Intelligent Toys, Inc (ITI) is a well establish toys trading company which adopts the periodic system. ITI prepares its financial statements on a monthly basis. The trial balance of ITI as at 28 February 2021 is presented as follows: Intelligent Toys, Inc Trial Balance As at 28 February 2021 Account Title Account No. Debit ($) Credit ($) 420,000 675,000 931,500 570,000 664,668 20,250 9,720,000 1,199,520 220,000 201 Accounts Payable 112 Accounts Receivable 152 Accumulated Depreciation - Building 154 Accumulated Depreciation - Equipment 156 Accumulated Depreciation - Motor Vehicle 113 Allowance for Doubtful Accounts 151 Building 101 Cash 291 Dividends Payable 153 Equipment 115 Interest Receivable 140 Long-term Investment 121 Merchandise Inventory 155 Motor Vehicle 114 Notes Receivable 131 Prepaid Insurance 320 Retained Earnings 241 Salaries Payable 311 Share Capital - Ordinary $1 par value, 10,000,000 shares authorized, 6,000,000 shares issued and 5,977,500 shares outstanding 312 Share Capital Preference 5%, $100 par value, noncumulative, 100,000 shares authorized, 60,000 shares issued and outstanding 313 Share Premium - Ordinary 314 Share Premium - Preference 315 Share Premium - Treasury 132 Supplies 330 Treasury Shares (22,500 shares) 990,000 144,000 750,000 975,000 832,500 2,800,000 18,000 2,077,212 117,000 6,000,000 6,000,000 840,000 300,000 8,000 8,360 56,250 18,168,630 18,168,630 The following activities took place in March: Mar. 1(a) Purchased children laptop toys from Esorbma Limited, $94,000, terms 1/10, n/30, FOB shipping point. (b)The responsible party paid the freight charges of $300. The goods were collected by the shipping company on 1 March and arrived at ITI's warehouse on 4 March. 1(c) Sold 22,500 Treasury shares at $2.1 each. (assuming both trade date and settlement date is on 1 March, such treasury shares were owned by investors on 2 March when share dividend was declared) 1(d) Purchased 10% shareholding in Charlie Limited, a supplier, as a long-term investment. The fair market value of the 10% shareholding was $3,102,000 as at 1 March. The purchase consideration included a $2,800,000 note receivable due from Charlie Limited and the related interest receivable balance of $144,000, $140,000 cash and a motor vehicle owned by ITI. The motor vehicle was originally obtained at cost $120,000. The difference between the fair value of the long-term investment and the book value of the purchase consideration assets (including cash, notes receivable, interest receivable and motor vehicle) is treated as loss on disposal (for calculation of accumulated depreciation of motor vehicle details, refer to note (c) of the additional information on page 4.) Note: Book value of motor vehicle = Cost -accumulated depreciation. 1(e) Sold remote control helicopters valued at $311,000 to TnecNiv Limited, a wholesaler, terms n/20, FOB destination. The appropriate party paid delivery charges of $500. The goods were shipped on 1 March and arrived at the warehouse of TnecNiv Limited on 3 March. 2 A 10% share dividend was declared when the market value per share was $2.11. (this is treated as small dividend case) 3 Cash is received from TnecNiv Limited for the remote-control helicopters shipped on 1 March and arrived at the warehouse of TnecNiv Limited on 3 March. 4 Sold kids ride on cars to Vinga Limited, $150,000, terms n/30, FOB shipping point, 3% trade discount. The appropriate party paid freight charges of $200. The goods were shipped on 4 March and arrived at the warehouse of Vinga Limited on 6 March. 5 Received a statement from the liquidator of YOT Limited. The liquidator informed ITI that $12,000 will be paid to ITI at the end of March 2021 for the settlement of the $16,000 outstanding balance. YOT Limited was closed down in December 2020 and the managing director of ITI authorized to write off $16,000 on 31 December 2020, being the full amount outstanding in the Account Receivable - YOT Limited. 6 Purchased supplies of $3,000 on account from Jimmy Printing and Stationery Limited. 7(a) Paid cash to acquired 30,000 shares of its own at $2.2 each. ITI intends to keep the shares for several months for management bonus. The seller of the shares still entitles the share dividend declared on 2 March, the right of receiving the share dividend is not sold to ITI. 7(b) Received credit memorandum of $1,800 from Esorbma Limited for goods purchased in March due to discrepancy in the color. 