ACCT 2690 – Capstone Accounting – Accounting Theory

ACCT 2690 – Capstone Accounting – Accounting Theory

Subject: Business    / Accounting
Question

Bearing, Inc. started business on January 1, 2015. The following is a list of information that will pertain to this
Corporation: Bearing is a Corporation that sells 3 styles of mirrors (M12, M16 & M17)
The company uses the perpetual FIFO method in accounting for its inventory.
Payroll is paid on the 15th of each month for the month prior
o Two employees
o Employee 1 has a salary of $5,000 per month Federal Withholding = $550 State Withholding = $250
o Employee 2 has a salary of $2,500 per month Federal Withholding = $200 State Withholding = $125
o State Unemployment is paid on the first $7,000 of wages at 2.3%
o Federal Unemployment is paid on the first $7,000 of wages at .6%
o OASDI rate is 6.2%
o HI rate is 1.45% Bearing makes its adjustments at the end of each year All sales and inventory are purchased on account Be sure to round all numbers to the nearest dollar.
The company had the following Post-Closing Trial Balance at 12/31/2015
Account Name
Cash
Accounts Receivable
Allowance for Bad Debt
Inventory
Supplies on Hand
Prepaid Insurance
Prepaid Lease
Land
Building
A/D – Building
Equipment
A/D – Equipment
Accounts Payable
FIT Withholding Payable
SIT Withholding Payable
FICA Payable
Income Tax Payble
Interest Payable
Unearned Rent
Wages Payable
Dividend Payable
Notes Payable
Common Stock
APIC – Common Stock
Retained Earnings Debit
2,175,254
641,475 Credit 12,830
255,862
400
75
3,400
50,000
200,000
5,128
100,000 3,426,466 14,286
472,475
3,000
1,500
4,592
35,047
153,500
1,200
5,801
45,000
1,925,000
100,000
500,000
147,107
3,426,466 Page 1 ACCT 2690 – Capstone Accounting – Accounting Theory Bearing uses the 200% double declining balance method to depreciate all 5, 7 & 10 year property
Bearing uses the SL, mid-month basis to depreciate all real property
Income tax rate is 35%
The $100,000 of equipment has an expected life of 7 years and no salvage value
The $200,000 building has an expected life of 39 years and no salvage value
Inventory at 1/1/16 consists of:
o M12 – 9,500 units at 10.75 each
o M16 – 5,750 units at 13.25 each
o M17 – 5,500 units at 14.10 each
Notes Payable at December 31, 2015 consisted of:
o Foley Bank – 1,800,000, 9% interest rate. Interest is paid on Feb 1st of each year, principal to be
repaid on 2/1/2019
o Northern bank – 125,000, 8% interest rate, Interest is paid on June 30th of each year, principal to
be repaid on June 30, 2017 The following transactions and events occurred in 2016.
2016
1/1
Issued 150,000 share of $1 par common stock to investors at $15 per share
1/1
Paid monthly rent on computer equipment, $1,400
1/1
Issued 15,000 share of $10 par, 10% preferred stock to investors at $25 per share
1/1
Issued $400,000 in bonds at par value. The bonds have a stated interest rate of 10%, payable
semiannually on July 1 and January 1
1/1
The estimated useful life and salvage value for the building that was purchased in 2015 was
changed. It is now estimated that the building has a remaining life (as of 1/1/16) of 20 years
and a salvage value of $20,000.
1/1
Purchased a building and land for $790,000. The building has a 25 year expected useful life and
a $70,000 expected salvage value. The land is valued at $70,000.
1/1
Leased equipment under a ten-year lease. The ten lease payments of 20,000 each are to be
made on December 31 of each year. The present value of the equipment is 134,202. The
interest rate is 8% (life 10 years, no salvage value)
1/10
Purchased $750 of supplies for cash
1/15
Purchased inventory on account – 2,500 M12 mirrors for $10.75 each, 2,000 M16 for $13.25
each and 2,750 M17 for $14.10 each.
1/15
Made a payment of $450,000 to pay off several Accounts Payable accounts
1/15
Paid the cash dividend declared in November 2015
1/15
Paid Monthly Salaries
1/31
Paid Quarterly Payroll Taxes to the proper authorities (from the Oct – Dec 2015 paychecks)
1/31
Paid $1,200 for a 1 year insurance policy (effective 2/1/16 – 1/31/17)
2/1
Bearing repurchased 15,000 shares of its own common stock to be held as treasury stock. The
price paid was $32 per share
2/1
Paid the interest on the loan from Foley Bank
2/2
Paid for inventory purchased on 1/15
2/15
Purchased $250 of supplies for cash
2/15
Paid Monthly Salaries
2/20
Sold Inventory on account (sold 1800 M12 for $22, 1200 M16 for $27 and 1700 M17 for $30)
terms 2/10, net 30
Page 2 ACCT 2690 – Capstone Accounting – Accounting Theory
3/2
3/5
3/10
3/12
3/15
3/15
3/20
3/25
3/29
4/1
4/2
4/10
4/15
4/30
5/1
5/1
5/15
5/20
5/20
