Review the adjustmentcorrection process including

Question

Part 1: Adjusting entries, 2012 adjusted trial balance and corrected 12/31/11 balance sheet.

Part 2: Using the solution to part 1 which will be made available after part 1 is turned in on blackboard, you are to prepare the income statement, statement of stockholders equity, statement of cash flows, balance sheet; all in proper form You have the option of preparing a statement of comprehensive income or to incorporate that into the statement of stockholders equity.

Both parts must be typed in 10 or 12 font.

Purpose of this assignment:

1. Review the adjustment/correction process including sophisticated topics from accounting 350/351/352.
2. Prepare all of the financial statements in proper form.

These are foundational to this course and your career as accountants.

Setting:

You have been hired by Dillard to prepare adjusting entries and financial statements for 2012. Previously Rinky Dink Accounting had been performing such tasks.

Ignore tax effects.

The trial balance at 12/31/12 before you work your magic and the balance sheet at 12/31/11 are included in a separate excel file.

1. The investments account at 12/31/12 contains stocks that were all purchased during 2011. In discussions with the CFO, you determine that they were made to invest excess cash. The company expects that they will need the cash within the next year. Here is information that you gather regarding that portfolio (in 000 s):

Company	Initial Investment Cost	Market Value at 12/31/11	Market Value at 12/31/12
DAG	$300	$330	$320
GLS	50	55	40
HRG	100	78	95

You also discuss with the CFO the Investment in Timberside Corporation. You discover that this Investment was first made 3 years ago on 1/1/10 and that the investment cost was $700,000 . The investment in 30% of the voting stock of Timberside was made in order to be able to have representation on its board since Timberside is a key supplier of the inventory that Dillard sells. Dillard wants to have a say in the quality control and other decisions that Timberside makes. You dig around and realize that the $700,000 investment cost was exactly equal to 30% of the book value of equity of Timberside on 1/1/10. You also determine that Dillard has been recording dividend revenue when it receives payment. During 2010, Dillard received $10,000 in dividends, in 2011 $25,000 and are $25,000 in 2012. Timberside has reported income during 2010, 2011 and 2012 of $300,000, $350,000 and $330,000 respectively.

On 1/1/08, Dillard purchased 300, $1,000 face 8% Mickey Mouse Corporation bonds, interest paid semi-annually on 7/1 and 12/31, with a maturity term of 10 years. The purchase price was $280,488.

1. You discover that Dillard bought and installed equipment for $170,000 on 1/1/10. The equipment s use will result in environmental damage that will need to be cleaned up when the equipment is retired. The estimated life of the equipment is 10 years on 1/1/10. The environmental clean-up cost is estimated to be $50,000. The $50,000 will all be paid at the end of the equipment s life. You notice that the equipment was expensed when originally purchased. A discount rate of 6% is reasonable discount rate for the clean-up cost. Straight-line with no salvage value is appropriate.
2. The company uses the percentage of accounts receivable method and historically does not collect 5% of its ending accounts receivable.
3. The company has been recording warranty expense as it has been paid. The company first warranted its products, 4 years ago, beginning 1/1/09. Warranty costs paid by year are listed below:

Year	Warranty costs paid
2009	$7,000
2010	$10,000
2011	$12,000
2012	$11,000

After exploring the timing of sales during the year and what seems like the company will pay given experience, you compute the following warranty liabilities at each year end.

Original Sale year	Estimated liability on 12/31/09	Estimated liability on 12/31/10	Estimated liability on 12/31/11	Estimated liability at 12/31/12
2009	$4,000	$1,000	0	0
2010		9,000	$1,000	0
2011			7,000	$2,000
2012				4,000
Total	$4,000	$10,000	$8,000	$6,000

1. Additional information: Dillard purchased equipment for $300,000 cash this year. This transaction was properly recorded.
2. You discover that the reported ending inventory for 2010, 2011 and 2012 were all wrong. This is first detected by you this year. Inventory on 12/31/10 was understated by $50,000, on 12/31/11 understated by $80,000 and on 12/31/12 overstated by $90,000. These appear to be independent errors.
3. The 10-year $400,000, 8% note payable was issued on 4/1/08 and pays interest on 3/31 and 9/30 each year.
4. On 1/1/10, Dillard entered into a 5-year lease agreement for equipment. The equipment s estimated life was 6 years. The 5 annual lease payments are due on 12/31 each year except there were two payments the first year, on on 1/1 and one on 12/31. The lease payments are $10,000 each. Dillard guarantees a residual value of $10,000. An incremental borrowing rate of 7% would be appropriate.
5. 2011 is the first year that Dillard had a separate Treasury Stock account.