Corporation prepares quarterly financial statements, ending March 31, 2017. The balance sheet at

December 31, 2016, is presented below.

Cudahy Corporation Balance Sheet December 31, 2016

Assets Liabilities and Stockholders' Equity

Cash 14,575 Accounts payable 53,025

Accounts receivable 34,050 Common stock 40,000

Allowance for doubtful accounts (4,000) Retained earnings 84,050

Land 32,000

Equipment 70,000

A/D - equipment (28,000) Building 83,500

A/D - building (25,050)

177,075 177,075

During the first quarter the following transactions occurred:

1. Performed services for $85,000 on account.

2. On February 1, collected fees of $23,040 in advance. $1,920 worth of services are to be performed each month from February 1, 2017, to January 31, 2018. (Wait to make adjusting entries.)

3. On February 1, purchased equipment for $17,000 plus 5% sales tax. $4,500 cash was paid with the remaining balance on account. Check #755 was used.

4. On March 5, collected $100,500 on from customers on account.

5. Paid $22,750 on accounts payable. Check #756 was used.

6. Paid administrative expenses of $50,250. Check #757 was used.

7. Acquired a patent with a 10-year life for $13,800 cash on March 1. Check #758 was used.

8. Wrote off a receivable of $900 from a customer who went bankrupt.

9. On March 31, Cudahy Corp. sold for $9,100 cash equipment which originally cost $16,000. It had an estimated life of 10 years and a salvage of $2,000. Accumulated depreciation as of December 31, 2016, was $5,600 using the straight line method. (1) Record depreciation on the equipment sold, (2) record the sale.

Adjusting Journal Entries:

10. Record revenue earned from item 2 above.

11. Cudahy Corp. estimated that 7.5% of its revenues will end up uncollected. Record bad debt expense.

Hint: You will need to calculate the revenue balance before calculating bad debt expense. You should do this by looking at the ledger after posting entries 1-10.

12. Record depreciation on the equipment as of March 31. The new equipment purchased in February is being depreciated using the double declining balance method over 5 years. The equipment has an estimated salvage value of $1,000. The equipment that was on the books on December 31, 2016, and that is still owned by Cudahy is being depreciated over a 10-year life using straight line with no salvage value.

13. Depreciation is recorded on the building on a straight-line basis using a 15-year life and a salvage value of

$6,700.

14. Amortization is recorded on the patent.

15. The company reconciles its bank statement every quarter. Information from the December 31, 2016, bank reconciliation is provided below. Make the necessary journal entry. You will need the facts in this item to complete the bank reconciliation for Requirement (e). There were no errors.

Deposit in transit 12/30/16 $3,500

Outstanding Checks #740 $4,333

#752 550

#753 920

#754 6,000

The bank statement received for the quarter ended March 31, 2017, was:

Beginning balance per bank $ 22,878

Deposits: 1/2/17 $3,500; 2/2/17 $23,040; 3/6/17 $100,500 127,040

Checks: #752 $550; #753 $920; #756 $22,750; #757 $50,250 ( 74,470) Debit memo: Bank service charge (Record as Administrative expense.) ( 77) Ending balance per bank $ 75,371

16. Cudahys income tax rate is 35%. The tax will be paid when the tax return is due in April.

Hint: Prepare the income statement up to income before taxes and multiply by 35% to compute the amount of income tax expense. Round the tax expense to the nearest whole dollar.

Instructions

Print out the solution pages for the general journal, ledger, and worksheet that follow and enter the following transactions. I suggest that you use a pencil. You must complete all requirements (a) through (h) to receive any credit. Turn in completed work to your TA in discussion, or in their mailbox by midnight, Saturday April 21st.

a. Enter the December 31, 2016, balances in ledger accounts. Use the ledger account running balance format accounts provided on the following pages. Look at the cash account for an example of how to use the running balance ledger. I have completed the first two lines of it for you. It is a good idea to keep track of whether your balance column is a debit or a credit, particularly for contra accounts.

b. Enter the transactions numbered 1-9 in the general journal provided on the following pages. c. Post the journal entries to the ledger accounts for items 1-9.

d. Prepare an unadjusted trial balance at March 31 and enter on the worksheet. Then complete the other worksheet columns. (See below.)

Worksheet requirement: Using your unadjusted trial balance (d) above and the data for adjusting entries, (e) and (f) below, prepare a 12 column worksheet. Use the example for Sierra Corporation from Chaper 4 in the text (Illustration 4A-1 in Chapter 4 Appendix) for guidance. You will not receive any credit if the worksheet is incomplete.

e. Prepare a bank reconciliation in good form. (Item 15 above.) Use your own paper. Record the necessary

AJE in the journal, the ledger, and the worksheet.

f. Journalize and post all other adjusting entries. (Items 10-16 above.) Add them to the worksheet.

g. Prepare an income statement and a retained earnings statement for the quarter ended March 31, 2017, and a classified balance sheet at March 31, 2017. Appropriate name the gain/loss account on your income statement (you must call it either a gain or a loss, not both.) Use your own paper. (No formatted sheets are supplied as for the other items.)

h. Journalize closing entries. You are not required to post the closing entries or prepare a post-closing trial balance for this assignment.

EXTRA CREDIT II SOLUTION Name

Requirements (b), (e), and (f)

Extra Credit II General Journal Debit Credit

a.1.

a.2.

a.3.

a.4.

a.5.

a.6.

a.7.

a.8.

a.9.

a.10.

a.11.

a.12.

a.13.

a.14.

a.15.

a.16.

cl.1.

cl.2.

cl.3.

General Ledger

Requirements (a), (c), and (d)

CASH DR CR BALANCE

Beginning 14,575 14,575

ACCOUNTS RECEIVABLE DR CR BALANCE

Beginning

ALLOWANCE FOR DOUBTFUL ACCOUNTS DR CR BALANCE

Beginning

LAND DR CR BALANCE

Beginning

EQUIPMENT DR CR BALANCE

Beginning

ACCUM DEPRECIATION - EQUIPMENT DR CR BALANCE

Beginning

General Ledger - continued

BUILDING DR CR BALANCE

Beginning

ACCUM DEPRECIATION - BUILDING DR CR BALANCE

Beginning

PATENTS DR CR BALANCE

ACCOUNTS PAYABLE DR CR BALANCE

Beginning

UNEARNED SERVICE REVENUE DR CR BALANCE

INCOME TAXES PAYABLE DR CR BALANCE

COMMON STOCK DR CR BALANCE

Beginning

RETAINED EARNINGS DR CR BALANCE

Beginning

SERVICE REVENUE DR CR BALANCE

ADMINISTRATIVE EXPENSES DR CR BALANCE

General Ledger - continued

DEPRECIATION EXPENSE DR CR BALANCE

AMORTIZATION EXPENSE DR CR BALANCE

GAIN/LOSS ON DISPOSAL DR CR BALANCE

BAD DEBT EXPENSE DR CR BALANCE

INCOME TAX EXPENSE DR CR BALANCE

Worksheet (d), (e), (f)

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