Question

The Unadjusted Trial Balance has been prepared (provided below and also in ThreeBrothers worksheet.xlsx), showing only those accounts with a non-zero balance. You have gathered the following information that will be helpful in preparing any necessary adjusting entries (add any accounts necessary). Good luck!

ThreeBrothers	Unadjusted Trial Balance
	Dec. 31, 2017
	debit	credit
Cash	4,400,000
Accounts Receivable	22,500,000
Allowance for Bad Debts		20,000
Inventory	2,500,000
Purchases	85,832,500
Construction in Progress Inventory	36,000,000
Billings on Contract		35,000,000
PP&E	60,000,000
Accumulated Depreciation		36,000,000
Accounts Payable		18,000,000
Income Tax Payable		136,000
Common Stock		1,500,000
Retained Earnings		33,444,000
Sales Revenue		134,500,000
Sales Returns	2,017,500
NEWPROD Revenue		9,000,000
FITTRACKER Revenue		10,000,000
Cost of NEWPROD Sold	8,100,000
Cost of FITTRACKER Sold	4,500,000
General and Admin	51,750,000
TOTAL	277,600,000	277,600,000

ThreeBrothers uses a periodic FIFO inventory system for its normal operations. A physical inventory count indicated 40,000 units on hand at the end of 2017.

                                    PURCHASES FOR 2017(normal operations)

Beginning units:	5,000 units @ $500 each
Purchases:
Apr - May	40,000 units @ $500 each
Jun - Jul	35,000 units @ $505 each
Aug - Sep	48,500 units @ $515 each
Oct	24,000 units @ $520 each
Nov - Dec	20,000 units @ $535 each

Question - ThreeBrothers uses straight-line depreciation and all fixed assets were purchased at the beginning of 2014 and have a 5-year useful life. No depreciation entries have been recorded in 2017.

I need the adjusting journal entry and closing journal entry - for the question, if necessary. Thank You.

Answer 1

Answer

Calculation of Depriciation for 2017 = $60,000,000/5 = $12,000,000

Calculation of closing Inventory = ThreeBrothers is using FIFO so inventory which has been bought at last will go to stock

Nov - Dec - 20,000 units @ $535 each = $10,700,000

Oct   - 20000 Units @$520 each = $10,400,000

So closing Inventory Value = $10,700,000+ $10,400,000 = $21,100,000

So Increase/ (Decrease) in Inventory = $21,100,000 -$2,500,000 (Closing - Opening) = $18,600,000

Journal Entries

Journal Entry
	Dr	Cr
Inventory Dr	18,600,000
Cost of Goods sold credit		18,600,000
(To record diff in opening and closing inventory)
Depriciation	12,000,000
Accumulated Depreciation		12,000,000
(To record depriciation for 2017)
Sales Revenue Account	134,500,000
NEWPROD Revenue Account	9,000,000
FITTRACKER Revenue Account	10,000,000
Sales Return Account		2,017,500
Depriciation Account		12,000,000
Purchase Account		85,832,500
Cost of NEWPROD Sold Account		9,000,000
Cost of FITTRACKER Sold Account		10,000,000
General and Admin Account		51,750,000
Cost of Goods sold credit	18,600,000
Profit and Loss Account		1,500,000
(Adjustment entry for 2017 end)
Profit and Loss Account	1,500,000
Retained Earning		1,500,000
(To transfer profit of 2017 to retained earning by assuming no Interest and Tax) Thanks