6/1
6/5
6/10
6/15
6/20
7/1
7/1
7/1
7/1 7/1
7/15
7/31
8/1
8/2
8/10
8/10 Received notice that customer from 2015 declared bankruptcy and will not be able to pay the
remaining balance owed on their bill, $4,600
Sold Inventory on account (sold 50 M12 for $22, 100 M16 for $27 and 750 M17 for $30) terms
2/10, net 30
Received payment for the 2/20 transaction
Received payment for merchandise sold on 3/5
Paid income taxes owed from the 2015 fiscal year.
Paid Monthly Salaries
Purchased inventory on account – 4000 M12 mirrors for $11.00 each, 2000 M16 for $13.75
each and 3750 M17 for $14.00 each. Terms net 30
Signed a 1-year lease for a copy machine. Lease payments are to be made the first day of the
month in the amount of $200
Paid for merchandise purchased on 3/20
Made lease payment on copy machine
Sold Inventory on account (sold 500 M12 for $22, 1,000 M16 for $27 and 1,750 M17 for $30)
terms 2/10, net 30
Customer made a payment of $44,345 from the 4/2 transaction
Paid Monthly Salaries
Paid Quarterly Payroll Taxes to the proper authorities (from the Jan – March paychecks)
Made lease payment on copy machine
Sold Inventory on account (sold 2800 M12 for $22, 2200 M16 for $27 and 2700 M17 for $30)
terms 2/10, net 30
Paid Monthly Salaries
Customer from the 5/1 transaction returned inventory (200 M12) all inventory was still in good
working order
Customer paid their remaining balance from the 4/2 transaction
Purchased inventory on account – 1500 M12 mirrors for $11 each, 2500 M16 for $13.75 each
and 2750 M17 for $14.25 each.
Returned 500 units of M17 from the 6/1 purchase
Paid the remaining balance from the 6/1 purchase
Paid Monthly Salaries
Customer from the 5/1 transaction made a payment of $10,000
Paid the interest on the bonds
Made interest payment of equipment note
Made lease payment on copy machine
Purchased $125,000 of equipment using a bank loan at 7% interest to be paid in 2 years.
Interest is due on June 30 of each year. The equipment has a life of 7 years and a 5,000 salvage
value.
Sold Inventory on account (sold 1250 M12 for $22, 2750 M16 for $27 and 2000 M17 for $30)
terms 2/10, net 30
Paid Monthly Salaries
Paid Quarterly Payroll Taxes to the proper authorities (from the Apr – June paychecks)
Made lease payment on copy machine
Purchased $600 of supplies for cash
Received ½ of payment from the 7/1 transaction
Purchased inventory on account – 5000 M12 mirrors for $11.00 each, 3000 M16 for $13.75
each and 4500 M17 for $14.25 each. net 30
Page 3 ACCT 2690 – Capstone Accounting – Accounting Theory
8/15
9/1
9/1
9/15
9/15
10/1
10/15
10/15
10/31
11/1
11/1
11/1
11/15
11/17
12/1
12/1
12/15
12/15
12/28
12/25
12/31 Paid Monthly Salaries
Made lease payment on copy machine
Paid $8,000 cash to lease a truck for one year
Paid for inventory purchased on 8/10
Paid Monthly Salaries
Made lease payment on copy machine
Purchased $350 of supplies for cash
Paid Monthly Salaries
Paid Quarterly Payroll Taxes to the proper authorities (from the July – Sept paychecks)
Purchased inventory on account – 2000 M12 mirrors for $111.50 each, 3000 M16 for $13.75
each and 2750 M17 for $14.25 each.
Received $2,400 from a tenant for 6 months’ rent (11/1/16 to 4/30/17)
Made lease payment on copy machine
Paid Monthly Salaries
Paid a cash dividend of $.30 per share on outstanding shares and paid dividends to preferred
shareholders
Sold Inventory on account (sold 8500 M12 for $22, 7500 M16 for $27 and 9600 M17 for $30)
terms 2/10, net 30
Made lease payment on copy machine
Paid Monthly Salaries
Purchased inventory on account – 12,000 M12 mirrors for $11.25 each, 8,000 M16 for $14
each and 9,750 M17 for $14.35 each.
Sold Inventory on account (sold 5500 M12 for $22, 4500 M16 for $27 and 6500 M17 for $30)
terms 2/10, net 30
Received payments totaling $1,432,000 from customers for past due invoices
Made Lease Payment on 10-year lease Other Information: At year end $250 worth of supplies are on hand The company uses the % of Receivables method in estimating bad debts; 2% of the ending receivables
balance is deemed to be uncollectible
Required: Prepare all journal entries to record the information for 2016. Prepare all adjusting journal entries as necessary Prepare an adjusted Trial Balance as of December 31, 2016 Prepare a multiple-step income statement, statement of retained earnings and a balance sheet as of
December 31, 2016 Prepare a cash flow statement, using the indirect method, for the year ended December 31, 2016 Close all accounts as necessary and prepare a post-closing Trial Balance Please include a sheet on how you calculated your adjusting Journal entries and inventory Page 4