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). |
|
|