Q/ Adjusting and correcting journal entries as of 12-31-2017

1/ Bad Debt Expense is estimated at 2% of credit sales.

During 2017, 80% of sales were on credit and the other 20% of sales were for cash.

2/ Inventory is accounted for using the last in, first out method. 20,000 cases of Green Dogs peanut butter dog cookies were not included in the physical inventory count because they were on consignment at various pet food retailers. The cases have a cost of $61,000. Total inventory at January 1, 2017 was $450,000.

Consignment transactions involve another company having our inventory at their locations but our company retains ownership. The other company tries to sell the inventory for us and when the inventory is sold the other company sends our company the cash. The inventory should be on the books of the company that owns the inventory.

3/ The Insurance Expense of $120,000 is for a one year insurance policy purchased on May 1, 2017.

4/Depreciation on the Building is on the straight line basis. During account analysis it was discovered that the bookkeeper forgot to record $50,000 depreciation in 2014.

5/ Depreciation on the Equipment is on the straight line basis and was correctly recorded by the bookkeeper.

6/ The Common Stock has a $10 par value and there are no treasury shares. 400,000 shares are authorized. A $40,000 dividend was declared and paid during the year.

7/ Sales are primarily made on a trade account basis, with no prompt payment discount (such as 2/10, n/30) offered. Ordinarily, inventory items are delivered on an f.o.b. shipping point basis.

8/ Green Dog sold all the assets related to its running shoe segment on January 2, 2017. The company no longer has any involvement in this type of business. The Loss on Sale was $500,000.

9/The note payable has 5% interest. Only the interest is payable monthly and the principal of $500,000 is due July 31, 2020.

10/ The Company started selling Gift Cards at the beginning of 2017. The gift cards are stored valued cards that have no expiration dates or service charge fees. The gift cards may be redeemed for any product in any Green Dog retail outlet.

A total of $820,000 gift cards were sold and at year end $90,000 were outstanding (not redeemed yet).

11/ The income tax rate for all fiscal year ends since 12-31-00 has been 25%.

Balance Sheet

12-31-17

Cash $ 240,000

Accounts Receivable 315,000

Allowance for Doubtful Accounts (22,000)

Inventory 437,000

Land 600,000

Buildings 1,800,000

Accumulated Depreciation - Buildings (430,000)

Equipment 900,000

Accumulated Depreciation - Equipment (270,000)

Total Assets $ 3,570,000

Accounts Payable $ 460,000

Income Taxes Payable 42,000

5% Notes Payable 500,000

Common Stock - Par 800,000

Paid in Capital in Excess of Par - Common 250,000

Retained Earnings 1,518,000

Total Liabilities and Stockholders' Equity $ 3,570,000

Income Statement

For year ended December 31, 2017

Sales $8,000,000

Less: Cost of Goods Sold 5,140,000

Gross Profit 2,860,000

Less Other Expenses:

Loss on Sale of Shoe Segment $ 500,000

Bad Debt Expense $ 114,000

Depreciation Expense Building 100,000

Depreciation Expense Equipment 67,500

Interest Expense 20,000

Insurance Expense 120,000

Salary Expense 510,000

Operating Expenses 728,500 2,160,000

Income Before Income Tax 700,000

Income Tax Expense 175,000

Net Income $ 525,000

Statement of Retained Earnings

Retained Earnings, January 1, 2017 $1,033,000

Net Income 525,000

1,558,000

Less Cash Dividends: 40,000

Retained Earnings, December 31, 2017 $1,518,000