Paige Co. is a niche furniture manufacturer and retailer who operates mainly in the Carolinas. A partial trial balance showing Paige’s equity, revenue and expense balances as of its December 31, 2019 year-end follows: 

    Debits              Credits

 

 Dividends                                                                     $   274,520

 

Retained earnings (1/1/19)                                                                     $   714,830

 

Unrealized holding gain – CKB bonds (1/1/19)                                              89,145

 

Interest revenue                                                                                         21,690

 

Sales revenue                                                                                        8,432,265

 

Bad debt expense                                                               104,710

 

Cost of goods sold                                                         5,258,345

 

Depreciation expense                                                         219,480

 

Insurance expense                                                                92,305

 

Interest expense                                                                 113,925

 

Salaries and wages expense                                           1,906,670

 

Utilities expense                                                                193,255

 

In addition, the following information is available for the company for 2019. Unless indicated otherwise, this information has not yet been reflected in the company’s accounts. All of the dollar amounts are stated on a before-tax basis.

 

1.  
2. In February 2019, Paige shifted its business strategy, resulting in the October 2019 sale of a component of the company considered a separate major line of business. The sale produced a gain on disposal of $94,280. The operations of the component, prior to the sale in October, produced a loss of $19,415.
3.  

 

2.  
3. In preparing its 2019 financial statements, Paige has determined that it must write off $79,510 of its recorded goodwill.
4.  

 

3.  
4. At year-end 2019, Paige decided to change its inventory cost flow method from Average Cost to First-in, First-out (FIFO). The effect of the change on 2019 and prior years is as follows:
5.  

 

     2019            Prior Years

 

Cost of goods sold – Average Cost                     $5,258,345       $18,421,000

 

Cost of goods sold – FIFO                                 5,079,620          18,109,000

 

 

Note – The cost of goods sold figure in Paige’s partial trial balance above reflects use of the old method (Average Cost) for 2019.

 

4.  
5. Paige restructured its ongoing operations during 2019, resulting in restructuring charges of $32,925.
6.  

 

5.  
6. At year-end 2019, Paige is reviewing the percentage it uses to estimate bad debts. With economic conditions improving, the company determines that it must decrease the percentage it uses to estimate bad debts from 6.95% to 5.70%. The effect of this change on 2019 income is as follows:
7.  

 

Bad debt expense based on a 6.95% rate (old rate)                      $104,710

 

Bad debt expense based on a 5.70% rate (new rate)                       96,530

 

 

Note – The bad debt expense figure in the partial trial balance above reflects use of the old rate (6.95%) for 2019.

 

6.  
7. In July 2019, Paige extinguished 7% bonds payable having a book value of $532,590. Paige paid the investors $598,735 to retire these bonds.
8.  

 

7.  
8. In 2013, Paige purchased bonds issued by CKB Co., which it continues to hold as an available-for-sale investment. The fair value of Paige’s investment decreased in 2019, from $461,880 to $414,915.
9.  

 

 

Note – The $89,145 Unrealized holding gain – CKB bonds (1/1/19) in the partial trial balance above relates to this item and, of course, is stated net of income taxes.

 

8.  
9. In 2017, Paige purchased certain equipment and began using it. In the process of preparing the adjusting entries at year-end 2019, Paige discovered that it mistakenly double-counted the equipment’s estimated salvage value in the depreciation calculations for 2017 and 2018. The total amount of understatement of depreciation expense for these two years was $37,615.
10.  

 

 

Note – The discovery and correction of the 2017 and 2018 errors will not change the depreciation expense for 2019. The $219,480 figure in the partial trial balance above is correct.

 

Assume the above amounts are material. Also, assume the income tax rate applicable to all years and all income items is 25%. Finally, note that Paige uses the multiple-step format for the reporting of net income items and the one-income statement approach for the display of other comprehensive income items.

 

– Instructions –

 

Prepare the financial statements for the year ended December 31, 2019 to show the proper reporting of Paige’s:

 

1.  
2. income and
3.  

 

 

2.  
3. changes in retained earnings.
4.