Background

It is early 2017 and you have just been hired as the financial reporting guru for TECHNOGYM, a diversified exercise/fitness corporation that has just finished a very fast-paced, dynamic year.TECHNOGYM began as the sole distributor of TechTone, a full-body fitness machine sold to fitness centers and hospitals.This remains the main operation of TECHNOGYM's business.

Your predecessor left the firm in a hurry.Your primary responsibility is to finish the 2016 year-end financial statements.Luckily, there is still time to make any necessary adjusting and closing journal entries for the 2016 fiscal year.Throughout the semester you are working on different aspects of the company's financial records relating to:discontinued operations, revenue recognition, accounts receivable, and inventory. As you are working on the 2016 year-end, you are also reviewing the first quarter 2017 journal entries and will make any necessary correcting journal entries.

Part 1 Requirements (18 points):

a)Using information in the 2016 preliminary adjusted trial balance (attached), prepare the adjusting journal entry for Income Tax Expense for the full year 2016.

b)Using information in the 2016 preliminary adjusted trial balance, combined with the adjusting entry for income taxes you did above, prepare the 2016 closing journal entries for TECHNOGYM.

c)Using information in the 2016 preliminary adjusted trial balance, combined with the adjusting entry for income taxes you did above, prepare the 2016 Balance Sheet and Income Statement for TECHNOGYM.The Balance Sheet must be classified and the Income Statement must be multi-step.Both must be comparative, with columns for the appropriate number of years.Remember this is a public report?it should be formatted appropriately (labeled, values aligned, single page, etc.).

Part 2 Requirements (8 points):

For the first quarter of 2017, show any needed correcting or adjusting journal entries related to the following information.For corrections, first show an entry reversing the original incorrect entry, then prepare the correct entry.Show the calculation of any amounts not included in the problem.Round intermediate calculations to 4 significant digits (e.g., 63.27%).If no journal entry is needed, write "No Entry Needed" and explain briefly why it is not needed.

d)In addition to its normal operations, during the first quarter of 2017, TECHNOGYM launched a new service through its website called MagnaTrain.This web site offers online fitness training through contracted independent trainers.Each trainer sets her own price for a training session.TECHNOGYM connects interested individuals with the trainers but does not directly provide any of the training.For its services and per the contract, TECHNOGYM is entitled to 15% of the total per session fee.TECHNOGYM has recorded the entire $6,000,000 fee collected in cash from the sessions as revenue and recognized its cost associated with MagnaTrain as 85% of the collected fee.

e)Also, in addition to its normal operations, during the first quarter of 2017, TECHNOGYM entered into a long-term agreement to supply its internally developed smart-phone-interactive fitness equipment, BodyTracker, and maintenance support to a regional 24 hour fitness chain. TECHNOGYM was paid $9,000,000 during March, 2017 for the equipment plus 3 years of maintenance support (beginning on April 1, 2017?the first day of the next quarter).The fitness chain could have bought just the equipment for $7,500,000 with no support and they could have independently contracted for the maintenance support for $3,000,000 for the three year period. The cost of the equipment sold was $3,500,000.TECHNOGYM has recorded the $9,000,000 as a point-of-sale cash transaction.

f) During the first quarter of 2017, the company to which TECHNOGYM sold its West Coast division on Dec. 31, 2016 filed a lawsuit alleges that TECHNOGYM misrepresented the division's assets and liabilities.The plaintiff is seeking $2.4 million as an adjustment to the purchase price. TECHNOGYM's attorneys advise that it is reasonably possible the company could lose $1 million, but that it's extremely unlikely it could lose the $2.4 million asked for.

TECHNOGYM Balance Sheet As Of December 31 All amounts are in SThousands 2015 2014 ASSETS Cash $9,200 $5,610 Accounts Receivable, Net 5,340 4,575 Inventory, Net 2,500 2,301] Assets Held For Sale 1,860 1,885 Subtotal Cun'ent Assets 513,900 $14,370 Property, Plant 8t Equipment, Net 22,560 36,000 TOTAL Assns $41,460 $50,370 lIABII'I'IES and EQUITIES Accounts Payable $25,588 524,507 Interest Payable 2,235 18,020 Income Tax Payable 1,524 221 Construction Contract ljability 2,400 ljabilities Held For Sale 3,631 6,165 Subtotal Cun'ent lie bilitios $35,423 548,53 Common Stock 1,500 1,00.) Retained Earnings 4,532 407 TOTAL lIABIII'IES and EQUITIES $41,460 $50,370 TECHNOGYM Income Statement For the Years Ended December 31 All amounts are in SThousands [except pershare amounts] 2015 2014 2013 Sales Revenue $108,840 $78,420 562,236 Cost of Goods Sold 57,850 42,3\":I 33,840 Gross Prot $50,990 $36,120 ' 523,395 Operating Expenses ' 46,560 ' 35,730 23,534 Operating Income $4,430 $390 ' $312 Other Revenues 12,606I 12,45I'.lI 9,960 Other Expenses (17,411)] [12,190] [9,752] IneorrreBekueTaxesStOtherltems $4,630 $650 ' 5520 Income Tax ExpenseBenet] 1,524 221 1?? Income from Continuing Operations $3,056 $429 $343 Discontinued Operating Results 1,620 [250] [2(1)] Loss on Sale of Discontinued Oper. Tax Expense/[Benet] from Disc. Ops. 551 [85] [68] Discontinued Operations Total $1,\" {$165) {5132) NH INCOME $4,125 $264 5211 EPS Continuing Operations 520.37 54.29 $3.43 EPS Discontinued Operations $7.13 [$1.65] [$1.32] EPS Net Income 527.50 52.64 52.11 TECHNOGYM Adjusted Trial Balance Discontinued Ops Continuing Ops December 31, 2016 Debit Credit Debit Credit Debit Credit Cash 12,730,908 124,650 12,606,258 Accounts Receivable 18,187,5(1) 18,187,5(1) Allowance for Doubtful Accounts 862,769 862,769 Income Tax Refund Receivable Inventory 20,061),(11) 20,060,111) uro Reserve 175,000 175,000 Purchases Construction in Progress 31,2(1),(1)0 31,200,(11) Billings on Contracts 32,(11),(11) 32,(11),I11) Property, Plant 81 Equipment 52,8[1),[11) 52,8(1),(11) Accumulated Depreciation 43,680,(11) 43,680,[11) Accounts Payable 17,640,111) 17,640,(11) Interest Payable 2,659,914 2,659,914 Income Tax Payable Notes PayableNoncurrent 30,(11),(11) 30,(11),I11) Common Stock 1,500,(11) 1,5(1),(1)0 Retained Earnings 3,439,340 16,632 3,422,703 Tech Tone Sales Revenue 140,482,5(1) 19,994,9(1) 120,487,611) Sales Returns 280,965 39,990 240,975 Building Revenues 13,751,(11) B,751,(11) Loss on Sale of Discontinued Operation 125,200 125,200 Cost of TechTone Equipment Sold 68,447,500 10,270,(11) 58,177,5(1) Costs of Construction 15,151,500 15,151,5(1) Bad Debt Expense 342,763 342,763 Depreciation Expense 12,(11),[11) 1,440,[11) 10,560,(11) Interest Expense 905,215 905,215 General and Admin Expenses 53,458,967 8,011,692 45,447,275 Income Tax ExpenseBenet] TOTAL 236,190,523 236,190,523 20,011,532 20,011,532 266,173,991 266,173,991 Income Tax Rate 34% Common Shares of Stock Outstanding 150,(1)O