Owlet Corporation prepares annual financial statements. The balance sheet at December 31, 2016, is presented below. 1. 2. 4. 3. 5. 6. Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid insurance Equipment A/D - Equipment 7. 8. Assets 9. 16,700 15,000 (200) 23,200 2,400 During 2017 the following transactions occurred: Purchased $132,700 inventory on account. Owlet Corp. uses a perpetual inventory system. Sales of $220,000, plus 5.6% sales tax, were made to customers on account. Cost of goods sold was $125,200. 160,000 (60,000) 157,100 Owlet Corporation Balance Sheet December 31, 2016 Liabilities and Stockholders' Equity Accounts payable Common stock ($1 par) Paid-in capital in excess of par - Common stock Retained earnings 19,300 10,000 70,000 57,800 157,100 Paid general expenses of $32,100. Paid $81,000 on account. Paid the sales tax collected from customers to the State of Wisconsin. On January 1, Owlet Corp. sold for $5,000 cash equipment which originally cost $30,000. Accumulated depreciation for this equipment as of December 31, 2016, was $20,500. 10. Issued 1,500 shares of $100 par, 8% preferred stock for $175,000 cash. Received $8,600 cash down payment for orders that will be shipped next year. Issued 10 year, $50,000 face value, 4% bonds on July 1 at 102. The bonds were sold to yield an effective annual rate of 3.7582%, and they pay interest every January 1 and July 1. Collected $170,000 on account. 11. Purchased equipment on July 1, 2017 for $120,000 cash. 12. Purchased 600 shares of Owlet Corp. common stock from a disgruntled shareholder for $40 per share. 13. Recorded salaries and payroll taxes. Employee's gross salaries were $42,000. FICA tax was withheld at a rate of 7.65%. Federal income taxes (FIT) of $4,200 were withheld, and state income taxes (SIT) of $2,100 were withheld. The federal unemployment tax (FUTA) rate was 1%, and the state unemployment tax (SUTA) rate was 3.25%. No cash has been paid yet, so record all the amounts due in the appropriate payable accounts. 14. The paychecks and payroll taxes from entry #13 were paid. Adjusting Journal Entries: 15. Straight-line depreciation with a 5 year useful life and no salvage value is used for equipment purchased in previous years. The equipment purchased on July 1, 2017 (#11) is depreciated using double-declining balance with a useful life of 10 years and a $20,000 salvage value. (Hint: The equipment was purchased midway through the year.) 16. Accrue bond interest payable and amortize bond discount/premium. Owlet Corp. uses effective-interest amortization. (Hint: The bond was issued midway through the year.) 17. The prepaid insurance relates to a policy purchased on December 31, 2016. This insurance expires at a rate of $200 per month. Record as a general expense. 18. Owlet estimates that 2.5% of accounts receivable are uncollectible. 19. Owlet Corp. is an S-corporation and is not subject to income tax. REQUIRED: Print out the solution pages for the general journal, ledger, and worksheet that follow and enter the following transactions. I suggest that you use a pencil. a. Enter the transactions numbered 1-14 in the general journal provided on the following pages. b. Post the journal entries to the ledger accounts for items 1-14. Look at the cash account for an example of how to use the running balance ledger. I have completed the first two lines of it for you. It is a good idea to keep track of whether your balance column is a debit or a credit, particularly for contra accounts. c. Prepare an unadjusted trial balance at March 31 and enter on the worksheet. d. Worksheet requirement: Using your unadjusted trial balance (c) above and the data for adjusting entries (#15-19), prepare a 12-column worksheet similar to the Sierra Corporation Worksheet in the Chapter 4 folder on D2L and the prior extra credit assignments. You will not receive any credit if the worksheet is incomplete. To