Question

Accounting Cycle Review 15 a-e

Ivanhoe Corporation’s trial balance at December 31, 2020, is presented below. All 2020 transactions have been recorded except for the items described below.

		Debit		Credit
Cash		$27,700
Accounts Receivable		54,000
Inventory		23,100
Land		65,800
Buildings		86,900
Equipment		31,000
Allowance for Doubtful Accounts				$440
Accumulated Depreciation—Buildings				27,000
Accumulated Depreciation—Equipment				15,000
Accounts Payable				19,000
Interest Payable				–0–
Dividends Payable				–0–
Unearned Rent Revenue				8,000
Bonds Payable (10%)				50,000
Common Stock ($10 par)				32,000
Paid-in Capital in Excess of Par—Common Stock				6,400
Preferred Stock ($20 par)				–0–
Paid-in Capital in Excess of Par—Preferred Stock				–0–
Retained Earnings				26,860
Treasury Stock		–0–
Cash Dividends		–0–
Sales Revenue				615,000
Rent Revenue				–0–
Bad Debt Expense		–0–
Interest Expense		–0–
Cost of Goods Sold		408,000
Depreciation Expense		–0–
Other Operating Expenses		39,300
Salaries and Wages Expense		63,900
Total		$799,700		$799,700

Unrecorded transactions and adjustments:

1.		On January 1, 2020, Ivanhoe issued 1,200 shares of $20 par, 6% preferred stock for $26,400.
2.		On January 1, 2020, Ivanhoe also issued 1,100 shares of common stock for $26,400.
3.		Ivanhoe reacquired 320 shares of its common stock on July 1, 2020, for $50 per share.
4.		On December 31, 2020, Ivanhoe declared the annual cash dividend on the preferred stock and a $1.30 per share dividend on the outstanding common stock, all payable on January 15, 2021.
5.		Ivanhoe estimates that uncollectible accounts receivable at year-end is $5,400.
6.		The building is being depreciated using the straight-line method over 30 years. The salvage value is $5,900.
7.		The equipment is being depreciated using the straight-line method over 10 years. The salvage value is $3,100.
8.		The unearned rent was collected on October 1, 2020. It was receipt of 4 months’ rent in advance (October 1, 2020 through January 31, 2021).
9.		The 10% bonds payable pay interest every January 1. The interest for the 12 months ended December 31, 2020, has not been paid or recorded.

(Ignore income taxes.)

1. Prepare journal entries for the transactions and adjustment listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2. Prepare an updated December 31, 2020, trial balance, reflecting the journal entries in part(a).

3. Prepare a multiple-step income statement for the year ending December 31, 2020. (List other revenues before other expenses.)

4. Prepare a retained earnings statement for the year ending December 31, 2020. (List items that increase retained earning first.)

5. Prepare a classified balance sheet as of December 31, 2020. (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Land, Buildings and Equipment. Enter account name only and do not provide descriptive information.)

Answer 1

1) Journal Entries :-

S no.	Particulars	Debit($)	Credit($)
1)	Cash A/c	26400
	Preferred Stock A/c (1200*$20)		24000
	Paid in Capital in Excess of Par - Preferred		2400
2)	Cash A/c	26400
	Common Stock A/c (1100*$10)		11000
	Paid in Capital in Excess of Par - Common		15400
3)	Treasury Stock A/c (320*$50)	16000
	Cash A/c		16000
4)	Cash Dividends A/c (Working Note 1)	6614
	Dividends Payable A/c		6614
5)	Bad Debts Expenses A/c ($5400-$440)	4960
	Allowance for Doubtful A/c		4960
6)	Depreciation Expenses A/c (($86900-$5900)/30)	2700
	Accumulated Depreciation - Buildings		2700
7)	Depreciation Expense A/c (($31000-$3100)/10)	2790
	Accumulated Depreciation - Equipment		2790
8)	Unearned Rent Revenue A/c ($8000/4)*3	6000
	Rent Revenue A/c		6000
9)	Interest Expenses A/c ($50000*10%)	5000
	Interest Payable A/c		5000

Working Note :-

1. Calculation of Dividend :-

No of Common stock for Dividend = 3200 + 1100 - 320 = 3980

Common Stock Dividend = 3980 * $1.30 = $5174

Preferred Stock Dividend = 1200 * $20 * 6% = $1440

Total Dividend = $5174 + $1440 = $6614

2) Adjusted Trail Balance :-

Particulars	Debit($)	Credit($)
Cash ($27700+$26400+$26400-$16000)	64500
Account Receivable	54000
Inventory	23100
Land	65800
Buildings	86900
Equipment	31000
Allowance for Doubtful Accounts		5400
Accumulated Depreciation - Buildings ($27000+$2700)		29700
Accumulated Depreciation - Equipment ($15000+$2790)		17790
Accounts Payable		19000
Interest Payable		5000
Dividends Payable		6614
Unearned Rent Revenue ($8000-$6000)		2000
10% Bounds Payable		50000
Common Stock ($10 par) ($32000+$11000)		43000
Paid in Capital Excess of Par - Common ($6400+$15400)		21800
Preferred Stock ($20 par)		24000
Paid in Capital Excess of Par - Preferred		2400
Retained Earnings		26860
Treasury Stock	16000
Cash Dividends	6614
Sales Revenue		615000
Rent Revenue		6000
Bad Debt Expenses	4960
Interest Expenses	5000
Cost of Goods Sold	408000
Depreciation Expenses ($2700+$2790)	5490
Other Operating Expenses	39300
Salaries and Wages Expenses	63900
Total	874564	874564

3) Income Statement :-

Particulars	Amount($)	Amount($)
Sales		615000
Less : Cost of Goods Sold		(408000)
Gross Profit		207000
Operating Expenses :-
Salaries and Wages Expenses	63900
Other Operating Expenses	39300
Depreciation Expenses	5490
Bad Debts Expenses	4960
Total Operating Expenses	113650	(113650)
Income from Operations		93350
Add : Other Revenues and Gains
Rent Revenue		6000
Less : Other Expenses and Losses
Interest Expenses		(5000)
Net Income		94350

4) Retained Earnings :-

Particulars	Amount($)
Beginning Balance	26860
Add: Net Income	94350
	121210
Less : Dividends	(6614)
Ending Balance	114596