| 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. | | | 26 | | The board of directors voted to purchase 1,000 shares of its own stock from stockholder Dionne Schivone at $83 per share and issued check No. 1595 in payment. Stock repurchases are recorded at cost. Rockford is purchasing these shares because Ms. Schivone had been a valuable employee. | | | 26 | | The board of directors declared a $1.80 per-share cash dividend payable on January 14 to stockholders of record on December 26 (after purchase of stock). Opening balance in Treasury Stock account of $42,610 on January 1, 2014 is reflecting cost of 700 shares. | | | 26 | | The president informs you that Beverlys Building Products agrees to convert the $14,000 overdue accounts receivable (invoice No. 1119) balance to a 12% note due six months from today. | | | 29 | | A half-acre parcel of land adjacent to the building is acquired in exchange for 600 shares of unissued common stock. The land has a fair value of $54,000 and will be used immediately as an outside storage lot and parking lot. | | | 29 | | An invoice in the amount of $2,650 is received from Wayne McManus, lawyer, for legal services involved in the acquisition of the adjacent parcel of land; check No. 1596 is issued in payment. | | | 29 | | Sold pipe and plumbing materials to Boecker Builders on account, invoice No. 1210 for $49,040. | | | 30 | | Issued check No. 1597 in the amount of $500 to the Northern Star for advertisement run in the home building supplement of December 13. | | | 30 | | Issued check No. 1598 in the amount of $925 to Standard Oil Co. in payment of gas, oil, and truck repairs from Standard Oil Co. (use Freight-out). | | | 30 | | Purchased copper and cast iron pipe from Oxenford Copperworks on account, purchase order No. 320 for $63,940, terms 1/10, n/30. | | | 30 | | Check No. 1599 for $15,000 is issued to the bond sinking fund trustee, Chicago Trust Co., for deposit in the sinking fund. (Use Other Assets). | | | 30 | | Sold plumbing supplies to Swanson Brothers Construction on account, invoice No. 1211 for $24,650. | | | 31 | | Received a check for $24,730 from Boecker Builders in payment of invoice No. 1207. | | | 31 | | Issued check No. 1600 for $50,292 to Smith Pipe Company in payment of purchase order No. 317. | | | 31 | | The custodian of the petty cash fund submits the following receipts for reimbursement and reports a cash-on-hand count of $8. | | | | | | Postage stamps used .............................................. | $68 | | United Parcel (freight-out) .................................... | 23 | | C.O.D. postage (freight costs) .................................... | 51 | | | | | | Check No. 1601 is issued and cashed to reimburse the fund. | | | 31 | | Sold an electric truck-lift to Leila Stierman Co. for $2,500 cash. The original cost was $7,900 with salvage value of $900, a life of 10 years, and accumulated depreciation recorded through 12/31/13 of $4,550. The straight-line method is used. (Note: the company follows the practice of recording a half years depreciation in the year of acquisition and a half year in the year of disposal.) First, bring the depreciation expense up to date in the general journal. Then journalize the entire entry for the sale in the general journal. | | | 31 | | Sold bathroom fixtures and plumbing supplies to Trudys Plumbing on account, invoice No. 1212 for $55,770. | | | 31 | | Because for some time the petty cash fund has been smaller than required for monthly expenditures, the fund is increased by $75 by cashing check No. 1602 and placing the money in the petty cash fund. | | | 31 | | The payroll summary for the monthly paid employees is submitted so that December checks can be distributed before the year-end; the details are as follows: | | | | | | Office and administrative salaries.......................... | $42,900 | | Federal income taxes withheld .............................. | 7,696 | | State income taxes withheld .................................. | 1,517 | | FICA taxes withheld ................................................ | 3,120 | | Net pay.............................................................. | $30,567 | | | | | | Issued check No. 1603 for the amount of the net pay and deposited it in the payroll bank account. Individual payroll checks were prepared for distribution to all monthly employees by the end of the day. | | | | | | Employers payroll taxes: | | | FICA tax (all office and administrative).......... | $3,120 | | Federal unemployment tax.............................. | - | | State unemployment tax .................................. | - | | | | 31 | | Cash sales since December 13 total $29,980. | | 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). | |
