Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rockford Corporation is a wholesale plumbing supply distributor. The corporation was organized in 1981, under the laws of the State of Illinois, with an authorized

Rockford Corporation is a wholesale plumbing supply distributor. The corporation was organized in 1981, under the laws of the State of Illinois, with an authorized capitalization of 10,000 shares of no-par common stock with a stated value of $30 per share. The common stock is sold over the counter in the local area. You have been hired as of Friday, December 26, 2014, to replace the controller, who has resigned. As controller, you are responsible for the corporations accounting records, preparation of the financial statements, safeguarding the corporate assets, and providing management with financial information to set prices and to monitor and control operations. You have an assistant who keeps the payroll records, the plant asset ledger, and the perpetual inventory. There is an inventory subsidiary ledger that is posted to daily for purchases and sales. This ledger is not included in this practice set. The corporation secretary maintains the stockholder records, and the receptionist/secretary acts as the petty cashier.

Rockford Corporation closes its books annually on December 31 but prepares financial statements quarterly. Adjusting entries are posted to the general ledger only at year-end; at the end of the first, second, and third quarter the adjustments are entered only on a ten-column work sheet, not in the general ledger. Therefore, the adjusting entries to be recorded on December 31 are annual adjustments that you must journalize and then post to the general ledger accounts before preparing the financial statements.

Rockford Corporation maintains a perpetual inventory system and takes a physical count each year to adjust the inventory carrying amount. Purchases are recorded at the gross amount (discounts taken are recognized at the date of payment) of the suppliers invoice, and the terms vary with each supplier. Sales on account are subject to terms of 2/10, n/30. Discounts are taken and granted only when the terms are met. The cost of all inventory sold in December was 80% of the sales price. The corporation uses the following journals and ledgers:

JOURNALS

A sales journal (S)to record sales of merchandise on account.

A purchases journal (P)to record purchases of merchandise on account.

A cash receipts journal (CR)to record all cash receipts.

A cash disbursements journal (CD)to record all cash payments.

A general journal (J)to record all transactions that cannot be recorded in the other journals.

LEDGERS

A general ledger.

An accounts receivable subsidiary ledger.

An accounts payable subsidiary ledger.

Adjusting entries

The annual provision for doubtful accounts receivable is recorded by providing a charge to Bad Debt Expense in an amount equal to 2% of net sales.

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

The insurance premium outstanding ($3,220) on January 1, 2014, covers the period January 1 through August 31, 2014. The insurance premium of $7,800 recorded in August covers the period of September 1, 2014 through August 31, 2015. Rockford estimates that 75% of the premiums are attributable to general activities and 25% to selling activities. (Use Miscellaneous Expense).

The payroll summary for the employees who are paid biweekly shows the following information at December 31, 2014:

Delivery and Warehouse Wages ............................

$6,100

FICA Taxes Payable ................................................

430

Federal Withholding Taxes ....................................

1,036

State Withholding Taxes..........................................

218

Net pay..............................................................

$4,416

The employers share of the FICA tax ($430) must be accrued; no state or federal unemployment tax is incurred during the fourth quarter because all wages and salaries earned during the last quarter exceed the maximum subject to unemployment tax.

Interest has accrued at 8% on the long-term notes payable since July 1, 2014. The next six-month interest payment at 6% on the bonds is due on March 1, 2015. The discount on bonds payable has not been amortized for any part of 2014; the bonds are dated March 1, 2008, and mature March 1, 2018. (Use straight-line.)

The interest accrued to 12/31/14 on notes receivable is composed of the following:

Platteville Plumbers, 10%, 6 months, due March 31, 2015

$1,125

Bilder Construction, 11%, 6 months, due June 14, 2015

232

Beverlys Building, 9%, 6 months, due June 26, 2015

17

$1,374

The interest accrued at 12/31/14 on the note payable of $15,000 @ 10% is $1,500. Interest is payable on January 2, 2015. (The note is due in 2015.)

A warehouse lease payment of $9,600 was made on September 1, 2014, for rental through February 28, 2015. (The Prepaid Rent account is for advance lease payments on the warehouse.)

$530 is owed to Northern Electric Co. and $279 is owed to City of Rockford for utility services provided during December 2014.

Plant and equipment to be depreciated are composed of the following:

Assets

Date Acquired

Cost

Estimated Usage or Life

Salvage Value

Depreciation Method

Building

7/1/10

$306,000

25 years

$20,000

sum-of-the-years digits

Truck No. 1

4/1/11

28,000

60,000 miles

3,100

miles driven

Truck No. 2

9/1/13

33,000

60,000 miles

4,200

miles driven

Lift No. 1

8/17/07

7,900

10 years

900

straight-line

(Sold 12/31/14)

Lift No. 2

3/29/11

4,500

10 years

500

straight-line

Lift No. 3

9/16/12

5,000

10 years

500

straight-line

Office

All prior to

32,800

7 years

2,000

straight-line

Equipment

1/1/14

Computer

12/22/14

6,100

5 years

1,300

Double-decling balance

Truck No. 1 has been driven 45,000 miles prior to 1/1/14 and truck No. 2 has been driven 30,500 miles prior to 1/1/14. During 2014 truck No. 1 was driven 12,000 miles and truck No. 2 was driven 14,000 miles. Remember that the Rockford Company takes a half-years depreciation in the year of acquisition and a half-year in the year of sale.

Complete the work sheet. In completing the worksheet, compute State of Illinois corporate income taxes at 41/2% of pretax income. The state income tax is deductible on the federal tax return, and the federal tax is not deductible on the Illinois return. Assume federal corporate income tax on income subject to federal tax is as follows:

first $50,000

@15%

next 25,000

@25%

remainder

@34%

Income between $100,000 and $335,000 is assessed a 5% federal surtax, not to exceed $11,750.

Hint: Corporations subject to federal income tax must make estimated tax payments throughout the year. At the time of the payment, the account Income Tax Expense is debited and Cash is credited. To determine the taxable income at year end, net the total debits and total credits from the income statement in the worksheet. Note that the estimated income tax expense is listed as a debit and must be subtracted from total debits when determining taxable income (federal tax is not a deductible item).

Instructions:

Rockford Corporation uses special journals.

The Purchases Journal is used to record all purchases of merchandise on account.

The Sales Journal is used to record all sales of merchandise on account.

The Receipts Journal is used to record all cash receipts. (Except for sale of Trucks)

The Payments Journal is used to record all cash payments.

The General Journal is used to record all other transactions including adjusting and closing entries.

Use the Entries menu to journalize the transactions listed in the problem using a perpetual inventory system. Choose which journal you need to use for each transaction. Instructions for each of the journals are listed with the general instructions. The account balances shown at the beginning of the problem have been journalized and posted.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Determination A Conceptual Approach

Authors: Joel S. Demski

1st Edition

0813803608, 978-0813803609

More Books

Students also viewed these Accounting questions

Question

How would you approach this unit?

Answered: 1 week ago