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Need Adjusting Journal Entries

1 ABC Corporation 2 Unadjusted Trial Balance 3 December 31, 2014 4 5 Debit Credit 6 Cash $ 975,232 7 Short term investments 167,000 8 Fair value adjustment (Tanding) 9 Accounts receivable 190,300 10 Allowance for doubtful accounts $ 11 Inventory 12 Purchases 350,000 13 Prepaid insurance 24,600 14 LT Debt) investments (HTM) 177,824 15 Land 75,000 16 Building 150,000 17 Accumulated depreciation building 4,000 18 Equipment 60,000 19 Accumulated depreciation equipment 20,000 20 Patent 37,500 21 Accounts payable 75,240 22 Notes payable 235,000 23 Income taxes payable 63,800 24 Unearned rent revenue 36,000 25 Bonds Payable 800,000 26 Premium on Bonds Payable 61,771 27 Common stock 86,000 28 PIC In Excess of Par-Common Stock 13,000 29 Retained earnings 30 Treasury stock 49,000 31 Dividends 41,000 32 Sales Revente 1,192,945 33 Advertising expense 8,400 34 Wages expense 67,600 35 Office expense 21,700 36 Amortization expense 37 Depreciation expense 24,000 38 Utilities expense 31,000 39 Insurance expense 73,800 40 Income tasses expense 63,800 41 $ 2,587,756 $2,587,756 G H K B D E F 1 On March 1, ABC purchased a one-year liability insurance policy for $98,400. Upon purchase, the following joumal entry was made: Dc Prepaid insurance 98,400 Cr Cash 98,400 The expired portion of insurance must be recorded as of 12/31/14. Notice that the expired portion from March through November has been recorded already Make sure that the Prepaid Insurance balance after the adjusting entry is correct 2 Depreciation expense must be recorded for the month of December. The building was purchased with cash on February 1, 2014 for $150,000 with a remaining useful life of 30 years and a salvage value of $6,000 The method of depreciation for the building is straight-line. The equipment was purchased with cash on February 1, 2014 for $60,000 with a remaining useful life of 5 years and a salvage value of $3,000 The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November 3 On December 1, XYZ Co. agreed to rent space in ABC's building for $12,000 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dc Cash 36,000 Cr Unearned rent revenue 36,000 The unearned revenue account must be adjusted to reflect the amount eamed as of 12/31/14. 7 4 Per timecards, from the last payroll date through December 31, 2014, ABC's employees have worked a total of 250 hours. Including payroll taxes, ABC's wage expense averages about $51 per hour. The next payroll date is Jamuay 5, 2015, The liability for wages payable must be recorded as of 12/31/14. B 9 10 FI B . D E G H K 5 On November 30, 2014, ABC borrowed $235,000 from Amenican National Bank by iascung an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2015), along with interest computed at an annual rate of 6% The entry made on November 30 to record the borrowing was (for Statement of Cash Flow purposes, consider a financing item) Dc Cash 235,000 Cr Notes payable 235,000 On February 28, 2015 ABC must pay the bank the amount borrowed plus interest . Assume the beginning balance for Notes Payable is correct. Interest through 12/31/14 must be accrued on the $235,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment 9 Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail Be sure to make an additional adjustment, if necessary, to properly value ending arventory ming the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Lon Method for accounting for adjustments of inventory to market value. 0 $1 52 53 54 55 56 57 58 59 7 It would be usual for a company to have an asset impairment in Year 1, but for the sake of tlus example, ABC realized that their intangible asset might be impaired on December 31, 2014. Record the impairment if any. The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset i $27,500. 8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as tey stock. The cost of the treasuy stock was $7 mer share or $49.000 in total The effect of this to 60 K 8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $7 per share, or $49,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/14, ABC reissued these 7,000 shares of treasuy stock at $10 per share. Record the journal entry requured for the reissuance of the treasury stock 9 On 12/31/14, ABC issued 5,000 shares of $3 par valse common stock at the closing market pace of $7 per share. Prepare ABC's jonmal entry to reflect the issuance of the stock on 12/31/14 10 On 7/1/14, ABC sold 12% bonds having a maturity value of $800,000 for $861,771, resulting in an effective field of 10%. The bonds are dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 The following information is available for ABC Corporation