Siblings Jordan and Morgan Hartley are partners in a trendy toy store called ToyMania! Jordan, as senior partner, receives an annual salary allowance of $20,000 and 60 percent of all income/losses after salary and interest allowances are paid. Junior partner Morgan receives an annual salary allowance of $15,000 and 40 percent of all income/losses after salary and interest allowances are paid. The partners receive a 10 percent interest allowance at the end of the accounting period based on their respective January 1 capital account balances. Capital balances as of January 1 are $60,000 for Jordan Hartley and $40,000 for Morgan Hartley. Toy Mania! uses the allowance method for uncollectible accounts. Credit terms are 2/10, n/30. Longer payment terms are available by accepting interest-bearing notes receivable. Terms will vary depending on individual circumstances and will be provided in the related transactions. Notes under $1,000 are collected by Toy Mania! while notes greater than $1,000 are collected by either Dean Bank or Marshall Bank. Interest is based on a 360-day year. Estimated uncollectibles are based on 3 percent of accounts receivable. Accounts are written off as they are deemed uncollectible; however, efforts to collect all receivables continue for a two-year period. Toy Mania! occasionally writes notes to finance larger purchases and to extend time on accounts payable. Terms will be specified in the related transactions. Again, interest is based on a 360-day year. Plant assets are depreciated using one of the various GAAP methods for depreciation. Fully depreciated assets that are useful remain in service until sale, trade, or disposal is necessary. ToyMania! holds a patent on a toy which is amortized during year-end adjustments. The $25,000 patent's economic life is 10 years although the legal life is 20 years. A periodic inventory system is maintained valuing inventory using the First-In, First-Out (FIFO) method. The lower-of-cost-or-market rule is applied by recognizing a loss on write-down of inventory when necessary. Beginning balances for Merchandise Inventory and Estimated Returns Inventory were $91,250 and $3,000, respectively, on January 1. The January 1 balance of Customer Refunds Payable was $4,000. Selected transactions for 20-1 are provided below. Jan. Feb. 5 Reinstated the account of Christine Roby, which had been written off in the preceding year, and received $500 cash in full settlement. 14 Issued a $3,000, 3-month, 6% note to Zekir Computer Systems to purchase a new computer system (Computer System). The system, with an expected life of four years and no salvage value, will be depreciated using the double-declining-balance method. 15 Received a $2,500, 6-month, 7% note from Carol Reynolds for sale of merchandise. 11 Morgan Hartley invested an additional $5,000 into the business. Disposed of a cash register (Store Equipment) originally costing $675 with a $75 salvage value. Depreciation is computed on a monthly basis with adjusting entries made at the end of each year. Depreciation after eight years of use was $480 as of December 31. The cash register had an estimated life of 10 years. Mar. Apr. 1 Apr. 12 Borrowed $5,000 from Dean Bank, signing a 75-day, 10% note. 14 Paid $500, plus interest, to Zekir Computer Systems (see January 14) and gave a new $2,500, 30-day, 8% note to extend time for payment. 1 Wrote off the $1,200 balance owed by Brenda Husband as uncollectible. May June 1 14 Paid the principal and interest due on the $2,500 note to Zekir Computer Systems. (See April 14.) 25 Paid $75 cash to Snowden's Service Station for an oil change and tire rotation on the company van. Received a $1,700, 120-day, 8% note from Heidi Kruczkiewicz to settle an account receivable. 20 Reinstated the account of Brenda Husband, which had been written off last month, and received $1,200 cash in full settlement. (See May 1.) 22 Paid $30,000 cash to Klippi Construction for an addition (Addition) to the store so that more merchandise could be displayed. The addition has an estimated salvage value of $2,000 and an estimated life of 20 years. Depreciation is to be calculated using the straight-line method. 26 Paid the principal and interest due on the $5,000 note to Dean Bank. (See April 12.) 30 Upon opening the store, it was apparent that someone had entered the store illegally. Jordan and Morgan need to determine whether anything had been stolen. A physical inventory was taken and it was determined that $67,500 in inventory was on hand, but they need to know how much inventory should have been on hand. Estimate the cost using the retail method based on the following information. Figures at cost: beginning inventory, $91,250; and net purchases, $70,000. Figures at retail: beginning inventory, $120,000; net purchases, $95,000; and net sales, $125,000. Compare your estimate with the balance of $67,500. Does it appear that any inventory was stolen? Space is provided for your calculations following the journal pages for the problem in your working papers. Heidi Kruczkiewicz's note (see June 1) is discounted at Marshall Bank at a discount rate of 12%. 8 Sold $4,250 in merchandise to Kim Sackett, terms 2/10, n/30. 10 Purchased merchandise on account for $15,000 from Dionis Distributing. Credit terms are 3/20, n/30. 18 Received payment in full from Kim Sackett, less discount, for merchandise sold on July 8. 