the accountant for ABC, Inc., a company that sells cleaning and disinfection products to both residential and commercial customers. ABC closes its books on December 31 of each year, uses a perpetual inventory system and the net method to account for accounts receivable and payable.

charged with ensuring that the company's financial statements are timely and correctly published in accordance with US GAAP, no later than March 30, 2021. Although the closing of the books occurred on December 31, 2020, the preparatory work and compliance with regulations continue between January 1 and the publication date.

Here are some events that could affect ABC, Inc.'s 2020 financial statements:

1.On November 1, 2020, ABC acquired 3,000 units of inventory on credit at $ 650 each. The terms of the invoice were 2/15, n / 60. On November 10 he paid 50% of the debt. On January 15, 2021, ABC agreed with the supplier to pay half of the balance owed in cash and the other half with common shares of the company. The shares have an even value of $ 1.

2.On December 10, 2020, ABC acquired inventory on credit for $ 700,000. The terms of the bill were 3/10, n / 90. On December 15, he paid 50% of the debt. On January 25, 2021, ABC paid the balance owed on land that had a book value of $ 100,000 and a market value of $ 370,000. Remember that the company uses the net method to account for accounts receivable and payable.

3.On February 13, 2021, ABC received notification that a former employee is being sued for $ 1 million for wrongful termination. The firing occurred on December 11, 2020. The company's legal advisers inform you that the former employee is likely to win the case. Company advisers recommend reaching an agreement as soon as possible with the employee so that the case does not attract too much negative press. The amount payable is estimated to be between $ 500,000 and 800,000.

4.On January 1, 2020, ABC issued a 3-year note payable, with a maturity value of $ 75,000 and a stated interest rate of 22% payable every six months beginning June 30 2020, in exchange for a machine. At the time of the transaction, the market value of the equipment or the document could not be determined. However, the land had a seller's book value of $ 100,000. Interest of 9% per annum was charged.

5.On October 1, 2020, ABC issued bonds with a maturity value of $ 500,000 and an established interest of 10% at par value plus accrued interests. The effective interest rate was 10%. The bonds were originally dated January 1, 2020 and mature on January 1, 2025 with interest payable every six months on January 1 and July 1 of each year.

6.On October 1, 2020, the ABC Corporation issued $ 500,000 in 12% bonds for 5 years. The bonds were dated October 1, 2020. The bonds pay interest every three months on January 1, April 1, July 1, and October 1. The present value of the bonds at the time of issue was $ 500,000 because the market rate was equal to that of the bond. In addition, the company incurred $ 68,000 of bond issuance costs, which increased the annual effective rate to 16%.

7.On January 12, 2021, ABC learned that one of its competitors is selling a product on which ABC has exclusive rights to sell. ABC filed a lawsuit against the competitor and, in all likelihood, its lawyers found that it will be able to recover at least $ 900,000.

8.At the end of 2020 ABC had only two temporary differences between book income and taxable income:

The depreciation expense of the ABC tax return (income tax return) it exceeded the depreciation expense on the books by 70,000. The total installment sales (installment sales) that have not been received as of December 31, December 2020 amounted to $ 200,000. This amount will be charged in equal installments in the next 2 years. The company has an average tax rate of 40% and is not expect it to change in the coming years.

9.ABC has a defined benefit pension plan. As of December 31, 2019, the company's Estimated Benefit Obligation (PBO) amounted to $ 1,100,000. The 2020 service cost was $ 100,000. During 2020, no payments were made to retirees, the first payments are expected to be made in 2023 when the first beneficiary of the plan retires. Plan assets reflected a net increase of $ 113,000 that resulted in an ending balance of $ 1,000,000.

The assumptions used for 2020 by the company and the actuary include the following: a discount rate of 8%. And an expected return of 12%. During 2020 there were no changes in the actuarial estimates or amendments to the pension plan.

10.On December 30, 2020, ABC (lessee) signed a lease to obtain a machine that will allow it to manufacture some of the parts sold in the business. This machine is the same as other parts suppliers use. The cost and fair value of the asset are $ 225,000. The contract requires annual payments of $ 36,351 in advance beginning on the day the contract is signed. The term of the contract is 8 years. At the end of this period the asset will be returned to the lessor. The contract does not contain a purchase option. The estimated useful life of the asset is 30 years. The lessor used a third company (insurer) to insure 100% of the residual value of the machine. The tenant's incremental borrowing rate is 11%. The landlord used an interest rate of 7% to compute the rent payments, but ABC was unable to determine this rate.

Make a general journal using Excel

1. Necessary adjustment on 12/31/20 related to the credit purchase of November 1, 2020.

2. Necessary adjustment on 12/31/20 related to the credit purchase of December 10, 2020.

3. Journal entry for the former employee's demand.

4. Adjustment required on 12/31/20 related to the promissory note of January 1, 2020.

5. Necessary adjustment on 12/31/20 related to the October 1, 2020 bonus.

6. Journal entry to record the second bond issue on October 1, 2020.

7. Journal entry for lawsuit against competitor

8. Adjustment entry required to account for the effect of temporary differences.

9. You do not have enough data to make a journal entry. Indicate the effect on the company's pension debt.

10. Journal entry on the day the lease is signed