Comprehensive Problem 3

Selected transactions completed by Kornett Company during its first fiscal year ended December 31, 2016, were as follows:

Jan.	3	Issued a check to establish a petty cash fund of $4,500.
Feb.	26	Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $1,680; miscellaneous selling expense, $570; miscellaneous administrative expense, $880.
Apr.	14	Purchased $31,300 of merchandise on account, terms 1/10, n/30. The perpetual inventory system is used to account for inventory.
May	13	Paid the invoice of April 14 after the discount period had passed.
	17	Received cash from daily cash sales for $21,200. The amount indicated by the cash register was $21,240.
Jun.	2	Received a 60-day, 8% note for $180,000 on the Ryanair account.
Aug.	1	Received amount owed on June 2 note, plus interest at the maturity date. Assume a 360-day year.
	24	Received $7,600 on the Finley account and wrote off the remainder owed on a $9,000 accounts receivable balance. (The allowance method is used in accounting for uncollectible receivables.)
Sep.	15	Reinstated the Finley account written off on August 24 and received $1,400 cash in full payment. (Record as two entries.)

Record the following on journal page 22.

Sep.	15	Purchased land by issuing a $670,000, 90-day note to Zahorik Co., which discounted it at 9%. Assume a 360-day year.
Oct.	17	Sold office equipment in exchange for $135,000 cash plus receipt of a $100,000, 90-day, 9% note. The equipment had a cost of $320,000 and accumulated depreciation of $64,000 as of October 17.
Nov.	30	Journalized the monthly payroll for November, based on the following data:

Salaries:
Sales salaries	$135,000
Office salaries	77,250
	$212,250
Deductions:
Income tax withheld	$39,266
Social security tax withheld	12,735
Medicare tax withheld	3,184
Unemployment Tax rates:
State unemployment	5.4%
Federal unemployment	0.8%
Amount subject to unemployment taxes:
State unemployment	$5,000
Federal unemployment	5,000

	30	Journalized the employers payroll taxes on the payroll.
Dec.	14	Journalized the payment of the September 15 note at maturity.
	31	The pension cost for the year was $190,400, of which $139,700 was paid to the pension plan trustee.

Required:

1.

Journalize the selected transactions, starting on page 21 of the journal.*

2.

Based on the following data, prepare a bank reconciliation for December 2016. Refer to the Labels and Amount Descriptions list for exact wording of text entries. Enter all amounts as positive numbers.

	Balance according to the bank statement at December 31, $283,000.
	Balance according to the ledger at December 31, $245,410.
	Checks outstanding at December 31, $68,540.
	Deposit in transit, not recorded by bank, $29,500.
	Bank debit memo for service charges, $750.
	A check for $12,700 in payment of an invoice was incorrectly recorded in the accounts as $12,000.

3.

Based on the bank reconciliation prepared in (2), journalize the entry or entries to be made by Kornett Company on page 23 of the journal. Kornett Company uses the Miscellaneous Administrative Expense account for bank service charges.

4.

Based on the following selected data, journalize the adjusting entries as of December 31, 2016 on page 23 of the journal:

	Estimated uncollectible accounts at December 31, $16,000, based on an aging of accounts receivable. The balance of Allowance for Doubtful Accounts at December 31 was $2,000 (debit).
	The physical inventory on December 31 indicated an inventory shrinkage of $3,300.
	Prepaid insurance expired during the year, $22,820.
	Office supplies used during the year, $3,920.
	Depreciation is computed as follows:

		Residual	Acquisition	Useful Life
Asset	Cost	Value	Date	in Years	Depreciation Method Used
Buildings	$900,00	$0	January 2	50	Double-declining-balance
Office Equip.	246,000	26,000	January 3	5	Straight-line
Store Equip.	112,000	12,000	July 1	10	Straight-line

A patent costing $48,000 when acquired on January 2 has a remaining legal life of 10 years and is expected to have value for eight years.

The cost of mineral rights was $546,000. Of the estimated deposit of 910,000 tons of ore, 50,000 tons were mined and sold during the year.

Vacation pay expense for December, $10,500.

A product warranty was granted beginning December 1 and covering a one-year period. The estimated cost is 4% of sales, which totaled $1,900,000 in December.

Interest was accrued on the note receivable received on October 17. Assume a 360-day year.

* Refer to the Chart of Accounts for exact wording of account titles.

5.

Based on the following information and the post-closing trial balance that follows, prepare a balance sheet in report form at December 31, 2016. Be sure to complete the heading of the balance sheet. Enter assets in the order in which they appear in the post-closing trial balance. Refer to information given in the problem and the Labels and Amount Descriptions list for exact wording of text entries. There is no need to include (current portion) or a due date with any account titles. The word Less and colons will appear automatically. Enter all amounts as positive numbers.

The merchandise inventory is stated at cost by the LIFO method.

The product warranty payable is a current liability.

