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Narrative and Instructions Rockford Corporation is a wholesale plumbing supply distributor. The corporation was organized in 1981, under the laws of the State of Illinois,
Narrative and Instructions | ||||||||||||||||||||||||||
Rockford Corporation is a wholesale plumbing supply distributor. The corporation was organized | ||||||||||||||||||||||||||
in 1981, under the laws of the State of Illinois, with an authorized capitalization of 10,000 shares | ||||||||||||||||||||||||||
of no-par common stock with a stated value of $30 per share. The common stock is sold over the | ||||||||||||||||||||||||||
the counter in the local area. You have been hired as of Thursday, December 25, 2014, to replace the | ||||||||||||||||||||||||||
controller, who has resigned. As controller, you are responsible for the corporation's accounting | ||||||||||||||||||||||||||
recrods, preparation of the financial statements, safeguarding the corporate assets, and providing | ||||||||||||||||||||||||||
management with financial information to set prices and to monitor and control operations. | ||||||||||||||||||||||||||
Rockford Corporation closes its books annually on December 31 but prepares financial statements | ||||||||||||||||||||||||||
quarterly. Adjusting entries are posted to the general ledger only at year-end; at the end of the | ||||||||||||||||||||||||||
first, second, and third quarter the adjustments are entered only on a work sheet, not in the general | ||||||||||||||||||||||||||
ledger. Therefore, the adjusting entries to be recorded on December 31 are annual adjustments that | ||||||||||||||||||||||||||
you must journalize and the post to the general ledger accounts before preparing the financial | ||||||||||||||||||||||||||
statements. | ||||||||||||||||||||||||||
Rockford Corporation maintains a perpetual inventory system and takes a physical count each year | ||||||||||||||||||||||||||
to adjust the inventory carrying amount. Purchases are recorded at the gross amount (discounts | ||||||||||||||||||||||||||
taken are recognized at the date of payment) of the supplier's invoice, and the terms vary with | ||||||||||||||||||||||||||
each supplier. Sales on account are subject to terms of 2/10, n/30. Discounts are taken and granted | ||||||||||||||||||||||||||
only when the terms are met. The cost of all inventory sold in December was 80% of the sales price. | ||||||||||||||||||||||||||
The corporation uses the following journals and ledgers: | ||||||||||||||||||||||||||
Journals | ||||||||||||||||||||||||||
1. A sales journal (S) - to record sales of merchandise on account. | ||||||||||||||||||||||||||
2. A purchase journal (P)- to record purchases of merchandise on account. | ||||||||||||||||||||||||||
3. A cash receipts journal (CR) - to record all cash receipts. | ||||||||||||||||||||||||||
4. A cash disbursements journal (CD) - to record all cash payments. | ||||||||||||||||||||||||||
5. A general journal (J) - to record all transacitons that cannot be recorded in the other journals. | ||||||||||||||||||||||||||
Ledgers | ||||||||||||||||||||||||||
1. A general ledger | ||||||||||||||||||||||||||
2. An accounts receivable subsidiary ledger. | ||||||||||||||||||||||||||
3. An accounts payable subsidiary ledger. | ||||||||||||||||||||||||||
In recording sales transactions, each sale should be posted on the day of the sale directly to the | ||||||||||||||||||||||||||
customer's account in the subsidiary ledger, using the invoice number as the posting reference | ||||||||||||||||||||||||||
number in the subsidiary account. Also, cash receipts from customers should be posted to the | ||||||||||||||||||||||||||
subsidiary ledger on the day they are received. The purchase order number should be used as | ||||||||||||||||||||||||||
