Question

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.  

m.   Accounting Creations 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 $3,514. These costs were expensed and recorded as a miscellaneous selling expense. Accounting Creations 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 $15,000.  

n.    Accounting Creations uses the FIFO Inventory Method in valuing inventory. The inventory balance of $425,000 was based on a physical count at 12/31/2018. Based on your analysis, you have noted that $12,500 of marketing games that belonged to Marketing Majors Inc. was included in the account. You also note that $7,000 of goods shipped to Accounting Creations f.o.b. destination were in transit on December 31, 2018 and included in the physical count.

o.    You note during the review of sales, that a rebate was issued for the 2018 Income Tax Game to encourage sales. 34,000 games were sold. Customers can mail in their receipt and receive a $1 rebate per game. It is estimated that 60% of customers will send in the rebate. The rebate expires on January 31, 2019. To date, 8,000 customers have sent in the rebate and $16,000 has been refunded. Without any direction, the accounting clerk debited Miscellaneous Selling Expense and credited Cash for the $16,000. The management of Accounting Creations would prefer to have this type of expense in a separate account (Rebate Expense) so they can properly analyze for future ideas.

Accounting Creations has a straight tax rate of 35%. Income tax expense is Net Income before taxes times 35%. (Hint: Prepare the Income Statement up to Net Income before Taxes and then record this adjusting journal entry.)

ance for Doubtful Accounts	-	17,000
Interest Receivable	-	-
Merchandise Inventory	425,000	-
Prepaid Insurance	-	-
LIFO Reserve	-	32,000
Prepaid Advertising	-	-
Prepaid Rent	17,000	-
Office Supplies	6,000	-
Note Receivable	25,000
Available for Sale Securities	375,000	-
Office Building	3,750,000	-
Accumulated Depreciation - Office Building	-	87,500
Storage Building	1,275,000	-
Accumulated Depreciation - Storage Building	-	-
Land	750,000	-
Leasehold Improvements	225,000	-
Accumulated Depreciation - Leasehold Improvements	-	-
Office Equipment	325,000	-
Accumulated Depreciation - Office Equipment	-	65,000
Patent	150,000	-
Accounts Payable	-	345,000
Sales Tax Payable	-	-
Salaries Payable	-	142,000
Payroll Taxes Payable	-	25,000
Interest Payable	-	-
Income Tax Payable	-	-
Unearned Rent Revenue	-	-
Loan Payable - Onstar Bank	-	650,000
Loan Payable - Coldstar Bank	-	2,000,000
Common Stock	-	650,000
Additional Paid in Capital	-	1,998,750
Retained Earnings	-	920,000
Accumulated Other Comprehensive Income	-	25,000
Dividends	84,750	-
Sales	-	4,528,200
Sales Returns and Allowances	42,250	-
Sales Discounts	19,250	-
Cost of Goods Sold	1,979,500	-
Sales Salaries Expense	436,400	-
Office Salaries Expense	274,000	-
Advertising Expense	16,000	-
Depreciation Expense - Office Building	-
Depreciation Expense - Leasehold Improvements	-	-
Depreciation Expense - Office Equipment	-	-
Leasing Expense - Stores	132,000	-
Miscellaneous Selling Expense	23,000	-
Research & Development Expense	15,000
Rent Expense - Storage Facility	-	-
Insurance Expense	15,000	-
Office Supplies Expense	35,000	-
Miscellaneous Administrative Expense	9,170	-
Rent Revenue	-	75,000
Interest Revenue on Note Receivable	-	-
Dividend Revenue on AFS Securities	-	25,000
Interest Expense	-	-
Bad Debt Expense	35,000	-
Amortization Expense	-	-
Income Tax Expense	-	-
Payroll Taxes Expense	121,150	-
	11,585,450	11,585,450

Answer 1

Statement of Income
for the year ended 31 Mar 2018.
Income								Amount(Rs)	Amount(Rs)
Sales								4,528,200.00
Less: Sales Discounts								19,250.00
Less: Sales Returns & Allowances								42,250.00	4,466,700.00
Other Income
Rent Revenue								75,000.00
Dividend Revenue on AFS Securities								25,000.00	100,000.00
Expenses
Cost of goods Sold							1,979,500.00
Add: Stock of Marketing Majors included							12,500.00	1,992,000.00
Sales Salaries Expenses								436,400.00
Office Salaries Expenses								274,000.00
Advertising Expenses								16,000.00
Leasing Expenses								132,000.00
Miscellaneous Selling Expenses							23,000.00
Less: Capitalization of Shipping & installation cost of fixtures							3,514.00
Less: Rebate Expenses							16,000.00	3,486.00
Rebate Expenses								16,000.00
Research & Development expenses								15,000.00
Insurance Expenses								15,000.00
Office supplies Expenses								35,000.00
Depreciation on Leasehold Fixtures								28,468.00
Provision for Rebate expenses								4,400.00
Miscellaneous Administrative expenses								9,170.00
Bad debt expenses								35,000.00	3,011,924.00
Net income before taxes									1,554,776.00
Journal Entries
Date	Particulars							Amount	Amount
31-Dec-18	Office Supplies Account						Dr	3514
		To Statement of Profit & loss account							3514
31-Dec-18	SPL A/c						Dr	12500
		To Inventory A/c							12500
31-Dec-18	SPL A/c						Dr	4400
		Provision for Rebate expenses							4400