The assignment asks you to record a number of transactions and adjustments. Faulk Co. is a retailing business operating in the eastern US. Faulk's fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. The company has already recorded most of its transaction and adjusting entries for the year ended December 31, 2021. The resulting trial balance follows: Credit Debit $ 205,190 584,723 13,258 311,546 229,338 147,927 751,520 $ 103,334 836,000 658,512 192,066 42,760 Account Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Land Buildings Accumulated Depreciation - Buildings Construction in Progress Equipment Accumulated Depreciation - Equipment Notes Receivable Discount on Notes Receivable Accounts Payable Notes Payable Common Stock ($2 par) Retained Earnings Dividends Sales Revenue Advertising Expense Cost of Goods Sold Insurance Expense Interest Expense Rent Expense Salaries and Wages Expense Utilities Expense 3,506 479,712 832,465 266,810 1,046,141 98,065 5,749,211 176,340 3,351,726 64,817 19,296 53,712 968,143 160,372 $8.673.245 $8.673.245 Faulk has not yet recorded certain transactions and adjustments, and these omitted items are the focus of this assignment. Information pertaining to the omitted transactions and adjustments follows: Omitted Transactions T1 Faulk purchased equipment on December 31, 2021. The company gave a down payment of $3,175 and signed a 6-year promissory note for the balance due. The note requires Faulk to make annual payments of $7,256 with the first payment due on December 31, 2022. The prevailing market rate of interest for comparable notes is 8%. 12. T2 On December 31, 2021, Faulk engaged in an exchange of buildings with ABC Co. The following information pertains to the building each company owned immediately before the exchange: Building cost Accumulated depreciation Fair value Faulk Co. $202.000 27,775 236,400 ABC Co. $179.000 113.820 209,214 In addition, Faulk received $27,186 cash from ABC. Assume the exchange of buildings has commercial substance. T3 On December 31, 2021, Faulk engaged in another exchange of buildings, this one with XYZ Co. The following information pertains to the building each company owned immediately before the exchange: Building cost Accumulated depreciation Fair value Faulk Co. $148.000 20.350 161,500 XYZ Co. $167.00 51,710 141.797 In addition, Faulk received $19,703 cash from XYZ. Assume this exchange of buildings lacks commercial substance. Omitted Adjustments A1 On June 1, 2021, Faulk purchased an 18-month insurance policy for $229.338 and paid the full cost of the policy in advance. The policy provides coverage through November 30, 2022 2. Faulk uses the dollar-value LIFO cost method for inventory reporting purposes. Faulk adopted this method on December 31, 2020. The following information pertains to the company's inventory at year-ends 2020 and 2021 Date December 31, 2020 December 31, 2021 Inventory at Year-End Prices $245,380 $311,546 Relevant Price Index 100 114 Faulk uses perpetual FIFO for day-to-day bookkeeping purposes and then converts its accounts to the dollar-value LIFO cost method at reporting dates. Give the FIFO-to-LIFO conversion entry required at December 31, 2021. (Assume there was no difference in the FIFO and LIFO amounts at year-end 2020.) A3 Once the company determines the Inventory balance under the LIFO method (see A2 above), it must consider the need for an inventory write-down. Faulk applies the write- down procedure to the inventory as a whole. Information concerning the company's December 31, 2021 inventory follows: Net realizable value Normal profit margin Replacement cost 262,178 32,419 311,546 A4. The Notes Payable balance of $832,465 results from two loans the company has taken. On March 1, 2020. Faulk took a 4-year, 6%, $682.465 loan. The interest on this loan is payable annually, on each July 31. Also, on September 1, 2021. Faulk took a 1-year. 9%. $150,000 construction loan (see A5 below). The interest on the construction loan is payable on the loan's maturity date, August 31, 2022. (Note - Faulk already recorded the interest paid on these loans in 2021. For this adjustment, consider any accrued interest on the loans at the December 31, 2021 reporting date.) On July 29, 2021, Faulk hired a contractor to construct a new office building. The construction work commenced on September 1, 2021, and it is expected to continue through April 30, 2023, the estimated completion date. Faulk made progress payments to the contractor in 2021 as follows: A5 Amount Date September 1 October 1 November 1 December 1 $151,000 312.000 129.000 244.000 $836.000 A6 A7 As stated in A4 above, Faulk took a 1-year, 9%, $150,000 construction loan to help fund the work on this project. The company also has a 4-year, 6%, $682,465 loan that is not related to the construction project. Give the adjusting entry needed at December 31, 2021 to record the capitalization of interest for this project. Faulk purchased its buildings in 2015 and its equipment in 2017. Faulk