Question

You have been assigned to examine the financial statements of Indigo Company for the year ended December 31, 2017. You discover the following situations.

1.		Depreciation of $3,200 for 2017 on delivery vehicles was not recorded.
2.		The physical inventory count on December 31, 2016, improperly excluded merchandise costing $17,800 that had been temporarily stored in a public warehouse. Indigo uses a periodic inventory system.
3.		A collection of $5,900 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018.
4.		In 2017, the company sold for $4,000 fully depreciated equipment that originally cost $26,100. The company credited the proceeds from the sale to the Equipment account.
5.		During November 2017, a competitor company filed a patent-infringement suit against Indigo claiming damages of $210,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $126,000. The company has not reflected or disclosed this situation in the financial statements.
6.		Indigo has a portfolio of trading investments. No entry has been made to adjust to market. Information on cost and fair value is as follows.

		Cost		Fair Value
December 31, 2016		$99,600		$99,600
December 31, 2017		$79,000		$76,800

7.		At December 31, 2017, an analysis of payroll information shows accrued salaries of $13,200. The Salaries and Wages Payable account had a balance of $15,700 at December 31, 2017, which was unchanged from its balance at December 31, 2016.
8.		A large piece of equipment was purchased on January 3, 2017, for $41,400 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Indigo normally uses the straight-line depreciation method for this type of equipment.
9.		A $12,900 insurance premium paid on July 1, 2016, for a policy that expires on June 30, 2019, was charged to insurance expense.
10.		A trademark was acquired at the beginning of 2016 for $46,300. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years.

Assume the trial balance has been prepared but the books have not been closed for 2017. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Journal Entries :-

S. No.	Particulars	Debit($)	Credit($)
1	Depreciation Expense A/c Dr.	3200
	To Accumulated Depreciation A/c		3200
2	Cost of Goods Sold	17800
	To Retained Earnings A/c		17800
3	Cash A/c Dr.	5900
	To Accounts Receivable A/c		5900
4a	Equipment A/c Dr.	4000
	To Gain on Sale of Equipment A/c		4000
4b	Accumulated Depreciation A/c Dr.	26100
	To Equipment A/c		26100
5	Legal Expenses A/c Dr.	126000
	To Accrued Liabilities A/c		126000
6	Unrealized holding gain or loss ($79000-$76800) A/c Dr.	2200
	To Trading Securities A/c		2200
7a	Salaries and Wages Payable A/c Dr.	15700
	To Cash A/c		15700
7b	Salaries and Wages Expenses A/c Dr.	13200
	To Salaries and Wages Payable A/c		13200
8a	Equipment A/c Dr.	41400
	To Repairs and Maintenance A/c		41400
8b	Depreciation Expenses A/c Dr. ($41400 / 8)	5175
	To Accumlated Depreciation A/c		5175
9a	Prepaid Insurance A/c Dr. ($12900*(30/36))	10750
	To Retained Earnings A/c		10750
9b	Insurance Expenses A/c Dr. ($12900*(12/36))	4300
	To Prepaid Insurance A/c		4300
10a	Retained Earnings A/c Dr. ($46300 / 10)	4630
	To Accumulated Amortization A/c		4630
10b	Accumulated Expense A/c Dr. ($46300 / 10)	4630
	To Accumulated Amortization A/c		4630