Question

Czar was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 520,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018.

1.         On the “Adjusting Journal Entries” worksheet, prepare in journal entry form all adjusting    and correcting journal entries based on the following information. All information was        provided to you as of 12/31/2018. (Round all numbers to the nearest dollar). Label            journal entries a through t.

P- On 2,1, 2018, Czar rented a portion of one store to Pellston Inc. The contract was for 15 months and Czar required all of the cash up front. The rent is being earned equally each month. This is the only item in which rent is being earned by the company.

Q- Czar started to lease some new retail space in 2018 and added shelving and fixtures to this leased space. Based on your review of invoices, the previous accountant capitalized the cost of fixtures but did not capitalize the shipping and installation costs of $2,815. These costs were expensed and recorded as a miscellaneous selling expense. Czar has decided to use double declining balance (DDB) depreciation for this item and to take a full year of depreciation in the year of acquisition. The leasehold improvements have a useful life of 15 years with a salvage value of $12,000.  

R- Czar uses the FIFO Inventory Method in valuing inventory. The inventory balance of $340,000 was based on a physical count at 12/31/2018. Based on your analysis, you have noted that $10,000 of marketing games that belonged to Pellston Inc. was included in the account. You also note that $5,600 of goods shipped to Czar f.o.b. destination were in transit on December 31, 2018 and included in the physical count.

Czar Incorporated
End of Period Worksheet
For the Year Ended December 31, 2018
	Unadjusted				Adjusted
Account Title	Trial Balance		Adjustments		Trial Balance
	DR	CR	DR	CR	DR	CR
Cash	264,000	-
Accounts Receivable	555,984	-
Allowance for Doubtful Accounts	-	13,600
Interest Receivable	-	-
Merchandise Inventory	340,000	-
Prepaid Insurance	-	-
LIFO Reserve	-	25,600
Prepaid Advertising	-	-
Prepaid Rent	13,600	-
Office Supplies	4,800	-
Note Receivable	20,000
Available for Sale Securities	300,000	-
Office Building	3,000,000	-
Accumulated Depreciation - Office Building	-	70,000
Storage Building	1,020,000	-
Accumulated Depreciation - Storage Building	-	-
Land	600,000	-
Leasehold Improvements	180,000	-
Accumulated Depreciation - Leasehold Improvements	-	-
Office Equipment	260,000	-
Accumulated Depreciation - Office Equipment	-	52,000
Patent	120,000	-
Accounts Payable	-	276,000
Sales Tax Payable	-	-
Salaries Payable	-	113,600
Payroll Taxes Payable	-	20,000
Interest Payable	-	-
Income Tax Payable	-	-
Unearned Rent Revenue	-	-
Loan Payable - First Trust	-	520,000
Loan Payable - Coldwell Bank	-	1,600,000
Common Stock	-	520,000
Additional Paid in Capital	-	1,599,000
Retained Earnings	-	736,000
Accumulated Other Comprehensive Income	-	20,000
Dividends	67,800	-
Sales	-	3,622,560
Sales Returns and Allowances	33,800	-
Sales Discounts	15,400	-
Cost of Goods Sold	1,583,600	-
Sales Salaries Expense	349,120	-
Office Salaries Expense	219,200	-
Advertising Expense	12,800	-
Depreciation Expense - Office Building	-
Depreciation Expense - Leasehold Improvements	-	-
Depreciation Expense - Office Equipment	-	-
Leasing Expense - Stores	105,600	-
Miscellaneous Selling Expense	18400	-
Research & Development Expense	12,000
Rent Expense - Storage Facility	-	-
Insurance Expense	12,000	-
Office Supplies Expense	28,000	-
Miscellaneous Administrative Expense	7,336	-
Rent Revenue	-	60,000
Interest Revenue on Note Receivable	-	-
Dividend Revenue on AFS Securities	-	20,000
Interest Expense	-	-
Bad Debt Expense	28,000	-
Amortization Expense	-	-
Income Tax Expense	-	-
Payroll Taxes Expense	96,920	-
Rebate Expense	-	-
Unrealized holding loss	-	-
Depreciation Expense-Storage Building	-	-
Loss on Impairment	-	-
Rebate Liability	-	-
Restricted Cash for Future Expansion	-	-
	9,268,360	9,268,360

Answer 1

P. Total Rent revenue for 15 months is $ 60000

     Rent for 12 months is $ 48000(60000*12/15)

    Rent for 3 months is $ 12000(60000*3/15)

    Journal Entries:-

   Rent Revenue A/c Dr.                     12000

            To Accrued Rent A/c                                   12000

[Being the rent accrued recognised as income was adjusted.]

Q. Shipping and installation costs were wrongly included in the miscellaneous selling expense, hence excluding and capitalizing the leasehold improvements.

    Total Value of Leasehold improvements is $ 180000 + S 2815 = $ 182,815.

    Rate of Depreciation is 100%/15 Years *2 = 13.33% (Czar Uses double declining method for depreciation).

Amount of depreciation is 182815*13.33% = $ 24,442

Journal Entries:-

   Leasehold Improvement A/c Dr.                    2815

            To miscellaneous selling expense A/c                      2815

[Being the leasehold improvement account capitalized for shipping and installation cost]

Depreciation A/c Dr.                                        24442

            To Leasehold Improvement A/c                                24442

[Being deprecition provided on the leasehold improvement including shipping and installation cost]

R. Value of Merchandise inventory as December 31, 2018

Inventory Balance as per Trail Balance $ 340000

    Less: Cost of marketing games that belonged to Pellston Inc.(given) -  $   10000

$ 330000

   Less: Cost of Inventory in Transit(Given) -  $     5600

   Value of inventory $ 324400

Journal Entries:-

   Pellston Inc A/c Dr.                                           10000

            To Merchandise inventory A/c                                   10000

[Being the stock of Pellston Inc excluded from the Merchandise inventory]

   Stock in Transit A/c Dr.                                       5600

            To Merchandise inventory A/c                                    5600

[being the goods in the stock in transit excldued from the Merchandise inventory]