Question

Blue Spruce Corp. prepares quarterly financial statements. The post-closing trial balance at December 31, 2016, is presented below.

BLUE SPRUCE CORP.
Post-Closing Trial Balance
December 31, 2016
Debit       Credit
Cash
$21,390      
Accounts Receivable
19,710      
Allowance for Doubtful Accounts
$1,060
Equipment
17,600      
Accumulated Depreciation—Equipment
13,200
Buildings
88,000      
Accumulated Depreciation—Buildings
13,200
Land
17,600      
Accounts Payable
10,890
Common Stock
79,200
Retained Earnings
46,750
$164,300       $164,300

During the first quarter of 2017, the following transactions occurred:

1.       On February 1, Blue collected fees of $10,560 in advance. The company will perform $880 of services each month from February 1, 2017, to January 31, 2018.
2.       On February 1, Blue purchased computer equipment for $7,920 plus sales taxes of $528. $2,640 cash was paid with the rest on account. Check #455 was used.
3.       On March 1, Blue acquired a patent with a 10-year life for $8,448 cash. Check #456 was used.
4.       On March 28, Blue recorded the quarter’s sales in a single entry. During this period, Blue had total sales of $123,200 (not including the sales referred to in item 1 above). All of the sales were on account.
5.       On March 29, Blue collected $117,040 from customers on account.
6.       On March 29, Blue paid $14,410 on accounts payable. Check #457 was used.
7.       On March 29, Blue paid other operating expenses of $85,820. Check #458 was used.
8.       On March 31, Blue wrote off a receivable of $180 for a customer who declared bankruptcy.
9.       On March 31, Blue sold for $1,430 equipment that originally cost $9,680. It had an estimated life of 5 years and salvage of $880. Accumulated depreciation as of December 31, 2016, was $7,040 using the straight line method. (Hint: Record depreciation on the equipment sold, then record the sale.)

Bank reconciliation data and adjustment data:

1.       The company reconciles its bank statement every quarter. Information from the December 31, 2016, bank reconciliation is:

Deposit in transit:
12/30/2016
$4,400
Outstanding checks
#440
3,030
#452
290
#453
760
#454
5,140

The bank statement received for the quarter ended March 31, 2017, is as follows:

Beginning balance per bank       $26,210
Deposits: 1/2/2017, $4,400; 2/2/2017, $10,560; 3/30/2017, $117,040       132,000
Checks: #452, $290; #453, $760; #457, $14,410; #458, $85,820       (101,280)
Debit memo: Bank service charge (record as operating expense)       (100)
Ending bank balance       $56,830
2.       Record revenue earned from item 1 above.
3.       $22,880 of accounts receivable at March 31, 2017, are not past due yet. The bad debt percentage for these is 4%. The balance of accounts receivable are past due. The bad debt percentage for these is 23.75%. Record bad debt expense. (Hint: You will need to compute the balance in accounts receivable before calculating this.)
4.       Depreciation is recorded on the equipment still owned at March 31, 2017. The new equipment purchased in February is being depreciated on a straight-line basis over 5 years and salvage value was estimated at $1,060. The old equipment still owned is being depreciated over a 10-year life using straight-line with no salvage value.
5.       Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $8,800.
6.       Amortization is recorded on the patent.
7.       The income tax rate is 30%. This amount will be paid when the tax return is due in April. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

  
Record journal entries for transactions 1–9. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date
No.
Account Titles and Explanation
Debit
Credit
choose a transaction date  
1.
enter an account title for the first transaction
enter a debit amount
enter a credit amount
enter an account title for the first transaction
enter a debit amount
enter a credit amount
choose a transaction date  
2.
enter an account title for the second transaction
enter a debit amount
enter a credit amount
enter an account title for the second transaction
enter a debit amount
enter a credit amount
enter an account title for the second transaction
enter a debit amount
enter a credit amount
choose a transaction date  
3.
enter an account title for the third transaction
enter a debit amount
enter a credit amount
enter an account title for the third transaction
enter a debit amount
enter a credit amount
choose a transaction date  
4.
enter an account title for the fourth transaction
enter a debit amount
enter a credit amount
enter an account title for the fourth transaction
enter a debit amount
enter a credit amount
choose a transaction date  
5.
enter an account title for the fifth transaction
enter a debit amount
enter a credit amount
enter an account title for the fifth transaction
enter a debit amount
enter a credit amount
choose a transaction date  
6.
enter an account title for the sixth transaction
enter a debit amount
enter a credit amount
enter an account title for the sixth transaction
enter a debit amount
enter a credit amount
choose a transaction date  
7.
enter an account title for the seventh transaction
enter a debit amount
enter a credit amount
enter an account title for the seventh transaction
enter a debit amount
enter a credit amount
choose a transaction date  
8.
enter an account title for the eighth transaction
enter a debit amount
enter a credit amount
enter an account title for the eighth transaction
enter a debit amount
enter a credit amount
choose a transaction date  
9.
enter an account title for the ninth transaction to record depreciation expense
enter a debit amount
enter a credit amount
enter an account title for the ninth transaction to record depreciation expense
enter a debit amount
enter a credit amount
(To record depreciation expense)
enter an account title for the ninth transaction to record sale of equipment
enter a debit amount
enter a credit amount
enter an account title for the ninth transaction to record sale of equipment
enter a debit amount
enter a credit amount
enter an account title for the ninth transaction to record sale of equipment
enter a debit amount
enter a credit amount
enter an account title for the ninth transaction to record sale of equipment
enter a debit amount
enter a credit amount
(To record sale of equipment)

