James Ltd.'s statement of financial position at December 31, 2018, is presented below.

JAMES LTD.

Statement of Financial Position

December 31, 2018

Equipment 43,000

Prepaid insurance5,600

Inventory25,750

Cash30,500

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104,850

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Share capital-ordinary 20,000

Retained earnings18,600

Bonds payable50,000

Accounts payable13,750

Interest payable2,500

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104,850

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During 2019, the following transactions occurred.

1.James paid 2,500 interest on the bonds on January 1, 2019.

2.James purchased 241,100 of inventory on account.

3.James sold for 450,000 cash inventory which cost 250,000. James also collected 31,500 sales taxes.

4.James paid 230,000 on accounts payable.

5.James paid 2,500 interest on the bonds on July 1, 2019.

6.The prepaid insurance (5,600) expired on July 31.

7.On August 1, James paid 12,000 for insurance coverage from August 1, 2019, through July 31, 2020.

8.James paid 24,000 sales taxes to the government.

9.Paid other operating expenses, 91,000.

10.Redeemed the bonds on December 31, 2019, by paying 47,000 plus 2,500 interest.

11.Issued 90,000 of 8% bonds on December 31, 2019, at 104. The bonds pay interest every December 31.

Adjustment data:

1.Recorded the insurance expired from item 7.

2.The equipment was acquired on December 31, 2018, and will be depreciated on a straight-line basis over 5 years with a 3,000 residual value.

3.The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Instructions

(You may want to set up T-accounts to determine ending balances.)

(a)Prepare journal entries for the transactions listed above and adjusting entries.

(b)Prepare a adjusted trial balance at December 31, 2019.

(c)Prepare a income statement and a retained earnings statement for the year ending December 31, 2019, and a classified statement of financial position as of December 31, 2019.