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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. | |||||||
Instructions | ||||||||
1 | Make the entries in the appropriate journal for December 25 through December 31. | |||||||
(adjusting entries are recorded in general journal) |
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