Practice Set Directions: You, as the main accountant for Indiana Jones, Inc., are responsible for recording all the transactions during the year, as well as the adjusting entries at the end of the year. You are also responsible for preparing the financial statements for Indiana Jones, Inc. You must prepare a Multi-Step Income Statement, a Statement of Stockholders' Equity, and a Classified Balance Sheet (don't worry about the Statement of Cash Flowssomeone else prepares this) for fiscal year 2005, which ends on December 31, 2005. You will use the Excel workbook set up for this problem. Included in the workbook are the beginning account balances at January 1, 2005, the Transaction Worksheet, the Cost of Goods Sold worksheet, the ending account balances at December 31, 2005, the Post-Closing account balances at December 31, 2005 and a worksheet to create financial statements. You must record all the transactions and adjusting entries in the Transactions Worksheet. Increase or decrease the accounts for each transaction. I have added a column on the far right to ensure that each transaction balances in the accounting equation (if it balances, you will see a zero in the column to the far right. If it doesn't balance you will see a number). Note that the total balance for each account is indicated on the bottom of the Transaction Worksheet (before and after closing entries) and is linked to the ending account balances at December 31, 2005 (regular and post-closing). Make sure the closing entries are posted to area at the bottom of the general ledger worksheet (clearly marked "Closing Entries and highlighted in grey). Once you have recorded all transactions, adjustments, and closing entries, the year-end account balances should automatically fill in. Use them to produce the financial statements. Note: Round all amounts to the nearest $1. Specific Rules for Transaction Worksheet and Financial Statements: 1. You will not be using debits and credits for transactions. Instead, you will record transactions as increases (+) or decreases (-) to the accounts involved in the transaction. For example, if the company purchased equipment on credit, you would increase the equipment account and increase the A/P accounts. Later, when you pay off the A/P balance, you would decrease cash and A/P by putting negative numbers in those accounts. 2. When increasing expense accounts, you need to input the amount as a NEGATIVE number on the transaction worksheet. The formulas I have in the spreadsheet assume that all expense transactions are NEGATIVE numbers. 3. Dividends will be treated as a direct reduction of retained earnings. 4. When completing closing entries, instead of zeroing out the revenue and expense accounts to income summary, you will book the offsetting amounts directly to retained earnings. 5. On the income statement, treat expenses as NEGATIVE numbers. The formulas assume that expenses are NEGATIVE. Same idea for any contra-accounts on the balance sheet (use NEGATIVE numbers). 6. For contra accounts, an increase will be NEGATIVE and decrease will be POSITIVE. Contra accounts are the opposite of normal accounts. For example, to write off an uncollectible account, you will decrease the allowance for doubtful accounts by using a POSITIVE entry. Pertinent Information: You are given the beginning balances of all accounts at January 1, 2005 (after fiscal year 2004's closing entries have been posted). You will be given a series of transactions to record that occur throughout the year 2005. Indiana Jones' fiscal year is on the calendar year (1.e. the year-end is December 31, 2005). Indiana Jones uses accrual-basis accounting. Indiana Jones, Inc. is a corporation. The company uses the following accounting methods: 1. The Company uses LIFO for inventory valuation. The Company uses the Perpetual Method for inventory valuation. The Company only stocks Merchandise Inventory. Inventory purchases are booked directly to the merchandise inventory account. Since the Company uses the perpetual method, the cost of goods sold and merchandise inventory accounts are updated after every sale. (hint: for every sale, you will use 4 different accounts) Note: The January 1, 2005 inventory balance consists of 320 units with a per unit cost of $100. 