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Rockford Practice Set: Selected transactions 2012 Due date: October 1, 2013 (Tuesday) NARRATIVE OF THE DECEMBER TRANSACTIONS NOTE: Assume the following balances in the accounts at December 1, and adjust accordingly given the transactions below: Sales Revenue: $5,234,940 Sales returns & allowances: $9,380 Sales discounts: $73,044 Purchases: $3,722,290 Purchase returns, allowances: $25,520 Purchase discounts: $67,496 Freightin: $19,448 Bad debt expense: Advertising expense: $6,578 Supplies expense: $1,540 Freightout: $17,732 Depreciation expense: Miscellaneous expense: Salaries & wages expense: $933,122 Rent expense: Payroll tax expense: $82,916 Utilities expense: $16,270 Interest revenue: $3,150 Interest expense: $24,570 Loss on disposal - P. Assets: Gain on disposal - P. Assets: Income tax expense: $112,000 Insurance expense: $3,220 Note II: Assume that selected Balance Sheet (B/S) account balances are as shown below (prior to adjusting and other entries necessary to complete this exercise): Cash: $209,930 Inventory (1/1): $531,960 Petty cash: $150 Accounts Receivable: $317,420 Allowance for doubtful accts: $8,280 Notes Receivable: $45,000 Prepaid Insurance: Land: $43,000 Building: $306,000 Accumulated depreciationBldg.: $73,040 Equipment: $32,800 Accumulated depreciationEquip: $13,200 Truck: $71,100 Accum DepTrucks: $41,650 Treasury stock (700 shares): $42,610 Retained Earnings: $362,748 Common stock: $$189,000 (6,300 shares with $30 par value) Paid in capital - C/S: $256,400 Notes Payable (LT): $113,000 Bonds Payable: $275,000 Discount on bonds payable: $6,400 Accounts payable: $126,850 Income taxes payable: Dividends paid to date: $32,100 Withholding taxes payable; $13,846 Selected December transactions (the number at the beginning of each line is the date): 22 Purchased bathroom and kitchen fixtures from Phoenix Plastics, on account, purchase order No. 319 for $48,330, terms 1/10, n/30. 23 Received a bill from DeKalb Transport for $2,300 for transportation (freight)in costs incurred during the last 30 days, terms n/30. 27 The board of directors voted to purchase 1,000 shares of its own stock from stockholder Dionne Schivone at $83 per share and issued check No. 1595 in payment. Stock repurchases are recorded at cost. Rockford is purchasing these shares because Ms. Schivone had been a valuable employee. 27 The board of directors declared a $2.70 pershare cash dividend payable on January 14 to stockholders of record on December 27 (after purchase of stock; dividends are not paid on treasury (repurchased) stock). 27 The president informs you that Beverly's Building Products agrees to convert the $14,000 overdue accounts receivable (invoice No. 1119) balance to a 12% note due six months from today. 28 A halfacre parcel of land adjacent to the building is acquired in exchange for 600 shares of unissued common stock. The land has a fair value of $54,000 and will be used immediately as an outside storage lot and parking lot. 28 An invoice in the amount of $2,650 is received from Wayne McManus, lawyer, for legal services involved in the acquisition of the adjacent parcel of land; check No. 1596 is issued in payment. 28 A court notice indicates that Iwanaga Plumbing and Heating is bankrupt and payment of its account improbable; the president orders the account to be written off as a bad debt (invoice No. 780; face amount $3,700). 28 Sold pipe and plumbing materials to Boecker Builders on account, invoice No. 1210 for $42,040. 29 Issued check No. 1597 in the amount of $500 to the Northern Star for advertisement run in the home building supplement of December 15. 29 Issued check No. 1598 in the amount of $925 to Standard Oil Co. in payment of gas, oil, and truck repairs from Standard Oil Co. (use Freightout). 29 Purchased copper and cast iron pipe from Oxenford Copperworks on account, purchase order No. 320 for $55,940, terms 1/10, n/30. 1 29 Check No. 1599 for $15,000 is issued to the bond sinking fund trustee, Chicago Trust Co., for deposit in the sinking fund (use Other Assets). 30 Received a check for $21,730 from Boecker Builders in payment of invoice No. 1207 (face amount of $21,730). 30 Sold plumbing supplies to Swanson Brothers Construction on account, invoice No. 1211for $24,650. 30 Purchased a new Faith computer for $6,100 from Business Basics, Inc., purchase order No. 318, paying $600 down through Check No. 1594 with the balance due in thirty days (n/30). The computer has an estimated life of five years with a salvage value of $1,300. Double declining balance depreciation will be used. 30 Issued check No. 1600 for $43,362 to Smith Pipe Company in payment of purchase order No. 317 (face amount $43,800). 31 The custodian of the petty cash fund submits the following receipts for reimbursement and reports a cashon hand count of $8. Postage stamps used .............................................. $38 United Parcel (freightout) .................................... 23 C.O.D. postage (freightin) .................................... 51 Christmas office decorations .................................. 30 Check No. 1601 is issued and cashed to reimburse the fund. 31 Sold an electric trucklift to Leila Stierman Co. for $2,500 cash. The original cost was $7,900 with salvage value of $900, a life of 10 years, and accumulated depreciation recorded through 12/31/11 of $4,550. The straightline method is used. First, bring the depreciation expense up to date. Then record the entry for the sale. 31 Sold bathroom fixtures and plumbing supplies to Trudy's Plumbing on account, invoice No. 1212 for $55,770. 