Question

Corporation prepares quarterly financial statements, ending March 31, 2017. The balance sheet at

December 31, 2016, is presented below.

Cudahy Corporation Balance Sheet December 31, 2016

Assets                                            Liabilities and Stockholders' Equity

Cash                                                              14,575        Accounts payable                  53,025

Accounts receivable                                      34,050        Common stock                      40,000

Allowance for doubtful accounts                 (4,000)        Retained earnings                  84,050

Land                                                              32,000

Equipment                                                     70,000

A/D - equipment                                        (28,000) Building                                                        83,500

A/D - building                                            (25,050)

              177,075                                                    177,075

During the first quarter the following transactions occurred:

1.      Performed services for $85,000 on account.

2.      On February 1, collected fees of $23,040 in advance. $1,920 worth of services are to be performed each month from February 1, 2017, to January 31, 2018. (Wait to make adjusting entries.)

3.      On February 1, purchased equipment for $17,000 plus 5% sales tax. $4,500 cash was paid with the remaining balance on account. Check #755 was used.

4.      On March 5, collected $100,500 on from customers on account.

5.      Paid $22,750 on accounts payable. Check #756 was used.

6.      Paid administrative expenses of $50,250. Check #757 was used.

7.      Acquired a patent with a 10-year life for $13,800 cash on March 1. Check #758 was used.

8.      Wrote off a receivable of $900 from a customer who went bankrupt.

9.      On March 31, Cudahy Corp. sold for $9,100 cash equipment which originally cost $16,000. It had an estimated life of 10 years and a salvage of $2,000. Accumulated depreciation as of December 31, 2016, was $5,600 using the straight line method. (1) Record depreciation on the equipment sold, (2) record the sale.

Adjusting Journal Entries:

10.    Record revenue earned from item 2 above.

11.    Cudahy Corp. estimated that 7.5% of its revenues will end up uncollected. Record bad debt expense.

Hint: You will need to calculate the revenue balance before calculating bad debt expense. You should do this by looking at the ledger after posting entries 1-10.

12.    Record depreciation on the equipment as of March 31. The new equipment purchased in February is being depreciated using the double declining balance method over 5 years. The equipment has an estimated salvage value of $1,000. The equipment that was on the books on December 31, 2016, and that is still owned by Cudahy is being depreciated over a 10-year life using straight line with no salvage value.

13.    Depreciation is recorded on the building on a straight-line basis using a 15-year life and a salvage value of

$6,700.

14.    Amortization is recorded on the patent.

15.    The company reconciles its bank statement every quarter. Information from the December 31, 2016, bank reconciliation is provided below. Make the necessary journal entry. You will need the facts in this item to complete the bank reconciliation for Requirement (e). There were no errors.

Deposit in transit        12/30/16        $3,500

Outstanding Checks          #740       $4,333

#752            550

#753            920

#754         6,000

The bank statement received for the quarter ended March 31, 2017, was:

Beginning balance per bank                                                              $                  22,878

Deposits: 1/2/17 $3,500; 2/2/17 $23,040; 3/6/17 $100,500                               127,040

Checks: #752 $550; #753 $920; #756 $22,750; #757 $50,250                        ( 74,470) Debit memo: Bank service charge (Record as “Administrative expense.”)     (        77) Ending balance per bank                                                                   $                  75,371

16.    Cudahy’s income tax rate is 35%. The tax will be paid when the tax return is due in April.

Hint: Prepare the income statement up to income before taxes and multiply by 35% to compute the amount of income tax expense. Round the tax expense to the nearest whole dollar.

