Question
ACC 2102 Barton Corporation is a company that specializes in the design of custom telecommunication solutions for companies in the financial services industry. Your task
ACC 2102
Barton Corporation is a company that specializes in the design of custom telecommunication solutions for companies in the financial services industry. Your task is to prepare year end adjusting entries for Barton and prepare the companys financial statements. The company operates on a calendar year.
Barton has 50,000 shares of $10.00 par value common stock authorized. The companys common stock was selling for $55 per share throughout the entire last quarter of 2020. That is also the average market price for Bartons stock during the year of 2020. The corporation uses the cost method of accounting for treasury stock.
Barton uses straight-line depreciation for all plant assets. Depreciation is recorded at the end of each fiscal year and assets acquired during the year are depreciated for 1 full year regardless of the date of acquisition. The company uses the perpetual LIFO inventory method with lower of cost or net realizable value applied to individual items. Bartons incremental borrowing rate is 8%.
You will find the 12/31/20 preliminary (meaning before adjustments) trial balance for Barton Corporation on the last page of this assignment. The 2019 post-closing trial balance is also provided. You can assume the transactions that occurred during 2020 were recorded correctly.
The information needed to prepare year-end adjusting entries is presented below in items 1-12. Do not assume every item requires an entry. Items that do require adjustments may need more than 1 entry. Take the information you are given and make the adjustments necessary to produce accurate financial statements.
For simplicity, all operating expenses for the current year are shown in one account entitled Operating Expenses. But, when you complete your entries, use specific account titles for any operating expenses you need to record (such as Salaries Expense or Rent Expense).
You will need to work this assignment in an Excel workbook and submit it to the designated drop box in your eLearn course. Your instructor will provide a file with the preliminary trial balance and 2019 post closing trial balance as a starting point. All financial statements must be in the proper format and include a heading. A significant part of the grade is the financial statements, so allow adequate time to complete them. Your completed Excel file needs to include:
- All journal entries required on Dec. 31 for the items 1-12 below. Organize the entries by item number and show your calculations. The work you submit should start with all of the entries for item #1 and show any calculations for that item. Then move on to item #2 and the related calculations. Complete all your entries on 1 tab in your Excel file.
- A multiple-step Income Statement with all appropriate subtotals and earnings per share data. For this income statement, you will not need to classify Operating Expenses into the categories of Selling and Administrative expenses.
- A Statement of Retained Earnings.
- A classified Balance Sheet.
- A Statement of Cash Flows using the indirect method.
- A Post-Closing Trial Balance.
The Excel file also includes a Worksheet tab to organize your information for the financial statements, but completing the worksheet is OPTIONAL. It will not be graded.
Information to prepare adjusting entries:
1. Bartons note payable is a loan that is being repaid $5,000 each August 31 plus interest at 8%. The last principal and interest payment were made and properly recorded on August 31, 2020.
2. Barton estimates that 1.8% of the current accounts receivable will not be collected.
3. Barton purchased a patent at the beginning of 2020 for a product that is very popular and sells are currently soaring. The company estimates this patent will bring in a sizeable cash flow over the next couple years and then sales will dwindle. Barton estimates they will not sell the product after the end of 2024. The patent has a remaining legal life of 15 years.
4. Bartons trademark has to be renewed every 10 years. The trademark is up for renewal during 2021. The trademarks fair value (as measured by the present value of future cash flows) is $20,000.
5. Barton employs 6 employees. Each employees weekly salary is $800 for a standard 5 day work-week (Monday through Friday). Employees are paid every 2 weeks on Wednesday; each paycheck is for earnings in the 2 weeks (Mon thru Fri) prior to the day they are paid. The last payday was December 23. Paid holidays include New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas Eve and Christmas Day. Employee benefits also include 2 weeks of paid vacation per year and 15 sick days. Vacation and sick days earned in one year must be taken in the following year or they are lost. Company management strongly encourages employees to use all their vacation time and most employees do use it all. Sick days must be used for employee illness. (Hint: it will help if you look at a real calendar for December 2020.)
6. Barton rents a building by signing a one-year lease each year effective January 1. The monthly rent amount throughout 2020 was $1,200. Sometimes, the company will prepay rent if there is excess cash because the rental contract states that if any rent is prepaid at the end of 2020, the rent will remain at $1,200 for the months that are prepaid. The monthly rent usually increases when each new rental agreement is signed.
7. Barton hopes to construct a building in the future so they can customize the space to better suit their needs. A couple of years ago, the company purchased land for the future building site. That has proven to be a good purchase because the market value of that land would be $100,000 now. Barton hopes to start construction on its building next year.
8. The Leased Machinery is a 5 year, non-cancellable lease that was signed on January 1, 2020. The interest rate stated in the lease contract was 6% and annual lease payments beginning 1/1/20 are $13,500. The ownership of the machine will transfer to Barton at the end of the lease. Barton plans to use the machinery for 8 years. The lease and the first payment were properly recorded on 1/1/20.