the posting reference number in the subsidiary ledger for purchases on account from suppliers. | ||||||||||||||||||||||||||
Purchases from suppliers and payments to them should be posted daily. All other individual posting | ||||||||||||||||||||||||||
may be made weekly or at the month-end. Account numbers should be used as posting reference | ||||||||||||||||||||||||||
numbers in the journals. Officers and office personnel are salaried employees and are paid monthly | ||||||||||||||||||||||||||
on the last day of each month. The delivery truck drivers and warehouse employees are hourly wage | ||||||||||||||||||||||||||
employees and are paid biweekly. Each biweekly pay period ends Friday. On the following Monday | ||||||||||||||||||||||||||
you assistants provide you with a payroll summary from which you prepare general journal entries | ||||||||||||||||||||||||||
to record the biweekly payroll and the employer's taxes on the payroll. The biweekly employees' | ||||||||||||||||||||||||||
paychecks are distributed on the following day (Tuesday). | ||||||||||||||||||||||||||
The January 1, 2014, balances appear in the general ledger accounts as well as the Noverber 30, 2014, | ||||||||||||||||||||||||||
balances, for those accounts whose balances have changed. All transacitons affecting the non- | ||||||||||||||||||||||||||
current accounts from January 1, 2014, through Noverber 30, 2014, with explanations, appear in | ||||||||||||||||||||||||||
these accounts to facilitate the preparation of the statement of cash flows. | ||||||||||||||||||||||||||
Subsidiary ledger account balances as of Noverber 30, 2014, are as follows: | ||||||||||||||||||||||||||
Accounts Receivable | Acct No | Amount | ||||||||||||||||||||||||
Boecker Builders | 117 | 62,920 | ||||||||||||||||||||||||
The Potts Company | 122 | 50,300 | ||||||||||||||||||||||||
Swanson Brothers Contruction | 133 | 24,050 | ||||||||||||||||||||||||
A & B Hardware | 143 | - | ||||||||||||||||||||||||
Trudy's Plumbing | 155 | 15,100 | ||||||||||||||||||||||||
Coconino Contractors Inc | 160 | 27,800 | ||||||||||||||||||||||||
Rankin Plumbing Corp | 166 | 74,350 | ||||||||||||||||||||||||
Beverly's Building Products | 175 | 14,000 | ||||||||||||||||||||||||
Bilder Construction Co | 180 | 45,200 | ||||||||||||||||||||||||
Iwanaga Plumbing and Heating | 190 | 3,700 | ||||||||||||||||||||||||
Total | 317,420 | |||||||||||||||||||||||||
Accounts Payable | Acct No | Amount | ||||||||||||||||||||||||
Phoenix Plastics | 14 | 17,450 | ||||||||||||||||||||||||
Business Basics Inc | 16 | - | ||||||||||||||||||||||||
Edward's Plumbing Suppliers | 18 | 20,050 | ||||||||||||||||||||||||
DeKalb Transport | 20 | - | ||||||||||||||||||||||||
Oxenford Copperworks | 35 | 26,400 | ||||||||||||||||||||||||
Smith Pipe Co | 39 | 38,100 | ||||||||||||||||||||||||
Ron & Rod's Plumbing Products | 44 | 14,850 | ||||||||||||||||||||||||
Khatan Steel Corp | 57 | 10,000 | ||||||||||||||||||||||||
Total | 126,850 | |||||||||||||||||||||||||
The transactions through December 23 have already been recorded by the former controller. You | ||||||||||||||||||||||||||
are to begin your work by entering the transaction of December 25 for the payment of cash to | ||||||||||||||||||||||||||
repurchase stock. | ||||||||||||||||||||||||||
Dec-14 | ||||||||||||||||||||||||||
S | M | T | W | T | F | S | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||
7 | 8 | 9 | 10 | 11 | 12 | 13 | ||||||||||||||||||||
14 | 15 | 16 | 17 | 18 | 19 | 20 | ||||||||||||||||||||
21 | 22 | 23 | 24 | 25 | 26 | 27 | ||||||||||||||||||||
28 | 29 | 30 | 31 | |||||||||||||||||||||||
December Transactions | ||||||||||||||||||||||||||
December | ||||||||||||||||||||||||||
1 | Received a check in the amount of $23,569 from Swanson Brothers Contruction in full | |||||||||||||||||||||||||
payment of invoice No. 1120 dated Novermber 26 in the amount of $24,050. | ||||||||||||||||||||||||||
