Question

Requirements:

a.   Copy the trial balance above in the first two columns of a 10-column work sheet.

b.   Prepare adjusting journal entries in journal form from the following information (the fiscal year ends December 31).

1.   Estimated bad debts, .5% of sales less returns and allowances.

2.   Depreciation on building 4% per year; on furniture and fixtures, 10% per year.

3.   Insurance expired during the year, $3,900.

4.   Interest at 12% is payable on the mortgage on January 1 of each year

5.   Sales salaries accrued, December 31, $4,000.

6.   Advertising expense paid in advance, $740.

7.   Office supplies on hand December 31, $1,600 (charged to Miscellaneous Office Expenses when purchased).

8.   Interest accrued on notes payable, December 31, $1,500.

c.   Transfer the adjusting entries to the work sheet and complete it.

d.   Prepare an income statement, a balance sheet, and a statement of retained earnings.

e.   Prepare closing journal entries.

f.    Indicate the adjusting entries that would be reversed.

	Debit	Credit
Cash	13,600
Accounts Receivable	64,800
Allowance for Doubtful Accounts		2,000
Inventory	76,000
Office Supplies
Land	40,000
Building	90,000
Accumulated Depreciation of Building		14,400
Furniture and Fixtures	22,000
Accumulated Depreciation of Furniture and Fixtures		6,600
Prepaid Insurance	7,800
Prepaid Advertising
Accounts Payable		34,200
Salaries Payable
Interest Payable
Notes Payable		30,000
Mortgage Payable		40,000
Common Stock		60,000
Retained Earnings		64,730
Sales		720,000
Sales Returns and Allowances	2,800
Sales Discounts	5,900
Cost of Goods Sold	533,700
Sales Salaries Expense	54,000
Advertising Expense	9,400
Salaries Expense, Office and General	31,000
Heat, Light, and Water Expense	15,100
Telephone Expense	1,700
Miscellaneous Office Expenses	2,000
Bad Debt Expense
Depreciation Expense
Insurance Expense
Interest Expense	2,130
Subtotal
Net Income
Totals	971,930	971,930

Answer 1

b. Journalise the adjusting entries on Dec. 31
JOURNAL
Date	Account			Debit	Credit
Dec. 31
1.	Bad debt expense			3586
	Allowance for Doubtful debts				3586
2.	Depreciation Expense			5800
	Accumulated Depreciation of Building				3600
	Accumulated Depreciation of Furniture and Fixtures				2200
3.	Insurance Expense			3900
	Prepaid Insurance				3900
d.	Interest expense			4800
	Interest payable				4800
e.	Salary expense			4000
	Salary payable				4000
f.	Prepaid Advertising			740
	Advertising expense				740
g.	Office Supplies			1600
	Miscellaneous office expense				1600
h.	Interest expense			1500
	Interest payable				1500
c. Transfer Journal entries to worksheet.
Work Sheet
Account	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	13600				13600
Accounts Receivable	64800				64800
Allowance for Doubtful accounts		2000		3586		5586
Inventory	76000				76000
Office Supplies			1600		1600
Land	40000				40000
Building	90000				90000
Accumulated Depreciation of Building		14400		3600		18000
Furniture & Fixtures	22000				22000
Accumulated Depreciation of Furniture and Fixtures		6600		2200		8800
Prepaid Insurance	7800			3900	3900
Prepaid Advertising			740		740
Accounts Payable		34200				34200
Salary Payable				4000		4000
Interest payable				6300		6300
Notes payable		30000				30000
Mortgage Payable		40000				40000
Common Stock		60000				60000
Retained earnings		64730				64730
Sales		720000				720000
Sales Return and Allowances	2800				2800
Sales discount	5900				5900
Cost of goods sold	533700				533700
Sales salaries expense	54000		4000		58000
Advertising expense	9400			740	8660
Salaries expense, Office and general	31000				31000
Heat light and water expense	15100				15100
Telephone expense	1700				1700
Miscelleneous Office expense	2000			1600	400
Bad debt expense			3586		3586
Depreciation expense			5800		5800
Insurance expense			3900		3900
Interest expense	2130		6300		8430
subtotal
net income
Totals	971930	971930	25926	25926	991616	991616
d. Prepare an Income statement, a balance sheet and a statement of retained earnings
Income Statement
For the year ended December 31
Sales					720000
Sales Return and Allowances					-2800
Sales discount					-5900
Net Sales						711300
Cost of goods sold						533700
Gross Profit						177600
Less: Expenses
Advertising expense					8660
Sales salaries expense					58000
Salaries expense, Office and general					31000
Heat light and water expense					15100
Telephone expense					1700
Miscelleneous Office expense					400
Bad debt expense					3586
Depreciation expense					5800
Insurance expense					3900
Interest expense					8430
Total expenses						136576
Net Income						41024
Statement of retained earnings
For the year ended December 31
Balance - Beginning						64730
Add: Net Income for the year						41024
Balance - Ending						105754
Balance Sheet
As on December 31
Assets
Current Assets
Cash					13600
Accounts Receivable					64800
Allowance for Doubtful accounts					-5586
Inventory					76000
Office Supplies					1600
Prepaid Insurance					3900
Prepaid Advertising					740
Total Current Assets						155054
Property, Plant & Equipment
Land					40000
Building					90000
Accumulated Depreciation of Building					-18000
Furniture & Fixtures					22000
Accumulated Depreciation of Furniture and Fixtures					-8800
Total Property, Plant & Equipment						125200
Total Assets						280254
Liabilties and Stockholder's Equity
Current Liabilties
Accounts Payable					34200
Salary Payable					4000
Interest payable					6300
Total Current Liabilties						44500
Long term liabilites
Notes payable					30000
Mortgage Payable					40000
Total Long term liabilites						70000
Total Liabilities						114500
Stockholder's equity
Common Stock					60000
Retained earnings					105754
Total Stockholder's equity						165754
Total Liabilties and Stockholder's Equity						280254
e. Prepare closing Journal entries
JOURNAL
Date	Account			Debit	Credit
Dec. 31
1.	Sales			720000
	Income summary				720000
2.	Income summary			678976
	Sales Return and Allowances				2800
	Sales discount				5900
	Cost of goods sold				533700
	Sales salaries expense				58000
	Advertising expense				8660
	Salaries expense, Office and general				31000
	Heat light and water expense				15100
	Telephone expense				1700
	Miscelleneous Office expense				400
	Bad debt expense				3586
	Depreciation expense				5800
	Insurance expense				3900
	Interest expense				8430
3	Income summary			41024
	Retained earnings				41024
f. Indicate the adjusting entries that would be reversed.
Following entries will be reversed:
4.   Interest at 12% is payable on the mortgage on January 1 of each year 5.   Sales salaries accrued, December 31, $4,000. 6.   Advertising expense paid in advance, $740. 7.   Office supplies on hand December 31, $1,600 (charged to Miscellaneous Office Expenses when purchased). 8.   Interest accrued on notes payable, December 31, $1,500.