Rockford Corporation, Inc. is a wholesale plumbing supply distributor. The corporation was organized in 1981, under the laws of the State of Maryland, with an authorized capitalization of 10,000 shares of Common Stock with a par value of $30 per share. Additionally, 600 shares are held by the corporation in its Treasury for use in an option program set to begin in 2009. Although to-date there are more than two-dozen investors, Rockford Corporation is not traded on any national exchange.

You have been hired as of December 01, 2007 as an accounting associate. You are responsible for the corporation's accounting records, preparation of financial statements, safeguarding corporate assets, and providing management with financial information to set prices and to monitor and control operations. You and another associate will keep the daily records, payroll records, the plant asset ledger, and the perpetual inventory. The Corporations Secretary maintains stockholder records, and the Security Guard acts as the petty cashier.

Rockford Corporation closes its books annually on December 31^st, and prepares financial statements at year-end. Adjusting entries are posted to the General Ledger only at year-end. All adjustments are annual adjustments, and must be journalized and posted to the General Ledger prior to preparation of Rockford's financial statements.

Rockford Corporation, Inc. maintains a perpetual inventory system, and takes a physical count each year to adjust the inventory carrying amount. Purchases of merchandise are recorded at their gross amount. Discounts, if taken, are recognized on the date of payment within terms. Purchase terms vary by supplier. All sales are "on account," and are subject to terms of 2/10, n/30. Discounts are taken and granted only when terms are met. The cost of all inventory sold is 80% of the selling price.

When recording sales transactions, each sale should be posted on the date of sale, using the invoice number as a General Journal/General Ledger entry explanation. Rockford's internal purchase order number should be used as the General Journal/General Ledger entry explanation for purchases on account from suppliers. No other General Journal transactions or General Ledger postings require explanations.

For disclosure purposes, Rockford Corporation categorizes all expenses as either selling or administrative. Expenses common to the entire organization (such as utilities) are allocated 70% selling and 30% administrative. Corporate officers, sales associates, and administrative employees are salaried, and are paid monthly, one week subsequent to the last day of each month. Delivery truck drivers and warehouse employees are hourly wage employees, and are paid bi-weekly. Each bi-weekly pay period ends on a Friday. Bi-weekly employee paychecks are distributed one week following the end of the pay period.

DECEMBER TRANSACTIONS

3^rd Received a check in the amount of $23,569 from Swanson Brothers Construction in full payment of invoice #1120, dated November 26^th, recorded in the amount of $24,050.

Sold sewer and drainage pipe to Beverly's Building Products on account, invoice #1201, for $13,150.

Purchased copper tubing and fittings from Edwards Plumbing Supplies on account, purchase order #315, in the amount of $24,320, terms n/60.

4^th Issued check #1580, in the amount of $26,402, to Oxford Copperworks in settlement of the balance owed on Rockfords October 24^th purchase order, #280.

A court notice indicates that Iwanaga Plumbing and Heating is bankrupt, and payment of its $3,700 account is improbable. The Comptroller orders the account to be written off as a bad debt.

Sold bathroom fixtures to Builder Construction Company on account, invoice #1202, in the amount of $44,900.

5^th Received a check in the amount of $49,294 from the Potts Company in full payment of invoice #1128, dated November 27^th, in the amount of $50,300.

Sold plumbing supplies and plastic pipe to Cochino Contractors, on account, invoice #1203, in the amount of $10,300.

6^th Issued check #1581, in the amount of $810, to Standard Oil Company in payment of truck repair (Debit Freight-Out).

Issued check #1582 in the amount of $9,900 to Khatan Steel Company in full settlement of purchase order #3124, in the amount of $10,000.

Issued check #1583 to Phoenix Plastics in full payment of Rockfords purchase order #313 (dated November 28^th in the amount of $10,700, terms 2/10, n/30).

7^th Received a check from Rankin Plumbing Corporation, in full payment of invoice #1129, dated November 28^th (invoice amount of $74,350).

Sold cast iron pipe to Trudy's Plumbing, on account, invoice #1204, in the amount of 26,300.

Received a check in the amount of $27,800 from Cochino Contractors in full payment invoice #1091 dated October 20^th.

Purchased bathroom fixtures from Phoenix Plastics, on account, purchase order #316, in the amount of $52,700, terms 1/10, n/30.

10^th Received a check in the amount of $29,000 from Becker Builders, in partial payment of balance outstanding covering September invoices #1050 and #1071.

Issued check #1584, in the amount of $6,750, to Phoenix Plastics, in payment of Phoenix's invoice dated November 12^th, in the amount of $6,750 (Rockford purchase order #299).

Issued check #1585 in the amount of $600 to Scooter Gordon for lettering and sign painting for Rockfords annual holiday sale.

