IT REQUIREMENTS Waren Sports Supply's at the end of each year Ford, and Jim Adams and WAREN'S YEAR-END PROCEDURES end Below are the procedures followed at the end of each year by Waren Sports Supe employees. You are to assume the roles of Ray Kramer, Nancy Ford, and Jim Adams perform each of these year-end procedures for 2017. The only materials needed are War ist of year-end procedures, general kural ledgers, and workshort (Doc No. 25 and closing trial balance (Doc. No 262. All other items can be permanently filed in the envelo All December month-end procedures must be completed before the year-end procedures other items can lead before the year-end procedure 4 are done. 1. Jim Adams prepares an unadjusted trial balance as of December 31 using the year-end trorksheet (Doc. No 25) provided in your loose document set. Be sure to include the December month-end general journal transactions in the 12-31-17 unadjusted trial TULURSOS balance. Jim Adams prepares year-end adjusting entries and posts each entry to the toorksheet Below are the normal adjusting entries. Refer to your Systems Understanding Aid Reference book for further help in preparing appropriate adjusting entries. Hint: Be sure to number each adjusting entry on the waar-end worksheet to make it easier to complete year-end procedure 7 later. a. Monthly Adjustments. You should already have recorded and posted payroll FICA and unemployment taxes, and the bank service charge as part of December month-end procedures. b. Depreciation Expense. Depreciation expense is calculated once annually at the end of each year and recorded in the general journal as of December 31. The depreciation methods, estimated lives, and salvage values are documented in the fixed asset subsidiary ledger. Depreciation in the year of sale or acquisition is calculated following a half-year convention, which means that six months of depreciation is taken regardless of the amount of time the assets were actually owned during these years. c. Interest Expense. Interest on loans is paid annually on the anniversary of the note. Interest accruals are calculated using a 365-day year with the day after the note was made counting as the first day. d. Bad Debt Expense. Bad debt expense is estimated once annually at the end of each vear as a percent of net sales and is recorded as of December 31 in the general lournal. The percentage estimate for 2017 is stated in the transactions list (Document No. 1). Waren uses the allowance method for recording the estimate of bad debts. e. Ending Inventory. A physical inventory is taken on New Year's Day before business begins for the new year. The December 31, 2017 ending inventory as counted and priced by Waren's employees is stated in the transactions list (Document No. 1). For an illustration of procedures used to record cost of goods sold and adjust the inventory balance for the year-end physical count, see pages 77 through 79 of the Systems Understanding Aid Reference book. Federal Income Tax Expense. The adjusting entry for federal income tax expense must be saved until last, after the pre-tax net income has been calculated from the worksheet. This entry will be done later, as year-end procedure 4. The 2017 corporate income tax rates are provided there. REQUIREMENTS 3. Jim Adams completes the year-end worksheet through the income statement and balance sheet columns. See page 18 of the Reference book for an example of a completed year end worksheet. A lim Adams calculates federal income tax expense from the income statement column on the year-end worksheet, enters it in the adjustments column of the worksheet and extends the expense and liability amounts to their respective income statement and balance sheet columns Corporate income tax rates are subject to change annually. but for 2017 the rates are reflected in the following table (most recent as of date of publication U.S. CORPORATE INCOME TAX TABLE Pre-tax net income over- But not over Taxis: of the amount over- $0 $50,000 15% 50,000 75,000 $7,500 - 25% 50.000 75,000 100,000 13.750 + 34% 75 000 100,000 335.000 22,250 39% 100,000 335,000 10,000,000 113,900 34% 335.000 10.000.000 15,000,000 3,400,000 .35% 10.000.000 15,000,000 18.333.333 5,150,000 + 38% 15,000,000 18,333,333 35% 5. Jim Adams prepares financial statements in good form: statement of income and retained earnings, comparative balance sheet, and statement of cash flows (indirect method). He uses the formats suggested in the Systems Understanding Aid Reference book. 6. Nancy Ford prepares three supplementary trial balances as of December 31, which will serve as valuable information for management and the external auditors an aged trial balance of accounts receivable, a trial balance of accounts payable, and a trial balance of fixed assets. (See pages 45 through 46 and 61 of the Systems Understanding Aid Reference book for information to help you prepare these trial balances) She reconciles each of these trial balances to the general ledger. She indicates that she has performed the reconciliations by putting her initials to the right of the total on each trial balance. 