at 12/31/14 regarding its investments in stocks of other companies. Securities Cost Fair Value 2,200 shares of Toyota Corporation Common Stock $ 100,000 $ 125,000 1,100 shares of GM Corporation Common Stock $ 67,000 $ 34,000 $ 167,000 $ 159,000 Prepare the adjusting entey (if any) for 2014, assuming the securities are classified as trading 6 7 18 12 On 1/1/14, ABC Corporation purchased, as a held-to-matusty vestment, $200,000 of the 8, 5-year bonds of Instruit Corporation for $177,824, which provides an 11% retum. Prepare ABC's 12/31/14 journal entry to reflect the receipt of ammual interest and discount amortization Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used. Note: Notice that a discount account is not used for this investment. Therefore, for purposesxf thus adjusting entry, amortize the discount directly to the investment account. 9 JO 13 ABS Samoration 12/11/14 13 ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense. 14 On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000 unguaranteed residual value. The delivery vehicle revests back to the lessor at the end of the lease team. ABC Corporation amortizes the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet been made concering this lease arrangement. After determining the type of lease arrangement (funancing or operating), prepare the necessary multiple-part jouma entry for 2014 for ABC Corporation. (Hint: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for this lease transaction. Aho, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.) 15 ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entey should be made to correctly account for this type of pensic plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in Note: Use the sammuy entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry. 8 1 Pension asset/liability (January 1) $0 Actual return on plan assets $40,000 9 Expected retumn on plan assets $20,000 0 Contributions (Funding in 2014 $37,000 Fair value of plan assets December 31) $75,000 12 Settlement rate 10% 13 Projected benefit obligation January 1) $0 14 Service cost $60,000 15 Benefits paid in 2014 $0 16 *For purposes of financial statement presentation, consider Pension Expense as an operating item and terting Pension Auset Laabality as long-teem in satuce. 17 18 16 On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer ABC stock band fru valoe closing market price) of 119 $10 per share on December 31, 2014. Additional information is as follows: 120 2. The service period related to the restricted stockis 2 years 121 b. Vesting eens if the CFO stays with the company for a two-yent period. 122 e. The par vale of the common stock as $3 per share. 123 Make the appropriate accounting entry as of the grant date, 12/31/14. Note: we the alternative method as descabed in your textbook for defected compensation 124 125 Do this step after preparing the Icon Stamp for the Inaw www down for COSE per $60,000 Benefits paid in 2014 $0 *For purposes of financial statement presentation, consider Pension Expense as an operating item and any serulting Pension Asset/Liability as long-term in nature. 16 On December 31, 2014, ABC Corpocation issued 1,000 shares of restricted stock to its Chief Financial Office. ABC stock had a fair vahe (closing market price) $10 share on December 31, 2014. Additional information is as follows: 2. The service period related to the restricted stock is 2 years b. Vesting occurs if the CFO stays with the company for a two-year penod. par value of the common stock is $3 per share. Make the appropriate accounting entry as of the grant date, 12/31/14. Note: me the altemative method as described in your textbook for deferred compensation. c. The Do thirstep after preparing the Income Statement except for the Incare for line: You med to collatera Before Iran Tear in ander to enlar tuta! Iwan Tax Expur) 17 Corporate tases are due in four estimated quarterly payments on Apel 15, June 15, September 15, and December 15, However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2015 due date. ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600, so Jantasy through November income tax expense recognized amount to $63,800 (11/12 months) Since we are assuming estimates are not made during the year, the balance in Income taxes payable representi tax accrued for January through November. Asume no deferred tax amets or deferred tax liabilities Based on the income before income taxes figure from the income statement record December's income tax expense so that the entire year's total tax expense is correct. 