1 | Sold sewer and drainage pipe to Beverly's Building Products on account, invoice No. 1201 | |||||||||||||||||||||||||
for $13,150. | ||||||||||||||||||||||||||
2 | Purchased copper tubing and fittings from Edward's Plumbing Supplies Inc. on account, | |||||||||||||||||||||||||
purchase order No. 315 for $24,320, terms n/60. | ||||||||||||||||||||||||||
2 | Issued check No. 1580 for $26,400 to Oxenford Copperworks in settlement of the | |||||||||||||||||||||||||
balance owned on purchase order No. 280. | ||||||||||||||||||||||||||
3 | A court notice indicates that Iwanaga Plumbing and Heating is bankrupt and payment | |||||||||||||||||||||||||
of its account improbable; the president orders the account to be written off as a | ||||||||||||||||||||||||||
bad debt (invoice No. 780). | ||||||||||||||||||||||||||
3 | Sold bathroom fixtures to Bilder Construction Co on account, invoice No. 1202 for | |||||||||||||||||||||||||
$44,900.00 | ||||||||||||||||||||||||||
4 | Received a check in the amount of $49,294 from the Potts Co in full payment of invoice | |||||||||||||||||||||||||
No. 1128 dated November 27 for $50,300. | ||||||||||||||||||||||||||
4 | Sold plumbing supplies and plastic pipe to Coconino Contractors Inc. on account, invoice | |||||||||||||||||||||||||
No. 1203 for $10,300. | ||||||||||||||||||||||||||
4 | Issued check No. 1581 for $810 to Standard Oil Co, in payment of gas, oil, and truck repair | |||||||||||||||||||||||||
from Tierney's Standard Service. | ||||||||||||||||||||||||||
5 | Issued check No. 1582 for $9,900 to Khatan Steel Corp. in full settlement of purchase order | |||||||||||||||||||||||||
No. 312 for $10,000. | ||||||||||||||||||||||||||
5 | Issued check No. 1583 for $10,486 to Phoenix Plastics in full payment of Phoenix's invoice | |||||||||||||||||||||||||
dated November 28 in the amount of $10,700, for purchase order No. 313, terms 2/10, n/30. | ||||||||||||||||||||||||||
5 | Received a check in the amount of $72,863 from Rankin Plumbing Corp. in full payment | |||||||||||||||||||||||||
of invoice No. 1129 dated November 28 for $74,350. | ||||||||||||||||||||||||||
8 | Sold cast pipe to Trudy's Plumbing on account, invoice No. 1204 for $29,300. | |||||||||||||||||||||||||
8 | Received a check in the amount of $27,800 from Coconion Contractors, Inc. in full payment | |||||||||||||||||||||||||
of invoice No. 1091 dated October 20. | ||||||||||||||||||||||||||
8 | Purchased bathroom fixtures from Phoenix Plastics, on account, purchcase order No. 316 | |||||||||||||||||||||||||
for $52,700 terms 1/10, n/30. | ||||||||||||||||||||||||||
8 | Received a check in the amount of $29,000 from Boecker Builders in partial payment of | |||||||||||||||||||||||||
balance outstanding covering invoice Nos. 1050 and 1071. | ||||||||||||||||||||||||||
9 | The payroll summary for the biweekly pay period ended Friday, December 5 contained the | |||||||||||||||||||||||||
follwing information: | ||||||||||||||||||||||||||
Delivery and warehouse wages | 4,860 | |||||||||||||||||||||||||
FICA taxes withheld | 350 | |||||||||||||||||||||||||
Federal income taxes withheld | 900 | |||||||||||||||||||||||||
State income taxes withheld | 190 | |||||||||||||||||||||||||
Net pay | 3,420 | |||||||||||||||||||||||||
Employer's payroll taxes: | ||||||||||||||||||||||||||
FICA tax | 350 | |||||||||||||||||||||||||
Federal unemployment tax | - | |||||||||||||||||||||||||
State unemployment tax | - | |||||||||||||||||||||||||
Issued check No. 1584 for the amount of the net pay and deposited it in the payroll bank | ||||||||||||||||||||||||||
account. Individual payroll checks were then preppared for distributions to the biweekly | ||||||||||||||||||||||||||
emplyees on Tuesday, December 9, 2014. | ||||||||||||||||||||||||||
9 | Issued check No. 1585 for $600 to Scooter Gordon for lettering and sign painting on some | |||||||||||||||||||||||||
