Balance sheet accounts are provided in the table below. These are balances as of June 30, 2017. *The debits and credits do not equal/balance because

Balance sheet accounts are provided in the table below. These are balances as of June 30, 2017. *The debits and credits do not equal/balance because the net income earned so far this year ($79,000) has not yet been included in retained earnings. This amount will show up as part of the net income when you prepare the financial statements.

Account	Debit	Credit
Cash	100,000
Trading Securities	50,000
Available-for-Sale Securities	50,000
Fair Value Adjustment-AFS		5,000
Accounts Receivable	75,000
Receivable from Employee	10,000
Inventories	200,000
Assets Held-for-Sale	25,000
Cash Value of Insurance	10,000
Equipment	54,000
Accumulated Depreciation-Equipment		16,500
Building	96,000
Accumulated Depreciation-Building		32,000
Land	25,000
Goodwill	275,000
Accounts Payable		80,000
Interest Payable		15,000
Salaries Payable		10,000
Taxes Payable		5,000
Current Portion of Note		40,000
Note Payable (noncurrent portion of note)		190,000
Mortgage Liability		110,000
Common Stock		300,000
Retained Earnings		92,500
Accumulated Other Comprehensive Income/Loss	5,000	______
	$975,000	$896,000

The following information relates to the revenues earned and expenses incurred during the first half of 2017.

	Debit	Credit
Sales		$1,911,500
Sales Returns and Allowances	100,000
Sales Discounts	22,500
Cost of Goods Sold	1,240,000
Selling Expenses	250,000
General and Administrative Expenses	220,000

Transactions occurring in 2017 but not considered in the current net income of 79,000 are as follows:

1. On July 1^st, the corporation entered into a lease agreement for a machine that qualifies as a capital lease. The lease calls for annual lease payments of $26,269 over a six-year lease term, with the first payment at July 1^st, the lease's inception. The interest rate is 5%. *(Round your answer to the nearest whole dollar)

2. On July 1^st, the corporation sold a $15,000, 5-year bond with a stated rate of 8%. The effective yield on the bonds is 10%. Interest on the bond is paid semiannually on January 1^st and July 1^st. The company uses the effective-interest method to amortize any bond discount or premium. *(Round your answer to the nearest whole dollar)

3. On September 20^th, the company sold its shares in Hobokin Company, resulting in a loss of $1,000 (pretax). See the portfolio tables below.

4. When its president died, on October 8^th, the corporation realized $110,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $10,000 (the gain is nontaxable).

5. On November 1^st, Tri-Star, Inc. filed a suit against the corporation, seeking damages for patent infringement. Legal counsel believes that it is probable that the company will lose the lawsuit to Tri-Star and it is reasonably estimable that the corporation will have to pay Tri-Star $10,000.

6. On November 15^th, the corporation disposed of its wholesale division at a loss of $5,000 before taxes. The wholesale operations were shut down at the beginning of the year. This transaction meets the criteria for discontinued operations. The assets associated with this sale are being classified as Assets Held-For-Sale.

7. The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2015 income by $60,000 and decrease 2016 income by $20,000 before taxes. The FIFO method has been used for 2017. The tax rate on these items is 40%.

8. On December 18^th, the corporation purchased 2,000 shares of its own common stock at $20 a share.

9. On December 20^th, the corporation paid off the current portion of the note payable along with the $15,000 in interest that had been accrued.

10. December 31^st, interest on the lease has accrued.

11. December 31^st, interest on the bonds has accrued.

12. The company’s products carry a one-year warranty against manufacturer’s defects. Warranty costs are expected to be 1% of net sales.

13. At the beginning of 2016, the corporation purchased a piece of equipment for $54,000, salvage value of $9,000, and that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2016 and 2017. However, in 2017, the bookkeeper failed to deduct the salvage value in computing the depreciation base (an error was made). The journal entry for this year's depreciation has already been made, but a correcting entry is required to fix the mistake.

14. Adjust the Trading securities and AFS securities to their respective fair values. See the portfolio tables below.

To help you along with this problem, please note the following:

The Hobokin Company AFS Securities had an unrealized loss of 3,000 reported at the end of 2016 that was aggregated into Accumulated Other Comprehensive Income on the balance sheet. When the Hobokin shares are sold on September 20, 2017 (see transaction #3), the unrealized loss has to be reversed, in order to avoid double-counting the loss (unrealized through AOCI and realized through RE) on the balance sheet. Here is the entry to show the reversal:

Fair Value Adjustment - AFS 3,000

Accumulated Other Comprehensive Income 3,000

Now, you are ready to prepare the 2017 adjusting entry for AFS securities.

(The one for trading securities is less complicated.)

Portfolio Tables

AFS Securities Portfolio	Cost	Fair Value 2016	Fair Value 2017
Disney Corporation	$5,000	$8,000	$10,000
Monster Truck, Inc.	25,000	20,000	22,000
Hobokin Company	20,000	17,000	______
Totals	$50,000	$45,000	$32,000

Trading Securities Portfolio	Cost	Fair Value 2016	Fair Value 2017
GM Company	$15,000	$20,000	$23,000
Shaffer Corporation	35,000	30,000	34,000
Totals	$50,000	$50,000	$57,000