2 The Company uses the Allowance Method to account for bad debt. The Company determines its Allowance for Doubtful Accounts by estimating that 10% of the ending balance of Accounts Receivable will be uncollectible (Balance Sheet Approach). When specifically identified accounts are determined to be uncollectible, then the Company writes them off against the Allowance. 3. Indiana Jones Inc. depreciates Property, Plant, and Equipment using the straight-line method. Buildings are depreciated over 40 years. Equipment is depreciated over a 20-year life. The building has no salvage value and the equipment has a salvage value of $20,000. You will find the original cost of the buildings and equipment in the beginning balances spreadsheet. The Company owns a patent for laser excavation technology it developed two years past. The patent is amortized over its useful life. Amortization expense is $8,000 per year, and booked at the end of the year. 4. Other relevant information: 1 The A/R balance at January 1, 2005 consists of the following customer balances: Thuggee Ltd. $11,000 (current) Herr Oberst & Sons Co. -$2,000 (90 days past due) Willie Scott Inc. $12,000 (current) Katanga Shipping... $10,000 (current) 2. The Company's common stock was issued with a $2.50 par value. 100,000 shares are authorized. 40,000 shares are issued and outstanding. 3. The prepaid insurance amount relates to four years' worth of insurance that began on January 1, 2005 (how convenient!) 4. The Note Payable is a ten-year note that was taken out on December 31, 2001. The interest rate is 9.50% per annum. Interest payments are due January 5 for the previous year's interest i.e. fiscal year 2005 interest is due January 5, 2006). End-of-Year Adjusting Entries: 1. Remember to amortize the patent. 2. Remember to record the adjustment for income taxes. 3. Remember to record bad debt expense (note: there is already a balance in the allowance for doubtful accounts account) 4. Remember to depreciate the equipment. 5. Remember to record the adjustment for utilities. 6. Remember to accrue interest expense on note payable. 7. Remember to adjust for used office supplies. 8. Remember to depreciate the building. 9. Remember to record the adjustment for interest earned on the short-term investment. 10. Remember to record the adjustment for salaries for year. 11. Remember to adjust prepaid insurance. Hints: Total Assets = $1,012,564 Net Income = $171,164 COGS = $261,575 ASSETS Indiana Jones, Inc. Summary of Account Balances 1/1/2005 (Beginning Balances) Accounts Balances Cash 90,000 Short-term Investments Accounts Receivable 35,000 Allowance for Doubtful Accounts (8,000) Interest Receivable Office Supplies 2,000 Merchandise Inventory 32,000 Prepaid Insurance 40,000 Land 50,000 Building 300,000 Accumulated Depreciation -- Building (60,000) Equipment 400,000 Accumulated Depreciation -- Equipment (50,000) Intangible Asset -- Patent 25,000 Accounts Payable 40,000 Salaries Payable 25,000 Income Taxes Payable 35,000 Unearned Revenue 35,000 Dividends Payable 20,000 Interest Payable 22,500 Notes Payable 300,000 Common Stock 100,000 Additional Paid-in Capital 180,000 Retained Earnings 98,500 Sales Revenue Sales Discounts Sales Allowances Service Revenue Interest Income Cost of Goods Sold Advertising Expense Office Supplies Expense Salaries Expense Utilities Expense Insurance Expense Bad Debt Expense Depreciation Expense Amortization Expense Miscellaneous Expense Interest Expense Income Tax Expense Totals LIABILITIES EQUIT REVENUES EXPENSES Correct If the accounting equation is in balance, you will see the word "Correct", if not then you will find "Incorrect" ASSETS Short-term Investments Cash 90,000 Accounts Receivable 35,000 Allowance for Doubtful Interest Accounts Receivable (8,000) Merchandise Inventory 32,000 Office Supplies 2,000 Prepaid Insurance 40,000 Land 50,000 Building 300.000 Accumulated Depreciation -- Building Equipment (60,000) 400,000 Accumulated Depreciation -- Equipment (50,000 Date Description 1/1 BEGINNING BALANCES 1/8 Indiana buys 350 units of inventory at a cost of $102/unit on credit, terms net/60 1/12 Indiana pays off the beginning salaries payable balance. 1/19 Indiana pays off the beginning of the year accounts payable balance 1/21 Indiana sells 400 units to Sallah Co. for $300 each on credit, terms 2/15, net/45. 1/31 Indiana collects the amount owed by Sallah Co. within the discount period. 2/7 Indiana pays off the 1/8 purchase 2/15 Indiana pays off the beginning income taxes payable balance 2/18 Indiana pays $6,000 for office supplies 2/27 Indiana buys 400 units of inventory at a cost of $105/unit on credit, terms net/60 3/4 Indiana provides the services owed to a client. The client paid $35,000 in advance last year. 3/8 Indiana sells 250 units to Bellog Industries for $305 each on credit, terms 2/15, net/45. 