Balance Sheet accounts are provided in the table below. *The debits and credits do not equal/balance because the net income earned so far this year ($79,000) has not yet been included in retained earnings. This amount will show up as part of the net income when you prepare the financial statements
Fair Value Adjustment-AFS
Receivable from Employee
Cash Value of Insurance
Current Portion of Note
Note Payable (noncurrent portion of note)
Accumulated Other Comprehensive Income/Loss
The following information relates to the revenues earned and expenses incurred during the first half of 2012.
Sales Returns and Allowances
Cost of Goods Sold
General and Administrative Expenses
Transactions occurring in 2012 but not considered in the current net income of 79,000 are as follows:
1. On July 1st, the corporation entered into a lease agreement for a machine that qualifies as a capital lease. The lease calls for annual lease payments of $26,269 over a six-year lease term, with the first payment at July 1st, the leases inception. The interest rate is 5%. *(Round your answer to the nearest whole dollar).
2. On July 1st, the corporation sold a $15,000, 5 year bond with a stated rate of 8%. The effective yield on the bonds is 10%. Interest on the bond is paid semiannually on January 1st and July 1st. The company uses the effective interest method to amortize any bond discount or premium. *(Round your answer to the nearest whole dollar).
3. One month following the issue of the bonds, the corporation invested $5,000 into a sinking fund in order to have the money to pay off the bonds when they come due.
4. On September 3rd, the corporation experienced an uninsured flood loss (extraordinary) which destroyed the building. The tax rate is 40%.
5. On September 20th, the company sold their shares in Hobokin Company resulting in a loss of $1,000 (pretax). See the portfolio tables below.
6. When its president died, on October 8th, the corporation realized $110,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $10,000 (the gain is nontaxable).
7. On November 1st, the corporation filed a suit against Tri-Star, Inc. seeking damages for patent infringement. Legal counsel believes that it is probable that the company will be successful against Tri-Star for an estimated amount in the range of $100,000 to $150,000, with all amounts in the range considered equally likely.
8. On November 15th, the corporation disposed of its wholesale division at a loss of $5,000 before taxes. The wholesale operations were shut down at the beginning of the year. This transaction meets the criteria for discontinued operations. The assets associated with this sale are being classified as â€œAssets Held-For-Saleâ€.
9. The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2010 income by $60,000 and decrease 2011 income by $20,000 before taxes. The FIFO method has been used for 2012. The tax rate on these items is 40%.
10. On December 18th, the corporation purchased 2,000 shares of its own common stock at $20 a share.
11. On December 20th, the corporation paid off the current portion of the note payable along with the $15,000 in interest that had been accrued.
12. December 31st, interest on the lease has accrued.
13. December 31st, interest on the bonds has accrued.
14. The companyâ€™s products carry a one year warranty against manufacturerâ€™s defects. Warranty costs are expected to be 1% of net sales.
15. At the beginning of 2011, the corporation purchased a piece of equipment for $54,000, salvage value of $9,000 that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2011 and 2012. However, in 2012 the bookkeeper failed to deduct the salvage value in computing the depreciation base (an error was made). The journal entry for this year depreciation has already been made, but a correcting entry is required to fix the mistake.
16. Adjust the Trading securities and AFS securities to their respective fair values. See the portfolio tables below.
AFS Securities Portfolio
Fair Value 2011
Fair Value 2012
Monster Truck, Inc.
Trading Securities Portfolio
Fair Value 2011
Fair Value 2012
(1) Journalize transactions 1 - 14. The corporation's tax rate is 40%.
(2) Remember to include a journal entry for income taxes once you have prepared the income statement.
(3) Create multiple-step income statement, statement of retained earnings, and a balance sheet.
Recently Asked Questions
- Establish a master production schedule ( MPS ) for the following information . The forecast for each week of an eight week schedule is 50 units . Use a
- . what were the factors that led to the second reconstruction in civil rights?
- How did the African American freedom struggle affect the subsequent controversies about general differences among African American? What was the