3. Use the following information to prepare adjusting entries (round all calculations to the nearest dollar): a. The annual provision for doubtful accounts receivable is recorded by providing a charge to bad debt expense in an amount equal to 2% of net sales. b. An inventory count of the office supplies revealed $830 of supplies on hand at year end. (Debit office expense for supplies used). c. The insurance premium outstanding on January 1, 2019, covers the period January 1 through August 31, 2019. The insurance premium of $8,460 recorded in August covers the period of September 1, 2019 through August 31, 2020. Rockford estimates that 75% of the premiums are attributable to general activities and 25% to selling activities. 11 d. The payroll summary for the employees who are paid biweekly shows the following information at December 31, 2019: Delivery and warehouse wages $5,600 FICA taxes payable 375 Federal withholding taxes 1,036 State withholding taxes 218 Net pay $3,971 e. The employers share of FICA tax ($375) must be accrued; no state or federal unemployment tax is incurred during the fourth quarter because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax. f. Interest has accrued at 8% on the mortgage notes payable since July 1, 2019. The next six-month interest payment at 9% on the bonds is due on March 1, 2020. The discount on bonds payable has not been amortized for any part of 2019; the bonds are dated March 1, 2013, and mature March 1, 2023. Use straight line amortization for bonds discount and premiums. g. The interest accrued to 31 December 2019 on notes receivable is composed of the following: Platteville Plumbers, 12%, 6 months, due March 31, 2020 $1,350 Bilder Construction, 14%, 6 months, due June 14,2020 295 Beverlys Building, 12%, 6 months, due June 26, 2020 23 Total $1,668 Note that the balance in notes receivable account of $45,000 that appeared on the trial balance on November 30, 2019 is a note receivable from Platteville Plumbers. The interest accrued at December 31, 2019 on notes payable of $15,000 @ 12% is $1,800. Interest is payable on January 2, 2020 and the note is due in 2020. h. A warehouse lease payment of $10,890 was made on September 1, 2019 fro rental through February 28, 2020. The prepaid rent account is for advance lease payments on the warehouse. i. $530 is owed to Northern Electric Co. and $279 is owed to City of Rockford for utility services provided during December 2019. 12 j. Plant and equipment to be depreciated are composed of the following: Estimated Date Usage or Salvage Depreciation Assets Acquired Cost Life Value method Building 1/7/2015 $306,000 25 Years $20,000 Sum-of-the-years digits Truck No. 1 1/4/2016 28,000 60,000 miles 3,100 miles driven Truck No. 2 1/9/2018 33,000 60,000 miles 4,200 miles driven Lift No. 1 17/8/2012 7,900 10 years 900 straight-line Sold 30/12/2019 Lift No. 2 29/3/2016 4,500 10 years 500 straight-line Lift No. 3 9/16/2017 5,000 10 years 500 straight-line Furniture & All prior to 32,800 7 years 2,000 straight-line Equipment 1/1/2019 Computer 21/12/2019 6,100 10 years 1,300 Double-declining balance Truck No. 1 has been driven 45,000 miles prior to 1/1/2019 and truck No. 2 has been driven 30,500 miles prior to 1/1/2019. During 2019 truck No. 1 was driven 12,000 miles and truck No. 2 was driven 14,000 miles. Remember that Rockford Company takes a half-year depreciation in the year of acquisition and a half-year in the year of sale. 4. Compute the State of Illinois Corporate income taxes at 4 1 2% of pretax income. The state income tax is deductible on the federal tax return, and the federal tax in not deductible on the Illinois return. Assume federal corporate income tax on income subject to federal tax is as follows: First $50,000 @15% next 25,000 @25% remainder @34% HINT: Corporations subject to federal income taxes must make estimated tax payments throughout the year. At the time of the payment, the account Income Tax Expense is debited and cash is credited. To determine the taxable income at year end, net the total debits and the total credits from the income statement. Note that the estimated income tax expense is listed as a debit and must be subtracted from total debits when determining taxable income since it is not a deductible item.