Question

QUESTION 5. Account balances from the ledger of Summer Company on December 31, 2018, are as follows:

Accounts Payable .................................................................................. $ 23,000

Accounts Receivable ............................................................................. 38,000

Accumulated Depreciation--Equipment ................................................. 64,000

Allowance for Doubtful Accounts ........................................................... 2,000

Patent .................................................................................................... 8,400

Capital Stock, $10 par ........................................................................... 100,000

Cash ...................................................................................................... 60,260

Inventory ................................................................................................ 105,000

Sales Supplies Inventory ....................................................................... 900

Interest Expense .................................................................................... 6,600

Inventory, December 31, 2017 .............................................................. 104,850

Contributed Capital in Excess of Par Value ........................................... 15,000

Long-Term Note Receivable, 14% ......................................................... 12,000

Mortgage Payable, 12% ......................................................................... 60,000

Investment Revenue ......... .................................................................... 1,120

Accumulated Depreciation-Equipment ................................................... 64,000

Rent Revenue ........................................................................................ 3,000

Retained Earnings, December 31, 2017 ................................................ 32,440

Sales ...................................................................................................... 700,000

Cost of Goods Sold ................................................................................ 380,000

Selling Expenses ................................................................................... 164,400

General and Administrative Expenses .................................................. 55,000

Equipment ............................................................................................. 180,000

Adjustments required on December 31, 2018:

(a) Estimated bad debt loss rate is 1/4 percent of credit sales. Credit sales for the year amounted to $200,000.

(b) Interest on the long-term note receivable was last collected August 31, 2018.

(c) Estimated life of the equipment is 10 years, with a residual value of $20,000. Allocate 10 percent of depreciation expense to general and administrative expense and the remainder to selling expenses. Use straight-line depreciation.

(d) Estimated economic life of the patent is 14 years (from January 1, 2018) with no residual value. Straight-line amortization is used. Depreciation expense is classified as selling expense.

(e) Interest on the mortgage payable was last paid on November 30, 2018.

(f) On June 1, 2018, the company rented some office space to a tenant for one year and collected $3,000 rent in advance for the year; the entire amount was credited to rent revenue on this date.

(g) On December 31, 2018, the company received a statement for calendar year 2018 property taxes amounting to $1,300. The payment is due February 15, 2019. Assume that the payment will be made on February 15, 2019.

a)	Prepare adjusting journal entries.
b)	How much should be reported as selling expenses?
c)	What is the ending balance in retained earnings?

Answer 1