8 Granted Vinga Limited an allowance of $970 (original price $1,000 trade discount $30) due to discrepancy in the color of the ride on cars. 9(a) Sold flying disc and toy swings to Action Limited, list price of $140,000 with a 20% trade discount, n/20, FOB shipping point. The responsible party paid freight-charges of $500. The shipping document showed that the goods arrived at the warehouse of Action Limited on 12 March. Mar. 9(b) Paid Esorbma Limited for the children laptop toys bought on 1 March and the amount of $220,000 on account for the purchase on 27 February 2021. Purchases terms with Esorbma Limited in February was 2/10, n/30, FOB shipping point. 10 Paid $180,000 for salary up to 9th March (Tuesday). All employees work a five-day week and are paid every four weeks on the following Wednesday, based on the number of days they have worked in the last four weeks. Employees are entitled to full pay on public holidays but not on Saturday and Sunday. The employees receive a total salary of $45,000 for a five-day work week. 12 Received payments from Vinga Limited, for the March sales. 13 Acquired $160,000 packing equipment by signing a 90-day, 5% notes payable. ITI started to use the equipment in April. 16 Queenie Company Limited, a customer, has financial difficulties and unable to pay the outstanding balance of $220,000. The company has a long-term relationship with Queenie, and agreed to accept a 12%, 45-day notes from the customer to settle the outstanding balance. 17 Share dividends were distributed. Shareholders on the register of the company on 6 March 2021 are entitled to receive the dividend shares. 21 Paid all cash dividends declared previously. 25 Received from Tom Limited, $180,000, as the prepayment for the leasing of part of the warehouse for one year from 1 April 2021 to 31 March 2022. 3 27 Returned $40,000 consignment goods to Consignee Trading Limited. The goods are delivered by Consignee Trading Limited to ITI for consignment purpose in February 2021. 28 Purchased $25,000 play mats from Millan Company, FOB Destination, terms 1/10, n/45. The shipping document showed that the goods were received on 3rd April 2021. 29 A cash dividend was declared for preference shares and a cash dividend of $0.02 per share was declared for ordinary shares. The dividends will be paid in April. 30 Received a check of $15,000 from the liquidator of YOT Limited. The liquidator issued a revised statement to inform ITI that $15,000 is the finalized amount for the settlement of the $16,000 outstanding balance. The following additional information is available on 31 March 2021: (a) Electricity incurred for the month amounted to $8,000. (b) The employees receive a total salary of $45,000 for a five-day work week. All employees worked for the whole month of March. (c) (i)Building, (ii) equipment and (iii) motor vehicles are recorded at historical cost and their estimated useful lives are 40 years, 5 years and 5 years respectively. No residual value is expected for the building. The building was acquired on 1 May 2017. The company uses straight-line method for all buildings. All the equipment and motor vehicles are acquired on 1 January 2018. The company uses unit of activity method to depreciate equipment and the double-declining balance method to depreciate all motor vehicles. The company expects that the salvage value of the equipment and motor vehicles is 10% of the purchase cost. The equipment is for packing and the total amount of packing for 5 years are estimated to be 594,000 units. The total packing in March amounted to 9,700 units. Annual depreciation is calculated for each year from 1 January to 31 December, monthly depreciation is equal to (annual depreciation / 12). (d) Physical count showed that $5,000 of supplies and $796,000 of merchandise inventory remained on hand at 31 March 2021. (e) The bank statement balance is $50 greater than the cash account balance. This is relating to the interest earned for the cash balance in the bank account for March. 