Question
The Unadjusted pre-closing 12/31/2020 account balances for the Mahoney Company are listed below: Net Sales $12,540,000 Net Purchases 9,000,000 Selling Expenses 424,000 Cash 487,000 Machines
The Unadjusted pre-closing 12/31/2020 account balances for the Mahoney Company are listed below:
Net Sales | $12,540,000 |
Net Purchases | 9,000,000 |
Selling Expenses | 424,000 |
Cash | 487,000 |
Machines | 6,019,000 |
Accumulated Depreciation, Machines | 2,154,000 |
Accounts Payable | 1,445,000 |
Retained Earnings | 4,182,000 |
Allowance for Doubtful Accounts | 60,000 |
Building | 4,800,000 |
Accumulated Depreciation, Building | 468,000 |
Common Stock | 4,760,000 |
Accounts Receivable | 2,877,000 |
Depreciation Expense, Machines | 1,077,000 |
Inventory @ 1/1/2020 | 925,000 |
During your audit, you discover the following four items that have yet to be recorded:
1) No depreciation on the building has been recorded for 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 $1,000.
2) Mahoney exhanged a machine for a similar machine on 12/31/2020. The origianl machine cost $3,429 and has a book value of $2,134. The new machine had a fair value of $1,823; Mahoney also received $511 in cash. The exchange lacked commercial substance.
3) Mahoney uses the Income Statement approach to record Bad Debts. Bad Debts in 2020 are estimate to be 4% of Sales.
4) Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.
Required
A) Record journal entries for items #1-3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Assume adjusting/closing entries to adjust inventory, closing Purchases, and Record Cost of Goods Sold were properly made.
B) Draft the 2020 Condensed Income Statement and the 12/31/2020 Balance Sheet. Assume no Taxes. Do not include Earnings Per Share.
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