uses the straight- line depreciation method. For the buildings, the company uses an estimated life of 40 years and no salvage value. For the equipment, it uses an estimated life of 12 years and no salvage value. (Note - For the 2021 depreciation calculations, ignore the new fixed assets Faulk acquired on December 31, 2021 - the new buildings and equipment received in T1, T2 and T3. Do consider the old buildings Faulk gave in T2 and T3, though, as the company used these assets for the full year. You should assume that Faulk computed the 2021 depreciation on them for T2 and T3, but has not yet recorded the amounts) Faulk estimates that 7.95% of the 2021 year-end Accounts Receivable balance will not be collected On October 1, 2021, Faulk signed a one-year lease for rental of additional warehouse space. On that date, Faulk prepaid the full cost of the lease totaling $53,712. The prepayment covers the period October 1, 2021 through September 30, 2022. Faulk's bookkeeper recorded the prepayment into the Rent Expense account. Give the adjusting entry needed when a company uses an expense approach to record a payment in advance. On January 2, 2021, Faulk received a promissory note from a customer as consideration in an inventory sale transaction. Faulk recorded the sale, but it has not yet recorded the interest earned on the note during 2021. The 5%, $42,760 term note requires the customer to pay interest annually each January 1, 2022 through 2026. The relevant market rate of interest on the issue date was 7%. The company's income tax rate for the year is 25%. A8 A9 A10 - Instructions - Complete the following three tasks relating to Faulk Co.'s accounting process at year-end 2021 (a) (b) (c) Prepare the journal entries to record the omitted transactions (T1 through T3). Prepare the journal entries to record the omitted adjustments (A1 through A10). Prepare the resulting adjusted trial balance as of December 31, 2021. List the accounts in an appropriate trial balance order. Please observe the following checklist of instructions as you complete this assignment: Prepare your journal entries and supporting calculations using Excel. Give careful attention to your formatting of information. Formatting includes effective presentation of information, correct spelling and capitalization, and proper use of dollar signs, commas, and underscoring. Refer to examples in the text for guidance. Round all dollar amounts you present in your journal entries to the nearest dollar. 00 0 The assignment asks you to record a number of transactions and adjustments. Faulk Co. is a retailing business operating in the eastern US. Faulk's fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. The company has already recorded most of its transaction and adjusting entries for the year ended December 31, 2021. The resulting trial balance follows: Credit Debit $ 205,190 584,723 13,258 311,546 229,338 147,927 751,520 $ 103,334 836,000 658,512 192,066 42,760 Account Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Land Buildings Accumulated Depreciation - Buildings Construction in Progress Equipment Accumulated Depreciation - Equipment Notes Receivable Discount on Notes Receivable Accounts Payable Notes Payable Common Stock ($2 par) Retained Earnings Dividends Sales Revenue Advertising Expense Cost of Goods Sold Insurance Expense Interest Expense Rent Expense Salaries and Wages Expense Utilities Expense 3,506 479,712 832,465 266,810 1,046,141 98,065 5,749,211 176,340 3,351,726 64,817 19,296 53,712 968,143 160,372 $8.673.245 $8.673.245 Faulk has not yet recorded certain transactions and adjustments, and these omitted items are the focus of this assignment. Information pertaining to the omitted transactions and adjustments follows: Omitted Transactions T1 Faulk purchased equipment on December 31, 2021. The company gave a down payment of $3,175 and signed a 6-year promissory note for the balance due. The note requires Faulk to make annual payments of $7,256 with the first payment due on December 31, 2022. The prevailing market rate of interest for comparable notes is 8%. 12. T2 On December 31, 2021, Faulk engaged in an exchange of buildings with ABC Co. The following information pertains to the building each company owned immediately before the exchange: Building cost Accumulated depreciation Fair value Faulk Co. $202.000 27,775 236,400 ABC Co. $179.000 113.820 209,214 In addition, Faulk received $27,186 cash from ABC. Assume the exchange of buildings has commercial substance. T3 On December 31, 2021, Faulk engaged in another exchange of buildings, this one with XYZ Co. The following information pertains to the building each company owned immediately before the exchange: Building cost Accumulated depreciation Fair value Faulk Co. $148.000 20.350 161,500 XYZ Co. $167.00 51,710 141.797 In addition, Faulk received $19,703 cash from XYZ. Assume this exchange of buildings lacks commercial substance. Omitted Adjustments A1 On June 1, 2021, Faulk purchased an 18-month