In: Accounting
The Queen of the Snows started a business, Winter Carnival Co.,
a company that specializes in merchandise for ice-fishing,
snow-sliding, treasure-hunting and other winter activities. In
2017, the company had the following beginning balances (in
dollar).
Accounts receivable $60,000 Accounts payable $30,000 Allowance for
doubtful accounts $6,000 Accumulated depreciation – machine $50,000
Cash $25,000 Common stock $100,000 Inventory $300,000 Machine
$150,000 Prepaid advertisement $27,000 Notes payable $200,000
Salary payable $5,000 Retained earnings $171,000
During 2017, the following transactions occurred.
1. Winter Carnival acquired additional merchandise, totaled
$90,000, of which $60,000 was on account.
2. Winter Carnival delivered merchandise and earned sales revenue,
totaled $550,000, of which $150,000 was on credit. Cost, to Winter
Carnival Co., of the merchandise sold, totaled $300,000.
3. Winter Carnival collected a total of $120,000 on its accounts
receivable from its various customers.
4. Winter Carnival borrowed $50,000 on May 1, 2017 from a local
bank, on a 6% note for 5 years. Winter Carnival would pay interest
semi-annually on each May 1 and November 1.
5. In addition, Winter Carnival signed a sales contract with a
customer, Mini-Soda Company to deliver a total of $100,000
merchandise January 2018. Winter Carnival collected $10,000 cash in
advance from this customer on November 17, 2017.
6. Winter Carnival paid $70,000 on its accounts payable to its
suppliers.
7. Winter Carnival incurred insurance expenses of $12,000, all paid
in cash in 2017.
8. Winter Carnival paid its employees $95,000 cash for their
salary. At the end of year 2017, the company still owed $3,000
salary payable to its employees.
The following information was also available during 2017 for Winter
Carnival Co.
9. Its existing “notes payable” at the beginning of the year 2017
had a due date in 2020 and an interest rate of 3%. The interest
would be paid in cash at the end of each calendar
year.
10. The ending balance of “allowance for doubtful accounts” was
estimated to be 10% of the ending balance of its “accounts
receivable” at the end of 2017.
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11. Its ‘prepaid advertisement’ had 18 months remaining at the
beginning of the year 2017.
12. The existing machine had an estimated life of 15 years with no
residual value and had been depreciated using the straight-line
method. And lastly,
13. The income tax rate was 20% for Winter Carnival and the company
would pay its income tax in the first quarter of
2018.
Required:
1. Based on above transactions, prepare journal entries and
adjusting entries in 2017 for Winter Carnival.
2. Set up T-accounts and post your journal entries and adjusting
entries to T-accounts. (A kind reminder: Don’t forget the beginning
balances.)
3. Prepare a pre-closing trial balance, as of December 31,
2017.
4. Prepare an income statement, in a good format, for the year
ended December 31, 2017 for Winter Carnival.
5. Prepare a statement of retained earnings, in a good format, for
the same period for Winter Carnival.
6. Prepare a balance sheet, in a good format, as of December 31,
2017 for Winter Carnival.
7. Prepare closing entries and a post-closing trial balance, as of
December 31, 2017.