Narrative and InstructionsRockford Corporation is a wholesale plumbing supply distributor. The corporation was organizedin $1981,$ under the laws of the State of Illinois, with an authorized capitalization of $100,000$ sharesof no$-$par common stock with a stated value of $$18$ per share. The common stock is sold over thethe counter in the local area. You have been hired as of December $31,2018,$ to replace thecontroller, who has resigned. As controller, you are responsible for the corporation's accountingrecrods, preparation of the financial statements, safeguarding the corporate assets, and providingmanagement with financial information to set prices and to monitor and control operations.Rockford Corporation closes its books annually on December $31$ but prepares financial statementsquarterly. Adjusting entries are posted to the general ledger only at year$-$end; at the end of thefirst, second, and third quarter the adjustments are entered only on a work sheet, not in the generalledger. Therefore, the adjusting entries to be recorded on December $31$ are annual adjustments thatyou must journalize and the post to the general ledger accounts before preparing the financialstatements.Rockford Corporation maintains a perpetual inventory system and takes a physical count each yearto adjust the inventory carrying amount. Purchases are recorded at the gross amount $($discountstaken are recognized at the date of payment$)$ of the supplier's invoice, and the terms vary witheach supplier. Sales on account are subject to terms of $2/10,$ n$/30.$ Discounts are taken and grantedonly when the terms are met. The cost of all inventory sold in December was $70\%$ of the sales price.In recording sales transactions, each sale should be posted on the day of the sale directly to thecustomer's account in the subsidiary ledger, using the invoice number as the posting referencenumber in the subsidiary account. Also, cash receipts from customers should be posted to thesubsidiary ledger on the day they are received. The purchase order number should be used asthe 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 postingmay be made weekly or at the month$-$end. Account numbers should be used as posting referencenumbers in the journals. Officers and office personnel are salaried employees and are paid monthlyon the last day of each month. The delivery truck drivers and warehouse employees are hourly wageemployees and are paid biweekly. Each biweekly pay period ends Friday. On the following Mondayyou assistants provide you with a payroll summary from which you prepare general journal entriesto record the biweekly payroll and the employer's taxes on the payroll. The biweekly employees'paychecks are distributed on the following day $($Tuesday$).$The transactions through December $30$ have already been recorded by the former controller. Youare to begin your work by entering the transaction of December $31.$S M T W T F S$123456789101112131415161718192021222324252627282930311$ The board of directors voted to purchase $3,800$ shares of its own stock from stockholderDionne Schivone at $$48$ per share and issued check No$.1595$ in payment. Stock repurchasesare recorded at cost$.$ Rockford is purchasing these shares because Ms$.$ Schivone had beena valuable employee$\mathrm{.}2$ The baord of directors declared a $$1\mathrm{.}20$ per share cash dividend payable on January $14$ toshareholders of record by the end of the day of December $31\mathrm{.}3$ A half$-$acre parcel of land adjacent to the building is acquired in exchange for $850$ sharesof unissued common stock. The land has a fair value of $$48,000$ and will be usedimmediately as an outside storage lot and parking lot$\mathrm{.}4$ Sold an electric truck$-$lift to Leila Stierman Co$.$ for $$2620$ cash. The original cost was$$7900$ with salvage value of $$900,$ a life of $10$ years, and accumulated depreciationrecorded through $12/31/17$ is $$4,550.$ The straight$-$line method is used. $($Note: thecompany follows the practice of recording a half year's depreciation in the year ofacquisition and a half year in the year of disposal.$)$ First, bring the depreciation expenseup to date in the general journal. Then journalize the entire entry for the sale in the cashreceipts journal$\mathrm{.}5$ The custodian of the petty cash fund submits the following receipts for reimbursementand reports a cash$-$on$-$hand count of $$8.$Postage stampls used $($supplies$)38$United Parcel $($freight$-$out$)23$C$.$O$.$D postage $($freight costs$)51$Christmas office decorations $($Misc exp$)30$Check is issued and cashed to reimburse the fund$\mathrm{.}6$ Because for some time the petty cash fund has been smaller than required for monthlyexpenditures, the fund is increased by $$105$ by cashing check and placing themoney in the petty cash fund$\mathrm{.