4 5 16 87 38 39 40 Instructions Unadjusted Trial Balance Adjustments Needed Adjusting Journal Entries 12-31-14 T-Accounts (GL) Adjusted Trial Balance Type here to search PL2445w 1 ABC Corporation 2 Unadjusted Trial Balance 3 December 31, 2014 4 5 Debit Credit 6 Cash $ 975,232 7 Short term investments 167,000 8 Fair value adjustment (Tanding) 9 Accounts receivable 190,300 10 Allowance for doubtful accounts $ 11 Inventory 12 Purchases 350,000 13 Prepaid insurance 24,600 14 LT Debt) investments (HTM) 177,824 15 Land 75,000 16 Building 150,000 17 Accumulated depreciation building 4,000 18 Equipment 60,000 19 Accumulated depreciation equipment 20,000 20 Patent 37,500 21 Accounts payable 75,240 22 Notes payable 235,000 23 Income taxes payable 63,800 24 Unearned rent revenue 36,000 25 Bonds Payable 800,000 26 Premium on Bonds Payable 61,771 27 Common stock 86,000 28 PIC In Excess of Par-Common Stock 13,000 29 Retained earnings 30 Treasury stock 49,000 31 Dividends 41,000 32 Sales Revente 1,192,945 33 Advertising expense 8,400 34 Wages expense 67,600 35 Office expense 21,700 36 Amortization expense 37 Depreciation expense 24,000 38 Utilities expense 31,000 39 Insurance expense 73,800 40 Income tasses expense 63,800 41 $ 2,587,756 $2,587,756 G H K B D E F 1 On March 1, ABC purchased a one-year liability insurance policy for $98,400. Upon purchase, the following joumal entry was made: Dc Prepaid insurance 98,400 Cr Cash 98,400 The expired portion of insurance must be recorded as of 12/31/14. Notice that the expired portion from March through November has been recorded already Make sure that the Prepaid Insurance balance after the adjusting entry is correct 2 Depreciation expense must be recorded for the month of December. The building was purchased with cash on February 1, 2014 for $150,000 with a remaining useful life of 30 years and a salvage value of $6,000 The method of depreciation for the building is straight-line. The equipment was purchased with cash on February 1, 2014 for $60,000 with a remaining useful life of 5 years and a salvage value of $3,000 The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November 3 On December 1, XYZ Co. agreed to rent space in ABC's building for $12,000 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dc Cash 36,000 Cr Unearned rent revenue 36,000 The unearned revenue account must be adjusted to reflect the amount eamed as of 12/31/14. 7 4 Per timecards, from the last payroll date through December 31, 2014, ABC's employees have worked a total of 250 hours. Including payroll taxes, ABC's wage expense averages about $51 per hour. The next payroll date is Jamuay 5, 2015, The liability for wages payable must be recorded as of 12/31/14. B 9 10 FI B . D E G H K 5 On November 30, 2014, ABC borrowed $235,000 from Amenican National Bank by iascung an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2015), along with interest computed at an annual rate of 6% The entry made on November 30 to record the borrowing was (for Statement of Cash Flow purposes, consider a financing item) Dc Cash 235,000 Cr Notes payable 235,000 On February 28, 2015 ABC must pay the bank the amount borrowed plus interest . Assume the beginning balance for Notes Payable is correct. Interest through 12/31/14 must be accrued on the $235,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment 9 Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail Be sure to make an additional adjustment, if necessary, to properly value ending arventory ming the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Lon Method for accounting for adjustments of inventory to market value. 0 $1 52 53 54 55 56 57 58 59 7 It would be usual for a company to have an asset impairment in Year 1, but for the sake of tlus example, ABC realized that their intangible asset might be impaired on December 31, 2014. Record the impairment if any. The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset i $27,500. 8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as tey stock. The cost of the treasuy stock was $7 mer share or $49.000 in total The effect of this to 60 K 8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $7 per share, or $49,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/14, ABC reissued these 7,000 shares of treasuy stock at $10 per share. Record the journal entry requured for the reissuance of the treasury stock 9 On 12/31/14, ABC issued 5,000 shares of $3 par valse common stock at the closing market pace of $7 per share. Prepare ABC's jonmal entry to reflect the issuance of the stock on 12/31/14 10 On 7/1/14, ABC sold 12% bonds having a maturity value of $800,000 for $861,771, resulting in an effective field of 10%. The bonds are dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 The following information is available for ABC Corporation at 12/31/14 regarding its investments