Part B (Adjusting Entries and Reporting)

The end of the year (2003) has come, and all the routine transactions have been processed. As One Time Hits new accountant, it is your responsibility to complete the year-end process. You need to complete the adjusting entries, as well as the financial statements. You do not need to complete the closing entries.

Adjusting Entries: Prepare the correct adjusting entries using the following information.

The warehouse employees counted the ending inventory on hand at December 31, 2003. Their ending inventory balance is $40,000. (Remember we are using the periodic inventory method.)

The supplies department counted the supplies on hand. The balance of supplies at December 31 is $500.

The note payable is due in 5 years and was initiated on April 1, 2003. The note payable requires annual interest payments of 11% payable on March 31 of each year. Round to the nearest dollar. (Note: Since the loan is not for the full year, you need to prorate the interest expense. I used 275 days out of 365 to prorate the interest expense)

The company has estimated that bad debt expense is equal to one half of a percent (.005) of net sales (sales less sales discounts and returns).

December salaries and wages will be paid on January 5, 2004. December salaries and wages are $6,000.

Two of the fixed assets have not been completely depreciated. These two items are a mainframe computer purchased for $20,000 in 2002 and a personal computer purchased in the current year on October 1, 2003 for $3,000. Computers are depreciated using the straight-line method over 3 years. The salvage value is 0. (Note: the mainframe needs one full year of depreciation and the personal computer needs three months)

The companys income tax rate is 15%. Round to the nearest dollar. (For taxes most companies complete the other adjusting entries and then post them to the GL. Then prepare a preliminary income statement and calculate the taxes. Then they can make the adjusting entry for taxes and post to the general ledger).

Instructions:

1) Prepare the above adjusting entries for December 31, 2003. These entries should be recorded in the general journal. Provide any necessary calculations to support your entries. Note: Dont forget to put the income tax adjusting journal entry in the general journal and post it to the general ledger.

2) Post these adjusting entries to the General Ledger and prepare a trial balance.

3) Prepare the classified balance sheet and the multi-step format income statement, and statement of retained earnings (or the statement of retained earnings can be included at the end of the income statement). The statement of cash flows is not required.

You do not need to do Closing Entries

When completed

The project should be organized in a three-ring binder or in folders.

Control Department Reports. For this folder, put the reports in the following order: Income Statement, Statement of Retained Earnings, Balance Sheet, Pre-adjusting entry trial balance, Post adjusting entry trial balance and Accounts Receivable Aging.

Control Department Journals and Ledgers. For this folder, put the journals and ledgers in the following order: Special Journals, General Journal, Accounts Receivable Subsidiary Ledger, Accounts Payable Subsidiary Ledger and General Ledgers (assets, liabilities and equity, and revenue and expenses).

The other folders in the order listed above. Note that the Billing Department Open Sales Order folder is empty.

Checklist Make sure you have the following

Control Department Folder

Income Statement with Statement of Retained Earnings,

Balance Sheet,

Pre-adjusting entry trial balance, (from Part A)

Post adjusting entry trial balance (from Part B)

Accounts Receivable Aging.

Control Department Journals and Ledgers Folder.

For this folder, put the journals and ledgers in the following order:

Special Journals

General Journal

Accounts Receivable Subsidiary Ledger

Accounts Payable Subsidiary Ledger

General Ledgers (assets, liabilities and equity, and revenue and expenses).

Common Folder

Sent to outsiders (bank, customer, carrier) and other stuff (for anything else if needed)

Revenue/Sales Cycle Folders

Billing Department Open Sales Order (NOTE: when complete this file will be empty)

Billing Department Invoices (with Sales Order, Bill of Lading, and packing slip/Shipping Notice)

Accounts Receivables Department unpaid invoices

Accounts Receivables Department customer files of paid invoices

Expenditure Cycle Folders

Accounts Payable unmatched receiving, purchase order, and invoice file.

Accounts Payables vendor files (for paid matched invoices, PO, Receiving Report)

Receiving department - temporary file

Receiving department - permanent file

Cashier - unpaid file (3-way matched invoices waiting to be paid)