Instructions

Print out the solution pages for the general journal, ledger, and worksheet that follow and enter the following transactions. I suggest that you use a pencil. You must complete all requirements (a) through (h) to receive any credit. Turn in completed work to your TA in discussion, or in their mailbox by midnight, Saturday April 21st.

a.   Enter the December 31, 2016, balances in ledger accounts. Use the ledger account running balance format accounts provided on the following pages. Look at the cash account for an example of how to use the running balance ledger. I have completed the first two lines of it for you. It is a good idea to keep track of whether your balance column is a debit or a credit, particularly for contra accounts.

b.   Enter the transactions numbered 1-9 in the general journal provided on the following pages. c.   Post the journal entries to the ledger accounts for items 1-9.

d.   Prepare an unadjusted trial balance at March 31 and enter on the worksheet. Then complete the other worksheet columns. (See below.)

Worksheet requirement: Using your unadjusted trial balance (d) above and the data for adjusting entries, (e) and (f) below, prepare a 12 column worksheet. Use the example for Sierra Corporation from Chaper 4 in the text (Illustration 4A-1 in Chapter 4 Appendix) for guidance. You will not receive any credit if the worksheet is incomplete.

e.   Prepare a bank reconciliation in good form. (Item 15 above.) Use your own paper. Record the necessary

AJE in the journal, the ledger, and the worksheet.

f.    Journalize and post all other adjusting entries. (Items 10-16 above.) Add them to the worksheet.

g.   Prepare an income statement and a retained earnings statement for the quarter ended March 31, 2017, and a classified balance sheet at March 31, 2017. Appropriate name the gain/loss account on your income statement (you must call it either a gain or a loss, not both.) Use your own paper. (No formatted sheets are supplied as for the other items.)

h.   Journalize closing entries. You are not required to post the closing entries or prepare a post-closing trial balance for this assignment.

EXTRA CREDIT II SOLUTION                                       Name

Requirements (b), (e), and (f)

Extra Credit II – General Journal                               Debit                  Credit

a.1.

a.2.

a.3.

a.4.

a.5.

a.6.

a.7.

a.8.

a.9.

a.10.

a.11.

a.12.

a.13.

a.14.

a.15.

a.16.

cl.1.

cl.2.

cl.3.

General Ledger

Requirements (a), (c), and (d)

CASH                                                                                      DR                    CR             BALANCE

Beginning                                                                                   14,575                                         14,575

ACCOUNTS RECEIVABLE                                               DR                    CR             BALANCE

Beginning

ALLOWANCE FOR DOUBTFUL ACCOUNTS              DR                    CR             BALANCE

Beginning

LAND                                                                                     DR                    CR             BALANCE

Beginning

EQUIPMENT                                                                        DR                    CR             BALANCE

Beginning

ACCUM DEPRECIATION - EQUIPMENT                    DR                    CR             BALANCE

Beginning

General Ledger - continued

BUILDING                                                                            DR                    CR             BALANCE

Beginning

ACCUM DEPRECIATION - BUILDING                          DR                    CR             BALANCE

Beginning

PATENTS                                                                              DR                    CR             BALANCE

ACCOUNTS PAYABLE                                                      DR                    CR             BALANCE

Beginning

UNEARNED SERVICE REVENUE                                   DR                    CR             BALANCE

INCOME TAXES PAYABLE                                             DR                    CR             BALANCE

COMMON STOCK                                                              DR                    CR             BALANCE

Beginning

RETAINED EARNINGS                                                     DR                    CR             BALANCE

Beginning

SERVICE REVENUE                                                          DR                    CR             BALANCE

ADMINISTRATIVE EXPENSES                                       DR                    CR            BALANCE

General Ledger - continued

DEPRECIATION EXPENSE                                              DR                    CR             BALANCE

AMORTIZATION EXPENSE                                             DR                    CR             BALANCE

GAIN/LOSS ON DISPOSAL                                               DR                    CR             BALANCE

BAD DEBT EXPENSE                                                         DR                    CR             BALANCE

INCOME TAX EXPENSE                                                   DR                    CR             BALANCE

Worksheet (d), (e), (f)

