07_ReviewExercise

07_ReviewExercise - BUS 214, Financial Accounting...

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1 ComprehensiveExercise BUS 214, Financial Accounting Comprehensive Exercise Part 1 The ABC Company operates a retail store that sells Office Supplies. The store is located in rented space in a Shopping Mall. The ABC Company started business on January 1, 2005. As of December 31, 2006, the ABC Company had the following account balances: ABC Company Trial Balance December 31, 2006 Debit Credit Cash $ 600,000 Accounts receivable 450,000 Allowance for bad debts $ 9,000 6% Serial note receivable -0- Interest receivable -0- Supplies inventory 180,000 Merchandise inventory 1,005,000 Purchases -0- Freight-in -0- Purchase returns & allowances -0- Purchase discounts -0- Prepaid rent -0- Prepaid insurance -0- Land 450,000 Store fixtures 4,500,000 Accumulated depreciation—Store fixtures 600,000 Wages payable 45,000 Accounts payable 750,000 Interest payable -0- Coupons payable -0- Dividends payable -0- 6% Note payable -0- 4% Bonds payable 4,500,000 Discount on 4% Bonds payable 290,845 7% Bonds payable -0- Premium on 7% Bonds payable -0- 8% Preferred stock, $5 par -0- Common stock, $2 par 300,000 Additional paid-in capital 600,000 Additional paid-in capital from Treasury stock transactions 1,000 Treasury stock, 1,000 shares of Common at cost 20,000 Retained earnings 690,845 Sales revenue -0- Sales returns & allowances -0- Sales discounts -0- Gain on retirement of bonds payable -0- Gain on sale of land -0-
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2 ComprehensiveExercise Interest income -0- Cost of goods sold -0- Wage expense -0- Rent expense -0- Insurance expense -0- Supplies expense -0- Depreciation expense -0- Freight-out expense -0- Bad debt expense -0- Loss on sale of store fixtures -0- Interest expense -0- Preferred cash dividends -0- Common cash dividends -0- Common stock splits -0- Totals $ 7,495,845 $ 7,495,845 Required: Prepare journal entries to record the following transactions and events that occurred during the month of January 2007. 1. On January 1, 2007, a new stockholder purchased for cash 15,000 newly issued shares of ABC Company’s 8% Preferred stock that has a $5 par value per share. The preferred stock is cumulative and fully participating. The market rate of interest on January 1, 2007, was 6%. For purposes of this exercise, compute the value of the bond as if it were non-participating. Computation of issue price per share and total proceeds from issue Issue price per share = Total proceeds from issuance = Journal entry to record the issuance 2. On January 1, 2007, the ABC Company paid its insurance company $72,000 cash for a 12-month comprehensive insurance policy.
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3 ComprehensiveExercise 3. On January 1, 2007, the ABC Company paid its landlord $22,500 cash for store rental for the month of January. 4. On January 1, 2007, the ABC Company sold the land that it owned for $75,000 cash and a $525,000 6% Serial note receivable. The note is to be paid with 10 equal semi-annual installments on June 30 and December 31. Computations
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07_ReviewExercise - BUS 214, Financial Accounting...

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