As a recently hired accountant for a small business, Bearing, Inc., you are provided with last year's balance sheet statement and post-closing trial balance to familiarize yourself with the business.

Bearing, Inc.

Balance Sheet

December 31, 2011

Assets

Cash22,100

Accounts Receivable27,000

Inventory13,500

Supplies600

Total Assets$63,200

Liablities & Stockholders' Equity

Liabilities:

Accounts Payable17,000

Salaries Payable3,500

Income Taxes Payable3,200

Total Liabilities23,700

Stockholders' Equity:

Capital stock (10,000 shares outstanding)20,000

Retained Earnings19,500

Total Stockholders' Equity39,500

Total Liabilities and Stockholders' Equity$63,200

Bearing, Inc.

Income Statement

For the Year Ended December 31, 2011

Sales revenue143,000

Rent revenue4,000

Total revenues147,000

Less: cost of goods sold85,000

Gross margin62,000

Less: Operating expenses:

Supplies expense1,200

Salaries expense31,000

Miscellaneous expense6,400 38,600

Income before taxes23,400

Less: income taxes8,190

Net Income$15,210

Earnings per share ($15,210/10,000 shares)$1.52

Bearing, Inc.

Post-Closing Trial Balance

December 31, 2011

Debits Credits

Cash22,100

Accounts Receivable27,000

Inventory13,500

Supplies600

Accounts Payable17,000

Salaries Payable3,500

Income Taxes Payable3,200

Capital stock 20,000

Retained Earnings19,500

Totals$63,200 $63,200

You are also given the following information that summarizes the business activity for the current year, 2012:

a. Issued 6,000 additional shares of capital stock for $30,000 cash.

b. Borrowed $10,000 on January 2, 2012 from Metropolis Bank as a long-term loan. Interest for the year is $700, payable on January 2, 2012.

c. Paid $5,100 cash on September 1 to lease a truck for one year

d. Received $1,800 on November 1 from a tenant for six months' rent.

e. Paid $900 on December 1 for a one-year insurance policy.

f. Purchased $250 of supplies for cash.

g. Purchased inventory for $80,000 on account

h. Sold inventory for $105,000 on account; cost of the merchandise sold was $60,000.

i. Collected $95,000 cash from customers' accounts receivable.

j. Paid $65,000 cash for inventories purchased during the year.

k. Paid $34,000 for sales reps' salaries, including $3,500 owed at the beginning of 2012.

l. No dividends were paid during the year

m. The income taxes payable for 2011 were paid

n. For adjusting entries, all prepaid expenses are initially recorded as assets, and all unearned revenues are initially recorded as liabilities

o. At year-end, $400 worth of supplies are on hand

p. At year-end, an additional $4,000 of sales salaries are owed, but have not yet been paid

q. Income tax expense is based on a 35% corporate tax rate.

You are asked to do the following:

1. Journalize the transactions for the current year, 2012, using the accounts listed on the financial statements and other appropriate accounts (you may omit explanations).

2. Set up T accounts and enter the beginning balances from the December 31, 2011, post-closing trail balance for Bearing. Post all current year journal entries to the T-accounts.

3. Journalize and post any necessary adjusting entries at the end of 2012. (Hing: Items b,c,d,e,m,o and p required adjustment).

4. After the adjusting entries are posted, prepare a balance sheet, and income statement for 2012 (Hint: Income before income taxes should equal $8,175).

5. Journal and post closing entries for 2012 and prepare a post-closing trial balance.