Question
I am trying to figure out part B (the balance sheet). For some reason my assets are not balancing to my liabilities/equity, and I can
I am trying to figure out part B (the balance sheet). For some reason my assets are not balancing to my liabilities/equity, and I can not figure out why. Any help would be great!
The unadjusted pre-closing 12/31/20 account balances for the Low Company are listed below:
Net Sales | $12,000 |
Net Purchases | 8,376 |
Selling Expenses | 708 |
Cash | 564 |
Machines | 6,424 |
Accumulated Depreciation, Machines | 2,000 |
Accounts Payable | 1,445 |
Retained Earnings | 4,182 |
Allowance for Doubtful Accounts | 50 |
Building | 6,000 |
Accumulated Depreciation, Building | 585 |
Common Stock | 5,000 |
Accounts Receivable | 1,240 |
Depreciation Expense, Machines | 1,000 |
Inventory @ 1/1/20 (periodic method used) | 950 |
During your audit, you discover the following four items that have yet to be recorded:
- No depreciation on the building has been recorded in 2020. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/18 and has an estimated useful life of 40 years. The estimated salvage value is $500.
- Low exchanged a machine for a similar machine on 12/31/20. The original machine cost $3,700 and had a book value of $3,000. The new machine had a fair value of $3,200. Low paid $400 in cash. The exchange did not have commercial substance.
- Low uses the Income Statement approach to record bad debts. At 12/31/20, Bad Debt Expense is estimated to be 3% of Sales.
- Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 40%.
Required
- Record journal entries for items #1-#3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Assume adjusting/closing entries to adjust inventory, close Purchases, and Record CGS were properly made.
- Draft the 2020 Condensed Income Statement and the 12/31/20 Balance Sheet. Use the Cabrera (Textbook Illustration 4-3 in Chapter 4) and the Uptown Cabinet (Textbook Illustration 3-41 in Chapter 3) format examples in the text. Assume no taxes. Do not include EPS.
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