Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follows:

Jan. 2. Issued a check to establish a petty cash fund of $2,000.

Mar. 4. Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $789; miscellaneous selling expense, $256; miscellaneous administrative expense, $378.

Apr. 5. Purchased $14,000 of merchandise on account, terms 1/10, n/30. The perpetual inventory system is used to account for inventory.

May 7. Paid the invoice of April 5 after the discount period had passed.

10. Received cash from daily cash sales for $9,455. The amount indicated by the cash register was $9,545.

June 2. Received a 60-day, 9% note for $80,000 on the Stevens account.

Aug. 1. Received amount owed on June 2 note, plus interest at the maturity date.

8. Received $3,400 on the Jacobs account and wrote off the remainder owed on a $4,000 accounts receivable balance. (The allowance method is used in accounting for uncollectible receivables.)

Aug. 25. Reinstated the Jacobs account written off on August 8 and received $600 cash in full payment.

Sept. 2. Purchased land by issuing a $300,000, 90-day note to Ace Development Co., which discounted it at 10%.

Oct. 2. Sold office equipment in exchange for $60,000 cash plus receipt of a $40,000, 120-day, 6% note. The equipment had cost $140,000 and had accumulated depreciation of $25,000 as of October 1.

Nov. 30. Journalized the monthly payroll for November, based on the following data:

30. Journalized the employer’s payroll taxes on the payroll.

Dec. 1. Journalized the payment of the September 2 note at maturity.

30. The pension cost for the year was $85,000, of which $62,400 was paid to the pension plan trustee.

Instructions

1. Journalize the selected transactions.

2. Based on the following data, prepare a bank reconciliation for December of the current year:

a. Balance according to the bank statement at December 31, $126,400.

b. Balance according to the ledger at December 31, $109,650.

c. Checks outstanding at December 31, $30,600.

d. Deposit in transit, not recorded by bank, $13,200.

e. Bank debit memo for service charges, $350.

f. A check for $530 in payment of an invoice was incorrectly recorded in the accounts as $230.

3. Based on the bank reconciliation prepared in (2), journalize the entry or entries to be made by Blackwell Company.

4. Based on the following selected data, journalize the adjusting entries as of December 31 of the current year:

a. Estimated uncollectible accounts at December 31, $7,200, based on an aging of accounts receivable. The balance of Allowance for Doubtful Accounts at December 31 was $750 (debit).

b. The physical inventory on December 31 indicated an inventory shrinkage of $1,480.

c. Prepaid insurance expired during the year, $10,200.

d. Office supplies used during the year, $1,760.

e. Depreciation is computed as follows:

f. A patent costing $22,500 when acquired on January 2 has a remaining legal life of 10 years and is expected to have value for five years.

g. The cost of mineral rights was $220,000. Of the estimated deposit of 400,000 tons of ore, 24,000 tons were mined and sold during the year.

h. Vacation pay expense for December, $4,800.

i. A product warranty was granted beginning December 1 and covering a one year period. The estimated cost is 2.5% of sales, which totaled $840,000 in December.

j. Interest was accrued on the note receivable received on October 2.

5. Based on the following information and the post-closing trial balance shown below, prepare a balance sheet in report form at December 31 of the current year.

The merchandise inventory is stated at cost by the LIFO method.

The product warranty payable is a current liability.

Vacation pay payable:

Current liability                       $3,200

Long-term liability                  1,600

The unfunded pension liability is a long-term liability.

Notes payable:

Current liability                       $25,000

Long-term liability                  75,000

6. On February 7 of the following year, the merchandise inventory was destroyed by fire. Based on the following data obtained from the accounting records, estimate the cost of the merchandise destroyed:

Jan. 1 Merchandise inventory             $144,200

Jan. 1–Feb. 7 Purchases (net)              40,000

Jan. 1–Feb. 7 Sales (net)                     70,000

Estimated gross profit rate                  40%

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Deductions Salaries Sales salaries Office salaries $60,400 34,500 Income tax withheld $17,082 5,450 1,424 Social security tax withheld Medicare tax withheld $94,900 Unemployment tax rates: State unemployment Federal unemployment Amount subject to unemployment taxes: State unemployment Federal unemployment 4.0% 0.8% $4,000