in stocks of other companies. Securities Cost Fair Value 2,200 shares of Toyota Corporation Common Stock $ 100,000 $ 125,000 1,100 shares of GM Corporation Common Stock $ 67,000 $ 34,000 $ 167,000 $ 159,000 Prepare the adjusting entey (if any) for 2014, assuming the securities are classified as trading 6 7 18 12 On 1/1/14, ABC Corporation purchased, as a held-to-matusty vestment, $200,000 of the 8, 5-year bonds of Instruit Corporation for $177,824, which provides an 11% retum. Prepare ABC's 12/31/14 journal entry to reflect the receipt of ammual interest and discount amortization Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used. Note: Notice that a discount account is not used for this investment. Therefore, for purposesxf thus adjusting entry, amortize the discount directly to the investment account. 9 JO 13 ABS Samoration 12/11/14 13 ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense. 14 On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000 unguaranteed residual value. The delivery vehicle revests back to the lessor at the end of the lease team. ABC Corporation amortizes the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet been made concering this lease arrangement. After determining the type of lease arrangement (funancing or operating), prepare the necessary multiple-part jouma entry for 2014 for ABC Corporation. (Hint: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for this lease transaction. Aho, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.) 15 ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entey should be made to correctly account for this type of pensic plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in Note: Use the sammuy entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry. 8 1 Pension asset/liability (January 1) $0 Actual return on plan assets $40,000 9 Expected retumn on plan assets $20,000 0 Contributions (Funding in 2014 $37,000 Fair value of plan assets December 31) $75,000 12 Settlement rate 10% 13 Projected benefit obligation January 1) $0 14 Service cost $60,000 15 Benefits paid in 2014 $0 16 *For purposes of financial statement presentation, consider Pension Expense as an operating item and terting Pension Auset Laabality as long-teem in satuce. 17 18 16 On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer ABC stock band fru valoe closing market price) of 119 $10 per share on December 31, 2014. Additional information is as follows: 120 2. The service period related to the restricted stockis 2 years 121 b. Vesting eens if the CFO stays with the company for a two-yent period. 122 e. The par vale of the common stock as $3 per share. 123 Make the appropriate accounting entry as of the grant date, 12/31/14. Note: we the alternative method as descabed in your textbook for defected compensation 124 125 Do this step after preparing the Icon Stamp for the Inaw www down for COSE per $60,000 Benefits paid in 2014 $0 *For purposes of financial statement presentation, consider Pension Expense as an operating item and any serulting Pension Asset/Liability as long-term in nature. 16 On December 31, 2014, ABC Corpocation issued 1,000 shares of restricted stock to its Chief Financial Office. ABC stock had a fair vahe (closing market price) $10 share on December 31, 2014. Additional information is as follows: 2. The service period related to the restricted stock is 2 years b. Vesting occurs if the CFO stays with the company for a two-year penod. par value of the common stock is $3 per share. Make the appropriate accounting entry as of the grant date, 12/31/14. Note: me the altemative method as described in your textbook for deferred compensation. c. The Do thirstep after preparing the Income Statement except for the Incare for line: You med to collatera Before Iran Tear in ander to enlar tuta! Iwan Tax Expur) 17 Corporate tases are due in four estimated quarterly payments on Apel 15, June 15, September 15, and December 15, However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2015 due date. ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600, so Jantasy through November income tax expense recognized amount to $63,800 (11/12 months) Since we are assuming estimates are not made during the year, the balance in Income taxes payable representi tax accrued for January through November. Asume no deferred tax amets or deferred tax liabilities Based on the income before income taxes figure from the income statement record December's income tax expense so that the entire year's total tax expense is correct. 4 5 16 87 38 39 40 Instructions Unadjusted Trial Balance Adjustments Needed Adjusting Journal Entries 12-31-14 T-Accounts (GL) Adjusted Trial Balance Type here to search PL2445w