The Comptroller of ABC Incorporated has just won the lottery and was last seen with a 1-way ticket to Hawaii headed towards Pearson International Airport. The owners of ABC have found his unadjusted November 30, 2017 trial balance for the 11 months then ended (attached), and have also provided you with some additional information about ABC and the transactions which have occurred during December 2017. Your job is to:

1. Create  a list of all entries required to:

• account for December 2017, and

• enter any yearend adjusting entries required for fiscal 2017 (indicate with an 'R' if that entry needs to be reversed - you do not need to do closing entries).

Show each journal entry and write one sentence which describes it, (i.e. 'To record December 2017 revenues'). Part-marks are available for incorrect solutions if you show your calculations / describe your reasoning.

(Approximately 80% of available marks)

2. Create  an adjusted December 31, 2017 trial balance, add new accounts as needed.

(Approximately 20% of available marks)

ABC's owners have given the following information:

a) During December 2017 inventory with a cost of $130,000 was sold on account for $150,000 (assume a perpetual inventory system, not a periodic one). Cash collections for the same period were $165,000.

b) In addition to the above (not included in the $150,000 of sales) was one sale of inventory with a cost of $20,000 and a selling price of $30,000 where the credit manager predicted only a 10% chance of actually getting paid but the transaction was carried out anyway - the terms of the sale required payment in 60 days this amount has not yet been collected and is not yet overdue as at December 31. (Part marks available if you explain your reasoning.)

c) Upon review of the receivables at year-end, management has indicated that a specific customer has gone bankrupt and won't be paying the $15,000 that they owe. A further $25,000 of the remaining receivables (not counting the sale described in b) will probably not be collected either. (Normally ABC only reviews their outstanding receivables at year-end).

d) Inventory of $130,000 were purchased on account from suppliers. Later in the month, ABC made a payment to its inventory suppliers in the amount of $100,000.

e) The owners declared and paid themselves a dividend of $2,000 in December. For tax planning purposes the owners have declared a bonus payable to themselves of $45,000. They aren't planning to make the actual payment until 2018.

f) Wages of $28,000 were paid on December 8, and again on December 22. Wages of $28,000 will be paid again on January 5, 2018. (ABC operates every day not just Monday-Friday, assume no accruals were made in November, ignore the effects of any statutory holidays during this period.)

g) An annual insurance policy was purchased for $36,000 on June 1, 2017 and was fully expensed at that time.

h) All depreciation is straight-line at the following rates (no capital purchases were made during the year):

i) Vehicles - 5 years

ii) Equipment - 10 years

iii) Computer hardware - 3 years

 

ABC Incorporated - Unadjusted Trial Balance 11 Months ended November 30, 2017 Account 1020 Bank 1200 Accounts Receivable 1205 Allowance for Doubtful Accounts 1300 Prepaid Expenses and Deposits 1410 Automobiles 1415 Acc.Dep. Automobiles 1425 Equipment 1426 Accum Amort Equipment 1430 Inventory 1440 Computer hardware 1441 Acc Amort Computer Hardware 2200 Accounts Payable 2205 Accrued Liabilities 2300 Long term debt (non-interest bearing) 2520 Shareholders Advances 3350 Capital Stock 3560 Retained Earning 3810 Dividends 4020 General Revenue 4030 Interest Income 5000 Cost of goods sold 5020 Supplies 5025 Sub-Contracting 5040 Equipment Rentals Maintenance/Rep 5050 Small Tool Purchases 5410 Wages 5610 Accounting & Legal 5650 Insurance 5700 Depreciation Expense 5810 Management bonus 5850 Bad Debts UNIVERSITY OF TORONTO SCHOOL or CONTINUING STUDIES Dr. 110,000 80,000 6,000 40,000 140,000 126,500 16,500 22,000 1,000,000 25,000 75,000 5,000 10,000 295,000 8,000 36,000 5,000 2,000,000 Cr. 16,000 98,000 5,500 15,000 250,000 22,000 100 45,000 1,545,000 3,400 2,000,000 3