3/14 Indiana grants Belloq Industries an allowance of $10,000 for damaged goods 3/22 Indiana collects the amount owed by Bellog Industries within the discount period 4/1 Indiana pays $15,000 for television advertising 4/8 Indiana pays off the 2/27 purchase 4/12 Indiana collects the amount owed by Thuggee Ltd. (see instructions). No discount applies. 4/25 Indiana writes off the Herr Oberst & Sons Co. A/R balance as uncollectible (see instructions) 5/1 Indiana buys 500 units of inventory at a cost of $110/unit in cash 5/8 Indiana sells 550 units to Short Round Ventures for $310 each on credit, terms 2/15, net/45 5/15 Indiana pays $15,000 of the interest payable balance 5/27 Indiana collects the amount owed by Short Round Ventures outside the discount period. 6/3 Indiana pays off the dividends payable balance 6/27 Indiana pays $1,000 for miscellaneous expenses 7/1 Indiana buys a short-term investment for $40,000. 7/10 Indiana buys a parcel of land for $15,000 cash. 7/17 Indiana buys 375 units of inventory at a cost of $112/unit on credit, terms net/60 7/27 Indiana provides services to Mola Ram Co. for $40,000 in cash 8/9 Indiana sells 300 units to Satipo Guides, Inc. for $310 each on credit, terms 2/15, net/45 8/24 Indiana collects the amount owed by Satipo Guides, Inc. within the discount period. 8/27 Indiana sells 100 units to Toht Industrial Co. for $315 each in cash 9/1 Indiana pays off the 7/17 purchase 9/12 Indiana buys $1,000 of office supplies on credit, terms net/90 10/1 Indiana pays Ravenwood Inc. for miscellaneous expenses for $8,000 10/4 Indiana pays $15,000 for television advertising 10/15 Indiana buys 515 units of inventory at a cost of $115/unit on credit, terms net/60 10/31 Indiana sells 520 units to Brody Co. for $315 each on credit, terms 2/15, net/45 11/9 Indiana collects the amount owed by Brody Co. within the discount period. 11/19 Indiana collection $11,000 from Well of Souls Construction for services to be provided next year. 11/27 Indiana pays off the 10/15 purchase Practice Set Directions: You, as the main accountant for Indiana Jones, Inc., are responsible for recording all the transactions during the year, as well as the adjusting entries at the end of the year. You are also responsible for preparing the financial statements for Indiana Jones, Inc. You must prepare a Multi-Step Income Statement, a Statement of Stockholders' Equity, and a Classified Balance Sheet (don't worry about the Statement of Cash Flowssomeone else prepares this) for fiscal year 2005, which ends on December 31, 2005. You will use the Excel workbook set up for this problem. Included in the workbook are the beginning account balances at January 1, 2005, the Transaction Worksheet, the Cost of Goods Sold worksheet, the ending account balances at December 31, 2005, the Post-Closing account balances at December 31, 2005 and a worksheet to create financial statements. You must record all the transactions and adjusting entries in the Transactions Worksheet. Increase or decrease the accounts for each transaction. I have added a column on the far right to ensure that each transaction balances in the accounting equation (if it balances, you will see a zero in the column to the far right. If it doesn't balance you will see a number). Note that the total balance for each account is indicated on the bottom of the Transaction Worksheet (before and after closing entries) and is linked to the ending account balances at December 31, 2005 (regular and post-closing). Make sure the closing entries are posted to area at the bottom of the general ledger worksheet (clearly marked "Closing Entries and highlighted in grey). Once you have recorded all transactions, adjustments, and closing entries, the year-end account balances should automatically fill in. Use them to produce the financial statements. Note: Round all amounts to the nearest $1. Specific Rules for Transaction Worksheet and Financial Statements: 1. You will not be using debits and credits for transactions. Instead, you will record transactions as increases (+) or decreases (-) to the accounts involved in the transaction. For example, if the company purchased equipment on credit, you would increase the equipment account and increase the A/P accounts. Later, when you pay off the A/P balance, you would decrease cash and A/P by putting negative numbers in those accounts. 