|
ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2015.
|
Given on the first two tabs are ABC’s 12/31/15 Unadjusted Trial Balance and a list of needed adjustments.
| 1. Make all 12 adjustments on the “Adjusting Journal Entries” tab. Remember to include a description under each journal entry. |
| |
| 2. Post the adjustments to the general ledger on the “12-31-15 T-Accounts” tab. You may have to add T-Accounts for new accounts. |
| Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE “BB” (BEGINNING BALANCES) FOR THE |
| T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/15. |
| |
| 3. Once the 12/31/15 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you |
| may have to insert lines for new accounts. Link the Adjusted Trial Balance to your T-Accounts. |
| |
| 4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet. |
| For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses, |
| Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company. For purposes |
| of the Balance Sheet, be sure to prepare a classifed Balance Sheet. Link your financial statements to your Adjusted Trial Balance. |
| If necessary, review financial statement preparation in Chapters 4 and 5 of your textbook for a quick refresher. |
| |
| 5. When the Financial Statements are complete, make the closing entries on the “Closing Entries” tab. |
| |
| 6. When closing entries have been made, post the entries to the general ledger on the “Post-Close T-Accounts” tab. Make sure your adjusting |
| journal entries are also on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. (Helpful hint: After you have completed |
| and posted all of your adjusting entries, make a duplicate copy of your “12-31-15 T-Accounts” tab to replace the existing blank |
| “Post-Close T Accounts” tab by right clicking on the completed “12-31-15 T-Accounts” tab, select Move or Copy, |
| then click on “Create a Copy” and then place at the desired location. You can then delete the original “Post-Close T-Accounts” tab and rename the |
| newly duplicated tab as your “Post-Close T-Accounts” tab). |
| |
| 7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts. |
| |
| 8. Double-check your work. Here are a few things to check for: |
| -Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom. |
| -Net income from the income statement will flow through to the Statement of Retained Earnings. |
| -Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet. |
| -The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts. |
| -Check figure 1: Gross profit = $573,000. |
| -Check figure 2: Income before income taxes = $345,266. |
| -Check figure 3: Total Liabilities and Stockholders’ Equity = $1,298,480. |
| -Check figure 4: Adjusted Trial Balance debit and credit columns total $2,010,321. |
| -Check figure 5: Total Current Assets = $1,145,045. |
| -Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat. |
| Otherwise, management may send back to you for revision! |
| -Include your work at the bottom of each tab as needed. |
| -Ask questions prior to the day/night before the due date. The due date is clearly indicated on the course schedule. |
| -Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment. |
| -Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. “Total Liabilities and Stockholders’ Equity”). |
| -DO NOT force any cells to match check figures given. Any adjustments in the T-Accounts or financial statements not supported by |
| legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade. |
| |
| Final comments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have |
| studied during your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this |
| comprehensive problem will serve you well in the rest of your accounting curriculum. |
| Please review the grading rubric tab as you start work on the assignment to make sure that you understand how your work will be evaluated. |
| ABC Corporation |
| Unadjusted Trial Balance |
| December 31, 2015 |
| |
|
|
| Particulars |
Debit |
Credit |
| Cash |
707,650.00 |
|
| Accounts receivable |
357,120.00 |
|
| Allowance for doubtful accounts |
|
|
| Inventory |
|
|
| Allowance to Reduce Inventory to Market Value |
|
– |
| Purchases |
267,000.00 |
|
| Prepaid insurance |
8,250.00 |
|
| Land |
88,000.00 |
|
| Building |
37,500.00 |
|
| Accumulated depreciation: building |
|
1,150.00 |
| Equipment |
21,600.00 |
|
| Accumulated depreciation: equipment |
|
9,000.00 |
| Patent |
20,000.00 |
|
| Accounts payable |
|
40,750.00 |
| Notes payable |
|
40,000.00 |
| Income taxes payable |
|
88,000.00 |
| Unearned rent revenue |
|
15,000.00 |
| Bonds Payable |
|
700,000.00 |
| Discount on Bonds Payable |
51,520.00 |
|
| Common stock |
|
125,000.00 |
| PIC In Excess of Par-Common Stock |
|
40,000.00 |
| Retained earnings |
|
|
| Treasury stock |
20,000.00 |
|
| Dividends |
28,000.00 |
|
| Sales Revenue |
|
790,000.00 |
| Advertising expense |
9,240.00 |
|
| Wages expense |
62,150.00 |
|
| Office expense |
14,370.00 |
|
| Depreciation expense |
10,150.00 |
|
| Utilities expense |
33,600.00 |
|
| Insurance expense |
24,750.00 |
|
| Income taxes expense |
88,000.00 |
|
| Total |
1,848,900.00 |
1,848,900.00
|
| 1 |
On March 1, ABC purchased a one-year liability insurance policy for $33,000. |
|
| |
Upon purchase, the following journal entry was made: |
|
|
| |
|
Dr Prepaid insurance |
|
33,000 |
|
|
| |
|
|
Cr Cash |
|
|
33,000 |
