Question
Fancy Furniture Company, a dealer in furniture and furnishings, had the following trial balance as of December 31, 2020 (all amounts in thousands): Debit Credit
Fancy Furniture Company, a dealer in furniture and furnishings, had the following trial balance as of December 31, 2020 (all amounts in thousands):
Debit Credit
Cash 94, 600
Marketable Securities 3,200
Accounts Receivables 22,000
Inventory 8,500
Prepaid Insurance 3,200
Plant and Equipment 110,000
Accrued Interest Payable 1,000
Accumulated Depreciation 55,000
Accounts Payable 27,700
Advances from customers 6,000
Long-term Debt 25,000
Common Stock 30,000
Retained Earnings ______ 96,800
241,500 241,500
The following items summarize the operations for 2021:
- Sales were 300,000, of which 100,000 were cash sales.
- Cash collections on account total 172,000.
- A portion of the marketable securities portfolio costing 2,500 was sold for 2,900 cash.
- Inventory costing 220,000 was purchased on account.
- Payments to suppliers for purchases made on account totaled 205,000.
- In the trial balance above, the advances from customers reflect down payments received in 2020 for the work that Fancy Furniture completed in 2021. The contract with the customer was for a total sales price of 15,000 with a 6,000 down payment and the balance to be paid on delivery. The product was delivered on July 2021. The product cost was 11,000. It was accounted for in the regular inventory account. The revenue for this special transaction is not included in #1 above.
- A physical count indicated inventory at the end of 2021 of 20,000.
- The insurance premium is paid every year on September 1. It covers the period from the payment date to the following August 31. The 2021 premium paid was 4,500.
- Dividends of 4,000 were declared in 2021, of which 300 remain unpaid at the year-end.
- Salaries and miscellaneous expenses of 82,500 were paid in cash.
- The long-term debt consists of a 10-year, 12% bank note, originally issued on March 1, 2014, requiring semi-annual interest payments on February 28 and August 31 of each year. The Company made the required payments on the due dates in 2021.
- On July 1, 2021, equipment for 20,000 was purchased by paying cash of 5,000 and issuing a 5-year, 10% note payable for the balance. Interest is to be paid annually on July 1 of each year, and the principal is to be repaid at maturity.
- Fancy Furniture depreciates the plant and equipment straight-line over ten years (Assume no salvage value).
- Assume no income taxes.
Required:
- Present journal entries to record the above transactions, including the year-end adjusting and closing entries. You need not write narrative explanations. Fancy Furniture records depreciation for the part of the fiscal year that the equipment is used
- Prepare, in good form, (a) Balance Sheet, (b) Income Statement, and (c) Cash Flow Statement for Fancy Furniture Company. Present supporting work. Marketable securities are to be treated as investments. You can use the direct or indirect method to present the cash flow from operations.
Note: Although not required, it is also advisable to prepare the necessary T-accounts. They will provide the details of (i) beginning balances (from December 31, 2020), (ii) the effect of the journal entries in (a) above, and (iii) the ending balances (as of December 31, 2021). If you prefer, use the Pivot table feature in Excel to complete this task.
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