Question
Account Debit Credit Gross sales $1,840,000 Sales returns and allowances $20,000 Cost of goods sold 1,520,000 Interest income from: Banks $10,000 Tax-exempt state bonds 5,000
Account
Debit
Credit
Gross sales
$1,840,000
Sales returns and allowances
$20,000
Cost of goods sold
1,520,000
Interest income from:
Banks
$10,000
Tax-exempt state bonds
5,000
15,000
Proceeds from life insurance (death of corporate officer)
6,000
Bad debt recoveries (no tax deduction claimed)
3,500
Insurance premiums on lives of corporate officers (corporation is beneficiary of policies)
9,500
Compensation of officers
40,000
Salaries and wages
28,000
Repairs
800
Taxes
10,000
Contributions:
Deductible
$23,000
Other
500
23,500
Interest paid (loan to purchase tax-exempt bonds)
850
Depreciation
5,200
Loss on securities
3,600
Net income per books after federal income tax
140,825
Federal income tax accrued for 2016
62,225
Total
$1,864,500
$1,864,500
The corporation analyzed the retained earnings and the following items appeared in this account on its books.
Item
Debit
Credit
Balance, January 1
$225,000
Net profit (before federal income tax)
203,050
Reserve for contingencies
$10,000
Income tax accrued for the year
62,225
Dividends paid during the year
140,089
Refund of 1995 income tax
18,000
Balance, December 31
233,736
Total
$446,050
$446,050
The following items appear on page 1 of Form 1120.
Gross sales ($1,840,000 less returns and allowances of $20,000)
$1,820,000
Cost of goods sold
1,520,000
Gross profit from sales
$300,000
Interest income
10,000
Total income
$310,000
Deductions:
Compensation of officers
$40,000
Salaries and wages
28,000
Repairs
800
Taxes
10,000
Contributions (maximum allowable)
22,500
Depreciation
6,200
Total deductions
107,500
Taxable income
$202,500
Exercise to be completed:
- Please prepare Schedule M-1 for Rocky Mountain Equipment Corporation using the financial information and the Form 1120 line items provided above.
- Please prepare Schedule M-2 for Rocky Mountain Equipment Corporation using the retained earning information provided. To accurately calculate and support the ending balance, please RetainedEarnings Reconciliation Table.
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Introduction to Managerial Accounting
Authors: Peter C. Brewer, Ray H. Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan
5th Canadian edition
77429494, 1259105709, 1260480798, 978-1259105708
