Evergreen Retail Company, whose fiscal year end is December 31, had the following transactions in its first year of operations:
1. Issued common shares for $65,000 cash on January 1, 2011.
2. Borrowed $15,000 of additional financing from the bank on January 1, 2011.
3. Bought equipment for $25,000 cash, also on January 1, 2011.
4. Made $60,000 of inventory purchases on account.
5. Had total sales of $92,000, of which $28,000 were on account. The cost of the products sold was $44,000.
6. Bought office supplies for $800 cash.
7. Collected payments of $24,000 from customers on their accounts.
8. Paid suppliers $25,000 for the inventory that had been purchased on account.
9. Paid employees $36,200.
10. Paid the interest on the bank loan on December 31, 2011. The interest rate was 8%.
11. Declared dividends of $2,000, which will be paid in 2012.
Information for adjusting entries:
12. The equipment purchased on January 1 has an estimated useful life of eight years and an estimated residual value of $1,000 at the end of its life.
13. Office supplies costing $200 were still on hand at the end of the year.
14. Wages in the amount of $800 were owed to employees at the end of the year. These will be paid early in 2012.
Required:
a. Prepare journal entries for transactions 1 through 11.
b. Set up T accounts, post the 2011 transactions, and calculate the unadjusted balance in each account.
c. Prepare a trial balance, and ensure that the total of the debit balances is equal to the total of the credit balances. (If your totals are not equal, you should use the procedures outlined in the Helpful Hint on page 179 to try to locate the error.)
d. Prepare journal entries for adjustments 12 to 14.
e. Post the adjusting entries, and recalculate the balances in the accounts involved.
f. Prepare the closing entries, post them to the T accounts, and calculate the final balance in each account.