save time, you are not required to formally journalize or post your adjusting entries (you can just enter them on the worksheet). You are not required to record closing entries. e. Prepare a formal statement of cash flows using the T-account approach. Templates for the statement and the T-account worksheet are attached. (You are not required to formally present the other statements- just complete them on the worksheet.) EXTRA CREDIT III SOLUTION Journal: Requirement (a) a.1. a.2. a.3. a.4. a.5. a.6. a.7. a.8. a.9. a.10. a.11. a.12. a. 13. a.14. General Journal Name Debit Credit General Ledger: Requirement (b) CASH Beginning Item 3 ACCOUNTS RECEIVABLE Beginning ALLOWANCE FOR DOUBTFUL ACCOUNTS Beginning INVENTORY Beginning PREPAID INSURANCE Beginning EQUIPMENT Beginning ACCUM DEPRECIATION EQUIPMENT Beginning DR 16,700 8,600 DR 15,000 DR DR 23,200 DR 2,400 DR 160,000 DR CR CR CR CR CR CR CR 200 60,000 BALANCE 16,700 DR 25,300 DR BALANCE 15,000 DR BALANCE 200 CR BALANCE 23,200 DR BALANCE 2,400 DR BALANCE 160,000 DR BALANCE 60,000 CR General Ledger: Requirement (b) continued ACCOUNTS PAYABLE Beginning SALARIES PAYABLE SALES TAX PAYABLE FICA PAYABLE FIT PAYABLE SIT PAYABLE FUTA PAYABLE SUTA PAYABLE UNEARNED REVENUE BONDS PAYABLE PREMIUM ON BONDS PAYABLE DR DR DR DR DR DR DR DR DR DR DR CR CR CR CR 19,300 CR CR CR CR CR CR CR BALANCE 19,300 CR BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE General Ledger: Requirement (b) continued COMMON STOCK (S1 PAR) Beginning PREFERRED STOCK (S100 PAR) PAID-IN CAPITAL IN EXCESS OF PAR- COMMON STOCK Beginning PAID-IN CAPITAL IN EXCESS OF PAR- PREFERRED STOCK TREASURY STOCK RETAINED EARNINGS Beginning SALES REVENUE COST OF GOODS SOLD GENERAL EXPENSES SALARIES EXPENSE PAYROLL TAX EXPENSE LOSS ON DISPOSAL DR DR DR DR DR DR DR DR DR DR DR DR CR 10,000 CR CR 70,000 CR CR CR 57,800 CR CR CR CR CR CR BALANCE 10,000 CR BALANCE BALANCE 70,000 CR BALANCE BALANCE BALANCE 57,800 CR BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE Account Title Cash Accounts receivable Allow, for doubtful accounts Inventory Prepaid insurance Equipment Accum. depreciation Accounts payable Interest payable Unearned revenue Bonds payable Premium on bonds payable Common stock Preferred stock PICEP-CS PICEP - PS Retained earnings Treasury stock Sales revenue Cost of goods sold General expenses Salaries expense Payroll tax expense Depreciation expense Bad debt expense Interest expense Loss on disposal Totals Unadjusted Trial Balance DR CR 0 OOO 0 0 0 Owlet Corporation Worksheet: Requirement (c), (d) For the Year Ended December 31, 2017 Adjusted Adjustments CR DR Trial Balance DR CR Net loss Totals Income Statement DR CR Retained Earnings Statement DR CR Ending retained earnings Totals Balance Sheet DR CR Owlet Corporation Statement of Cash Flows: Requirement (e) For the Year Ended December 31, 2017 CASH FROM OPERATING ACTIVITIES: Net Cash from Operating Activities CASH FROM INVESTING ACTIVITIES: Net Cash from Investing Activities NG ACTIVITIES: CASH FROM FI Net Cash from Financing Activities NET INCREASE IN CASH Cash at beginning of year Cash at end of year Owlet Corporation Statement of Cash Flows: Requirement (e) For the Year Ended December 31, 2017 CASH FROM OPERATING ACTIVITIES: Net Cash from Operating Activities CASH FROM INVESTING ACTIVITIES: Net Cash from Investing Activities NG ACTIVITIES: CASH FROM FI Net Cash from Financing Activities NET INCREASE IN CASH Cash at beginning of year Cash at end of year Cash 16,700 Statement of Cash Flows T-Account Worksheet Requirement (e) A/D-Equipment Accounts receivable 15,000 Allow. for doubtful accts 200 Inventory 23,200 Prepaid insurance 2,400 Equipment 160,000 60,000 Accounts payable 19,300 Interest payable Unearned revenue Bonds payable Premium on B/P 0 0 0 0 Common stock ($1 par) 10,000 Pref. stock ($100 par) 0 PICEP - CS PICEP - PS 70,000 Retained earnings 0 57,800 Treasury stock 0