delivery trucks. | ||||||||||||||||||||||||||
9 | Issued check No. 1586 for $6,750 to Phoenix Plastics, in payment of Phoenix's invoice dated | |||||||||||||||||||||||||
November 12 in the amount of $6,750, our purchase order No. 299. | ||||||||||||||||||||||||||
10 | Issued check No. 1587 for $37,719 to Smith Pipe Co in full payment of their invoice dated | |||||||||||||||||||||||||
November 28, terms 1/15, n/30, our purchase order No. 314. | ||||||||||||||||||||||||||
10 | Received a check in the amount of $15,100 from Trudy's Plumbing in full settlement of | |||||||||||||||||||||||||
invoice No. 1106 dated November 7. | ||||||||||||||||||||||||||
10 | Sold pipe, fixtures, and accessories to Trudy's Plumbing on account, invoice No. 1205 for | |||||||||||||||||||||||||
$28,850.00 | ||||||||||||||||||||||||||
11 | Sold pumbing supplies and copper tubing to The Potts Company on account, invoice No. | |||||||||||||||||||||||||
1206 for $31,450. | ||||||||||||||||||||||||||
11 | Received a check in the amount of $33,920 from Boecker Builders in full payment of invoice | |||||||||||||||||||||||||
No. 1071. | ||||||||||||||||||||||||||
11 | Cash sales to date totaled $12,292. | |||||||||||||||||||||||||
12 | Received a check in the amount of $28,714 from Trudy's Plumbing in payment of inoivce | |||||||||||||||||||||||||
No. 1204. | ||||||||||||||||||||||||||
12 | Sold plumbing fixtures and supplies to Boecker Builders, on account, invoice No. 1207 | |||||||||||||||||||||||||
for $24,730. | ||||||||||||||||||||||||||
15 | The Potts Co returned defective copper tubing that is purchased on December 11. A credit | |||||||||||||||||||||||||
memo in the amount of $4,680 is issued relative to invoice No. 1206. The copper tubing | ||||||||||||||||||||||||||
had a cost of $3,550. | ||||||||||||||||||||||||||
15 | The defective copper tubing is returned to Edward's Plumbing supplies, Inc. along with | |||||||||||||||||||||||||
a debit memo in the amount of $3,550 in reduction of purchase order No. 315. | ||||||||||||||||||||||||||
15 | Issud check No. 1588 for $399 in payment of November telephone bill to Northern | |||||||||||||||||||||||||
Illinois Communications. | ||||||||||||||||||||||||||
16 | Issued check No. 1589 in the amount of $11,360 in payment of federal withholding taxes, | |||||||||||||||||||||||||
$9,573, and FICA taxes, $1787, payable on November salaries and wages; The check is | ||||||||||||||||||||||||||
remitted to the Winnebago County Bank as the depository. | ||||||||||||||||||||||||||
16 | Issued check No. 1590 for $52,173 to Phoenix Plastics, Inc, in payment of purchase order | |||||||||||||||||||||||||
No. 316. | ||||||||||||||||||||||||||
17 | The president informs you that Bilder Construction Co agrees to convert the $45,200 | |||||||||||||||||||||||||
overdue account receivable (invoice No. 1120) to a 14% note due six months from today. | ||||||||||||||||||||||||||
17 | Purchased plumbing materials from Smith Pipe Company on account, purcase order No. | |||||||||||||||||||||||||
317 for $50,800 terms 1/15, n/60. | ||||||||||||||||||||||||||
17 | Sold drain tile, plastic pipe, and copper tubing to A & B Hardware on account, invoice No. | |||||||||||||||||||||||||
1208 for $7,920. | ||||||||||||||||||||||||||
18 | Sold fixtures and materials to Coconino Contractors, Inc. on account, invoice No. 1209 for | |||||||||||||||||||||||||
$42,780.00 | ||||||||||||||||||||||||||
18 | An invoice in the amount of $1,021 was received from S. White Trucking Company for | |||||||||||||||||||||||||
freight on purchase order No. 317 and paid by issuing check No. 1591. | ||||||||||||||||||||||||||
18 | Received a check in the amount of $28,273 from Trudy's Plumbing in payment of invoice | |||||||||||||||||||||||||
No. 1205. | ||||||||||||||||||||||||||
19 | Purchased office supplies from the Pen & Pad, issuing check No. 1592 in the amount of | |||||||||||||||||||||||||