30 Paid Dionis Distributing for merchandise purchased on account on July 10. July 1 Aug. 1 Paid $500 to Snowden's Service Station to replace the exhaust system on the company van. 15 Received notification from Dean Bank that the principal and interest were collected on the note from Carol Reynolds. (See February 15.) The bank fee for collecting the note was $10. 22 Wrote off the $750 balance owed by Shelley Kozub as uncollectible. Traded the company car (Automobile) for a newer one at Plume Motors. The old car originally cost $23,000 and is depreciated up-to-date in the amount of Sept. 1 9 $19,000. A trade-in allowance of $5,500 was given. The new car had a market value of $40,000 and the balance was paid in cash. The new car should last at least 100,000 miles and will be depreciated at $0.375 per mile. Received a $2,000, 60-day, 7.5% note from Tammy Jones in payment of an account receivable. 15 Purchased $3,500 worth of toys from Dennis Designs, terms n/30. 29 Received notification from Marshall Bank that Heidi Kruczkiewicz's note was dishonored. (See June 1 and July 1.) A check is issued to cover the maturity value plus a $50 bank fee that must be paid to the bank. 15 Issued a $3,500, 90-day, 8% note to Dennis Designs to extend time for payment on an account payable. 20 Borrowed $10,000 for 180 days from Ohler-Cupplo Savings Association on a non-interest-bearing note. The discount rate is 7.5%. 31 Sold $125 of merchandise for cash to Melinda Miller. Oct. Nov. Dec. 1 Received a $500, 30-day, 5% note from Laura Nottingham in payment of an account receivable. 8 Received notification from Marshall Bank that Tammy Jones dishonored her note. (See September 9.) No fee was charged. 30 Heidi Kruczkiewicz's dishonored note is collected; Kruczkiewicz pays Toy Mania! the maturity value of the note, the $50 bank fee, and interest at 9% on the maturity value plus bank fee. (See September 29.) 1 Laura Nottingham paid the interest due on her note (see November 1), and gave new note ($500) for 45 days at 8%. 14 Paid $2,000 to landscape and improve a grassy area on the lot. There will be no salvage value after 5 years and the landscaping will be depreciated using the sum-of-the-years'-digits method. 31 Sold building fixtures for $100. The original cost of the fixtures was $500 with an estimated 5-year life and no salvage value. Depreciation up-to-date is $300. Required: 1. Journalize the transactions. Assume 360 days for interest calculations and record two entries for transactions on January 5th, April 1st and June 20th. Record one entry on December 1. If required, round your answers to two decimal places. If an amount box does not require an entry, leave it blank. PAGE GENERAL JOURNAL DESCRIPTION DATE POST. REF. DEBIT CREDIT 20-1 Jan. 5 Accounts Receivable/Christine Roby 20-1 Jan. 5 Accounts Receivable/Christine Roby Allowance for Doubtful Accounts Jan. 5 Cash Accounts Receivable/Christine Roby Jan. 14 Computer System Notes Payable Feb. 15 Notes Receivable Sales Mar. 11 Cash Morgan Hartley, Capital Apr. 1 Depreciation Expense - Store Equipment Accumulated Depreciation - Store Equipment Apr. 1 Accumulated Depreciation - Store Equipment Loss on Discarded Store Equipment Store Equipment Apr. 12 Cash Notes Payable Apr. 14 Interest Expense Notes Payable Notes Payable Cash May 1 Allowance for Doubtful Accounts Accounts Receivable/Brenda Husband May 14 Interest Expense Notes Payable Cash May 25 Repairs Expense Cash June 1 Notes Receivable Accounts Receivable/Heidi Kruczkiewicz June 20 Accounts Receivable/Brenda Husband JUNE 20 Allowance for Doubtful Accounts June 20 Cash Accounts Receivable/Brenda Husband June 22 Addition Cash June 26 Notes Payable Interest Expense Cash July 1 Cash Interest Expense Notes Receivable July 8 Accounts Receivable/Kim Sackett Sales July 10 Purchases Accounts Payable/Dionis Distributing July 18 Cash Sales Discounts Accounts Receivable/Kim Sackett July 30 Accounts Payable/Dionis Distributing Purchases Discounts Cash Aug. 1 Accumulated Depreciation - Van Cash Aug. 15 Cash Collection Expense Interest Revenue Notes Receivable Aug. 22 Allowance for Doubtful Accounts Accounts Receivable/Shelley Kozub Sept. 1 Automobile Accumulated Depreciation - Automobile Automobile Cash Gain on Trade-In Sept. 9 Notes Receivable Accounts Receivable/Tammy Jones Sept. 15 Purchases Accounts Payable/Dennis Designs Sept. 29 Accounts Receivable/Heidi Kruczkiewicz Cash Oct. 15 Accounts Payable/Dennis Designs Notes Payable Oct. 20 Cash Discount on Notes Payable Notes Payable Oct. 31 Cash Sales Nov. 1 Notes Receivable Accounts Receivable/Laura Nottingham Nov. 8 Accounts Receivable/Tammy Jones Interest Revenue Notes Receivable Nov. 30 Cash Interest Revenue Accounts Receivable/Heidi Kruczkiewicz Dec. 1 Cash Notes Receivable Notes Receivable Interest Revenue Dec. 14 Landscaping Cash Dec. 31 Cash Accumulated Depreciation - Fixtures Loss on Sale of Fixtures Fixtures Complete the schedule below to determine if any inventory was stolen at June 30th ToyMania! Estimated Ending Inventory June 30, 20-1 Cost Retail Inventory, start of period $ $ Net purchases during period Goods available for sale $ Less net sales for period $ Inventory, end of period, at retail Ratio of cost-to-retail prices of goods available for sale Inventory, end of period, at estimated cost %