Income Summary				$ 550,000.00
Income Summary			$ 455,100.00
Cost of Goods sold				$ 258,000.00
To Insurance Expense				$     8,000.00
To Bad Debt Expense				$     5,500.00
To Rent Expense				$   30,000.00
To Depreciation Expense				$   25,000.00
To Utility Expense				$     1,600.00
To Salaries Expense				$ 127,000.00
Income Summary			$   94,900.00
To Retained Earnings				$   94,900.00