On March 1, ABC purchased a one-year liability insurance policy for $33,000. Upon purchase
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Question
Read ALL instructions before getting started! |
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. |
1 |
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). |
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