The Purple Company

This project will give you an opportunity to apply your knowledge of accounting principles and procedures to a corporation. You will handle the accounting work of The Purple Company for $2022.$

Introduction

The chart of accounts and account balances of The Purple Company shown in your text have been used to open general ledger accounts with opening balances for January $1,2022.$ The company does not use reversing entries.

Other Data

Estimated federal income taxes are to be recorded using the tax rate of $21\%.$ Round your amount to the nearest dollar.

DATE TRANSACTIONS FOR $2022$

Jan. $5$ Issued $1,000$ shares of $5$ percent $$100$ par preferred stock for $$101$ per share. $($The corporation has been authorized to issue $10,000$ shares of preferred stock.$)$

$15$ Paid estimated income taxes of $$17,000$ accrued at the end of $2021.$

Apr. $1$ Paid semiannual bond interest on the $10-$year, $10$ percent bonds payable and amortized the premium for the period since December $31,2021.($The interest and premium were recorded as of December $31,2021$; the entry was not reversed.$)$ The bonds were issued on October $1,2020,$ at a price of $103,$ and they mature on October $1,2030.$ Use straight$-$line amortization.

July $1$ The board of directors declared a cash dividend of $$0\mathrm{.}10$ per share on the common stock. The dividend is payable on July $26$ to stockholders of record as of July $15.$

$26$ Paid the cash dividend on the common stock.

Aug. $12$ A purchaser of $600$ shares of preferred stock issued on January $5$ asked the corpora$$tion to repurchase the shares. The corporation repurchased the stock for $$102$ per share. The stock is to be held by the corporation until it can be resold to another purchaser.

Oct. $1$ Paid the semiannual bond interest and recorded amortization of the bond premium.

Dec. $1$ Because of its good cash position and current bond prices, The Purple Company repurchased and retired $$20,000$ par value of the $10$ percent bonds that it has outstanding. The repurchase price was $98,$ plus accrued interest.

$15$ The company$$s board of directors declared a cash dividend of $$5$ per share on the outstanding preferred stock. This dividend is payable on January $10$ to stockholders of record as of December $31.$

$15$ The board of directors also declared a $10$ percent stock dividend on the outstanding common stock. The new shares are to be distributed on January $10$ to stockholders of record as of December $31.$ At the time the dividend was declared, the common stock had a fair market value of $$15$ per share.

$30$ Received a subscription for $500$ shares of The Purple Company$$s common stock at $$12$ per share from the company$$s president. Received cash equal to one$-$half the purchase price on the date of subscription. The balance of the purchase price is to be paid on January $15,2023.($The subscriber will not be entitled to the stock divi$$dend previously declared on the outstanding shares of common stock.$)$

$30$ Because the management of Purple foresees the need to expand a warehouse the firm owns, the board of directors has restricted future dividend payments. Record the appropriation of $$100,000$ of retained earnings for plant expansion.

SUMMARY OPERATING TRANSACTIONS FOR $2022$

$31$ Total sales of merchandise for the year were $$2,800,000.$ All sales were on credit.

$31$ Total collections on accounts receivable during the year were $$2,810,000.$

$31$ Total purchases of merchandise for the year were $$1,880,000.$ All purchases were on credit.

$31$ Total operating expenses incurred during the year were $$650,000.($Debit Operating Expenses and credit Accounts Payable.$)$

$31$ Total cash payments on accounts payable during the year were $$2,335,000.$

$31$ Total accounts receivable charged off as uncollectible during the year were $$10,000.($The Purple Company uses the allowance method to record uncollectible accounts.$)$

DATA FOR YEAR$-$END ADJUSTMENTS

$31$ The balance of Allowance for Doubtful Accounts should be adjusted to equal $3$ percent of the balance of Accounts Receivable. $($Debit Operating Expenses.$)$

$31$ Depreciation on the buildings should be recorded. $($Debit Operating Expenses.$)$ The firm uses the straight$-$line method and an estimated life of $20$ years to compute this adjustment.

$31$ Depreciation on furniture and equipment should be recorded. The firm uses the straight$-$line method and an estimated life of $10$ years to compute this adjustment. $($Debit Operating Expenses.$)$

$31$ Accrued interest on the outstanding bonds payable of The Purple Company should be recorded and the premium amortized.

$31$ The ending merchandise inventory is $$130,000.$

Required:

General Journal tab: Analyze the transactions for $2022$ and record each transaction in the general journal.

General Ledger tab: Post the general journal entries to the general ledger on a daily basis.

Worksheet tab: Prepare a worksheet for the year ended December $31,2022.$

Income Statement tab: Prepare a summary income statement