General Information
Introduction
Jones Widget Company (JWC) incorporated at the beginning of 2014. Below is the post closing trial balance as of 12/31/14.
|
Account Title
|
Balance
|
|
Cash
|
10,700
|
|
Accounts Receivable
|
12,300
|
|
Allowance for Doubtful Account
|
(685)
|
|
Inventory
|
12,300
|
|
Prepaid Rent
|
1,500
|
|
Equipment
|
25,000
|
|
Accumulated Depreciation-Equipment
|
(2,400)
|
|
Total assets
|
58,715
|
|
Sales Tax payable
|
800
|
|
FICA Taxes Payable
|
600
|
|
FIT (i.e., Federal Income) Taxes Payable
|
500
|
|
Wages Payable
|
1,600
|
|
Unearned Revenue
|
6,500
|
|
Interest Payable
|
440
|
|
Notes Payable
|
22,000
|
|
Common Stock
|
23,100
|
|
Retained Earning
|
3,175
|
|
Total liabilities + stockholders' equity
|
58,715
|
Additional Information:
• JWC establishes a policy that it will sell inventory at $130 per unit. Sales taxes are 5%. JWC will use the FIFO method and record COGS on a perpetual basis.
• Employee wages are $4,000 per month, the federal income taxes (FIT) withheld are $500 and the FICA taxes are $300 per month payable on the first (1st) and sixteenth (16th) of the month.
• The Beginning inventory of $12,300 consists of 200 units.
• The Prepaid Rent balance is for the month of January.
• The equipment was purchased on July 1, 2014. It has a residual value of $1,000 and an expected life of five years. It is being depreciated using the straight line method.
• Unearned Revenue is for 50 units ordered by two customers in late December. One order will be filled in January, the remainder in early February.
• The Notes payable represents a $22,000 bank loan received on November 1 at 12% annual interest.
• State unemployment taxes amount to $200 and Federal unemployment taxes amount to $250 per month.
• Common stock includes 4,260 shares at $5 par value.
• Round all transactions to the nearest dollar.
Below are transactions for January 2015
Jan 1: A $100,000 6% six year bond is issued at 105.074. The market rate at issue of the bond is 5%.
Jan 1: A truck (record as Truck) is purchased for $10,000 cash. It is estimated the truck will be used for 50,000 miles and will have no salvage value. The truck will be depreciated using the units-of-production method.
Jan 2: Machinery (record as Furniture) is purchased for $120,000 cash. The machinery will be used for 8 years, has a salvage value of $8,000, and will be depreciated using the double-declining balance method.
Jan 3: Paid December 31 payroll ("wages payable") on Jan 1.
Jan 4: Payroll taxes withheld (FIT payable & FICA payable) during December are remitted to the IRS.
Jan 5: A $500 customer account is written off as uncollectible.
Jan 6: Sales on account of 180 units of inventory occurred during January.
Jan 8: Sales taxes collected in December 2014 are remitted to the local tax collector.
Jan 10: An additional 70 units of inventory were purchased on account for $4,410.
Jan 11: Sold 50 units of merchandise inventory for cash totaling $6,825, which includes 5% sales taxes.
Jan 12: The equipment purchased in 2013 for $25,000 is sold for $24,500. No additional depreciation is recorded for January.
Jan 14: Having sold the equipment, JWC paid off the equipment loan received on November 1 in full. The amount paid was $22,550, which included interest through Jan 14.
Jan 15: A portion of the advance order from December (30 units) is delivered. There is no sales tax on this order.
Jan 16: (a) Paid employee payroll (in cash).
Jan 16: (b) Record the employer's payroll tax expense.
Jan 17: Collections from sales on account totaled $5,000.
Jan 18: JWC issued 2,500 shares of $3.60 par value common stock for cash at $8 per share.
Jan 19: JWC issued 300 shares of $12 par-value preferred stock for cash at $102 per share.
Jan 21: JWC Purchased 4,000 shares of its common stock for the treasury at a cost of $16,000.
Jan 25: JWC issued a second bond with a face value of $250,000, a stated rate of 10% (used to calculate interest payments), with a maturity of 4 years. At the time of issuance, the market rate (used to calculate the present values) for bonds of similar characteristics was 12%.
Jan 28: Declared and paid a $0.50 per share cash dividend on 2,400 shares of $5 par value.
Jan 30: Purchased a small company and recorded goodwill for $150,000. (Indefinite life - no record of amortization expense)
Below are transactions requiring adjusting entries for January 2015
AJE 1: Record depreciation expense for the truck (Truck) purchased on Jan 1 using the units-of-activity method. During January, the truck is driven 800 miles.
AJE 2: Record the depreciation expense for the machinery (Furniture) purchased on Jan 1.
AJE 3: Record January rent expired.
AJE 4: Accrue January 28 payroll, which will be paid on February 1 and the related payroll tax expense.
AJE 5: Record the accrual of interest expense on the bonds issued on Jan 1.
AJE 6: Record the accrual of interest expense on the bonds issued on Jan 25.
AJE 7: Record the accrual of bad debt expense assuming that $941 is the estimate of uncollectible receivables from the aging schedule.
AJE 8: Record the accrual of income tax expense assuming that the tax rate is 25% of income before taxes.
REQUIRED-
1: Prepare the debit section of the adjusted trial balance.
2: Prepare the income statement using the multiple-step format.
3: Prepare the Statement of Retained Earnings.
4: Prepare a classified balance sheet.