Question
Toronado Ltd. reported the following items in its unadjusted trial balance as of 31 December 20X4 for the 20X4 fiscal year. This trial balance is
Toronado Ltd. reported the following items in its unadjusted trial balance as of 31 December 20X4 for the 20X4 fiscal year. This trial balance is listed in alphabetical order. Note that this is a partial trial balance and does not include all accounts. Accounts have normal (debit or credit) balances.
Administration expense | $ | 236,500 |
Accounts payable | 77,600 | |
Accounts receivable | 100,600 | |
Allowance for doubtful accounts (credit) | 2,800 | |
Cash dividends declared | 31,800 | |
Freight-out (delivery to customers) | 27,700 | |
Gain on sale of automobile | 2,200 | |
Insurance expense | 40,320 | |
Interest expense | 27,900 | |
Loans receivable, 8% | 75,800 | |
Merchandise inventory, 1 January | 90,200 | |
Notes payable, 6% | 504,800 | |
Purchases | 565,900 | |
Salaries and employee benefits | 122,500 | |
Sales returns and allowances | 42,900 | |
Sales revenues | 1,912,000 | |
Selling expense | 34,800 | |
Supplies expense | 46,700 | |
Supplies inventory | 1,400 | |
Retained earnings, 1 January | 569,100 | |
Unearned revenue | 32,800 | |
Utilities expense | 66,200 | |
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Other information:
The tax rate is 30%, but no tax has yet been recorded. Closing merchandise inventory is $77,300. Closing supplies inventory is $2,100. The insurance expense represents a payment made on 1 May for a 24-month fire insurance policy. Customers owe $53,800 for goods delivered on 31 December; this amount has not yet been recorded. All sales are on account, except those that are prepaid. Unearned revenue represents all customer deposits received during the year. Of this amount, 60% is still unearned at the end of the year. Bad debt expense is to be recognized as 1% of total sales. Interest on the note payable was last paid and recorded on 31 October. The company owes $4,000 in utilities. Interest on the loan receivable has not been paid or recorded all year.
Required: 1. Prepare journal entries to reflect the required adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round "Bad debt expense" and "Income tax expense" to the nearest $100.)
2. Prepare an SCI based on the adjusted balances. (Do not round your intermediate calculations.)
No Transaction General Journal Credit Debit 578,800 Cost of goods sold Inventory 578,800 X 2 b. 700 Supplies inventory Supplies expense 700 C. 13,440 X Prepaid insurance Insurance expense 13,440 53,800 Accounts receivable Sales 53.800 e. 13,120 Unearned revenue Sales 13, 120 16,700 Bad debt expense Allowance for doubtful accounts 16,700 9. 2,388 X Interest expense Interest payable 2,388 X 4,000 Utilities expense Accrued accounts payable 4,000 Interest receivable 6,064 OOOOOO Interest revenue 6,064 403,800 X Income tax expense Income tax payable 403,800 Answer is not complete. TORONADO Ltd. Statement of Comprehensive Income For Year Ended 31 December 20X4 Sales revenue $ 1,978,920 Less: Sales returns and allowances 42,900 Interest revenue Gain on sale of auto $ 1,936,020 6,064 2,200 $ 1,944,284 $ Total revenue Expenses: Freight out Insurance Salaries and benefits Supplies Bad debts Utilities expense Administrative expenses Interest expense Selling expenses 27,700 13,440 122,500 46,000 16,700 70,200 236,500 30,288 X 34.800 $ Earnings before income tax Income tax Earnings and comprehensive income 598,128 1,346,156 403,800 942,356 $ 3. Prepare a statement of changes in equity (for retained earnings only) based on the adjusted balances. Answer is complete but not entirely correct. TORONADO Ltd. Statement of Changes in Equity (Retained Earnings Only) For the Year Ended 31 December 20X4 Retained earnings, 1 January 20X4 $ 569,100 Earnings and comprehensive income 942,536 Dividends 31,800 Retained earnings, 31 December 20X4 $ 1,479,836
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