Question

The following items should be considered in adjusting the accounts for financial statement preparation:
1.	Franklin Products acquired a 8.4% bank loan for $65,550 on August 1, 2017, due in 1 year.
2.	Prepaid insurance is the cost of a 18-month insurance policy, effective February 1.
3.	Franklin Products rents warehouse storage for its seasonal heavy equipment. On November 1, 2017, Franklin Products paid $4,140 for a 6-month lease.
4.	The physical inventory count of Merchandise Inventory indicated an amount $64,686.
5.	Supplies on hand at December 31, 2017 total $3,918.
6.	Equipment is depreciated on a straight-line basis; residual value is estimated to be $7,500 with an estimated service life of 7 years. The assets were held the entire year.
7.	On October 1, Franklin Products issued Evergreen Industries a 6-month note receivable at a 6.4% annual interest rate.
8.	The aging schedule of accounts receivable indicates total estimated bad debt will be $8,166.
9.	Salaries & Wages of $1,498 are accrued and unpaid at December 31, 2017.
10.	December utilities totaled $1,143 and remain unrecorded at December 31, 2017. Unadjusted   Adjusted   Account Title Trial Balance   Adjustments   Trial Balance   Income Statement Balance Sheet DR   CR   DR   CR   DR   CR   DR CR DR CR Cash 23,414 Accounts Receivable 92,552 Allowance for Doubtful Accounts 451 Interest Receivable Note Receivable 5,290 Merchandise Inventory 66,516 Prepaid Insurance 2,484 Prepaid Rent 4,140 Supplies 10,488 Equipment 94,392 Accumulated Depreciation - Equipment 10,212 Accounts Payable 9,669 Salaries & Wages Payable Interest Payable Utilities Payable Note Payable (final payment due 2020) 65,550 Common Stock 27,600 Retained Earnings 78,200 Dividends 22,540 Sales 989,690 Sales Returns and Allowances 5,520 Sales Discounts 11,868 Cost of Goods Sold 681,214 Salaries & Wages Expense 149,868 Depreciation Expense - Equipment Bad Debt Expense Insurance Expense Rent Expense Supplies Expense Utilities Expense 11,086 Interest Revenue Interest Expense 1,181,372 1,181,372 Net Income

2- PREPARE ADJUSTING ENTRIES

3- PREPARE INCOME STATEMENT

4- PREPARE STATEMENT OF RETAINED EARNING

5- CLOSING ENTRIES

6- PREPARE BALANCE SHEET

7 - RATIOS

- working capital

- current ratio

Answer 1

2. In the books of Franklin Products:

Adjusting Entries:

Adjustment #	Account Titles	Debit	Credit
December 31, 2017		$	$
1.	Interest Expense ( $ 65,550 x 8.4 % x 5/12)	2,294
	Interest Payable		2,294
2.	Insurance Expense ( $ 2,484 / 18 x 11)	1,518
	Prepaid Insurance		1,518
3.	Rent Expense ( $ 4,140/6 x 2)	1,380
	Prepaid Rent		1,380
4.	Inventory Loss	1,830
	Merchandise Inventory		1,830
5.	Supplies Expense	6,570
	Supplies		6,570
6.	Depreciation Expense	12,413
	Accumulated Depreciation : Equipment		12,413
7.	Interest Receivable ( $ 5,290 x 6.4% x 3/12)	85
	Interest Revenue		85
8.	Bad Debt Expense	7,715
	Allowance for Doubtful Accounts		7,715
9.	Salaries and Wages Expense	1,498
	Salaries and Wages Payable		1,498
10.	Utilities Expense	1,143
	Utilities Payable		1,143

3. Franklin Products

Income Statement

For the Year Ended December 31, 2017

	$	$
Income from Operations
Sales	989,690
Sales Returns and Allowances	5,520
Sales Discounts	11,868
Net Sales		972,302
Cost of Goods Sold		681,214
Gross Profit		291,088
Operating Expenses
Salaries and Wages Expense	151,366
Rent Expense	1,380
Insurance Expense	1,518
Supplies Expense	6,570
Utilities Expense	12,229
Bad Debt Expense	7,715
Inventory Loss	1,830
Depreciation Expense	12,413
Total Operating Expenses		195,021
Income from Operations		96,067
Other Income / Expense
Interest Revenue	85
Interest Expense	2,294	2,209
Net Income		93,858

4. Franklin Products

Statement of Retained Earnings

For the year ended December 31, 2017

		$
Retained Earnings, Jan 1, 2017		78,200
Net Income	93,858
Dividends	22,540
Net Increase		71,318
Retained Earnings, Dec 31, 2017		149,518

6. Franklin Products

Balance Sheet

December 31, 2017

Assets	$	$	Liabilities and Stockholders' Equity	$	$
Current Assets			Current Liabilities
Cash	23,414		Accounts Payable	9,669
Accounts Receivable, net	84,386		Salaries and Wages Payable	1,498
Interest Receivable	85		Utilities Payable	1,143
Note Receivable	5,290		Interest Payable	2,294
Merchandise Inventory	64,686		Total Current Liabilities		14,604
Prepaid Insurance	966		Long Term Liabilities
Prepaid Rent	2,760		Notes Payable		65,550
Supplies	3,918		Total Liabilities		80,154
Total Current Assets		185,505	Stockholders' Equity
Property Plant and Equipment			Common Stock	27,600
Equipment, net		71,767	Retained Earnings	149,518
			Total Stockholders' Equity		177,118
Total Assets		257,272	Total Liabilities and Stockholders' Equity		257,272

7. Working Capital = Current Assets - Current Liabilities = $ 185,505 - $ 14,604 = $ 170,901.

Current Ratio = Current Assets / Current Liabilities = $ 185,505 / $ 14,604 = 12.70