Question

Selected transactions completed by Kornett Company during its first fiscal year ended December 31, 20Y5, were as follows:

Jan.3Issued a check to establish a petty cash fund of $4,500.

Feb.26Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $1,680; miscellaneous selling expense, $570; miscellaneous administrative expense, $880.

Apr.14Purchased $31,300 of merchandise on account, terms 1/10, n/30. The perpetual inventory system is used to account for inventory.

May13Paid the invoice of April 14 after the discount period had passed.

17Received cash from daily cash sales for $21,200. The amount indicated by the cash register was $21,240.

Jun.2Received a 60-day, 8% note for $180,000 on the Ryanair account.

Aug.1Received amount owed on June 2 note, plus interest at the maturity date. Assume a 360-day year.

24Received $7,600 on the Finley account and wrote off the remainder owed on a $9,000 accounts receivable balance. (The allowance method is used in accounting for uncollectible receivables.)

Sep.15Reinstated the Finley account written off on August 24 and received $1,400 cash in full payment. (Record as two entries.)

Record the following on journal page 22.

Sep.15Purchased land by issuing a $670,000, 90-day note to Zahorik Co., which discounted it at 9%. Assume a 360-day year.

Oct.17Sold office equipment in exchange for $135,000 cash plus receipt of a $100,000, 90-day, 9% note. The equipment had a cost of $320,000 and accumulated depreciation of $64,000 as of October 17.

Nov.30Journalized the monthly payroll for November, based on the following data:

Salaries:Deductions:

Sales salaries$135,000Income tax withheld$39,266

Office salaries77,250Social security tax withheld12,735

$212,250Medicare tax withheld3,184

Unemployment Tax rates:

State unemployment5.4%

Federal unemployment0.8%

Amount subject to unemployment taxes:

State unemployment$5,000

Federal unemployment5,000

30Journalized the employer’s payroll taxes on the payroll.

Dec.14Journalized the payment of the September 15 note at maturity.

31The pension cost for the year was $190,400, of which $139,700 was paid to the pension plan trustee.

Required:

1.Journalize the selected transactions, starting on page 21 of the journal.*

2.Based on the following data, prepare a bank reconciliation for December of the current year. Refer to the Labels and Amount Descriptions list for exact wording of text entries. Enter all amounts as positive numbers.

•Balance according to the bank statement at December 31, $283,000.

•Balance according to the ledger at December 31, $245,410.

•Checks outstanding at December 31, $68,540.

•Deposit in transit, not recorded by bank, $29,500.

•Bank debit memo for service charges, $750.

•A check for $12,700 in payment of an invoice was incorrectly recorded in the accounts as $12,000.

3.Based on the bank reconciliation prepared in (2), journalize the entry or entries to be made by Kornett Company on page 23 of the journal. Use the Miscellaneous Administrative Expense account to record bank service charges. Round your answers to the nearest dollar.

4.Based on the following selected data, journalize the adjusting entries as of December 31 of the current year on page 23 of the journal:

•Estimated uncollectible accounts at December 31, $16,000, based on an aging of accounts receivable. The balance of Allowance for Doubtful Accounts at December 31 was $2,000 (debit).

•The physical inventory on December 31 indicated an inventory shrinkage of $3,300.

•Prepaid insurance expired during the year, $22,820.

•Office supplies used during the year, $3,920.

•Depreciation is computed as follows:

Residual

Acquisition

Useful Life

Asset

Cost

Value

Date

in Years

Depreciation Method Used

Buildings$900,000$0January 250Double-declining-balance

Office Equip.246,00026,000January 35Straight-line

Store Equip.112,00012,000July 110Straight-line

•A patent costing $48,000 when acquired on January 2 has a remaining legal life of 10 years and is expected to have value for 8 years.

•The cost of mineral rights was $546,000. Of the estimated deposit of 910,000 tons of ore, 50,000 tons were mined and sold during the year.

•Vacation pay expense for December, $10,500.

•A product warranty was granted beginning December 1 and covering a one-year period. The estimated cost is 4% of sales, which totaled $1,900,000 in December.

