James Corporation's balance sheet at December 31, 2013, is presented below.

During 2014, the following transactions occurred.
1. James paid $2,500 interest on the bonds on January 1, 2014.
2. James purchased $241,100 of inventory on account.
3. James sold for $450,000 cash inventory which cost $250,000. James also collected $31,500 sales taxes.
4. James paid $230,000 on accounts payable.
5. James paid $2,500 interest on the bonds on July 1, 2014.
6. The prepaid insurance ($5,600) expired on July 31.
7. On August 1, James paid $12,000 for insurance coverage from August 1, 2014, through July 31, 2015.
8. James paid $24,000 sales taxes to the state.
9. Paid other operating expenses, $91,000.
10. Retired the bonds on December 31, 2014, by paying $47,000 plus $2,500 interest.
11. Issued $90,000 of 8% bonds on December 31, 2014, at 104. The bonds pay interest every June 30 and December 31.
Adjustment data:
1. Recorded the insurance expired from item 7.
2. The equipment was acquired on December 31, 2013, and will be depreciated on a straight-line basis over 5 years with a $3,000 salvage value.
3. The income tax rate is 30%.

Instructions
(You may want to set up T-accounts to determine ending balances.)
(a) Prepare journal entries for the transactions listed above and adjusting entries.
(b) Prepare an adjusted trial balance at December 31, 2014.
(c) Prepare an income statement and a retained earnings statement for the year ending December 31, 2014, and a classified balance sheet as of December 31,2014.

Transcribed Image Text:

James Corporation Balance Sheet December 31, 2013 Cash Inventory Prepaid insurance Equipment 13,750 2,500 50,000 20,000 18,600 $104,850 30,500 Accounts payable 25,750 5,600 3,000 $104,850 Interest payable Bonds payable Common stock Retained carnings 4