  
Enter the December 31, 2016, balances in ledger accounts using T-accounts. (Post entries in the order displayed in the problem statement.)

Cash
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Accounts Receivable
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Allowance For Doubtful Accounts
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Equipment
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Accumulated Depreciation—Equipment
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Land
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Buildings
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Accumulated Depreciation—Buildings
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Accounts Payable
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Common Stock
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance
Retained Earnings
choose a transaction date  
enter a debit balance
choose a transaction date  
enter a credit balance

Answer 1

	Sl No.	Account titles and explanation					Debit	Credit
	1	Cash					10560
		Unearned sales revenue						10560
		(collected fees in advance)
	2	Equipment			(7920+528)		8448
		Cash						2640
		Accounts payable						5808
		(purchased computer equipment)
	3	Patent					8448	`
		Cash						8448
		(acquired a patent with a 10-year life)
	4	Accounts receivable					123200
		Sales revenue						123200
		(Sales made on account)
	5	Cash					117040
		Accounts receivable						117040
		(collected from customers on account)
	6	Accounts payable					14410
		Cash						14410
		(paid on accounts payable)
	7	Operating expenses					85820
		Cash						85820
		( paid other operating expenses)
	8	Allowance for Doubtful Accounts					180
		Accounts receivable						180
		(wrote off a receivable)
	9	Depreciation expense			[(9680-880)/5]*3/12		440
		Accumulated Depreciation—Equipment						440
		(Depreciation recorded for the quarter for equipment)
		Cash					1430
		Accumulated Depreciation—Equipment				(7040+440)	7480
		Loss on sale of equipment					770
		Equipment						9680
		(Equipment sold)
	T-accounts:
				Cash									Accounts receivable
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
	Jan 1.	Bal.		21390	2	Equipment		2640		Jan 1.	Bal.		19710	5	Cash		117040
	1	Unearned sales revenue		10560	3	Patent		8448		4	Sales revenue		123200	8	Allowance for Doubtful Accounts		180
	5	Accounts receivable		117040	6	Accounts payable		14410					142910				117220
	9	Equipment		1430	7	Operating expenses		85820		Mar 31.	Bal.		25690
				150420				111318
	Mar 31.	Bal.		39102
				Allowance for doubtful accounts									Equipment
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
	8	Accounts receivable		180	Jan 1.	Bal.		1060		Jan 1.	Bal.		17600	9	Cash		1430
				180				1060		2	Cash		2640		Accumulated Depreciation—Equipment		7480
					Mar 31.	Bal.		880			Accounts payable		5808		Loss on sale of equipment		770
													26048				9680
										Mar 31.	Bal.		16368
				Accumulated depreciation-equipment									Buildings
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
	9	Equipment		7480	Jan 1.	Bal.		13200		Jan 1.	Bal.		88000
					9	Depreciation expense		440					88000				0
				7480				13640		Mar 31.	Bal.		88000
					Mar 31.	Bal.		6160
				Accumulated depreciation-buiildings									Land
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
					Jan 1.	Bal.		13200		Jan 1.	Bal.		17600
				0				13200					17600				0
					Mar 31.	Bal.		13200		Mar 31.	Bal.		17600
				Accounts payable									Common stock
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
					Jan 1.	Bal.		10890						Jan 1.	Bal.		79200
	6	Cash		14410	2	Equipment		5808					0				79200
				14410				16698						Mar 31.	Bal.		79200
					Mar 31.	Bal.		2288
				Retained earnings									Unearned sales revenue
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
					Jan 1.	Bal.		46750						1	Cash		10560
				0				46750					0				10560
					Mar 31.	Bal.		46750						Mar 31.	Bal.		10560
				Patent									Operating expenses
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
	3	Cash		8448						7	Cash		85820
				8448				0					85820				0
	Mar 31.	Bal.		8448						Mar 31.	Bal.		85820
				Sales revenue									Depreciation expense
	Date			Debit	Date			Credit		Date			Debit	Date			Credit
					4	Accouts receivable		123200		9	Accumulated depreciation-equipment		440
				0				123200					440
					Mar 31.	Bal.		123200		Mar 31.	Bal.		440
				Loss on sale of equipment
	Date			Debit	Date			Credit
	9	Equipment		770
				770				0
	Mar 31.	Bal.		770