Listed below are selected transactions of Baileys* Department Store tor the current year ending December 31.

1. On December 5, the store received $500 from the Jackson Players as a deposit to be returned after certain

furniture to be used in stage production was returned on January 15.

2 During December, cash sales totaled $798,000, which includes the 5% sales tax that must be remitted to the state

by the fifteenth day of the following month.

3. On December 10, the store purchased for cash three delivery trucks for $120,000. The trucks were purchased in a

state that applies a 5% sales tax.

4. The store determined it will cost $100,000 to restore the area (considered a land improvement) surrounding one

of its store parking lots, when the store is closed in 2 years. Baileys' estimates the fair value of the obligation at

December 31 is $84,000.

5. As a result of uninsured accidents during the year, personal injury suits for $350,000 and $60,000 have been

filed against the company. It is the judgment of Baileys' legal counsel that an unfavorable outcome is unlikely in

the $60,000 case but that an unfavorable verdict approximating $250,000 (reliably estimated) will probably

result in the $350,000 case.

6. Baileys' Midwest store division consisting of 12 stores in "Tornado Alley" is uninsurable because of the special

risk of injury to customers, employees, and losses due to severe weather and subpar construction standards in

older malls. The year 2020 is considered one of the safest (luckiest) in the division's historv because no loss due

to injury or casualty was suffered. Having suffered an average of three casualties a year during the rest of the past

decade (ranging from $60,000 to $700,000), management is certain that next vear the company will probably

not be so fortunate.

Instructions

a. Prepare all the journal entries necessary to record the transactions, in excel,noted above as they occurred and any

adjusting journal entries relative to the transactions that would be required to present fair financial statements at

December 31. Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on

December 31.

b. For items 5 and 6, indicate what should be reported relative to each situation in the financial statements and

accompanying notes. Explain why.