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The unadjusted pre-closing 12/31/23 account balances for the Mahoney Company are listed below: Net Sales $11,015 Net Purchases 8,991 Selling Expenses 430 Cash 564 Machines
The unadjusted pre-closing 12/31/23 account balances for the Mahoney Company are listed below:
Net Sales | $11,015 |
Net Purchases | 8,991 |
Selling Expenses | 430 |
Cash | 564 |
Machines | 6,424 |
Accumulated Depreciation, Machines | 1,996 |
Accounts Payable | 1,236 |
Retained Earnings | 4,182 |
Allowance for Doubtful Accounts | 54 |
Building | 4,400 |
Accumulated Depreciation, Building | 429 |
Common Stock | 5,000 |
Accounts Receivable | 1,240 |
Depreciation Expense, Machines | 913 |
Inventory @ 1/1/23 (periodic method used) | 950 |
During your audit, you discover the following five items that have yet to be recorded:
- No depreciation on the building has been recorded in 2023. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/21 and has an estimated useful life of 40 years. The estimated salvage value is $700.
- Mahoney exchanged a machine for a similar machine on 12/31/23. The original machine cost $3,705 and had a book value of $2,470. The new machine had a fair value of $2,754; Mahoney also received $306 in cash. The exchange did not have commercial substance.
- Mahoney also exchanged its only other machine for a different machine on 12/31/2 The original machine cost $2,719 and had a book value of $1,958. The fair value was $2,125. Mahoney paid cash of $487 as well. The exchange did not have commercial substance.
- Mahoney uses the Balance Sheet approach to adjust Accounts Receivable to Net Realizable Value. At 12/31/23, uncollectible receivables are estimated to be 5% of Accounts Receivable.
- Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 22%.
Required
- Record journal entries for items #1-#4 above; show supporting computations. In addition, compute ending inventory per #5 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.
- Draft the 2023 Condensed Income Statement and the 12/31/23 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.
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