Use the information below to prepare Trial Balances for Y1 and Y2. Use a 30% income tax rate and assume that the tax bill is paid the following year, i.e., the tax for Y1 is paid in Y2 and the tax for Y2 is paid in Y3. You can assume that there are no book/tax differences. Therefore, you should first calculate pretax income for the year and accrue 30% of that amount in taxes payable. This means that you cannot close the books until you first calculate pretax income for the year.

Date: October 1, Y1 We formed UOD Corporation by issuing 100,000 shares of no par-value common stock for $8 per share. We also took out a bank loan for $500,000. The loan is payable in 3 years and carries an annual interest rate of 6%. The interest is paid each year on October 1. Of course, the money has gone quickly. Already today we paid $180,000 to cover rent for the next 12 months, purchased furniture for $400,000, and hired four employees, each with a salary of $10,000 per month (paid at the end of the month). Our utility costs are $5,000 per month and each bill is paid the following month. We also paid $60,000 for a one-year insurance policy that will cover us through September 30, Y2. To get our business started we received $240,000 from clients for one-year service contracts. We expect to provide the services evenly over the year.

Date: December 31, Y1 We billed clients for $300,000 for services provided over the past three months. We expect the clients to pay their bills in January, Y2.

Date: January, Y2 We received $250,000 of the $300,000 owed to us from Y1, and decided to write-off the remaining $50,000. It is just too costly, given the likelihood that we would be able to track down the customers. We paid cash to purchase 10,000 units of inventory for $60 each, plus an additional $5 for incoming freight. Due to our expansion, we hired four more employees at a salary of $10,000 per month and utility costs will increase to $7,500 per month.

Date: July 1, Y2 Today we sold some of our furniture. Even though we paid $100,000 for the furniture, we decided to sell it for $80,000 and buy new ones for $120,000. Today our supplier indicated that as of today they increasing the price to $70 per unit. We purchased an additional 12,000 units at that price, plus the $5 per unit incoming freight for cash.

Date: October 1, Y2 Today we paid the interest on the loan and paid $204,000 to cover rent for the next 12 months. We also renewed our insurance policy with broader coverage by paying a premium of $80,000 for one year starting from today.

Date: December 1, Y2

Repurchased 5,000 of our shares at a price of $6 per share and placed the shares in our treasury for future use. We declared and paid a dividend of $0.50 per share on the remaining outstanding 95,000 shares.

Date: December 31, Y2 Wow, what a great year! We sold a total of 18,000 units of inventory at a price of $110 per unit and have 4,000 units on hand. One problem is that 500 of the units are going to be difficult to sell because customers do not seem to like the color. Even though the units are still good, would probably have to drop the price to $60. In addition to servicing the contracts from October 1, Y1, we billed clients $1,200,000 for services performed in Y2. Overall, clients and customers owed us $800,000 at the end of Y2. This is net of $80,000 of accounts written off during the year (this is in addition to the $50,000 written-off in January).

Accounting Policies: Furniture depreciation: Straight-line basis, using a five-year useful life and salvage value equal to 10% of the purchase cost. Inventory: First-in-first-out cost allocation assumption. Revenues: UOD uses separate accounts for its client service and customer sales revenues, but consolidates all accounts receivable into one account for both clients and customers. Allowance for doubtful accounts: The allowance is set at 15% of the outstanding accounts receivable balance.

Check figure: Cash balance at December 31, Y1 = $770,000

My main question is what should I do with the July 1, Y2 entry (finding furniture value for Y2)