}7$ The payroll summary for the monthly paid employees in submitted so that Decemberchecks can be distributed before the year$-$end; the details are as follows:Office and administrative salaries $40900$Federal income taxes withheld $10225$State income taxes withheld $3272$FICA taxes withheld $3128\mathrm{.}85$Net pay $24274\mathrm{.}15$Issued check for the amount of the net pay and deposited it in the payroll bankaccount. Individual payroll checks were prepared for distribution to all monthly employeesby the end of the day.Employer's payroll taxes:FICA tax $($all office and administrative$)3129$Federal unemployment tax $0$State unemployment tax $08$ Record the following journal entries for year end:a The annual provison for doubtful accounts receivable is recorded byproviding a charge to Bad Debt Expense in an amount equal to $3\mathrm{.}5\%$ of netcredit sale. All cash sales were executed in December.b An inventory count of the office supplies revealed $$720$ of supplies on handat year end.c The prepaid insurance on January $1,2018$ was $$3300$ which covers the periodJanuary $1$ through August $31,2018.$ The insurance premium of $$6900$ recordedin August covers the period of September $1,2018$ through August $31,2019.$Rockford estimates that $50\%$ of the premiums are attributable to generalactivities $($Use Insurance Expense$)$ and $50\%$ to selling activities. $($UseMiscellaneous Expense$).$d The payroll summary for the employees who are paid biweekly shows thefollowing information at December $31,2018$:Delivery and Warehouse Wages $6000$FICA Taxes Payable $459$Federal Withholding Taxes $1500$State Withholding Taxes $480$Net pay $3561($will pay in $2019)$e The employer's share of the FICA tax $($$$459)$ must be accrued; no state orfederal unemployment tax is incurred during the fourth quarter because allwages and salries earned during the last quarter exceed the maximumsubject to unemployment tax.f Interest has accrued at $8\%$ on the long$-$term notes payable since July $1,2018.$These interests are due on January $1,2019($The first six$-$month interests havebeen recorded and paid in July$).$Interest on bonds is accrued and paid semi$-$annually, at a $4\%$ annual coupon rate.The next interest payment is due on January $1,2019.$ The bonds are datedJanuary $1,2012,$ and mature January $1,2022.$ Market interest rate was $6\%$at issurance $.$ Use effective interest amortization method.g The interest accrued to $12/31/18$ on notes receivable is composed of thefollowing:Platteville Plumbers, $10\%,6$ months, due March $31,20191052$Bilder Construction, $6\%,6$ months, due June $14,2019161$Beverly's Building, $8\%,6$ months, due June $26,2019231236$The interst accrued at $12/31/18$ on the note payable $($current$)$ of $$16000$ is$$1250.$ Interest is payable on January $2,2019.($The note is due in $2019)$h A warehouse lease payment of $$8400$ was made on Septermber $1,2018,$for rental through February $28,2019.($The Prepaid Rent account is foradvance lease payments on the warehouse.$)$i $$815$ is owned to Northern Electric Co$.$ and $$425$ is owned to City of Rockfordfor utility services proved during December $2018.$j Plant and equipmentto be depreciated are composed of the following:Assets Date Acquired cost estimatedusage or lifesalvage value depreciation methodBuilding $4182130600025$ years $20000$ sum$-$of$-$years' digitsTruck #$1417302800060,000$ miles $3100$ miles drivenTruck #$2422483300060,000$ miles $4200$ miles drivenLift Truck #$1*40772790010$ years $900$ straight$-$lineLift Truck #$242092450010$ years $500$ straight$-$lineLift Truck #$342629500010$ years $500$ straight$-$lineOffice Equipment $42552328007$ years $2000$ straight$-$lineComputer $4345376004$ years $1600$ Double$-$decling$*$ sold $12/31/18$Truck No$.1$has been driven $45,000$ miles prior to $1/1/18$ and truck No$.2$ hasbeen driven $30,500$ miles prior to $1/1/18.$ During $2018$ truck No$.1$ was driven$12000$ miles and truck No$.2$ was driven $16000$ miles. Remember that RockfordCompany takes a half$-$year's depreciation in the year of acquisition and a half$-$year in the year of sale$\mathrm{.}8$ Complete the worksheet. Compute State of Illinois corporate income taxes at $4\mathrm{.}5\%$ of pretaxincome. The state income tax is deductible on the federal tax return, and the federal tax isnot deductible on the Illinois return. Assume federal corporate income tax on incomesubject to federal tax is as follows:first $$500000\mathrm{.}15$next $250000\mathrm{.}25$remainder $0\mathrm{.}34$Income between $$100,000$ and $$335,000$ is assessed a $5\%$ federal surtax, not to exceed$11750$ ; the company has prepaid $72,000$ tax during the year.Instruction:$1$ Prepare the journal entry the above transacitons$2$ Prepare $2018\text{'}$s income statement $($assume the weighted$-$average number of shares outstandingfor the year $2018$ is shares recorded at year end$).$ Assume that bad debt expense and depreciation expenseare administrative expenses$\mathrm{.}3$ Prepare $2018\text{'}$s statement of retained earnings$\mathrm{.}4$ Prepare $2018\text{'}$s balance sheet.eciation expense