$1,360. (Note: Debit asset account). | ||||||||||||||||||||||||||
19 | Purchased a new Faith computer for $6,100 from Business Basics, Inc, purchase order | |||||||||||||||||||||||||
No, 318, paying $600 down through check No. 1593 with the balance due in thirty days | ||||||||||||||||||||||||||
(n/30). The computer has an estmated life of five years with a salvage value of $1,300. | ||||||||||||||||||||||||||
22 | Purchased bathroom and kitchen fixtures from Phoenix Plastics, on account, purchase | |||||||||||||||||||||||||
order No. 319 for $48,330, terms 1/10, n/30. | ||||||||||||||||||||||||||
22 | Received a bill from DeKalb Transport for $2,300 for freight costs incurred during the last 30 | |||||||||||||||||||||||||
days, terms n/30. | ||||||||||||||||||||||||||
23 | The payroll summary for the biweekly pay period ended Friday, December 19 contained the | |||||||||||||||||||||||||
follwing information: | ||||||||||||||||||||||||||
Delivery and warehouse wages | 5,770 | |||||||||||||||||||||||||
FICA taxes withheld | 415 | |||||||||||||||||||||||||
Federal income taxes withheld | 1,067 | |||||||||||||||||||||||||
State income taxes withheld | 225 | |||||||||||||||||||||||||
Net pay | 4,063 | |||||||||||||||||||||||||
Employer's payroll taxes: | ||||||||||||||||||||||||||
FICA tax | 415 | |||||||||||||||||||||||||
Federal unemployment tax | - | |||||||||||||||||||||||||
State unemployment tax | - | |||||||||||||||||||||||||
Issued check No. 1594 for the amount of the net pay and deposited it in the payroll bank | ||||||||||||||||||||||||||
account. Individual payroll checks were then preppared for distributions to the biweekly | ||||||||||||||||||||||||||
emplyees on Tuesday, December 23. | ||||||||||||||||||||||||||
NOTE: Transactions up to this point have been recorded. At this point you became | ||||||||||||||||||||||||||
controller and are responsible for recordign all further transactions. | ||||||||||||||||||||||||||
25 | The board of directors voted to purchase 1,000 shares of its own stock from stockholder | |||||||||||||||||||||||||
Dionne Schivone at $83 per share and issued check No. 1595 in payment. Stock repurchases | ||||||||||||||||||||||||||
are recroded at cost. Rockford is purchasing these shares because Ms. Schivone had been | ||||||||||||||||||||||||||
a valuable employee. | ||||||||||||||||||||||||||
26 | The baord of directors declared a $1.80 per share cash dividend payable on January 14, 2015 to | |||||||||||||||||||||||||
shareholders of record by the end of the day of December 26. | ||||||||||||||||||||||||||
26 | The president informs you that Beverly's Building Products agrees to convert the $14,000 | |||||||||||||||||||||||||
overdue accounts receivable (invoice No. 1119) balance to a 12% note due six months from | ||||||||||||||||||||||||||
today. | ||||||||||||||||||||||||||
29 | A half-acre parcel of land adjacent to the building is acquired in exchange for 600 shares | |||||||||||||||||||||||||
of unissued common stock. The land has a fair value of $54,000 and will be used | ||||||||||||||||||||||||||
immediately as an outside storage lot and parking lot. | ||||||||||||||||||||||||||
29 | An invoice in the amount of $2,650 is received from Wayne McManus, lawyer, for legal | |||||||||||||||||||||||||
services involved in the acquisition of the adjacent parcel of land; check No. 1596 is issued. | ||||||||||||||||||||||||||
29 | Sold pipe and plumbing materials to Boecker Builders on account, invoice No. 1210 for | |||||||||||||||||||||||||
$49,040.00 | ||||||||||||||||||||||||||
30 | Issued check No. 1597 in the amount of $500 to the Northern Star for adverstisement run in | |||||||||||||||||||||||||
the home building supplement of December 13. | ||||||||||||||||||||||||||