Vacation pay payable:

	Current liability: $7,140
	Long-term liability: 3,360

The unfunded pension liability is a long-term liability.

Notes payable:

	Current liability: $70,000
	Long-term liability: 630,000

Kornett Company

POST-CLOSING TRIAL BALANCE

December 31, 2016

	ACCOUNT TITLE	DEBIT	CREDIT
1	Petty Cash	4,500.00
2	Cash	243,960.00
3	Notes Receivable	100,000.00
4	Accounts Receivable	470,000.00
5	Allowance for Doubtful Accounts		16,000.00
6	Merchandise Inventory	320,000.00
7	Interest Receivable	1,875.00
8	Prepaid Insurance	45,640.00
9	Office Supplies	13,400.00
10	Land	654,925.00
11	Buildings	900,000.00
12	Accumulated Depreciation-Buildings		36,000.00
13	Office Equipment	246,000.00
14	Accumulated Depreciation-Office Equipment		44,000.00
15	Store Equipment	112,000.00
16	Accumulated Depreciation-Store Equipment		5,000.00
17	Mineral Rights	546,000.00
18	Accumulated Depletion		30,000.00
19	Patents	42,000.00
20	Social Security Tax Payable		25,470.00
21	Medicare Tax Payable		4,710.00
22	Employees Federal Income Tax Payable		40,000.00
23	State Unemployment Tax Payable		270.00
24	Federal Unemployment Tax Payable		40.00
25	Salaries Payable		157,000.00
26	Accounts Payable		131,600.00
27	Interest Payable		28,000.00
28	Product Warranty Payable		76,000.00
29	Vacation Pay Payable		10,500.00
30	Unfunded Pension Liability		50,700.00
31	Notes Payable		700,000.00
32	J. Kornett, Capital		2,345,010.00
33	Totals	3,700,300.00	3,700,300.00

CHART OF ACCOUNTS

Kornett Company

General Ledger

	ASSETS
110	Petty Cash
111	Cash
112	Notes Receivable
113	Accounts Receivable
114	Allowance for Doubtful Accounts
115	Merchandise Inventory
121	Interest Receivable
122	Prepaid Insurance
123	Office Supplies
130	Land
131	Buildings
132	Accumulated Depreciation-Buildings
133	Office Equipment
134	Accumulated Depreciation-Office Equipment
135	Store Equipment
136	Accumulated Depreciation-Store Equipment
137	Mineral Rights
138	Accumulated Depletion
141	Patents

	LIABILITIES
211	Social Security Tax Payable
212	Medicare Tax Payable
213	Employees Federal Income Tax Payable
214	State Unemployment Tax Payable
215	Federal Unemployment Tax Payable
216	Salaries Payable
221	Accounts Payable
222	Interest Payable
223	Product Warranty Payable
231	Vacation Pay Payable
232	Unfunded Pension Liability
241	Notes Payable

	EQUITY
310	J. Kornett, Capital
311	J. Kornett, Drawing
312	Income Summary

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Sale of Office Equipment

	EXPENSES
510	Cost of Merchandise Sold
521	Repairs Expense
522	Rent Expense
523	Insurance Expense
524	Bad Debt Expense
525	Office Supplies Expense
529	Cash Short and Over
551	Sales Salaries Expense
552	Office Salaries Expense
553	Payroll Tax Expense
554	Vacation Pay Expense
555	Pension Expense
561	Product Warranty Expense
571	Depreciation Expense-Buildings
572	Depreciation Expense-Office Equipment
573	Depreciation Expense-Store Equipment
574	Depletion Expense
575	Amortization Expense-Patents
581	Miscellaneous Selling Expense
582	Miscellaneous Administrative Expense
710	Interest Expense
711	Loss on Sale of Office Equipment

Amount Descriptions (Bank Reconciliation)

Adjusted balance

Bank service charges

Deposit in transit, not recorded by bank

Error in recording check

NSF check

Outstanding checks

Labels (Balance Sheet)

Current assets

Current liabilities

December 31, 2016

For the Year Ended December 31, 2016

Intangible assets

Long-term liabilities

Property, plant, and equipment

Amount Descriptions (Balance Sheet)

Net cash flows from financing activities

Net cash flows from investing activities

Net cash flows from operating activities

Net increase (decrease) in cash

Total assets

Total current assets

Total current liabilities

Total liabilities

Total long-term liabilities

Total liabilities and owners equity

Total property, plant, and equipment

5. Based on the following information and the post-closing trial balance on the Instructions panel, prepare a balance sheet in report form at December 31, 2016. Be sure to complete the heading of the balance sheet. Enter assets in the order in which they appear in the post-closing trial balance. Refer to information given in the problem and the Labels and Amount Descriptions list for exact wording of text entries. There is no need to include (current portion) or a due date with any account titles. The word Less and colons will appear automatically. Enter all amounts as positive numbers.

Kornett Company

Balance Sheet

1	Assets
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27	Liabilities
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47	Owners Equity
48
49