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Financial Statement Homework #2 Name___________________ Please circle section time: 8:00, 9:30, 2:00 YOU MUST HAND WRITE THIS ASSIGNMENT & STAPLE YOUR PAGES! Brown, Inc. December 31, 2016 Unadjusted Trial balance Cash Accounts Receivable Allowance for Doubtful Accounts Short Term Note Receivable Interest Receivable Supplies Prepaid Insurance Inventory Vehicle Equipment Accumulated Depreciation Accounts Payable Unearned Revenue Wages Payable Long-Term Notes Payable Common Stock Retained Earnings (1/1/2016) Dividends Sales Revenue Sales Returns & Allowances Sales Discounts Cost of Goods Sold Delivery Expense Depreciation Expense Bad Debt Expense Rent Expense Insurance Expense Wages Expense Supplies Expense Interest Revenue Loss on Disposal Interest Expense Income Tax Expense Total 42,000 60,000 6,000 25,000 0 5,000 48,000 22,000 32,000 102,000 52,000 12,000 48,000 12,000 45,000 106,000 2,000 2,000 517,000 20,000 2,000 146,000 4,000 22,000 0 90,000 25,000 95,000 16,000 0 0 6,000 36,000 800,000 800,000 Page 1 of 8 Part 1: Prepare adjusting journal entries using the unadjusted trial balance on the previous page and the information provided below. Use only the account names provided on the previous page (do not create any new account names). 1. On Dec. 31, 2016 Brown, Inc. sold merchandise on account for $20,000 with a cost of $12,000 terms 5/10 net 30. 2. Brown, Inc. loaned Sulak Co. $25,000 (already on the TB) on Oct. 1, 2016 using a 6 month, 8% interest note. All interest and principal will be paid back at the end of the 6 months. Write the adjusting journal entry required by Brown, Inc. for its financial statements as of Dec. 31, 2016. 3. Uncollectable Accounts Receivables of $2,000 need to be written off for the year ended 2016. 4. Management estimates that of the remaining accounts receivable balance, $9,000 will be uncollectible. Record the adjustment based on this information. Hint: Use the AFDA balance AFTER the above write off during 2016. Use an AFDA T-account! 5. A piece of equipment was retired on Dec. 31, 2016. The equipment originally cost $35,000 and has related A/D of $22,000 as of Jan. 1, 2016. Additional depreciation of $3,000 needs to be recorded on this piece of equipment at Dec. 31, 2016. Update the depreciation below (#5). Then record the retirement (#6). 6. Record the retirement of the equipment (from #5) including the gain or loss. Page 2 of 8 Part 2: Post the adjusting journal entries to t-accounts: (Specific instructions: Above each T-account, write the account name of each account affected by a journal entry. Write in the unadjusted balance for each of these accounts (from page 1)...the unadjusted balance might be a debit, a credit, or zero balance. Now you are ready to post your journal entries from page 2 onto the corresponding T-accounts and then calculate adjusted balances.) Page 3 of 8 Part 3: Prepare the Adjusted Trial Balance (i.e., use ending balances after the previous journal entries are posted) Brown, Inc. December 31, 2016 Adjusted Trial balance Debit Credit Cash Accounts Receivable Allowance for Doubtful Accounts Short Term Note Receivable Interest Receivable Supplies Prepaid Insurance Inventory Vehicle Equipment Accumulated Depreciation Accounts Payable Unearned Revenue Wages Payable Long-Term Notes Payable Common Stock Retained Earnings (1/1/2016) Dividends Sales Sales Returns & Allowances Sales Discounts Cost of Goods Sold Delivery Expense Depreciation Expense Bad Debt Expense Rent Expense Insurance Expense Wages Expense Supplies Expense Interest Revenue Loss on Disposal Interest Expense Income Tax Expense Total Page 4 of 8 Part 4: Prepare a Multi-step Income Statement (Be sure to include all the necessary headings, totals and subtotals as outlined in Chapter 5. You may not need to use all the lines provided. Note: The two columns below do not represent debit and credit balances like they do on a trial balance. On the Income Statement, use the right column for subtotals and totals.) ______________ _______________________ _______________________ Page 5 of 8 Prepare a Statement of Retained Earnings. ______________ _______________________ _______________________ Page 6 of 8 Prepare a Classified Balance Sheet (Be sure to include all the necessary subtotals and totals as outlined in Chapter 2. You may not need to use all of the lines provided. Note: The two columns below do not represent debit and credit balances like they do on a trial balance. On the Balance Sheet, use the right column for subtotals and totals.) _______________ _____________________ ______________________ Page 7 of 8 Part 5: Answer the following questions using the above completed financial statements: What is the dollar amount for Gross Profit? What