The following information has been given to you by Accounting Client, a corporation that sells golf putters. The information covers a period from January 1^st December 31^st of its second year in operation.

Balance Sheet Chart of Accounts, Starting Balance as of January 1^st

Accounts Payable $ 75,000

Accounts Receivable $ 125,000

Accumulated Depreciation-Display Cases $ 20,000

Allowance for Uncollectible Accounts (AFUA) $ 10,000

Cash $ 750,000

Common Stock $ 700,000

Merchandise Display Cases $ 200,000

Inventory (12,000 putters X $50/putter) $ 600,000

Note Payable (due in 3 years) $ 200,000

Retained Earnings $ 620,000

Wages Payable $ 50,000

Business Activity, Inventory Purchases --- January 1^st December 10th

February 1^st

Bought 5,000 putters @ $52/putter; payment made in cash

May 1^st

Bought 9,000 putters @ $55/putter; payment made in cash

August 1^st

Bought 8,000 putters @ $58/putter; payment made in cash

November 1^st

Bought 4,000 putters @ $60/putter; payment made in cash

Other Business Activity, January 1^st December 10^th

Sold 35,000 putters @ $150/putter

Of the above sales, $2,000,000 were credit sales, the remaining were cash sales

Collected $1,950,000 of the credit sales

$15,000 of accounts receivable was written off as bad debt

Operating Expenses - $2,500,000, all paid in cash

The Operating Expenses account includes interest paid on the Note Payable.

The Operating Expenses account does not include any amount for Uncollectible Accounts Expense or Depreciation Expense.

No changes in the following accounts: Accounts Payable, Common Stock, Merchandise Display Cases, Note Payable, Wages Payable

Other Information

Income Tax Rate 20%

Periodic LIFO has been adopted to account for inventories

The Aging Method is used to account for account receivables

Accounting Client states that the AFUA account should have a balance of $ 20,000 after the adjusting journal entry has been made.

Depreciation Method Straight Line, No Residual Value

REQUIRED:

a. Prepare an adjusting journal entry for the depreciation on the Merchandise Display Cases.

b. Prepare an adjusting journal entry for the adjustment made to the AFUA account.

c. Prepare a Multi-Step Income Statement, Statement of Retained Earnings, and Classified Balance Sheet as of December 31^st for Accounting Client. REMEMBER THAT THE INCOME TAX EXPENSE CALCULATED IN THE INCOME STATEMENT WILL ALSO BE AN INCOME TAX PAYABLE ON THE BALANCE SHEET. THIS WILL REQUIRE AN ADDITIONAL ADJUSTING JOURNAL ENTRY.

d. Calculate the gross margin % that Accounting Client has on its putters based on the multi-step income statement. Write a paragraph to Accounting Client explaining the concept of a gross margin.