Question

The problem to be resolved:

Baltic Supplies Unadjusted Trial Balance as at December 31^st, 2018 is as follows:

Account Name Debit Credit

Cash 620,000

Accounts Receivable 410,000

Merchandise Inventory 480,000

Store supplies 144,800

Prepaid Insurance expense 840,000

Building and equipment 2,000,000

Accumulated depreciation-Building and equipment 976,000  

Accounts Payable 680,000

Traveling expense payable -   

unearned sales revenue    450,000   

Note payable-Long term 213,800

Baltic capital 1,700,000

Baltic withdrawal 35,000   

Sales revenue earned 2,550,500

sales discount 45,100

Sales returns allowance 62,500

Cost of Goods sold 401,000

Salaries expense 430,000

telephone expense 85,000

Depreciation expense- Building and equipment -

Insurance expense 630,000

store supplies expense 130,000

electricity expense 105,000   

Bad debt expense 65,400

Travelling expense 25,000

Interest expense 61,500

The following additional information was made available at December 31, 2018

1. Unearned sales revenue, still NOT earned at December 31, 2018 amounted $65,500.
2. The prepaid insurance of $840,000 was paid on July 1, 2018 for 8-months to February 2019.
3. The Building and Equipment has an estimated life of ten (10) years and is being depreciated on the double declining balance method of depreciation, down to a residual value of $10,000.
4. Accrued travelling expense amounted to $8,800 at December 31, 2018.
5. A physical count of inventory at December 31, 2018, reveals $485,000 worth of inventory on hand.

Required:

1. Prepare the necessary adjusting entries on December 31, 2018.

2. Prepare the company’s Multiple-step Income Statement for the year ended December 31, 2018.

3. Prepare the company’s Statement of Owner’s Equity for the year ended December 31, 2018.

4. Prepare the company’s classified Balance Sheet at December 31, 2018.

Answer 1

	Journal entry	Nature	Debit amount	Credit amount
a	Unearned revenue	Debit	$                384,500		450000-65500
	Sales revenue	Credit		$                                                    384,500
b	Insurance expense	Debit	$                630,000		840000*6/8
	Prepaid Insurance expense	Credit		$                                                    630,000
c	Depreciation expense	Debit	$                400,000		100%/10*2	20%*2,000,000
	Accumulated depreciation-Building and equipment	Credit		$                                                    400,000
d	Accrued Travelling expense	Debit	$                    8,800
	Travelling expense	Credit		$                                                        8,800
e	Merchandise inventory	Debit	$                    5,000
	Cost of Goods sold	Credit		$                                                        5,000
	Income Statement
	Sales revenue earned	$   2,935,000	2550500+384500
	Total revenue	$   2,935,000
	Expenses
	Cost of goods sold	$      396,000	401000-5000
	Sales discount	$        45,100
	Sales returns allowance	$        62,500
	Salaries expense	$      430,000
	telephone expense	$        85,000
	Depreciation expense-Building & equipment	$      400,000
	Insurance expense	$   1,260,000	630000+630000
	Store supplies expense	$      130,000
	Electricity expense	$      105,000
	Bad debt expense	$        65,400
	Travelling expense	$        16,200	25000-8800
	Interest expense	$        61,500
	Total expenses	$   3,056,700
	Net income	$     (121,700)
	Assets	Amount
	Cash	$      620,000
	Accounts Receivable	$      410,000
	Merchandise Inventory	$      485,000	480000+5000
	Store supplies	$      144,800
	Prepaid Insurance expense	$      210,000	840000-630000
	Building and equipment	$   2,000,000
	Less: Accumulated depreciation	$ (1,376,000)	976000+400000
	Accrued Travelling expense	$           8,800
	Total assets	$ 2,502,600
	Liabilities	Amount
	Accounts Payable	$      680,000
	Traveling expense payable	$                 -
	unearned Sales revenue	$        65,500	450000-384500
	Note payable-Long term	$      213,800
	Total Liabilities	$      959,300
	Total Equity	$   1,543,300
	Total Liabilities & equity	$ 2,502,600
	Statement of owners equity
	Baltic capital	$   1,700,000
	Less: Baltic withdrawal	$       (35,000)
	Less: Net Loss	$     (121,700)
	Total equity	$   1,543,300

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