4 (f) The prepaid insurance was paid in last December covering a 12-month general insurance from December 2020 to November, 2021. (g) Allowance for bad debt is estimated based on 10% of the closing accounts receivable balance due to dramatical down turn of the economy. (h) Recognize interest expense for the month. (i) Recognize interest revenue for the month. Instructions (The following is the procedures of the accounting cycle after analyzing the source documents for transactions taken place) (a) Enter the March 1 balances in the ledger accounts. (for your own reference) (b) Journalize the March transactions. The alternative treatment in Slide 18 of Lecture 4 powerpoints is not adopted by ITI. Use the accounts provided in the chart of accounts on page 15. (c) Post to the ledger accounts. (for your own reference) (d) Prepare a trial balance at 31 March 2021. (for your own reference) Journalize and post adjusting entries. (posting is for your own reference) (f) Prepare an adjusted trial balance. (g) Prepare an income statement and a retained earnings statement for March and a statement of financial position as at 31 March 2021. Requirement 3 (106 points) 2 points for each item Adjusted Trial Balance as at 31 March 2021 Dr $ Cr $ Account No 201 112 152 154 156 113 611 151 101 711 712 713 291 153 514 612 613 820 615 631 221 115 415 150 140 620 121 630 155 231 114 316 131 513 512 511 320 Accounts Payable Accounts Receivable Accumulated Depreciation - Building Accumulated Depreciation - Equipment Accumulated Depreciation - Motor vehicle Allowance for Doubtful Accounts Bad Debt Expense Building Cash Depreciation Expense - Building Depreciation Expense - Equipment Depreciation Expense - Motor Vehicle Dividends Payable Equipment Freight-in Freight-out Fuel Expense Gain on Disposal Insurance Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Land Long-term Investment Loss on Disposal Merchandise Inventory Miscellaneous Expense Motor Vehicle Notes Payable Notes Receivable Ordinary Share Dividends Distributable Prepaid Insurance Purchase Discounts Purchase Returns and Allowances Purchases Retained Earnings Salaries Expense Salaries Payable Sales Returns and Allowances Sales Revenue Share Capital - Ordinary Share Capital - Preference Share Premium - Ordinary Share Premium - Preference Share Premium - Treasury Supplies Supplies Expense Treasury Shares Unearned Rent Revenue Utilities Expense Item 173 Item 174 Item 175 Item 176 Item 177 Item 178 Item 179 Item 180 Item 181 Item 182 Item 183 Item 184 Item 185 Item 186 Item 187 Item 188 Item 189 Item 190 Item 191 Item 192 Item 193 Item 194 Item 195 Item 196 Item 197 Item 198 Item 199 Item 200 Item 201 Item 202 Item 203 Item 204 Item 205 Item 206 Item 207 Item 208 Item 209 Item 210 Item 211 Item 212 Item 213 Item 214 Item 215 Item 216 Item 217 Item 218 Item 219 Item 220 Item 221 Item 222 Item 223 616 241 411 410 311 312 313 314 315 132 618 330 281 619 Item 224 Item 225 11 Chart of Accounts Account No 121 630 155 Account No 201 112 152 154 156 113 611 151 101 711 712 713 291 153 514 612 613 820 615 631 221 115 415 150 140 620 Account Names Accounts Payable (including utilities payable) Accounts Receivable Accumulated Depreciation - Building Accumulated Depreciation - Equipment Accumulated Depreciation - Motor vehicle Allowance for Doubtful Accounts Bad Debt Expense Building Cash Depreciation Expense - Building Depreciation Expense - Equipment Depreciation Expense - Motor Vehicle Dividends Payable Equipment Freight-in Freight-out Fuel Expense Gain on Disposal Insurance Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Land Long-term Investment Loss on Disposal 231 114 316 131 513 512 511 320 241 616 410 411 311 312 313 314 315 132 618 330 281 619 Account Names Merchandise Inventory Miscellaneous Expense Motor Vehicle Notes Payable Notes Receivable Ordinary Share Dividends Distributable Prepaid Insurance Purchase Discounts Purchase Returns and Allowances Purchases Retained Earnings Salaries Payable Salaries Expense Sales Revenue Sales Returns and Allowances Share Capital - Ordinary Share Capital - Preference Share Premium - Ordinary Share Premium - Preference Share Premium - Treasury Supplies Supplies Expense Treasury Shares Unearned Rent Revenue Utilities Expense 15