•Interest was accrued on the note receivable received on October 17. Assume a 360-day year.

* Refer to the Chart of Accounts for exact wording of account titles. Round your answers to the nearest dollar

5.Based on the following information and the post-closing trial balance that follows, prepare a balance sheet in report form at December 31 of the current year. Be sure to complete the heading of the balance sheet. Enter assets in the order in which they appear in the post-closing trial balance. Refer to information given in the problem and the Labels and Amount Descriptions list for exact wording of text entries. There is no need to include “(current portion)” or a due date with any account titles. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Round your answers to the nearest dollar

•The merchandise inventory is stated at cost by the LIFO method.

•The product warranty payable is a current liability.

•Vacation pay payable:

Current liability: $7,140

Long-term liability: 3,360

•The unfunded pension liability is a long-term liability.

•Notes payable:

Current liability: $70,000

Long-term liability: 630,000

Kornett Company

POST-CLOSING TRIAL BALANCE

December 31, 20Y5

ACCOUNT TITLEDEBITCREDIT

1

Petty Cash

4,500.00

2

Cash

243,960.00

3

Notes Receivable

100,000.00

4

Accounts Receivable

470,000.00

5

Allowance for Doubtful Accounts

16,000.00

6

Inventory

320,000.00

7

Interest Receivable

1,875.00

8

Prepaid Insurance

45,640.00

9

Office Supplies

13,400.00

10

Land

654,925.00

11

Buildings

900,000.00

12

Accumulated Depreciation-Buildings

36,000.00

13

Office Equipment

246,000.00

14

Accumulated Depreciation-Office Equipment

44,000.00

15

Store Equipment

112,000.00

16

Accumulated Depreciation-Store Equipment

5,000.00

17

Mineral Rights

546,000.00

18

Accumulated Depletion

30,000.00

19

Patents

42,000.00

20

Social Security Tax Payable

25,470.00

21

Medicare Tax Payable

4,710.00

22

Employees Income Tax Payable

40,000.00

23

State Unemployment Tax Payable

270.00

24

Federal Unemployment Tax Payable

40.00

25

Salaries Payable

157,000.00

26

Accounts Payable

131,600.00

27

Interest Payable

28,000.00

28

Product Warranty Payable

76,000.00

29

Vacation Pay Payable

10,500.00

30

Unfunded Pension Liability

50,700.00

31

Notes Payable

700,000.00

32

Common Stock

500,000.00

33

Retained Earnings

1,845,010.00

34

Totals

3,700,300.00

3,700,300.00

Answer 1

1.

Journal entries

Date	Account Titles	Debit	Credit
Jan 03	Petty Cash	$4500
	Cash		$4500
Feb 26	Office Supplies	$1680
	Misc. Selling Expenses	$570
	Misc. Admin Expensen	$880
	Cash		$3130
Apr 14	Merchandise Inventory	$31300
	Account Payable		$31300
May 13	Account Payable	$31300
	Cash		$31300
May 17	Cash	$21200
	Cash Short and cover	$40
	Sales		$21240
Jun 02	Notes receivable	$180000
	Account Receivable - Reyanair		$180000
Aug 01	Cash	$182400
	Notes receivable		$180000
	Interest Revenue		$2400
Aug 24	Cash	$7600
	Allowance For Doubtful Accounts	$1400
	Account receivable - Finley		$9000
Sep 15	Account recivable - Finley	$1400
	Allowance for doubtful accounts		$1400
	Cash	$1400
	Account receivable - Finley		$1400
Sep 15	Land	$654925
	Interest expenses	$15075
	Notes Payable ($670000 x 90 / 360) x 9%		$670000
Oct 17	Cash	$135000
	Notes Receivable	$100000
	Accumalated Depreciation	$64000
	Loss on sale of office Equipment	$210000
	Office Equipment		$320000
Nov 30	Sales salaries expenses	$135000
	Office salaries expenses	$77250
	Employees income tax payable		$39266
	Social Security tax payable		$12375
	Medicare tax payable		$3184
	Salaries payable		$157065
Nov 30	Payroll tax expenses	$16229
	Social security tax payable		$12375
	Medicare tax payable		$3184
	State Unemployment tax payable ($5000 x 5.4%)		$270
	Federal Unemployment tax payable ($5000 x 0.8%		$40
Dec 14	Notes Payable	$670000
	Cash		$670000
Dec 31	Pension Expences	$190400
	Cash		$139700
	Unfunded pension liability		$50700

2.