2. When increasing expense accounts, you need to input the amount as a NEGATIVE number on the transaction worksheet. The formulas I have in the spreadsheet assume that all expense transactions are NEGATIVE numbers. 3. Dividends will be treated as a direct reduction of retained earnings. 4. When completing closing entries, instead of zeroing out the revenue and expense accounts to income summary, you will book the offsetting amounts directly to retained earnings. 5. On the income statement, treat expenses as NEGATIVE numbers. The formulas assume that expenses are NEGATIVE. Same idea for any contra-accounts on the balance sheet (use NEGATIVE numbers). 6. For contra accounts, an increase will be NEGATIVE and decrease will be POSITIVE. Contra accounts are the opposite of normal accounts. For example, to write off an uncollectible account, you will decrease the allowance for doubtful accounts by using a POSITIVE entry. Pertinent Information: You are given the beginning balances of all accounts at January 1, 2005 (after fiscal year 2004's closing entries have been posted). You will be given a series of transactions to record that occur throughout the year 2005. Indiana Jones' fiscal year is on the calendar year (1.e. the year-end is December 31, 2005). Indiana Jones uses accrual-basis accounting. Indiana Jones, Inc. is a corporation. The company uses the following accounting methods: 1. The Company uses LIFO for inventory valuation. The Company uses the Perpetual Method for inventory valuation. The Company only stocks Merchandise Inventory. Inventory purchases are booked directly to the merchandise inventory account. Since the Company uses the perpetual method, the cost of goods sold and merchandise inventory accounts are updated after every sale. (hint: for every sale, you will use 4 different accounts) Note: The January 1, 2005 inventory balance consists of 320 units with a per unit cost of $100. 2 The Company uses the Allowance Method to account for bad debt. The Company determines its Allowance for Doubtful Accounts by estimating that 10% of the ending balance of Accounts Receivable will be uncollectible (Balance Sheet Approach). When specifically identified accounts are determined to be uncollectible, then the Company writes them off against the Allowance. 3. Indiana Jones Inc. depreciates Property, Plant, and Equipment using the straight-line method. Buildings are depreciated over 40 years. Equipment is depreciated over a 20-year life. The building has no salvage value and the equipment has a salvage value of $20,000. You will find the original cost of the buildings and equipment in the beginning balances spreadsheet. The Company owns a patent for laser excavation technology it developed two years past. The patent is amortized over its useful life. Amortization expense is $8,000 per year, and booked at the end of the year. 4. Other relevant information: 1 The A/R balance at January 1, 2005 consists of the following customer balances: Thuggee Ltd. $11,000 (current) Herr Oberst & Sons Co. -$2,000 (90 days past due) Willie Scott Inc. $12,000 (current) Katanga Shipping... $10,000 (current) 2. The Company's common stock was issued with a $2.50 par value. 100,000 shares are authorized. 40,000 shares are issued and outstanding. 3. The prepaid insurance amount relates to four years' worth of insurance that began on January 1, 2005 (how convenient!) 4. The Note Payable is a ten-year note that was taken out on December 31, 2001. The interest rate is 9.50% per annum. Interest payments are due January 5 for the previous year's interest i.e. fiscal year 2005 interest is due January 5, 2006). End-of-Year Adjusting Entries: 1. Remember to amortize the patent. 2. Remember to record the adjustment for income taxes. 3. Remember to record bad debt expense (note: there is already a balance in the allowance for doubtful accounts account) 4. Remember to depreciate the equipment. 5. Remember to record the adjustment for utilities. 6. Remember to accrue interest expense on note payable. 7. Remember to adjust for used office supplies. 8. Remember to depreciate the building. 9. Remember to record the adjustment for interest earned on the short-term investment. 