Question

Can you please solve only J, K, L, S & T

Accounting Creations was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 650,000 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.

A-Based on your review of the cash balances, you note that there was an overdraft of $12,000 in one of your bank accounts. However, there are many bank accounts at the specific bank where the account with the overdraft is deposited. The total cash at this bank equaled a debit balance of $180,000. The previous accountant moved the overdraft to Accounts Payable. You also note the Board of Directors has restricted $65,000 of cash for future expansion. This $65,000 is part of the cash balance. The future expansion will not occur for several more years.

B-Based on your inquiries, you note that $35,000 of accounts receivable had been written off during the year. The clerk had debited bad debt expense for $35,000 and credited Accounts Receivable for $35,000. When $8,500 of accounts previously written off had been collected, the accountant debited cash and credited sales. The company uses the allowance method based on the aging of accounts receivable. Based on this method, Accounting Creations determines that uncollectible accounts are $46,500 at the end of 2018.

C- On April 1, 2018, Accounting Creations renewed a 15-month insurance policy for $15,000. All cash was paid at the time the policy was signed and insurance expense was increased. All other transactions involving insurance were properly recorded.

D- On November 1, 2018, Accounting Creations loaned a key supplier, $25,000. A promissory note was signed and issued. The note is due in full 6-months. The supplier agrees to pay interest on the note at an annual rate of 3%. Principle and interest will be paid at the end of the 6-months. The note was recorded in Notes Receivable and is the only note outstanding.

E- Per a physical count of office supplies, $5,615 of supplies remained at the end of 2018. The balance on the worksheet in the office supplies account represents last years ending balance. During the year, $35,000 of office supplies were purchased and immediately expensed.

F- On November 1, 2018 Accounting Creations paid ABC Advertising $16,000 for a four-month campaign of advertising services. Equal services are provided each month.

G- Because of a new product line, Accounting Creations needed some temporary additional storage space so on _____3,1, 2018 they rented a unit for an annual rate of $17,000 and they paid the entire amount up front.

H- The storage building was self-constructed this year by Accounting Creations. The Company had their initial expenditure of $500,000 on January 1. They paid an additional $375,000 on May 1st, $250,000 on August 1st, and then the final payment of $150,000 on December 1st when the building was completed, and occupancy occurred. The company has decided to use S/L method for depreciation. The storage building is estimated to have a life of 40 years and a salvage value of $75615. (Enter the last four digits of your student number.)   The company depreciates using partial years.

I- Accounting Creations Double Entry has two loans outstanding as of 12/31/2018. Interest is paid annually on January 1st.   The facts on each loan are as follows:OnStar Bank Loan – outstanding since January 1, 2018 with a 4.0% interest    rate. This loan was taken out to finance the construction of the Storage Building. Interest for the year and 10% of the principle will be paid to the bank on January 1, 2019. Except for recording the initial cash received and loan, no additional          entries have been made. Cold star Bank Loan – also outstanding all of 2018 with 3.05 % interest rate   Interest is due on January 1, 2019. Principle is due on January 1, 2024. Since interest will not be paid to the Bank until 2019, Accounting Creations’ office staff did not accrue any interest.

J- On 2/1/ 2018 (enter your birthday month), Accounting Creations recorded a patent in the amount of $150,000. The company paid outside legal fees of $80,000 to have the patent registered. The other $70,000 represents internal costs in developing the patent. The patent is good for 20 years, but the company estimates that the patent will have a useful life of 6 years with no residual value. Amortization is straight line. The company depreciates using partial years for intangible assets. No amortization has been recorded for 2018.

K- As of 12/31/2018 the Available for Sale Securities have a fair value of $290,615 Due to the market conditions, the company does not plan on selling the assets in 2019, but their intent is to sell at some point in time. You can ignore the tax effect on unrealized gains and losses.

L- The office building was bought in January 1, 2016 and Accounting Creations plans to use the building for 40 years and believes it will have a salvage value of $250,000 at the end of 40 years. Accounting Creations depreciates the building on a straight-line basis. Due to the location of the building and use potential, Accounting Creations is concerned about impairment. At 12/31/2018 it is determined that the future cash flows for the building are $3,000,000. The fair value of the building is $3,400,000 at 12/31/2018.

M- After reviewing details of sales, you note that the sales taxes collected on the last week of December’s sales were included in sales revenue. Sales recorded the last week of December that included the sales tax of 2% amounted to $350,000.

N- Accounting Creations uses the Dollar Value LIFO inventory method. For internal purposes, the Merchandise Inventory Account is maintained at FIFO (current costs). At the end of the year, the LIFO reserve account is adjusted so inventory on the balance sheet reflects Dollar Value LIFO. You need to calculate the proper inventory balance and adjust the LIFO reserve. The price index for this year is 1.25. Prior year inventory records show the following calculation for 2018:

                   175,000 X 1.0 =   175,000

                  100,000 X 1.05 =   105,000

O- All office equipment was purchased January 1, 2017. Accounting Creations uses the DDB method to depreciate office equipment. No office equipment has been added since the initial purchase. It is estimated that the office equipment has a useful life of 10 years with a salvage value of $12,000.

P- On 2,1, 2018, Accounting Creations rented a portion of one store to Marketing Majors Inc. The contract was for 15 months and Accounting Creations 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-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 $3,515 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.  

R- 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.

S- You note during the review of sales, that a rebate was issued for the 2018 Income Tax Game to encourage sales. 35,000 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.

T- 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.)

Accounting Creations 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	330,000	-
Accounts Receivable	694,980	-
Allowance for Doubtful Accounts	-	17,000
Interest Receivable	-	-
Merchandise Inventory	425,000	-	22,500
Prepaid Insurance	-	-
LIFO Reserve	-	32,000		22,500
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		52,000
Patent	150,000	-
Accounts Payable	-	345,000
Sales Tax Payable	-	-		343,137
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	343,137
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	-	-	52,000
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