30 | Issued check No. 1598 in the amount of $925 to Standard Oil Co. in payment of gas, oil, | |||||||||||||||||||||||||
and truck repairs from Standard Oil Co. (use Freight-out). | ||||||||||||||||||||||||||
30 | Purchased copper and cast iron pipe from Oxenford Copperworks on account, purchase | |||||||||||||||||||||||||
order No. 320 for $63,940, terms 1/10, n/30. | ||||||||||||||||||||||||||
30 | Check No. 1599 for $15,000 is issued to the bond sinking fund trustee, Chicago Trust Co., | |||||||||||||||||||||||||
for deposit in the sinking fund. (Use Other Assets). | ||||||||||||||||||||||||||
30 | Sold plumbing supplies to Swanson Brothers Construction on account, invoice No. 1211 | |||||||||||||||||||||||||
for $24,650. | ||||||||||||||||||||||||||
31 | Received a check for $24,730 from Boecker Builders in payment of invoice No. 1207. | |||||||||||||||||||||||||
31 | Issued check No. 1600 for $50,292 to Smith Pipe Company in payment of purchase order | |||||||||||||||||||||||||
No. 317. | ||||||||||||||||||||||||||
31 | The custodian of the petty cash fund submits the following receipts for reimbursement | |||||||||||||||||||||||||
and reports a cash-on-hand count of $8. | ||||||||||||||||||||||||||
Postage stampls used | $38 | |||||||||||||||||||||||||
United Parcel (freight-out) | 23 | |||||||||||||||||||||||||
C.O.D postage (freight costs) | 51 | |||||||||||||||||||||||||
Christmas office decorations | 30 | |||||||||||||||||||||||||
Check No. 1601 is issued and cashed to reimburse the fund. | ||||||||||||||||||||||||||
31 | Sold an electric truck-lift to Leila Stierman Co. for $2,500 cash. The original cost was | |||||||||||||||||||||||||
$7,900 with salvage value of $900, a life of 10 years, and accumulated depreciation | ||||||||||||||||||||||||||
recorded through 11/31/13 is $4,550. The straight-line method is used. (Note: the | ||||||||||||||||||||||||||
company follows the practice of recording a half year's depreciation in the year of | ||||||||||||||||||||||||||
acquisition and a half year in the year of disposal.) First, bring the depreciation expense | ||||||||||||||||||||||||||
up to date in the general journal. Then journalize the entire entry for the sale in the cash | ||||||||||||||||||||||||||
receipts journal. | ||||||||||||||||||||||||||
31 | Sold bathroom fixtures and plumbing supplies to Trudy's Plumbing on account, invoice | |||||||||||||||||||||||||
No. 1212 for $55,770. | ||||||||||||||||||||||||||
31 | Because for some time the petty cash fund has been smaller than required for monthly | |||||||||||||||||||||||||
expenditures, the fund is increased by $75 by cashing check No. 1602 and placing the | ||||||||||||||||||||||||||
money in the petty cash fund. | ||||||||||||||||||||||||||
31 | The payroll summary for the monthly paid employees in submitted so that December | |||||||||||||||||||||||||
checks can be distributed before the year-end; the details are as follows: | ||||||||||||||||||||||||||
Office and administrative salaries | $42,900 | |||||||||||||||||||||||||
Federal income taxes withheld | 7,696 | |||||||||||||||||||||||||
State income taxes withheld | 1,517 | |||||||||||||||||||||||||
FICA taxes withheld | 3,120 | |||||||||||||||||||||||||
Net pay | $30,567 | |||||||||||||||||||||||||
Issued check No, 1603 for the amount of the net pay and deposited it in the payroll bank | ||||||||||||||||||||||||||
account. Individual payroll checks were prepared for distribution to all monthly employees | ||||||||||||||||||||||||||
by the end of the day. | ||||||||||||||||||||||||||
Employer's payroll taxes: | ||||||||||||||||||||||||||
FICA tax (all office and administrative) | $3,120 | |||||||||||||||||||||||||
Federal unemployment tax | 0 | |||||||||||||||||||||||||
State unemployment tax | 0 | |||||||||||||||||||||||||
31 | Cash sale since December 12 total $29,980. | |||||||||||||||||||||||||
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