10. Remember to record the adjustment for salaries for year. 11. Remember to adjust prepaid insurance. Hints: Total Assets = $1,012,564 Net Income = $171,164 COGS = $261,575 ASSETS Indiana Jones, Inc. Summary of Account Balances 1/1/2005 (Beginning Balances) Accounts Balances Cash 90,000 Short-term Investments Accounts Receivable 35,000 Allowance for Doubtful Accounts (8,000) Interest Receivable Office Supplies 2,000 Merchandise Inventory 32,000 Prepaid Insurance 40,000 Land 50,000 Building 300,000 Accumulated Depreciation -- Building (60,000) Equipment 400,000 Accumulated Depreciation -- Equipment (50,000) Intangible Asset -- Patent 25,000 Accounts Payable 40,000 Salaries Payable 25,000 Income Taxes Payable 35,000 Unearned Revenue 35,000 Dividends Payable 20,000 Interest Payable 22,500 Notes Payable 300,000 Common Stock 100,000 Additional Paid-in Capital 180,000 Retained Earnings 98,500 Sales Revenue Sales Discounts Sales Allowances Service Revenue Interest Income Cost of Goods Sold Advertising Expense Office Supplies Expense Salaries Expense Utilities Expense Insurance Expense Bad Debt Expense Depreciation Expense Amortization Expense Miscellaneous Expense Interest Expense Income Tax Expense Totals LIABILITIES EQUIT REVENUES EXPENSES Correct If the accounting equation is in balance, you will see the word "Correct", if not then you will find "Incorrect" ASSETS Short-term Investments Cash 90,000 Accounts Receivable 35,000 Allowance for Doubtful Interest Accounts Receivable (8,000) Merchandise Inventory 32,000 Office Supplies 2,000 Prepaid Insurance 40,000 Land 50,000 Building 300.000 Accumulated Depreciation -- Building Equipment (60,000) 400,000 Accumulated Depreciation -- Equipment (50,000 Date Description 1/1 BEGINNING BALANCES 1/8 Indiana buys 350 units of inventory at a cost of $102/unit on credit, terms net/60 1/12 Indiana pays off the beginning salaries payable balance. 1/19 Indiana pays off the beginning of the year accounts payable balance 1/21 Indiana sells 400 units to Sallah Co. for $300 each on credit, terms 2/15, net/45. 1/31 Indiana collects the amount owed by Sallah Co. within the discount period. 2/7 Indiana pays off the 1/8 purchase 2/15 Indiana pays off the beginning income taxes payable balance 2/18 Indiana pays $6,000 for office supplies 2/27 Indiana buys 400 units of inventory at a cost of $105/unit on credit, terms net/60 3/4 Indiana provides the services owed to a client. The client paid $35,000 in advance last year. 3/8 Indiana sells 250 units to Bellog Industries for $305 each on credit, terms 2/15, net/45. 3/14 Indiana grants Belloq Industries an allowance of $10,000 for damaged goods 3/22 Indiana collects the amount owed by Bellog Industries within the discount period 4/1 Indiana pays $15,000 for television advertising 4/8 Indiana pays off the 2/27 purchase 4/12 Indiana collects the amount owed by Thuggee Ltd. (see instructions). No discount applies. 4/25 Indiana writes off the Herr Oberst & Sons Co. A/R balance as uncollectible (see instructions) 5/1 Indiana buys 500 units of inventory at a cost of $110/unit in cash 5/8 Indiana sells 550 units to Short Round Ventures for $310 each on credit, terms 2/15, net/45 5/15 Indiana pays $15,000 of the interest payable balance 5/27 Indiana collects the amount owed by Short Round Ventures outside the discount period. 6/3 Indiana pays off the dividends payable balance 6/27 Indiana pays $1,000 for miscellaneous expenses 7/1 Indiana buys a short-term investment for $40,000. 7/10 Indiana buys a parcel of land for $15,000 cash. 7/17 Indiana buys 375 units of inventory at a cost of $112/unit on credit, terms net/60 7/27 Indiana provides services to Mola Ram Co. for $40,000 in cash 8/9 Indiana sells 300 units to Satipo Guides, Inc. for $310 each on credit, terms 2/15, net/45 8/24 Indiana collects the amount owed by Satipo Guides, Inc. within the discount period. 8/27 Indiana sells 100 units to Toht Industrial Co. for $315 each in cash 9/1 Indiana pays off the 7/17 purchase 9/12 Indiana buys $1,000 of office supplies on credit, terms net/90 10/1 Indiana pays Ravenwood Inc. for miscellaneous expenses for $8,000 10/4 Indiana pays $15,000 for television advertising 10/15 Indiana buys 515 units of inventory at a cost of $115/unit on credit, terms net/60 10/31 Indiana sells 520 units to Brody Co. for $315 each on credit, terms 2/15, net/45 11/9 Indiana collects the amount owed by Brody Co. within the discount period. 11/19 Indiana collection $11,000 from Well of Souls Construction for services to be provided next year. 11/27 Indiana pays off the 10/15 purchase