is the dollar amount for Income from Operations? What is the dollar amount for Income before for Income Tax? What is the dollar amount for Total Current Assets? What is the dollar amount for Total Current Liabilities? What is the dollar amount for Net PPE? If the company FAILS to record depreciation expense in the adjusting entries: What is the impact to the income statement? What is the impact to the balance sheet? Page 8 of 8 Cash Accounts receivable Allowance for doubtful debts Short term notes receivable Interest receivable Supplies Prepaid insurance Inventory Vehicle Equipment Accumulated depreciation Accounts Payable Unearned revenue Wages payable Long term wages payable Common stock Retained earnings Dividends Sales Revenue Sales returns and allowances Sales discounts Cost of goods sold Delivery expense Depreciation expense Bad debt expense Rent expense Insurance expense Wages expense Supplies expense Interest revenue Loss disposal Interest expense Income tax expense Unadjusted trial balance DR CR 42,000 60,000 6,000 25,000 5,000 48,000 22,000 32,000 102,000 52,000 12,000 48,000 12,000 45,000 106,000 2,000 2,000 517,000 20,000 2,000 146,000 4,000 22,000 90,000 25,000 95,000 16,000 ### 6,000 36,000 800,000 800,000 Adjusting Journal Entries 1 DR Accounts Receivable Credit sales (To record goods sold on account) 20,000 Cost of goods sold Inventory 12,000 CR 20,000 12,000 Adjustments DR CR 20,000 11,000 2,000 12,000 25,000 35,000 3,000 Adjusted trial balance DR 42,000 69,000 25,000 2,000 5,000 48,000 10,000 32,000 67,000 2,000 20,000 20,000 2,000 158,000 4,000 25,000 11,000 90,000 25,000 95,000 16,000 12,000 3,000 11,000 2,000 10,000 83,000 83,000 10,000 6,000 36,000 800,000 (To record the cost of goods sold) 2 3 4 5 Interest Receivable 2,000 Interest revenue (To record interest revenue for the year) 2,000 Bad debts expense 2,000 Accounts Receivable (To record accounts receivable written off) 2,000 Bad debt expense 9,000 Accounts receivable (To record estimated uncollectible debts) 9,000 Depreciation expense Accumulated depreciation 3,000 3,000 (To record depreciation adjustment) 6 Accumulated depreciation Loss on disposal Equipment (To record retirement of an asset) 25,000 10,000 35,000 Adjusted trial balance CR 6,000 30,000 12,000 48,000 12,000 45,000 106,000 2,000 537,000 2,000 800,000 Brown Inc Profit and loss statement For the year ended 31.12.2016 Sales revenue Cost of sales Gross profit Add other income Interest revenue 48,000 Unearned revenue 2,000 Total income from operations Less expenses 20,000 Sales returns and all 2,000 Sales discounts 4,000 Delivery expense Depreciation expense 25,000 11,000 Bad debt expense 90,000 Rent expense 25,000 Insurance expense 95,000 Wages expense 16,000 Supplies expense 10,000 Loss disposal 6,000 Interest expense Net operating income before taxes Less Tax expense Net operating income after taxes Dividends Retained Earnings Note All currency is in dollars. 537,000 (158,000) 379,000 50,000 429,000 (304,000) 125,000 (36,000) 89,000 (2,000) 87,000 Dollar amount for gross profit 379,000 Dollar amount forincome from o 429,000 Dollar amount before taxes 125,000 Dollar amount for total current a 195,000 Dollar amount for total current li 24,000 Dollar amount for total net PPE 69,000 Impact on the income statement Revenue will be overstated. Impact on balance sheet Will be overstated. Brown inc Statement of financial position As at 31.12.2016 Non current assets Property,Plant and Equipment Current assets Cash Accounts receivable Short term notes rece Interest receivable Supplies Prepaid Insurance Inventory Total Assets 42,000 63,000 25,000 2,000 5,000 48,000 10,000 Non current liabilities Long term notes payable Short term liabilities Wages payable Accounts payable Total Liabilities Equity Common stock Retained earnings Total equity and liabilities Note All currencey is in dollars 69,000 195,000 264,000 45,000 12000 12000 24,000 69,000 106,000 89,000 195,000 264,000 Brown inc, Statement of retained earnings As at 31.12.2016 Balance 1.1.2016 Retained earnings for 2,000 87,000 89,000 Accounts receivable Bal 60000 Sales 20,000 Bad debts Bal c/d 80,000 Credit sales 11000 69,000 20,000 Cost of goods sold Bal 146000 Inventory 12,000 Bal c/d Bal Bal c/d 158,000 158,000 158,000 Interest revenue Bal c/d 2000 2000 Bad debts expense Accounts r Bal c/d 11,000 11,000 11,000 11,000 Depreciation expense Accumulate 2000 2000 Accumulated depreciation expense Bal c/d Bal Inventory 22,000 22,000 Interest receivable Bal 0 Interest re 2000 2000 557,000 557,000 22,000 3,000 25,000 25,000 27000 27,000 Bal Accounts receivable 537,000 20,000 557,000 Cost of go Bal c/d 12,000 10,000 22,000 nterest revenue Interest re d depreciation expense Bal Depreciati 2000 2000 24,000 3,000 27,000