Dewey, Cheetum, & Howe Corporation (DCH) was incorporated on January 1, 2010. In February 2017 DCH experienced a major management information system failure and lost virtually all its accounting and financial information. The Company CFO however did have a manual copy of the December 31, 2015 post closing trial balance. He also had a list of transaction, which occurred during 2016. The CFO has asked you to reconstruct the accounting records of the company. The attached schedule 1 is the post closing trial balance as of December 31, 2015 (same as the opening trial balance on January 1, 2016). Listed below are Company transactions during the 2016, which have not been recorded, in the accounting records. Your task is to re establish the 2016 beginning balances in the general ledger, analyze each 2016 transaction, determine the proper accounting, develop the related journal entry and post it in the general journal, post the journal entry in the general ledger, complete the 10 column worksheet, and prepare financial statements for the year ending December 31, 2016. As of January 1, 2016, DCH original Articles of Incorporation and Corporate Charter authorization the Company to issue up to 2,000,000 shares of $2 par value common stock. The Company on its original date of incorporation in 2010 issued 100,000 shares of common stock all of which are considered issued and outstanding on January 1, 2016. This is informational only and does not require a current year journal entry. DCH uses the perpetual inventory method On January 1, DCH paid $25,000 of bond principle of $25,000 plus interest as required by the bond payable outstanding at December 31, 2015. On January 1, DCH sold a 20-ton mechanical draw press for $60,000. The old draw press cost $75,000 and had accumulated depreciation of $25,000. On January 3, DCH paid $460,000 of accounts payable. On January 3, 2016, DCH acquired a tract of land just outside the city limits. The land had a building on it which DCH did not intend to use. The land and building were purchased for $2.4 million. Michelson paid $400,000 in cash and signed a 7% note payable requiring the company to pay the remaining $2,000,000 and all interest due on December 31, 2017. DCH paid a real estate commission of $12,000 legal fees of $4,000, surveyor of $2,000, transfer taxes of $6,000, title insurance of $9,000, and property taxes of $16,000 which covered the period of July 1, 2015 through June 30, 2016 in cash at closing. During February, the old building on the land was demolished at a cost of $120,000 and an additional $100,000 was paid to clear and grade the land. On January 15, DCH collected $2,625,000 of accounts receivable. On January 31, DCH signed a five-year building lease requiring payments of $4,000/month with the first payment due on the date DCH takes possession of the related property. Since either party can cancel the lease with 30 days notice this is considered a rent agreement. The Company takes possession of the building on February 1, 2016. The Company paid 18 months rent in advance on January 31. On February 1 purchased stock of another company for $50,000 which was classified by DCH as trading securities. On February 5 DCH received and paid a $30,000 invoice from Company attorney, which was for future legal services which will be performed in June 2016. On February 28, DCH made the following purchases, all in cash, which were also immediately placed in service (DCH uses straight line depreciation for the office equipment and furniture, double declining balance for the warehouse equipment, and units of production for the vehicle): 1. Office equipment, $45,000, estimated lives of 5 years, $15,000 salvage value. 2. Furniture for $42,000, estimated life of 10 years, $2,000 salvage value. 3. Warehouse equipment for $32,000, estimated life of 8 years, and no salvage value. 4. Vehicle for $36,000 for the CEO, estimated life of 4 years, $6,000 salvage value. It is also expected that the auto will have a 100,000-mile useful life. Actual miles driven in 2016 were 20,000. On March 1, DCH successfully won a bid to become the sole wholesaler for a new product. In order to expand its ability to market the product the Company acquired additional funds through the following financing methods: 1. Signed a $3,200,000, 6% note payable due in five annual installments $440,000 plus interest, with the first installment due December 31, 2016. Assume DCH makes all payments required in the agreement on a timely basis. 2. Issued another 300,000 shares of common stock for $10.00 per share. On March 1 sold a custom product to a customer and accepted a $1,500,000 non-interest bearing note with a due date of February 28, 2017. DCH used a discount rate of 10% to record the note and related transaction. Cost of the merchandise sold is 70% of the net sale value. On March 1, construction of a new building began and it was completed on December 31. Prior to the start of construction but in 2016 DCH incurred costs as follows: Plans, blueprints, specifications $ 9,000 Architects fees for design and supervision $61,000 Other construction expenditures were as follows: March 30 $ 80,000 June 30 120,000 July 30 120,000 September 1 60,000 On March 31, DCH collected principle and interest due on note receivable which was outstanding on December 31, 2015 On April 1, DEC paid $90,000 for a 3-year insurance policy. On June 30, DCH paid $34,000 for the construction of parking lots and landscaping which had estimated useful lives of 10 years. On June 30 DCH paid interest due on the notes payable outstanding on December 31, 2015. On July 1 purchased a $200,000 nine-month Treasury Note (T Note) with interest at 3% On July 1 DCH entered into an agreement to rent a portion of DCHs manufacturing building to ABC for $4,000 per month beginning on July 1. ABC paid DCH $48,000 on the date of the agreement. On July 1 DCH made its required bond principle payment of $25,000 plus interest. On July 1, 2016 the company loaned $150,000 at 6% interest to the CEO with principal and interest due on June 30, 2017. On July 1, DCH exchanged a lightly used 2015 truck and $25,500 cash for a 2016 truck, which had no additional or new features. The 2015 truck had a book value of $20,000 (original cost of $25,000 less $5,000 in accumulated depreciation) and a fair value of $21,700. The new truck has a useful life of 5 years and is expected to have a residual value of $5,000 at the end of its life. On August 1, DCH received a $120,000 dividend from one of its investments. On August 30, DCH sold all the investments it was holding at December 31, 2015 for $70,000 On November 15 purchased $100,000 of stock of another company which was classified by DCH as available for sale. On December 1, a customer filed for bankruptcy and as a result an account receivable of $100,000 was written off as it became uncollectable. On December 15, the Company purchased 30,000 shares of its own stock on the open market to be held for future acquisitions. DCH paid and average price of $3 per share. On December 31, 2016 DCH declared and paid a dividend to shareholders of $200,000. On December 31, DCH exchanged land and $4,500 cash for material handling equipment. The land had a book value of $45,000 and a fair value of $58,000. Assume the exchange has commercial substance. On December 31, DCH purchased equipment and office furniture and fixtures for a lump-sum price of $80,000. The fair values of the equipment and the furniture and fixtures were $54,000 and $36,000, respectively. On December 31 the DCH paid interest due on the revolving credit line On December 31 DCH prepared an estimate of future cash flow for the $920,000 building DCH owned on December 31, 2015. The building had accumulated depreciate of $60,000 on December 31, 2015. The estimated future cash flow was $720,000. On December 31, DCH restructured its business and incurred but had not yet paid for $900,000 of cost. On December 31, DCH purchased $150,000 of hold to maturity securities which matured on February 28. 2018. On December 31, DCH performed a physical count of its inventory. The results of the count indicated that the accounting records showed inventory $100,000 higher than the actual count. On December 31, DCH purchased new equipment for $365,000. Other costs connected with the purchase were as follows State sales tax 29,200 Freight costs 5,600 Insurance while in transit 800 Employee training 1,200 Installation costs 2,000 Insurance for the first year of operations 2,400 Testing 700 On December 31, the Company acquired Miller Inc. paying $2,600,000 cash. The values on the books of Miller Inc and fair values of Miller's assets and liabilities acquired are listed below: Book Value Fair Value Accounts receivable $180,000 $ 162,500 Inventories 270,000 400,000 Property, plant, and equipment 900,000 1,162,500 Accounts payable 300,000 300,000 Bonds payable 450,000 412,500 On December 31, the Company purchased assets of ABC at auction for $1,560,000. An independent appraisal of the fair value of the assets acquired is listed below: Land $171,600 Building 514,800 Equipment 600,600 Inventories 429,000 The following transactions occurred during the year: Paid advertising and marketing costs of $250,000 for the year (summary). Incurred and paid research and development costs of $600,000 During the year DCH incurred and paid sales salaries through November 30, of $220,000 (summary) and administrative and office salaries through November 30 of $275,000 (summary). Salaries are always paid on the first day of each month for services provided the previous month. The number of employees and the monthly aggregate amount of salary did not change during 2016 Purchased $23,800 of supplies with cash during the year. A physical count of the supplies on December 31 revealed that $2,000 of supplies remaining on the count date. Purchased $18,670,000 of merchandise on account for resale, all subject to 1/10, n/30 discount using the gross method. Actual returns were $100,000. Purchase returns were made immediately upon receipt of goods and before account payment. All purchases were paid for within the discount period. Freight on incoming purchases paid by DCH in cash was $35,700. Sales of $21,700,000 were made on account to customers for the year using the gross method. Sales returns of $200,000 gross were credited to customer accounts prior to receipt of payment. Cost of the merchandise sold was 60% of the gross sales price Collections in cash on accounts receivable during the year totaled $17,785,000. The collection amount is net of the effects of total sales discounts taken of $215,000. Bad debt expense is estimated to be .5% (or .005) of ending accounts receivable. Aggregate costs to deliver items sold to customers during the year (f.o.b. destination) totaled $54,000 and were paid in cash. Utility expenses were incurred at $4,000 a month during 2016. Utility bills are received and paid on the 15th of the month following the month such costs are actually incurred. As such, December 2016 utilities have not been paid at December 31. The income tax rate is 40%. Ignore deferred taxes due to timing differences as a result of financial reporting rules that differ from income tax rules. Assignment: Complete the following items by the due date. Prepare in excel the financial statements, worksheet, and discussion questions. Presentation is very important and part of your grade so work neatly. Feel free to modify and improve the template as you see appropriate. 1. Prepare journal entries and record the above transactions in the general journal. Many of the entries can be made as summary entries for the entire year when a specific date or month is not provided. 2. Post the journal entries to the ledger accounts. (Use the ledger provided and open new accounts as necessary). Use Excel purposefully by linking postings and information that flows from sheet to sheet. 3. Prepare a Trial Balance on the Excel spreadsheet (i.e. use the 10-column worksheet as provided in the template). 4. Prepare appropriate adjusting entries, adjusted trial balance, and complete the 10-column worksheet. 5. Journalize and post appropriate adjusting entries for the end of the 2016. 6. Prepare 2016 Multi-step Income Statement, the Statement of Retained Earnings, the Classified Balance Sheet, and the Statement of Cash Flows (direct method) in proper form. Be sure to include appropriate disclosures/schedules. 7. Record and post the closing entries for 2016.