H K Directions: You, as the main accountant for Indiana Jones, Inc., are responsible for recording all the transactions during the year, as well as the adjusting entries at the end of the year. You are also responsible for preparing the financial statements for Indiana Jones, Inc. You must prepare a Multi-Step Income Statement, a Statement of Stockholders' Equity, and a Classified Balance Sheet (don't worry about the Statement of Cash Flows someone else prepares this) for fiscal year 2005, which ends on December 31, 2005. You will use the Excel workbook set up for this problem. Included in the workbook are the beginning account balances at January 1, 2005, the Transaction Worksheet, the Cost of Goods Sold worksheet, the ending account balances at December 31, 2005, the Post-Closing account balances at December 31, 2005 and a worksheet to create financial statements. You must record all the transactions and adjusting entries in the Transactions Worksheet. Increase or decrease the accounts for each transaction. I have added a column on the far right to ensure that each transaction balances in the 10 accounting equation (if it balances, you will see a zero in the column to the far right. If it doesn't balance you will see a number). Note that the total balance for 11 each account is indicated on the bottom of the Transaction Worksheet (before and after closing entries) and is linked to the ending account balances at 12 December 31, 2005 (regular and post-closing). Make sure the closing entries are posted to area at the bottom of the general ledger worksheet (clearly marked 13 "Closing Entries" and highlighted in grey). Once you have recorded all transactions, adjustments, and closing entries, the year-end account balances should 14 automatically fill in. Use them to produce the financial statements. Note: Round all amounts to the nearest $1. Specific Rules for Transaction Worksheet and Financial Statements: 17 1. You will not be using debits and credits for transactions. Instead, you will record transactions as increases (+) or decreases (-) to the accounts involved in the transaction. For example, if the company purchased equipment on credit, you would increase the equipment account and increase the A/P accounts. Later, when you pay off the A/P balance, you would decrease cash and A/P by putting negative numbers in those accounts. 202. When increasing expense accounts, you need to input the amount as a NEGATIVE number on the transaction worksheet. The formulas I have in the spreadsheet assume that all expense transactions are NEGATIVE numbers. 21 22 3. Dividends will be treated as a direct reduction of retained earnings. 234. When completing closing entries, instead of zeroing out the revenue and expense accounts to income summary, you will book the offsetting amounts directly to retained earnings. 24 255. On the income statement, treat expenses as NEGATIVE numbers. The formulas assume that expenses are NEGATIVE. Same idea for 8 any contra-accounts on the balance sheet (use NEGATIVE numbers). 27 6. For contra accounts, an increase will be NEGATIVE and decrease will be POSITIVE Contra accounts are the opposite of normal accounts 2 For example, to write off an uncollectible account, you will decrease the allowance for doubtful accounts by using a POSITIVE entry. 4 30 Pertinent Information: 31 You are given the beginning balances of all accounts at January 1, 2005 (after fiscal year 2004's closing entries have been posted). You will be given a series of transactions to record that occur throughout the year 2005. Indiana Jones' fiscal year is on the calendar year (ie, the year-end is December 31, 2005). Indiana Jones uses accrual-basis accounting Indiana Jones, Inc. is a corporation. The company uses the following accounting methods 30 Pertinent Information: 31 You are given the beginning balances of all accounts at January 1, 2005 (after fiscal year 2004's closing entries have been posted). You will be given a series of 32 transactions to record that occur throughout the year 2005. Indiana Jones' fiscal year is on the calendar year (i.e. the year-end is December 31, 2005). Indiana 33 Jones uses accrual-basis accounting. Indiana Jones, Inc. is a corporation. The company uses the following accounting methods: 34 35 36 37 38 39 40 1. 2. 41 42 43 44 45 4. 46 47 48 49 50 51 52 53 The Company uses LIFO for inventory valuation. The Company uses the Perpetual Method for inventory valuation. The Company only stocks Merchandise Inventory. Inventory purchases are booked directly to the merchandise inventory account. Since the Company uses the perpetual method, the cost of goods sold and merchandise inventory accounts are updated after every sale. (hint: for every sale, you will use 4 different accounts) Note: The January 1, 2005 inventory balance consists of 275 units with a per unit cost of $80. The Company uses the Allowance Method to account for bad debt. The Company determines its Allowance for Doubtful Accounts by estimating that 10% of the ending balance of Accounts Receivable will be uncollectible (Balance Sheet Approach). When specifically identified accounts are determined to be uncollectible, then the Company writes them off against the Allowance. 3. Indiana Jones Inc. depreciates Property, Plant, and Equipment using the straight-line method. Buildings are depreciated over 40 years. Equipment is depreciated over a 15-year life. The building has no salvage value and the equipment has a salvage value of $50,000. You will find the original cost of the buildings and equipment in the beginning balances spreadsheet. The Company owns a patent for laser excavation technology it developed two years past. The patent is amortized over its useful life. Amortization expense is $5,000 per year, and booked at the end of the year. Other relevant information: 1. 54 2 55 3. 56 4. 57 58 59 The A/R balance at January Lao Che Industries. Temple of Doom Co. Asp Co. 1, 2005 consists of the following customer balances $15,000 (current) $5,500 (90 days past due) $10,000 (current) Ark of the Covenant Inc....$11,500 (current) The Company's common stock was issued with a $2.50 par value. 100,000 shares are authorized. 40,000 shares are issued and outstanding The prepaid insurance amount relates to five years' worth of insurance that began on January 1, 2005 (how convenient!) The Note Payable is a ten-year note that was taken out on December 31, 2001. The interest rate is 6.25% per annum. Interest payments are due January 5 for the previous year's interest (i.e. fiscal year 2005 interest is due January 5, 2006). End-of-Year Adjusting Entries: 60 1. Remember to accrue interest expense on note payable. 01 2. Remember to adjust prepaid insurance. 12 3. Remember to amortize the patent. 63 4. Remember to record the adjustment for interest eamed on the short-term investment. 64 5. Remember to adjust for used office supplies. 65 6. Remember to record the adjustment for income taxes 7 Remember to record the adjustment for salaries for the year 67 8. Remember to depreciate the building. 68 9. 09 10. 70 11. Remember to depreciate the equipment. Remember to record bad debt expense (note there is already a balance in the allowance for doubtful accounts account) Remember to record the adjustment for utilities. 21 72 73 Hints: Total Assets $1,133,779 Net Income $209,429 COGS $118,500.