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Siblings Jordan and Morgan Hartley are partners in a trendy toy store called ToyMania! Jordan, as senior partner, receives an annual salary allowance of $20,000 and 60 percent of all income/losses after salary and interest allowances are paid. Junior partner Morgan receives an annual salary allowance of $15,000 and 40 percent of all income/losses after salary and interest allowances are paid. The partners receive a 10 percent interest allowance at the end of the accounting period based on their respective January 1 capital account balances. Capital balances as of January 1 are $60,000 for Jordan Hartley and $40,000 for Morgan Hartley.

ToyMania! uses the allowance method for uncollectible accounts. Credit terms are 2/10, n/30. Longer payment terms are available by accepting interest-bearing notes receivable. Terms will vary depending on individual circumstances and will be provided in the related transactions. Notes under $1,000 are collected by ToyMania! while notes greater than $1,000 are collected by either Dean Bank or Marshall Bank. Interest is based on a 360-day year. Estimated uncollectibles are based on 3 percent of accounts receivable. Accounts are written off as they are deemed uncollectible; however, efforts to collect all receivables continue for a two-year period.

ToyMania! occasionally writes notes to finance larger purchases and to extend time on accounts payable. Terms will be specified in the related transactions. Again, interest is based on a 360-day year.

Plant assets are depreciated using one of the various GAAP methods for depreciation. Fully depreciated assets that are useful remain in service until a sale, trade, or disposal is necessary. ToyMania! holds a patent on a toy which is amortized during year-end adjustments. The $25,000 patent's economic life is 10 years although the legal life is 20 years.

A periodic inventory system is maintained valuing inventory using the First-In, First-Out (FIFO) method. The lower-of-cost-or-market rule is applied by recognizing a loss on write-down of inventory when necessary. Beginning balances for Merchandise Inventory and Estimated Returns Inventory were $91,250 and $3,000, respectively, on January 1. The January 1 balance of Customer Refunds Payable was $4,000.

Selected transactions for 20-1 are provided below.

Jan.	14	Issued a $3,000, 3-month, 6% note to Zekir Computer Systems to purchase a new computer system (Computer System). The system, with an expected life of four years and no salvage value, will be depreciated using the double-declining-balance method.
Mar.	11	Morgan Hartley invested an additional $5,000 into the business.
June	22	Paid $30,000 cash to Klippi Construction for an addition (Addition) to the store so that more merchandise could be displayed. The addition has an estimated salvage value of $2,000 and an estimated life of 20 years. Depreciation is to be calculated using the straight-line method.
Sept.	1	Traded the company car (Automobile) for a newer one at Plume Motors. The old car originally cost $23,000 and is depreciated up-to-date in the amount of $19,000. A trade-in allowance of $5,500 was given. The new car had a market value of $40,000 and the balance was paid in cash. The new car should last at least 100,000 miles and will be depreciated at $0.375 per mile.
Oct.	15	Issued a $3,500, 90-day, 8% note to Dennis Designs to extend time for payment on an account payable.
	20	Borrowed $10,000 for 180 days from Ohler-Cupplo Savings Association on a non-interest-bearing note. The discount rate is 7.5%.
Nov.	1	Received a $500, 30-day, 5% note from Laura Nottingham in payment of an account receivable.
Dec.	1	Laura Nottingham paid the interest due on her note (see November 1), and gave a new note ($500) for 45 days at 8%.
	14	Paid $2,000 to landscape and improve a grassy area on the lot. There will be no salvage value after 5 years and the landscaping will be depreciated using the sum-of-the-years'-digits method.
	31	Sold building fixtures for $100. The original cost of the fixtures was $500 with an estimated 5-year life and no salvage value. Depreciation up-to-date is $300.

Required:

Question Content Area

2. Prepare selected adjusting entries using the following information.

(a)	Accrued interest receivable. (See December 1.)
(b)	Accrued interest payable. Separate entries should be made for discounted and non-discounted notes. (See October 15 and October 20.)
(c)	Depreciation for the year on the computer system put into service on January 14.
(d)	Depreciation for the year on the new car. 7,000 miles were traveled this period. (See September 1.)
(e)	Depreciation for the year on the addition completed June 22.
(f)	Depreciation for the year on the landscaping recorded December 14.
(g)	Annual amortization on the patent.
(h)	Estimated uncollectibles are based on accounts receivable of $48,940. Current Allowance for Doubtful Accounts balance is $375 credit.
(i, j)	A physical count shows that merchandise inventory costing $102,000 is on hand as of December 31.
(k, l, m)	ToyJoy! estimates that customers will be granted $2,600 in refunds of this year's sales next year and the merchandise expected to be returned will have a cost of $2,000.
(n)	Ending inventory valued at market prices on December 31 is $100,500.

GENERAL JOURNAL PAGE DESCRIPTION POST. HEF. FOCAm CREDIT In II I3. Prepare the following financial statements: (a) Partial Income Statement showing the allocation of net income. ToyMania! had a net income of $84,000 for the year. Each partner made withdrawals equal to his/her salary and interest allowances as stated in the partnership agreement. ToyMania! Income Statement (Partial) For Year Ended December 31, 20-1 Net income Allocation of net income: J. Hartley M. Hartley Total Salary allowances Interest allowances Remaining income Allocation of net income (b) Statement of Partners' Equity. No additional withdrawals were made after salary and interest allowances were allocated. If your answer is zero, enter 0. ToyMania! Statement of Partners' Equity For Year Ended December 31, 20-1 J. Hartley M. Hartley Total Capital, January 1, 20-1 Additional investments during the year Net income for the year Withdrawals (salaries and interest) Capital, December 31, 20-1(a) Close Income Summary to the capital accounts. (b) Close drawing accounts to the capital accounts. GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 20-1 (b) 5. Prepare reversing entries when appropriate. If required, round your answers to two decimal places. GENERAL JOURNAL PAGE DATE DESCRIPTION POST. REF. DEBIT CREDIT 20-2 Jan. 1 Jan. 1