11^th Issued check #1586 in the amount of $37,719 to Smith Pipe Company in full payment of their invoice dated November 28^th, terms 1/15, n/60 (Rockford purchase order #314).

Received a check in the amount of $15,100 from Trudy's Plumbing, in full settlement of invoice #1106, dated November 7^th.

Sold pipe, fixtures, and accessories to Trudys Plumbing on account, invoice #1205, in the amount of $24,850.

The payroll summary for the bi-weekly pay period ended Friday December 7^th contains the following information: Delivery and Warehouse Wages $4,860

FICA Taxes Withheld 350

Federal Income Taxes Withheld 900

State Income Taxes Withheld 190

There was no federal or state unemployment tax associated with this payroll because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax.

12^th Sold plumbing supplies and copper tubing to the Potts Company on account, invoice #1206, in the amount of $31,450.

Received a check in the amount of $33,920 from Becker Builders, the balance of payment on September invoice #1071.

Cash sales to date in December total $12,292.

Received a check in the amount of $25,774 from Trudys Plumbing, in payment of invoice #1204.

Sold plumbing fixtures and supplies to Becker Builders, on account, invoice #1207, in the amount of $19,730.

13^th The Potts Company returned defective copper tubing that it purchased on December 12^th. A credit memo in the amount of $4,680 is issued relative to invoice #1206. The copper tubing had a cost of $3,744.

The defective copper tubing received from Potts is returned to Edwards Plumbing Supplies along with a debit memo in the amount of $3,744, to be applied against Rockfords purchase order #315.

Received the November telephone bill from Verizon, and issued check #1588, in the amount of $399, in full payment.

14^th Issued check #1589, in the amount of $11,360, in payment of federal withholding taxes ($9,573) and FICA taxes ($1,787) payable on salaries and wages.

Issued check #1590 to Phoenix Plastics, in payment of purchase order #316.

17^th The CEO, Jim Rockford, informed you that Builder Construction Company has agreed to convert a $45,200 overdue accounts receivable, invoice #1120, into a 14% Note Receivable due in six months.

Purchased plumbing materials from Smith Pipe Company, on account, purchase order #317, in the amount of $45,800, terms 1/15, n/60.

18^th Sold drain tile, plastic pipe, and copper tubing to A & B Hardware on account, invoice #1208, in the amount of $7,920.

Distributed paychecks to hourly employees.

19^th Sold fixtures and materials to Cochino Contractors, on account, invoice #1209, in the amount of $42,780.

An invoice in the amount of $1,021 was received from White Trucking Company for freight on purchase order #317, and was immediately paid by issuing a check #1591.

20^th Received a check in the amount of $24,353 from Trudy's Plumbing in payment of invoice #1205.

21^st Purchased office supplies from Rudolphs, issuing check #1592 in the amount of $1,360.

Purchase bathroom and kitchen fixtures from Phoenix Plastics, on account, purchase order #319, in the amount of $48,330, terms 1/10th, n/30.

The payroll summary for the bi-weekly pay period ended Friday December 21^st contains the following information: Delivery and Warehouse Wages $5,770

FICA Taxes Withheld 415

Federal Income Taxes Withheld 1,067

State Income Taxes Withheld 225

There was no federal or state unemployment tax associated with this payroll because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax.

Received and immediately paid an invoice from Dekalb Transport, in the amount of $2,300, for freight costs incurred on outgoing shipments during the prior month, terms n/30.

26^th The board of directors voted to repurchase 1,000 additional shares of its own stock, at $83 per share, from various shareholders, and issued check #1595 in full payment.

27^th The board of directors declared a $2.70 per share cash dividend payable on February 28^th to stockholders of record on January 31^st.

Jim Rockford informed you that Beverly's Building Products agreed to convert its $14,000 in overdue accounts receivable, invoice #1119, to a 12% Note Receivable due six months from today.

A half-acre parcel of land adjacent to the warehouse building is acquired for the lands fair market value of $54,000, and will be used immediately as an outside storage and parking lot.

An invoice in the amount of $2,650 is received from Barry Lenk, Esquire, for legal services involved in the acquisition of the land. Check #1596 was immediately issued in full payment.

Sold pipe and plumbing materials to Becker Builders, on account, invoice #1210, in the amount of $42,040.

Issued check #1597, in the amount of $500, to the Washington Post for an advertisement to be run in its upcoming weekend Home Improvement Supplement.

Issued check #1598, in the amount of $925, to Standard Oil Company in payment of truck repairs.

28^th Purchased copper and cast iron pipes from Oxford Copperworks, on account, purchase order #320, in the amount of $58,940, terms 1/10, n/30.

$15,000 is transferred to the Bond Sinking Fund in fulfillment of debt covenants associated with the bond indenture.