8

Answer 1

Date	Particulars	Dr	Cr
	A/R A/C Dr	85000
	To Service Income		85000
1-Feb	Cash A/C Dr	23040
	To Unearned Income		23040
1-Feb	Unearned IncomeA/C Dr	1920
	To Service Income		1920
1-Feb	Equipment A/C Dr	17850
	To Bank		4500
	To Accounts Payable		13350
5-Mar	Cash A/C Dr	100500
	To A/R A/c		100500
3-Jan	Accounts Payable A/C Dr	22750
	To Bank		22750
	Admin Exp A/C Dr	50250
	To Bank		50250
	Patent a/c Dr	13800
	To Cash		13800
	Bad Debt A/C Dr	900
	To A/R		900
31-Mar	Cash A/C Dr	9100
	Dep A/C Dr	350
	Acc Dep A/C Dr	5600
	Loss on Sale A/C Dr	950
	To Equipment		16000
31-Mar	Unearned IncomeA/C Dr	1920
	To Service Income		1920
31-Mar	Bad Debt A/C Dr	6663
	To A/R		6663
	Dep A/C Dr	3035
	To Equipment		3035
	Dep A/C Dr	1280
	To Building		1280
	Amortisation A/C Dr	115
	To Patent		115
			Cash Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan To Bal c/d 14575 By Equipment 4500 To Unearned Income 23040 By Admin 50250 To A/R A/c 100500 By Accounts Payable 22750 To Equipment 9100 By Patent 13800 By Bal c/d 55915 TOTAL 147215 147215 Equipments Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan To Bal c/d 70000 To Bank 4500 By Cash A/C 9100 To Accounts Payable 13350 By Dep A/C 350 By Acc Dep A/C 5600 Loss on Sale A/C 950 By Bal c/d 71850 Account Recievable Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan To Bal c/d 34050 1-Jan By Bal c/d 4000 To Service Income 85000 By Cash 100500 By Bad debt 900 By Bad debt 6663 By Bal c/d 6987 TOTAL 119050 119050 Land Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan To Bal c/d 32000 By BAL C/D 32000 32000 32000 Building Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan To Bal c/d 83500 83500 0 Accounts Payable Debit Side Credit Side Date Particulars Amt Date Particulars Amt To Bank 50250 1-Jan By Bal c/d 53025 By Equipment 13350 To Bal b/d 16125 66375 66375 Equity Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan By Bal c/d 40000 Retained Earnings Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Jan By Bal c/d 84050 To Bal b/f 110300 By P& L 26250 110300 110300 Income Debit Side Credit Side Date Particulars Amt Date Particulars Amt 1-Feb By A/R 85000 1-Feb By Unearned Income 1920 31-Mar By Unearned Income 1920 88840 Patent Debit Side Credit Side Date Particulars Amt Date Particulars Amt To Cash 13800 By Amortisation 115 115 Unearned Income Debit Side Credit Side Date Particulars Amt Date Particulars Amt To Service Income 1920 By Cash 23040 31-03 To Service Income 1920 3840 23040 Admin Exp Debit Side Credit Side Date Particulars Amt Date Particulars Amt 10-Jan To Cash 50250 Bad debts Debit Side Credit Side Date Particulars Amt Date Particulars Amt To A/R 900 To A/R 6663 7563 Depreciation Debit Side Credit Side Date Particulars Amt Date Particulars Amt To Equipment 350 To Equipment 3035 To Building 1280 4665 Acc Depreciation Debit Side Credit Side Date Particulars Amt Date Particulars Amt To Equipment 5600 By BAL C/D 28000 By BAL C/D 25050 To BAL C/F 51765 By Depreciation 3035 By Depreciation 1280 57365 57365 Amortisation Debit Side Credit Side Date Particulars Amt Date Particulars Amt 29-Jan To Patent 115 Trial Balance Particulars Dr Cr Cash 55915 Equipment 71850 AR 6987 Land 32000 Building 83500 Accounts Payable 16125 Euity 40000 Retained Earnings 110600 Income 88840 Patent 13685 Unearned Income 19200 Admin Exp 50250 Bad debt 7563 Dep 4665 Acc dep 51765 Amortisation 115 Tax 9188 Provision 9188 335718 335718