Bank Reconciliation Statement

Particulars	Amount ($)
Balance as per Bank Ledger	245410
Add: Cheque Outstanding on 31 December	68540
Less: Deposit in transit	(29500)
Less: Bank Service Charges	(750)
Less: Payment of $12700 incorrectly recorded in books as $12000	(700)
Balance as Bank Statement	283000

3.

Adjusted Journal Entries

Date	Account Titles	Debit	Credit
Dec 31	Bank Charges	$750
	Cash		$750
Dec 31	Account Payable	$700
	Cash		$700

4.

Date	Account Titles	Debit	Credit
A	Bad Debt Expenses	$18000
	Allowance for doubtful accounts ($16000+$2000)		$18000
B	Cost of Merchandise sold	$3300
	Merchandise inventory		$3300
C	Insurance expense	$22820
	Prepaid insurance		$22820
D	Office supplies expense	$3920
	Office supplies		$3920
E	Depreciation expense-Buildings ($900000 × 4%)	$36000
	Depreciation expense-Office equipment [($246000-$26000) × 20%]	$44000
	Depreciation expense-Store equipment [($112000-$12000) × 1/2 × 10%]	$5000
	Accumulated depreciation -Building		$36000
	Accumulated depreciation -Office equipment		$44000
	Accumulated depreciation -Store equipment		$5000
	Account Receivable - Reyanair		$180000
F	Amortization expense-patents	$6000
	Patents ($48000/8years)		$6000
G	Depletion expense	$30000
	Accumulated depletion [($546000/910000 tons) × 50,000 tons		$30000
H	Vacation pay expense	$10500
	Vacation pay payable		$10500
I	Product warranty expense	$76000
	Product warranty payable ($19000000 × 4%)		$76000
J	Interest receivable	$1875
	Interest revenue [($100000 × 75/360 × 9%)]		$1875

Computation of Deprecaition

	Life	Cost	Residual Value	Depreciation By SLM	Depreciation By Double diminishing method
Building	50	90000		1800	3600
Office Equipment	5	246000	26000	44000
Store Equipment	10	112000	12000	10000

5.

Balance Sheet   

Kornett Company
Balance Sheet as on December 31,20Y5
Assets
Current Assets:	Amounts ($)
Petty Cash		4500
Cash		243960
Notes Receivable		100000
Account Receivable	470000
Allowance for Doubtful Accounts	-16000
		454000
Inventory		320000
Interest receivable		1875
Prepaid insurance		45640
Office Supplies		13400
Total Current Assets			1,183,375
Property plant and equipment:
Land		654925
Building	900000
Accumulated Depreciation-Buildings	-36000
		864000
Office Equipment	246000
Accumulated Depreciation- Office Equipment	-44000
		202000
Store Equipment	112000
Accumulated Depreciation- Store Equipment	-5000
		107000
Mineral Rights	546000
Accumulated Depletion	-30000
		516000
Total Property plant and equipment			2,343,925
Intangible Assets:
Patents			42,000
Total Assets			3,569,300
Liabilities
Current Liabilities:
Social Security Tax Payable		25470
Medicare tax payable		4710
Employees federal income tax payable		40000
State unemployment tax payable		270
Federal unemployment tax payable		40
Salaries payable		157000
Accounts payable		131600
Interest payable		28000
Product warranty payable		76000
Vacation pension liability		7140
Notes payable		70000
Total current liabilities			540,230
Long-term liabilities:
Vacation pay payable		3360
Unfunded pension liability		50700
Notes payable		630000
Total long-term liabilities			684,060
Stockholders' equity
Common stock		500000
Retained earnings		1845010
Total stockholders' equity			2,345,010
Total liabilities and stockholders' equity			3,569,300