Comprehensive Problem in Accounting

Question

Accounting Comprehensive Problem

The case involves one accounting cycle (regular journal entries, adjusting journal entries, preparing financial statements, and closing journal entries) for Namibian Imports.   Namibian Imports prior year's Income Statement and Balance Sheet are shown on pages 5 and 6, respectively.  You should assume that Namibian Imports prior year financial statements were prepared in accordance with U.S. GAAP. 

T-accounts are provided on pages 8 through 11.  You are required to complete the T-accounts.  I will examine your T-accounts when grading the case. Make sure all of your entries are properly referenced, using the numbering scheme used in Part A and Part B so I can track your entries to the T-accounts. All account titles that you need when preparing your journal entries are included in the T-accounts.  Remember, for accountants, neatness counts!  If I can't read it, I can't grade it.

In Parts A, B, and D of the case, you are asked to provide journal entries.  Your entries must be in proper debit/credit form.  

PART A: 

Namibian Imports entered into the following transactions during 2012.  Record the journal entry for each transaction in the space provided.

1. The company sold stock in another company it had purchased as a long-term investment for $65,000.  The stock had originally cost $32,000.
2. Purchased $563,000 of inventory on account.
3. Made credit sales of $1,300,000 and cash sales of $158,000.  The cost of the inventory sold was $583,200. 
4. Paid $62,500 in cash for miscellaneous operating expenses.
5. Paid suppliers $610,000 related to open accounts payable.
6. Paid taxes due of $60,090 related to 2011 Net Income.
7. Collected $1,125,000 from customers in payment of open accounts receivable.
8. On November 1, 2012, a customer gave the company a note due on May 1, 2013 in payment of a $26,000 account receivable.  The customer was unable to pay their A/R.
9. Purchased supplies for $55,000 cash.
10. A customer paid Namibian Imports $22,000 for products that will not be delivered until January 2013.
11. Made cash payments of $266,000 to employees for salaries.  This $266,000 includes the wages due to employees as of December 31, 2011 of $32,000. 
12. The company issued 1000 additional shares for $20,000.  Assume the company has no par stock.
13. The company declared and paid a cash dividend of $42,000.  Record this as two entries.

PART B: 

Namibian Imports used the following information to prepare adjusting journal entries on December 31, 2012.  Record each adjusting journal entry or entries in the space provided, if any journal entry is required.

1. The $200,000 notes payable is a revolving line of credit with no principle payments due until 2013.  It has a stated rate of 8.5% and was outstanding all year.  Interest will be paid at the time of the principal payment.
2. The premiums for the prepaid insurance policies listed on the balance sheet were paid on September 1, 2011 and cover the period October 1, 2011 through September 30, 2013.  Originally the entire amount was recorded in the prepaid insurance account. (Note the dates)
3. The company expects to pay federal income taxes of $98,020 related to its 2012 income.  These taxes will be paid in 2013.
4. The company owes employees $32,640 for wages as of December 31, 2012.  The wages will not be paid until January 2013.
5. A physical count of the supplies indicated that the company had $26,000 on hand as of December 31, 2012.
6. The $26,000 note receivable accepted in payment of an account receivable on November 1, 2012 (see viii. in Part A) specifies an annual interest rate of 8 percent.  Interest will be received on May 1, 2013. (Round answer to the nearest dollar)
7. At the time it was purchased, the equipment had an estimated total useful life of ten years and zero salvage value, and machinery had an estimated total useful life of eight years and zero salvage value.  The patent originally had an estimated useful life of six years.  The company uses the straight-line method to depreciate and amortize all PP&E and intangibles.

PART C: 

Prepare the 2012 Income Statement (i.e., fill in the 2012 blanks below).  For this case, earnings per share is calculated as net income divided by the number of shares of stock outstanding at the end of the year.  (Round EPS number to the nearest cent)

Namibian Imports/ Income Statements For the years ended December 31, 2012 and December 31, 2011  (in $)

		2012		2011
Sales				1,215,000
Cost of goods sold				486,000
Gross profit				729,000
Wages expense				217,200
Supplies expense				75,750
Insurance expense				24,000
Depreciation and amortization expense				138,000
Miscellaneous operating expense				56,750
Income from operations				217,300
Other revenues and expenses:
Other revenue				--
Other expense				17,000
Income before income taxes				200,300
Income tax expense				60,090
Net income				140,210
Earnings per share				$2.00

PART D: 

Prepare the December 31, 2012 balance sheet (i.e., fill in the 2012 blanks below).

Namibian Imports/ Balance Sheets As of December 31, 2012 and December 31, 2011  (in $)

	2012		2011
ASSETS
Current Assets:
Cash			127,500
Accounts receivable			141,000
Supplies			38,250
Inventory			244,000
Interest receivable			--
Note receivable			--
Prepaid insurance			47,250
Total current assets			598,000
Equipment			360,000
Accumulated depreciation on equipment			(96,000)
Machinery			715,200
Accumulated depreciation on machinery			(230,000)
Patent			93,750
Accumulated amortization on patent			(50,000)
LT Investments			60,000
Total assets			1,450,950
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable			195,000
Wages payable			32,000
Interest payable			--
Income tax payable			60,090
Unearned Revenue			--
Total current liabilities			287,090
Notes Payable			200,000
Total liabilities			487,090
Stockholders' equity:
Common Stock			337,200
Retained earnings			626,660
Total stockholder's equity			963,860
Total liabilities & stockholder's equity			1,450,950