Complete Comprehensive Problem 3 (parts ac) on page 519 of the textbook. For the income statement/retained earnings and the statement of financial position, download and use the Google solution spreadsheet provided below (please note that there are tabs at the bottom of the spreadsheet for each page). Show all computations for potential partial credit and to maximize your score.

• Solution Sheet for Comprehensive Problem 3

McMinn Retail, Inc., is a retailer that has engaged you to assist in the preparation of its

financial statements at December 31, 2011. Following are the correct adjusted account balances, in alphabetical order, as of that date. Each balance is the normal balance for that

account. (Hint: The normal balance is the same as the debit or credit side that increases

the account.)

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,750

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600

Accumulated depreciation: office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Additional paid-in capital (common stock) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000

Bonds payable (due December 31, 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,500

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200

Common stock (1,800 shares, $10 par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,575

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,750

Depreciation expense: office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,750

Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,190

Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500

Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500

Notes payable (due December 31, 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500

Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,000

Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900

Office supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520

Preferred stock (250 shares, $20 par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Premium on bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750

Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800

Rent expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,100

Retained earnings (January 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,050

Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,095

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,000

Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500

Sales taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200

Treasury stock (200 common shares at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,250

Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,120

Instructions

a. Prepare an income statement for the year ended December 31, 2011, which includes

amounts for gross profit, income before income taxes, and net income. List expenses

(other than cost of goods sold and income tax expense) in order, from the largest to the

smallest dollar balance. You may ignore earnings per share.

b. Prepare a statement of retained earnings for the year ending December 31, 2011.

c. Prepare a statement of financial position (balance sheet) as of December 31, 2011, following these guidelines:

Include separate asset and liability categories for those assets which are current.

Include and label amounts for total assets, total liabilities, total stockholders equity, and

total liabilities and stockholders equity.

Present deferred income taxes as a noncurrent liability.

To the extent information is available that should be disclosed, include that information in

your statement.