9. Bartons physical inventory count on January 4 showed $89,690 of inventory was on site at the end of the year. Barton had shipped a large order to a customer on December 30 that will not arrive at the customers location until January 9. The order was for $8,000 of merchandise that cost $2,700; it was shipped FOB Shipping Point. Barton had recorded the sale on December 30. In addition, Barton had ordered $9,000 of inventory from a vendor that was shipped on Dec. 31, FOB Shipping Point. This inventory arrived on January 6 and the purchase was recorded in the accounting records at that time. While taking the physical inventory, an employee found a few old dusty boxes tucked away in a corner of the warehouse with products that were now obsolete. The original cost of this inventory was $8,000. It could be sold to an overstock company for $3,000 less shipping and other fees of $500.
10. At the end of 2020, Barton has 2,000 stock options outstanding. Each option allows the holder to purchase 1 share of Bartons common stock for $40 per share any time after January 1, 2022.
11. Bartons equity securities have a market value of $24,000 at the end of 2020. During 2020, Barton sold some equity securities to take advantage of gains on those stocks in the market. Barton intends to hold onto its remaining equity securities for at least a few years. During 2020, Barton purchased a 25% ownership interest in Wilder Company. Wilder was a supplier to Barton. Barton purchase the stock to build a strategic alliance by becoming a part owner of the company. The stock purchase was completed on June 30, 2020. Barton paid $25 for each of the 1,000 shares of Wilder purchased. The market value of Wilders stock rose to $40 per share at the end of 2020 based on the companys annual earnings of $260,000. Wilder paid no dividends during 2020.
12. Bartons current equipment balance consists of $120,000 of production equipment and $42,000 of equipment used in multiple research and development projects. All equipment is being depreciated straight-line over a 15 year life with no salvage value. You can assume all depreciation recorded prior to 2020 is accurate.
Barton Corportion Preliminary Trial Balance December 31, 2020 Barton Corportion Post Closing Trial Balance December 31, 2019 Debit Credit 32,200 77,000 300 %6,100 4,800 22,700 3,000 25,000 162,000 21,600 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Rent Equity Searities (at Fair Value) FV Adjustment - Equity Securities Investment in Wilder Company Equipment Accum Deprec-Equip Leased Machinery Land Patent Trademark Accounts Payable Note Payable Lease Liability Common Stock ($10 par) Paid in Capital - Common Stock Retained Earnings Treasury Stock, 100 shares Sales Cost of Goods Sold Operating Expenses Rent Expense Bldg Interest Expense Gain on Sale of Equity Securities Income Tax Expense Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Equity Securities (at Fair Value) FV Adjustment -Equity Searities Equipment Accum Deprec- Equip Land Trademark Accounts Payable Salaries Payable Interest Payable Bank Loan Note Payable Common Stock ($10 par) Paid in Capital - Common Stock Retained Earnings Treasury Stock, 100 shares Debit Credit 40,390 70,200 1,500 92,400 41,800 3,000 151,000 21,600 80,000 2,700 26,530 12,000 1,560 9,000 60,000 200,000 80,000 70,800 1,500 482,990 482,990 60,279 80,000 60,000 2,700 31,500 55,000 46,779 200,000 80,000 70,800 1,500 1,448,250 628,750 662,000 12,000 4,700 6,000 25,500 1,960,229 1,960,229 Barton Corportion Preliminary Trial Balance December 31, 2020 Barton Corportion Post Closing Trial Balance December 31, 2019 Debit Credit 32,200 77,000 300 %6,100 4,800 22,700 3,000 25,000 162,000 21,600 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Rent Equity Searities (at Fair Value) FV Adjustment - Equity Securities Investment in Wilder Company Equipment Accum Deprec-Equip Leased Machinery Land Patent Trademark Accounts Payable Note Payable Lease Liability Common Stock ($10 par) Paid in Capital - Common Stock Retained Earnings Treasury Stock, 100 shares Sales Cost of Goods Sold Operating Expenses Rent Expense Bldg Interest Expense Gain on Sale of Equity Securities Income Tax Expense Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Equity Securities (at Fair Value) FV Adjustment -Equity Searities Equipment Accum Deprec- Equip Land Trademark Accounts Payable Salaries Payable Interest Payable Bank Loan Note Payable Common Stock ($10 par) Paid in Capital - Common Stock Retained Earnings Treasury Stock, 100 shares Debit Credit 40,390 70,200 1,500 92,400 41,800 3,000 151,000 21,600 80,000 2,700 26,530 12,000 1,560 9,000 60,000 200,000 80,000 70,800 1,500 482,990 482,990 60,279 80,000 60,000 2,700 31,500 55,000 46,779 200,000 80,000 70,800 1,500 1,448,250 628,750 662,000 12,000 4,700 6,000 25,500 1,960,229 1,960,229
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