31 The payroll summary for the monthly paid employees is submitted so that December checks can be distributed before the yearend; the details are as follows: Sales salaries ............................................................ $16,000 Office and administrative salaries.......................... 22,900 Federal taxes withheld .............................. 10,833 Net pay .............................................................. $28,067 Issued check No. 1603 for the amount of the net pay and deposited it in the payroll bank account. Individual payroll checks were prepared for distribution to all monthly employees by the end of the day. 31 Cash sales since December 13 total $25,980. INSTRUCTIONS (Note: you will have to construct an income statement): 1. Construct and record the entries for the transactions on the dates noted for Rockford: 12/23; 12/27;12/28 lawyer bill & A/R writeoff); 12/30 computer purchase; 12/30 payment with check #1600;12/31petty cash, wages, & the trucklift sale. 2. Construct and record the adjusting entries made for depreciation on the building, interest (separate entries for mortgage and bonds) and taxes. 3. Given the following information, prepare entries for recording bad debt expense and for cost of goods sold (COGS) for the year: a. The annual provision for doubtful accounts receivable is recorded by providing a charge to Bad Debt Expense in an amount equal to 2% of net sales (after returns and discounts, etc.). b. An inventory count of the office supplies revealed $830 of supplies on hand at yearend. c. A physical inventory on Friday, January 7, 2013 results in a total dollar value assigned to the ending inventory at lower of cost or market of $539,930. d. The $3,220 insurance premium outstanding on January 1, 2012, covered the period January 1 through August 31, 2012. The insurance premium of $7,050 recorded in August covers the period from September 1, 2012 through August 31, 2013. Rockford estimates that 75% of the premiums are attributable to general activities and 25% to selling activities (use Miscellaneous Selling Expense). 2 e. The payroll summary for the employees who are paid biweekly shows the following information at December 31, 2012: Delivery and Warehouse Wages ............................ $5,600 Withholding Taxes .................................... 1,629 Net pay.............................................................. $3,971 f. No state or federal unemployment tax is incurred during the fourth quarter because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax. g. Interest has accrued at 8% on the mortgage notes payable since July 1, 2012. The next sixmonth interest payment at 9% on the bonds is due on March 1, 2013. The discount on bonds payable has not been amortized for any part of 2012; the bonds are dated March 1, 2006, and mature March 1, 2016. (Use straightline amortization.) h. The interest accrued to 12/31/12 on notes receivable is composed of the following: Platteville Plumbers, 10%, 6 months, due March 31, 2013. $1,125; Bilder Construction, 11%, 6 months, due June 14, 2013, $211; Beverly's Building, 9%, 6 months, due June 26, 2013, $17. The interest accrued at 12/31/12 on a 10%, $15,000 note payable is $1,500. Interest is payable on January 2, 2013. (The note is due in 2013.) i. A warehouse lease payment of $10,890 was made on September 1, 2012, for rental through February 28, 2013. (The Prepaid Rent account is for advance lease payments on the warehouse.) j. $530 is owed to Northern Electric Co. and $279 is owed to City of Rockford for utility services provided during December 2012. k. Plant and equipment to be depreciated are composed of the following: Assets Date Acquired Cost Life Salvage Depreciation Method Building 7/1/08 $306,000 25 years $20,000 Double declining balance Truck No. 1 4/1/09 $71,100 85,000 miles $3,100 miles driven Lift No. 1 6/30/05 $7,900 10 years $900 straightline (Sold 12/31/12) Lift No. 2 3/31/09 $4,500 10 years $500 straightline Office Equipment (prior to 1/1/12) $32,800 7 years $2,000 straightline Computer 12/30/12 $6,100 5 years $1,300 Doubledeclining balance Truck No. 1 has been driven 45,000 miles prior to 1/1/12. During 2012, truck No. 1 was driven 12,000 miles. Depreciation on the lifts is shown in the accumulated depreciation for trucks. 6. Prepare an income statement (assume the weightedaverage number of shares outstanding for the year 2012 is 5,600 shares). Assume that bad debt expense is an administrative expense. 7. Assume federal corporate income tax on income subject to federal tax is as follows: first $50,000 @15% => next $25,000 @25% => remainder @34% Hint: Corporations subject to federal income tax must make estimated tax payments throughout the year (see balance in list of accounts). At the time of the payment, the account Income Tax Expense is debited and Cash is credited. To determine the taxable income at year end, use the pretax income amount from the income statement. Note that the estimated income tax expense is listed as a debit and must be subtracted from the total expense computed for the income statement when constructing the entry for income taxes. Note that federal tax is not an expense item on the income statement. Please prepare the journal entry for income taxes. 8. Determine the final yearend balances for the following balance sheet accounts (Hint: combine Petty Cash with Cash for balance sheet purposes.): Cash; Accounts receivable; Building; Land. 9. What was the total amount of dividends declared and/or paid for 2012? 3 10. Determine cash flow amounts for 2012 for the following accounts: Sales revenue; inventory purchases. The beginning balance in Accounts receivables was $172,643. The allowance for doubtful accounts balance at 1/1/2012 was $23,520. 4