7. Jim Adams posts the adjusting entries from the general journal to the general ledger. Next, he prepares and records the appropriate closing entries in the general journal and posts them to the general ledger. Finally, he prepares a post-closing trial balance (Doc. No. 26. Kramer compares the account balances on the post-closing trial balance to the year-end worksheet and initials the trial balance on the bottom-right corner to document his control procedure. (See pages 20 through 24 of the Systems Understanding Aid Reference book for guidance.) WRAPPING UP The project is now complete. Good Work! Review your materials to make certain everything is finalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the Aid is packaged. File all materials as indicated in the flowcharts. Document No. 25 WAREN SPORTS SUPPLY DECEMBER 2017 YEAR-END WORKSHEET 12-31-17 UNADJUSTED ACCOUNT TITLE 12-31-16 POST-CLOSING TRIAL BALANCE DERIT CREDIT 110111 1100 DEBIT CREDET 1000 Markable In d ivable Fixed as Accumulated depreciation Ne ivable 32.065.00 8055150 Ashle W es and sales payable 0027935 Federal FICA able Dividends Interest Notes 22.500000 20000 Income summa Retained earnings 24 30100 Sales returns and allowances Sales discounts taken Costs of goods 10400 TODO Gain loss on sale office acts Gain/loss on sake of marketable securities Teterest dividend income Miscellaneous 31100 J1200 40100 40200 40100 404 Rent expense Advertising expense Office supplies expense Depreciation Wees and salaris expense Payrollespene Federal income taxe 400 40000 Bad debt se 41000 TOTALS TOTALS YEAR-END PROCEDURES - After completing all the month-end procedures, go to page 14 of the Instructions, Flowcharts, and Ledgers book and complete all the year-end procedures. Additional information for the year-end procedures is No Ending Inventory. A physical inventory was taken 1/1/18, before business began for the new year. Merchandise on hand cost $186,061.00 No Bad Debt Expense - The expense for bad debts is estimated at the end of the year as one-half of one percent( 0.0050 ) of net sales. No Marketable Securities - At December 31, 2017, the market value of marketable securities held by Waren approximated the cost of the securities. The project is now complete. Good work! Review your materials to make certain everything is finalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the aid is packaged File all materials as indicated in the flowcharts. IT REQUIREMENTS Waren Sports Supply's at the end of each year Ford, and Jim Adams and WAREN'S YEAR-END PROCEDURES end Below are the procedures followed at the end of each year by Waren Sports Supe employees. You are to assume the roles of Ray Kramer, Nancy Ford, and Jim Adams perform each of these year-end procedures for 2017. The only materials needed are War ist of year-end procedures, general kural ledgers, and workshort (Doc No. 25 and closing trial balance (Doc. No 262. All other items can be permanently filed in the envelo All December month-end procedures must be completed before the year-end procedures other items can lead before the year-end procedure 4 are done. 1. Jim Adams prepares an unadjusted trial balance as of December 31 using the year-end trorksheet (Doc. No 25) provided in your loose document set. Be sure to include the December month-end general journal transactions in the 12-31-17 unadjusted trial TULURSOS balance. Jim Adams prepares year-end adjusting entries and posts each entry to the toorksheet Below are the normal adjusting entries. Refer to your Systems Understanding Aid Reference book for further help in preparing appropriate adjusting entries. Hint: Be sure to number each adjusting entry on the waar-end worksheet to make it easier to complete year-end procedure 7 later. a. Monthly Adjustments. You should already have recorded and posted payroll FICA and unemployment taxes, and the bank service charge as part of December month-end procedures. b. Depreciation Expense. Depreciation expense is calculated once annually at the end of each year and recorded in the general journal as of December 31. The depreciation methods, estimated lives, and salvage values are documented in the fixed asset subsidiary ledger. Depreciation in the year of sale or acquisition is calculated following a half-year convention, which means that six months of depreciation is taken regardless of the amount of time the assets were actually owned during these years. c. Interest Expense. Interest on loans is paid annually on the anniversary of the note. Interest accruals are calculated using a 365-day year with the day after the note was made counting as the first day. d. Bad Debt Expense. Bad debt expense is estimated once annually at the end of each vear as a percent of net sales and is recorded as of December 31 in the general lournal. The percentage estimate for 2017 is stated in the transactions list (Document No. 1). Waren uses the allowance method for recording the estimate of bad debts. e. Ending Inventory. A physical