In: Accounting
The unadjusted trial balance of Imagine Ltd., a private company following ASPE, at December 31, 2020 is as follows:
Debit | Credit | |||
Cash | $10,850 | |||
Accounts receivable | 56,500 | |||
Allowance for doubtful accounts | $750 | |||
FV-NI investments | 8,600 | |||
Inventory | 58,000 | |||
Prepaid insurance | 2,940 | |||
Prepaid rent | 13,200 | |||
FV-OCI investments | 14,000 | |||
Bond investment at amortized cost | 18,000 | |||
Land | 10,000 | |||
Equipment | 104,000 | |||
Accumulated depreciation—equipment | 18,000 | |||
Accounts payable | 9,310 | |||
Bonds payable | 50,000 | |||
Common shares | 100,000 | |||
Retained earnings | 103,260 | |||
Sales revenue | 223,310 | |||
Rent revenue | 10,200 | |||
Purchases | 170,000 | |||
Purchase discounts | 2,400 | |||
Freight out | 9,000 | |||
Freight in | 3,500 | |||
Salaries and wages expense | 31,000 | |||
Interest expense | 6,750 | |||
Miscellaneous expense | 890 | |||
$517,230 | $517,230 |
Additional information:
1. | On November 1, 2020, Imagine received $10,200 rent from its lessee for a 12-month lease beginning on that date. This was credited to Rent Revenue. | |
2. | Imagine estimates that 7% of the Accounts Receivable balances on December 31, 2020, will be uncollectible. On December 28, 2020, the bookkeeper incorrectly credited Sales Revenue for a receipt of $1,000 on account. This error had not yet been corrected on December 31. | |
3. | After a physical count, inventory on hand at December 31, 2020, was $77,000. (Use "Inventory" account for closing out the beginning inventory amount and recording the ending inventory amount.) | |
4. | Prepaid insurance contains the premium costs of two policies: Policy A, cost of $1,320, two-year term, taken out on April 1, 2020; Policy B, cost of $1,620, three-year term, taken out on September 1, 2020. | |
5. | The regular rate of depreciation is 10% of cost per year. Acquisitions and retirements during a year are depreciated at half this rate. There were no retirements during the year. On December 31, 2019, the balance of Equipment was $90,000. | |
6. | On April 1, 2020, Imagine issued at par value 50 $1,000, 11% bonds maturing on April 1, 2024. Interest is paid on April 1 and October 1. | |
7. | On August 1, 2020, Imagine purchased at par value 18 $1,000, 12% Legume Inc. bonds, maturing on July 31, 2022. Interest is paid on July 31 and January 31. | |
8. | On May 30, 2020, Imagine rented a warehouse for $1,100 per month and debited Prepaid Rent for an advance payment of $13,200. | |
9. | Imagine’s FV-NI investments consist of shares with total market value of $9,400 as at December 31, 2020. | |
10. | The FV-OCI investment is an investment of 500 shares in Yop Inc., with current market value of $25 per share as of December 31, 2020. |
(a)
Prepare the year-end adjusting and correcting entries for December 31, 2020, using the information given. Record the adjusting entry for inventory using a Cost of Goods Sold account.
Event | Account Title | Debit | Credit |
1 | Rent Revenue | $8,500 | |
Unearned Rent Revenue | $8,500 | ||
($10,200 X 10/12) | |||
2 | Sales Revenue | $1,000 | |
Accounts Receivable | $1,000 | ||
Bad Debt Expense | $3,135 | ||
Allowance for Doubtful Accounts | $3,135 | ||
7% X ($56,500 - $1,000) – $750 | |||
3 | Cost of Goods Sold | $152,100 | |
Inventory (ending) | $77,000 | ||
Purchase Discounts | $2,400 | ||
Purchases | $170,000 | ||
Freight-in | $3,500 | ||
Inventory (beginning) | $58,000 | ||
4 | Insurance Expense | $625 | |
Prepaid Insurance | $625 | ||
[($1,320 X 4/24) + ($1,620 X 9/36)] | |||
5 | Depreciation Expense | $9,700 | |
Accumulated Depreciation - Equipment | $9,700 | ||
($90,000 X 10%) + ($14,000 X 5%) | |||
6 | Interest Expense | $1,375 | |
Interest Payable | $1,375 | ||
($50,000 X 11% X 3/12) | |||
7 | Interest Receivable | $900 | |
Interest Income | $900 | ||
($18,000 X 12% X 5/12) | |||
8 | Rent Expense | $7,700 | |
Prepaid Rent | $7,700 | ||
($13,200 X 7/12) | |||
9 | Fair Value-Net Income Investments | $800 | |
Investment Income | $800 | ||
10 | Unrealized Gain or Loss-OCI | $1,500 | |
Fair Value-OCI Investments | $1,500 | ||
$14,000 - ($25 X 500) | |||