|
| |
The expired portion of insurance must be recorded as of 12/31/15. |
|
| |
Notice that the expired portion from March through November has been recorded already. |
| |
Make sure that the Prepaid Insurance balance after the adjusting entry is correct. |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 2 |
Depreciation expense must be recorded for the month of December. |
|
| |
The building was purchased on February 1, 2015 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000. |
| |
|
The method of depreciation for the building is straight-line. |
|
| |
The equipment was purchased on February 1, 2015 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800. |
| |
|
The method of depreciation for the equipment is double-declining balance. |
| |
Depreciation has been recorded for the building and equipment for months February through November. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 3 |
On December 1, XYZ Co. agreed to rent space in ABC’s building for $5,000 per month, |
| |
and XYZ paid ABC on December 1 in advance for the first three months’ rent. |
|
| |
The entry made on December 1 was as follows: |
|
|
|
| |
|
Dr Cash |
|
|
15,000 |
|
|
| |
|
|
Cr Unearned rent revenue |
|
15,000 |
|
| |
The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/15. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 4 |
Per timecards, from the last payroll date through December 31, 2015, ABC’s employees have worked a total of 275 hours. |
| |
Including payroll taxes, ABC’s wage expense averages about $21 per hour. The next payroll date is January 5, 2016. |
| |
The liability for wages payable must be recorded as of 12/31/15. |
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 5 |
On November 30, 2015, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable. |
| |
This loan is to be repaid in three months (on February 28, 2016), along with interest computed at an annual rate of 9%. |
| |
The entry made on November 30 to record the borrowing was: |
|
|
| |
|
Dr Cash |
|
|
40,000 |
|
|
| |
|
|
Cr Notes payable |
|
40,000 |
|
| |
On February 28, 2016 ABC must pay the bank the amount borrowed plus interest. |
| |
Assume the beginning balance for Notes Payable is correct. |
|
|
| |
Interest through 12/31/15 must be accrued on the $20,000 note. |
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 6 |
ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete |
| |
physical inventory at year-end. A physical count was taken on December 31, 2015, and the inventory on-hand at |
| |
that time totaled $50,000, which reflects historical cost. A review of inventory data further indicated that current |
| |
replacement value of the ending inventory is $45,000, the retail sales value of the ending inventory is $182,000, estimated |
| |
cost of completion and disposal is 72.5% of retail, and normal profit margin is 1.25% of retail value. |
| |
Record the adjusting entry for properly recognizing 2015 Cost of Goods Sold. |
|
| |
|
|
|
|
|
|
|
| |
Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost or market at a total inventory level. |
| |
Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 7 |
It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized |
| |
that their intangible asset might be impaired on December 31, 2015. Record the impairment if any. |
| |
The expected future undiscounted net cash flows for this intangible asset totals $15,000, and the fair value of the asset is $17,500. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 8 |
On 7/1/15, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury |
| |
stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/15, |
| |
ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 9 |
On 12/31/15, ABC issued 9,000 shares of $3 par value common stock at the closing market price of $4 per share. Prepare ABC’s journal entry |
| |
to reflect the issuance of the stock on 12/31/15. |
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 10 |
On 7/1/15, ABC sold 10% bonds having a maturity value of $700,000 for $648,480, resulting in an effective yield of 12%. The bonds are |
| |
dated 7/1/15, and mature 7/1/20. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of |
| |
amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/15. |
| |
Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 11 |
ABC Corporation prepares an aging schedule on 12/31/15 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used, |
| |
prepare the entry to record bad debt expense. |
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Do this step after preparing the Income Statement except for the Income taxes line: |
|
| 12 |
Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. |
| |
However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full |
| |
on the return’s March 15, 2016 due date. |
|
|
|
| |
ABC’s income tax rate is 40%. The entire year’s income tax expense was estimated at the beginning of 2015 to be $96,000, |
| |
so January through November income tax expense recognized amounts to $88,000 (11/12 months). |
| |
Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents |
| |
income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. |
| |
Based on the income before income taxes figure from the income statement, record December’s income tax expense |
| |
so that the entire year’s tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November). |
|
|
