The unadjusted pre-closing 12/31/20 account balances for the Low Company are listed below:

Net Sales	$12,000
Net Purchases	8,376
Selling Expenses	708
Cash	564
Machines	6,424
Accumulated Depreciation, Machines	2,000
Accounts Payable	1,445
Retained Earnings	4,182
Allowance for Doubtful Accounts	50
Building	6,000
Accumulated Depreciation, Building	585
Common Stock	5,000
Accounts Receivable	1,240
Depreciation Expense, Machines	1,000
Inventory @ 1/1/20 (periodic method used)	950

During your audit, you discover the following four items that have yet to be recorded:

1. No depreciation on the building has been recorded in 2020. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/18 and has an estimated useful life of 40 years. The estimated salvage value is $500.

2. Low exchanged a machine for a similar machine on 12/31/20. The original machine cost $3,700 and had a book value of $3,000. The new machine had a fair value of $3,200. Low paid $400 in cash. The exchange did not have commercial substance.

3. Low uses the Income Statement approved to record bad debts. At 12/31/20, Bad Debt Expense is estimated to be 3% of Sales.

4. Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 40%.

Required

a) Record journal entries for items #1-#3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Then make the adjusting/closing journal entry to close Purchases, adjust Inventory, and record CGS. Do not show other closing entries; assume they were made properly.

b) Draft the 2020 Condensed Income Statement and the 12/31/20 Balance Sheet. Use the Cabrera (Textbook Illustration 4-3 in Chapter 4) and the Uptown Cabinet (Textbook Illustration 3-41 in Chapter 3) format examples in the text. Assume no taxes. Do not include EPS.

Prepare the answers in Excel on one tab within the spreadsheet