Case 2 Chapters 7, 9, 10

a) In 2016 Grindstone Paving incorporated. In 2017, Grindstone Paving decided to expand their operations and start selling products to customers in addition to paving services. Grindstone will use the perpetual inventory method to track inventory. At the beginning of the year, the AFDA account had a credit balance of $9,000. Grindstone uses the allowance method to record bad debt. Record the selected transactions for the year.

9000

Jan 5

Purchased $50,000 of inventory on account.

50000

Feb 2

Sold inventory to a customer for $15,000 on account. The inventory had a cost of $6,000.

15000

Feb 16

Sold inventory to a customer for $5,000 on account. The inventory had a cost of $2,000.

5000

Sep 30

After repeated attempts to collect from the customer on February 16, Grindstone decides to write off the account.

Dec 31

Grindstone had the following aging of accounts receivable. The only account written off during the year was on September 30. Calculate the estimated bad debt and prepare the entry.

Aging Category

Bad Debt %

Balance

Estimated Bad Debt

Less than 30 days

5.0%

$80,000

31 - 60 days

10.0%

$40,000

61 - 90 days

30.0%

$20,000

Over 90 days

60.0%

$5,000

Total

$145,000

Date

Description

DR

CR

b) Grindstone received their bank statement for the month of December 2017. Below is their cash ledger account and the bank statement for December. Prepare a bank reconciliation and prepare any required journal entries

General Ledger

Account:

Cash

GL No:

101

2017

Description

DR

CR

Balance (DR or CR)

Opening Balance

$52,000

DR

Dec 1

Deposit

$5,200

$57,200

DR

Dec 4

Chk #64 Office Supply Company

$1,500

$55,700

DR

Dec 7

Chk #61 Salary

$2,500

$53,200

DR

Dec 11

Chk #75 Lighting Supply

$3,100

$50,100

DR

Dec 12

Deposit

$6,100

$56,200

DR

Dec 18

Chk #67 Shelby Legal

$1,250

$54,950

DR

Dec 23

Chk #71 Hydro Company

$620

$54,330

DR

Dec 27

Chk #78 Bill's Maintenance

$1,370

$52,960

DR

Dec 31

Deposit

$4,300

$57,260

DR

HSBC Bank

Prepared for: Grindstone Paving

Date

Information

Withdrawal

Deposit

Balance

Opening Balance

$52,000

Dec 2

Deposit

$5,200

$57,200

Dec 8

Chk #61

$2,500

$54,700

Dec 13

Deposit

$6,100

$60,800

Dec 18

Chk #64

$300

$60,500

Dec 23

Chk #67

$1,250

$59,250

Dec 31

Service Charge

$50

$59,200

Dec 31

Interest

$70

$59,270

*Any check errors were cashed correctly by the bank.

Grindstone Paving

Bank Reconciliation Statement

December 31, 2017

Explanation

General Ledger

Bank

Date

Description

DR

CR

c) As of December 31, 2017, Grindstone Paving had the following balances. Using this information, prepare the multi-step income statement, statement of retained earnings and then the classified balance sheet.

Account Title

DR

CR

Cash

58,480

Accounts Receivable

145,000

Allowance for Doubtful Accounts

17,000

Inventory

84,000

Prepaid Insurance

1,800

Property, Plant & Equipment

145,000

Accumulated Depreciation

3,000

Accounts Payable

76,000

Unearned Revenue

8,500

Bank Loan

36,000

Common Shares

100,000

Retained Earnings

24,980

Sales Revenue

540,000

Cost of Goods Sold

243,000

Insurance Expense

4,200

Maintenance Expense

5,900

Rent Expense

36,000

Professional Fees Expense

2,600

Salaries Expense

75,000

Telephone Expense

1,100

Travel Expense

2,100

Interest Expense

500

Depreciation Expense

800

Total

805,480

805,480

The bank loan is payable over 3 years and $12,000 will be paid by December 31, 2018.

$10,000

5000

3

Grindstone Paving

Income Statement

For the Year Ending December 31, 2017

(Example found on Page 454)

Grindstone Paving

Statement of Retained Earnings

For the Year Ending December 31, 2017

Grindstone Paving

Classified Balance Sheet

As at December 31, 2017