(WITH UPDATED INFO) Part 1 Adjusting Journal Entries and Financial Statements:

Falcon Corporation (Falcon) sells designer backpacks with logos of various college and university teams and organizations. Falcon started its business on January 1, 2017.

Falcon ran its operations for the calendar year 2019 and its accountant, Flex, compiled an unadjusted trial balance of account information as of December 31, 2019 (see materials below Unadjusted Trial Balance information).

In order to complete Falcons 2019 financial results, Flex needs to adjust these trial balance numbers by preparing any adjusting journal entries that are needed when he prepares Falcons books and financial statements for the year-end Board of Directors meeting.

Flex has received information from discussions with department managers and various materials he has gathered (see materials below Business Information List).

Flexs mission is as follows (and he needs your assistance.)

1. For each item on the Business Information List, determine the following: Does a transaction exist?
   • If YES, prepare the adjusting journal entry Flex would need to record for Falcon at December 31, 2019.
   • If NO, write no transaction and explain why there is no adjusting journal entry to record at December 31, 2019.

B. Post the adjusting journal entries to T Accounts and create an Adjusted Trial Balance in good form.

C. Prepare the following financial statements, (in good form) from the adjusted Trial Balance

• Classified Balance Sheet
• Classified Income Statement
• Statement of Stockholders Equity

D. Prepare the closing adjusting journal entries for Falcon at December 31, 2019.

UNADJUSTED TRIAL BALANCE INFORMATION:

BUSINESS INFORMATION LIST (assume all prior journal entries were recorded correctly):

1. Falcon did not receive its bill for the month of December 2019 from its law firm. Flex estimated that the bill would arrive in January 2020 and total $20,000 per month.

2. Falcon signed a contract with a customer, Ohio State for Buckeye backpacks for the 2020-2021 school year for $30,000. The contract was signed on December 3, 2019, but delivery of the backpacks will not occur until April 2020.

3. Falcon entered into an agreement on July 1, 2019 with a customer, Michigan for backpacks to give away to sports fans in the fall. Michigan paid Falcon the full contract value of $20,000 when the contract was signed. Flex noticed that the backpacks were delivered to Michigan and the related inventory entry was made, however, the matching revenue was not recorded.

4. Falcon rented a truck to park at Bentley football games in the fall and market its backpacks with logos to sports fans. The truck rental was for the months of September 2019 through January 2020 for a total of $5,000, which Falcon paid in September.

5. Flex counted the supplies left in the supply closet and found that $1,000 of supplies were left as of the end of the year.

6. Falcon paid and recorded its annual corporate liability insurance policy for $27,000 on November 1, 2019 to Safety Insurance. This is the only insurance Falcon has and the amount they paid is shown on the unadjusted trial balance.

7. Falcon purchased a logo printing machine on April 1, 2019 for $65,000. Flex noticed that depreciation was never recorded during 2019. The logo printing machine has an estimated life of 5 years and a salvage value of $5,000.

8. Falcon pays its employees $100,000 per week on every Friday for the current five day work week. Flex looked at the calendar and saw that December 31, 2019 was on a Tuesday.

9. Falcon did not receive its utility bill for the month of December. Flex looked at the historical amounts and the utility bill averages $1,000 per month.

10. Falcon called its backpack supplier, Dora, Inc. and ordered $50,000 of backpacks. Dora said with the holiday rush, she would not be able to ship the backpacks until January 7, 2020.

11. Falcons note payable incurs interest at a 9% annual rate. Falcon entered into its two notes payable agreements on August 1, 2019. Interest is payable on the respective due dates of each notes payable. No interest expense has been recorded for 2019.

12. Flex estimates the income tax expense for Falcon was $20,000 and this was not yet recorded for 2019.

13. Falcon had an arrangement with a customer, Wildcat, Inc. (Wildcat) who received payment terms of 2/10, net 30. On December 28, 2019, Falcon sold $10,000 of backpacks to Wildcat, which was recorded. Wildcat informed Falcon that the company intended to pay within 10 days.

14. Flex forgot to record a backpack sale on account of $20,000 to customer, University of NH and related inventory entry of $12,000 sold on December 30, 2019.

15. Flex realized that he needed to revise his bad debt expense estimate. Falcon uses the Aging of Accounts Receivable method of computing its bad debt expense estimate. Credit sales for the year are $620,000 and the AR Aging Report is as follows:

Estimated uncollectible amounts per aging category are as follows:

• Due 30 Days = 3%
• Due 60 Days = 4%
• Due 90 Days = 5%
• Due 91+ Days = 10%

Falcon Corporation Unadjusted Trial Balance Information At: December 31, 2019 In Whole US Dollars Unadjusted Account Debit Credit Accounts receivable $ 260,000 Accounts payable 130,000 Accumulated depreciation - equipment 30,000 Advertising expense 27,000 Allowance for doubtful accounts 8,000 Bad debt Expense 14,000 Cash 397,000 Common stock 130,000 Cost of goods sold 325,000 Depeciation expense 15,000 Equipment -cost 300,000 Insurance expense 10,000 Income tax expense 10,000 Income tax payable 0 Interest expense 3,000 Interest income 2,000 Interest payable 3,000 Inventory 49,000 Legal expense 0 Legal payable Notes payable - Due December 1, 2021 100,000 Notes payable - Due June 1, 2020 200,000 Prepaid insurance 27,000 Prepaid rent 5,000 Rent expense 80,000 Retained earnings, beginning of year 145,000 Salary expense 125,000 Salaries payable 73,000 Sales discounts 1,000 Sales returns and allowances 35,000 Sales revenue 800,000 Supplies 4,000 Supplies expense Unearned revenue 76,000 Utilities expense 10,000 Utilities payable 0 Total $ 1,697,000 $ 1,697,000 0 Due 30 Days Due 60 Days Due 90 Days Due 91+ Days Total AR Balance 100,000 80,000 60,000 40,000 280,000 Falcon Corporation Unadjusted Trial Balance Information At: December 31, 2019 In Whole US Dollars Unadjusted Account Debit Credit Accounts receivable $ 260,000 Accounts payable 130,000 Accumulated depreciation - equipment 30,000 Advertising expense 27,000 Allowance for doubtful accounts 8,000 Bad debt Expense 14,000 Cash 397,000 Common stock 130,000 Cost of goods sold 325,000 Depeciation expense 15,000 Equipment -cost 300,000 Insurance expense 10,000 Income tax expense 10,000 Income tax payable 0 Interest expense 3,000 Interest income 2,000 Interest payable 3,000 Inventory 49,000 Legal expense 0 Legal payable Notes payable - Due December 1, 2021 100,000 Notes payable - Due June 1, 2020 200,000 Prepaid insurance 27,000 Prepaid rent 5,000 Rent expense 80,000 Retained earnings, beginning of year 145,000 Salary expense 125,000 Salaries payable 73,000 Sales discounts 1,000 Sales returns and allowances 35,000 Sales revenue 800,000 Supplies 4,000 Supplies expense Unearned revenue 76,000 Utilities expense 10,000 Utilities payable 0 Total $ 1,697,000 $ 1,697,000 0 Due 30 Days Due 60 Days Due 90 Days Due 91+ Days Total AR Balance 100,000 80,000 60,000 40,000 280,000