Received a check in the amount of $19,730 from Becker builders in payment of invoice #1207.

Sold plumbing supplies to Swanson Brothers Construction on account, invoice #1211, in the amount of $22,650.

Issued check #1600, in the amount of $45,342, to Smith Pipe Company in payment of purchase order #317.

Distributed paychecks to hourly employees.

31^st The security guard submits the following receipts for reimbursement, and reports cash on hand of $8 in the petty cash box: Advertising Expense $38

United Parcel Service delivery charges 23

Christmas office decorations 30

Office Supplies 51

Check #1601 is issued to reimburse the fund.

Sold an electric scissor lift to Chico Mann Company for $2,500 cash. The lift originally cost $7,900, with an estimated salvage value of $900, and an estimated useful life of 10 years. Accumulated depreciation recorded through December 31, 2006 amounted to $4,550. The lift has been depreciated on the straight-line method.

Sold bathroom fixtures and plumbing supplies to Trudys Plumbing, on account, invoice #1212, in the amount of $55,770.

The payroll summary for the salaried employees for December contains the following information: Sales Salaries and Commissions $16,000

Administrative Salaries 24,000

FICA Taxes Withheld 2,120

Federal Income Taxes Withheld 7,196

State Income Taxes Withheld 1,517

There was no federal or state unemployment tax associated with this payroll because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax. FICA taxes attributable to administrative employees amounted to $1,272 of the amount withheld.

Cash sales subsequent to December 12^th total $22,980.

Adjustments:

The annual provision for doubtful accounts receivable is recorded using a flat 10% of the year-end accounts receivable balance.

An inventory count of office supplies revealed $830 of supplies on hand at year-end.

The insurance premium of $8,460 purchased on August 31, 2007 covers the period from September 1, 2007 through August 31, 2008. No insurance expense for the year has been recorded. The January 1^st balance in the prepaid insurance account represents the insurance premium through August 31^st.

The payroll summary for the bi-weekly pay period contains the following information as of December 31, 2007: Delivery and Warehouse Wages $5,600

FICA Tax Payable 375

Federal income tax withheld 1,036

State income tax withheld 218

There was no federal or state unemployment tax associated with this payroll because all wages and salaries earned during the last quarter exceed the maximum subject to employment tax.

Simple interest on the Mortgage Note Payable accrues at an annual rate of 8%. Interest is paid annually on January 2^nd. Principal will be repaid at the end of the note term.

The 10-year, 9% Bonds Payable pay interest annually on January 1^st. No interest has been accrued during the year, and bond discount is amortized on a straight-line basis. The bonds were issued on January 01, 2001.

Interest accrued on the Notes Receivable (including all notes received during the month) as of December 31^st amount to $1,668.

Interest accrued on the Note Payable as of December 31^st amounts to $1,800.

The Prepaid Rent balance as of November 30^th covers lease payments on the warehouse from September 1, 2007 through February 29, 2008.

$530 is owed to Northern Electric Company and $279 is owed to National Water and Power for utility services provided during a December.

Plant assets to be depreciated are composed of the following:

asset	cost	estimated useful life	salvage value	depreciation method
Buildings	$306,000	25 Years	$20,000	Straight-Line
Trucks	61,000	60,000 Miles	7,300	Units of Activity
Lifts	9,500	10 Years	1,000	Straight-Line
Furniture & Equipment	32,800	7 Years	2,000	Straight-Line

The trucks were driven a total of 27,000 miles in 2007.

Data above for lifts is exclusive of the lift sold during the month.

INSTRUCTIONS

Record all December transactions in the General Journal.

Prepare a Trial Balance on December 31, 2007 (Ledger accounts are not required for this assignment, but students are encouraged to post all transactions to the General Ledger).

Record Adjustments in the General Journal.

Prepare an Adjusted Trial Balance.

Prepare an Income Statement. Ignore income taxes.

Prepare a Statement of Retained Earnings.

Prepared a Classified Balance Sheet.

Prepare closing entries.

Prepare a Post-Closing Trial Balance

END-OF-PROJECT EVALUATION

Analyze the Rockford Corporations capital structure and results of operations for 2007. You are expected to compute at least a half-dozen financial ratios for Rockford as part of your evaluation, and describe how the calculated metrics support your analysis. Additional metrics and sources of information may be consulted at your discretion. Your analysis should be prepared in standard essay format, should be at least three pages in length (double-spaced, inch margins on all sides), and is expected to be prepared in Standard Edited English. The following industry averages are provided for your usage:

Ratio	Value
Current Ratio	1.6
Asset Turnover Ratio	3.3
Receivables Turnover Ratio	7.7
Debt to Total Assets Ratio	66.0%
Return on Assets Ratio	9.5%
Return on Equity Ratio	27.8%
Profit Margin Ratio	2.4%