inventory is taken on New Year's Day before business begins for the new year. The December 31, 2017 ending inventory as counted and priced by Waren's employees is stated in the transactions list (Document No. 1). For an illustration of procedures used to record cost of goods sold and adjust the inventory balance for the year-end physical count, see pages 77 through 79 of the Systems Understanding Aid Reference book. Federal Income Tax Expense. The adjusting entry for federal income tax expense must be saved until last, after the pre-tax net income has been calculated from the worksheet. This entry will be done later, as year-end procedure 4. The 2017 corporate income tax rates are provided there. REQUIREMENTS 3. Jim Adams completes the year-end worksheet through the income statement and balance sheet columns. See page 18 of the Reference book for an example of a completed year end worksheet. A lim Adams calculates federal income tax expense from the income statement column on the year-end worksheet, enters it in the adjustments column of the worksheet and extends the expense and liability amounts to their respective income statement and balance sheet columns Corporate income tax rates are subject to change annually. but for 2017 the rates are reflected in the following table (most recent as of date of publication U.S. CORPORATE INCOME TAX TABLE Pre-tax net income over- But not over Taxis: of the amount over- $0 $50,000 15% 50,000 75,000 $7,500 - 25% 50.000 75,000 100,000 13.750 + 34% 75 000 100,000 335.000 22,250 39% 100,000 335,000 10,000,000 113,900 34% 335.000 10.000.000 15,000,000 3,400,000 .35% 10.000.000 15,000,000 18.333.333 5,150,000 + 38% 15,000,000 18,333,333 35% 5. Jim Adams prepares financial statements in good form: statement of income and retained earnings, comparative balance sheet, and statement of cash flows (indirect method). He uses the formats suggested in the Systems Understanding Aid Reference book. 6. Nancy Ford prepares three supplementary trial balances as of December 31, which will serve as valuable information for management and the external auditors an aged trial balance of accounts receivable, a trial balance of accounts payable, and a trial balance of fixed assets. (See pages 45 through 46 and 61 of the Systems Understanding Aid Reference book for information to help you prepare these trial balances) She reconciles each of these trial balances to the general ledger. She indicates that she has performed the reconciliations by putting her initials to the right of the total on each trial balance. 7. Jim Adams posts the adjusting entries from the general journal to the general ledger. Next, he prepares and records the appropriate closing entries in the general journal and posts them to the general ledger. Finally, he prepares a post-closing trial balance (Doc. No. 26. Kramer compares the account balances on the post-closing trial balance to the year-end worksheet and initials the trial balance on the bottom-right corner to document his control procedure. (See pages 20 through 24 of the Systems Understanding Aid Reference book for guidance.) WRAPPING UP The project is now complete. Good Work! Review your materials to make certain everything is finalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the Aid is packaged. File all materials as indicated in the flowcharts. Document No. 25 WAREN SPORTS SUPPLY DECEMBER 2017 YEAR-END WORKSHEET 12-31-17 UNADJUSTED ACCOUNT TITLE 12-31-16 POST-CLOSING TRIAL BALANCE DERIT CREDIT 110111 1100 DEBIT CREDET 1000 Markable In d ivable Fixed as Accumulated depreciation Ne ivable 32.065.00 8055150 Ashle W es and sales payable 0027935 Federal FICA able Dividends Interest Notes 22.500000 20000 Income summa Retained earnings 24 30100 Sales returns and allowances Sales discounts taken Costs of goods 10400 TODO Gain loss on sale office acts Gain/loss on sake of marketable securities Teterest dividend income Miscellaneous 31100 J1200 40100 40200 40100 404 Rent expense Advertising expense Office supplies expense Depreciation Wees and salaris expense Payrollespene Federal income taxe 400 40000 Bad debt se 41000 TOTALS TOTALS YEAR-END PROCEDURES - After completing all the month-end procedures, go to page 14 of the Instructions, Flowcharts, and Ledgers book and complete all the year-end procedures. Additional information for the year-end procedures is No Ending Inventory. A physical inventory was taken 1/1/18, before business began for the new year. Merchandise on hand cost $186,061.00 No Bad Debt Expense - The expense for bad debts is estimated at the end of the year as one-half of one percent( 0.0050 ) of net sales. No Marketable Securities - At December 31, 2017, the market value of marketable securities held by Waren approximated the cost of the securities. The project is now complete. Good work! Review your materials to make certain everything is finalized. Complete the filing of documents, records, and working papers using the file tabs and the envelope in which the aid is packaged File all materials as indicated in the flowcharts