insurance policy for $229.338 and paid the full cost of the policy in advance. The policy provides coverage through November 30, 2022 2. Faulk uses the dollar-value LIFO cost method for inventory reporting purposes. Faulk adopted this method on December 31, 2020. The following information pertains to the company's inventory at year-ends 2020 and 2021 Date December 31, 2020 December 31, 2021 Inventory at Year-End Prices $245,380 $311,546 Relevant Price Index 100 114 Faulk uses perpetual FIFO for day-to-day bookkeeping purposes and then converts its accounts to the dollar-value LIFO cost method at reporting dates. Give the FIFO-to-LIFO conversion entry required at December 31, 2021. (Assume there was no difference in the FIFO and LIFO amounts at year-end 2020.) A3 Once the company determines the Inventory balance under the LIFO method (see A2 above), it must consider the need for an inventory write-down. Faulk applies the write- down procedure to the inventory as a whole. Information concerning the company's December 31, 2021 inventory follows: Net realizable value Normal profit margin Replacement cost 262,178 32,419 311,546 A4. The Notes Payable balance of $832,465 results from two loans the company has taken. On March 1, 2020. Faulk took a 4-year, 6%, $682.465 loan. The interest on this loan is payable annually, on each July 31. Also, on September 1, 2021. Faulk took a 1-year. 9%. $150,000 construction loan (see A5 below). The interest on the construction loan is payable on the loan's maturity date, August 31, 2022. (Note - Faulk already recorded the interest paid on these loans in 2021. For this adjustment, consider any accrued interest on the loans at the December 31, 2021 reporting date.) On July 29, 2021, Faulk hired a contractor to construct a new office building. The construction work commenced on September 1, 2021, and it is expected to continue through April 30, 2023, the estimated completion date. Faulk made progress payments to the contractor in 2021 as follows: A5 Amount Date September 1 October 1 November 1 December 1 $151,000 312.000 129.000 244.000 $836.000 A6 A7 As stated in A4 above, Faulk took a 1-year, 9%, $150,000 construction loan to help fund the work on this project. The company also has a 4-year, 6%, $682,465 loan that is not related to the construction project. Give the adjusting entry needed at December 31, 2021 to record the capitalization of interest for this project. Faulk purchased its buildings in 2015 and its equipment in 2017. Faulk uses the straight- line depreciation method. For the buildings, the company uses an estimated life of 40 years and no salvage value. For the equipment, it uses an estimated life of 12 years and no salvage value. (Note - For the 2021 depreciation calculations, ignore the new fixed assets Faulk acquired on December 31, 2021 - the new buildings and equipment received in T1, T2 and T3. Do consider the old buildings Faulk gave in T2 and T3, though, as the company used these assets for the full year. You should assume that Faulk computed the 2021 depreciation on them for T2 and T3, but has not yet recorded the amounts) Faulk estimates that 7.95% of the 2021 year-end Accounts Receivable balance will not be collected On October 1, 2021, Faulk signed a one-year lease for rental of additional warehouse space. On that date, Faulk prepaid the full cost of the lease totaling $53,712. The prepayment covers the period October 1, 2021 through September 30, 2022. Faulk's bookkeeper recorded the prepayment into the Rent Expense account. Give the adjusting entry needed when a company uses an expense approach to record a payment in advance. On January 2, 2021, Faulk received a promissory note from a customer as consideration in an inventory sale transaction. Faulk recorded the sale, but it has not yet recorded the interest earned on the note during 2021. The 5%, $42,760 term note requires the customer to pay interest annually each January 1, 2022 through 2026. The relevant market rate of interest on the issue date was 7%. The company's income tax rate for the year is 25%. A8 A9 A10 - Instructions - Complete the following three tasks relating to Faulk Co.'s accounting process at year-end 2021 (a) (b) (c) Prepare the journal entries to record the omitted transactions (T1 through T3). Prepare the journal entries to record the omitted adjustments (A1 through A10). Prepare the resulting adjusted trial balance as of December 31, 2021. List the accounts in an appropriate trial balance order. Please observe the following checklist of instructions as you complete this assignment: Prepare your journal entries and supporting calculations using Excel. Give careful attention to your formatting of information. Formatting includes effective presentation of information, correct spelling and capitalization, and proper use of dollar signs, commas, and underscoring. Refer to examples in the text for guidance. Round all dollar amounts you present in your journal entries to the nearest dollar. 00 0