P5-17 (Appendix 5A: Comprehensive problem) 3. The company made an $18,000 rent payment on July 1, which covers the subsequent twelve-month period. 4. A physical count on December 31, 1997 indicates that $62,000 of supplies are on hand. 5. The company will pay employees $30,000 for wages earned for the thirty-day period end¬ ing January 15, 1998. Assume that the $30,000 is earned at a rate of $1,000 per day. 6. On November 1, 1997 the company began renting office space to a small insurance agency. The contract calls for rent receipts of $5,000 per month. No rent has been received as of the end of the year. 7. The $50,000 note payable was issued on August 1, 1997. It matures on January 1, 1998 and has a stated annual interest rate of 12 percent. REQUIRED:

a. Prepare the adjusting journal entries necessary on December 31, 1997.

b. Prepare closing journal entries.

c. Prepare the 1997 income statement and the balance sheet as of December 31, 1997. The following balance sheet is presented for J.D.F. Company as of December 31, 1996. J.D.F. Company Balance Sheet December 31, 1996 Assets Cash $ 170,000 Accounts receivable 188,000 Merchandise inventory 200,000 Prepaid insurance 74,000 Supplies inventory 40,000 Long-term investments 160,000 Equipment $480,000 Less: Accumulated depreciation 98,000 382,000 Machinery $950,000 Less: Accumulated depreciation 230,000 720,000 Patent 75,000 Total assets $2,009,000 Liabilities and Stockholders’ Equity Accounts payable $ 220,000 Wages payable 73,000 Mortgage payable 300,000 Bonds payable 500,000 Common stock 500,000 Retained earnings 416,000 Total liabilities and stockholders’ equity $2,009,000 During 1997, J.D.F. entered into the following transactions. 1. Made credit sales of $ 1,350,000 and cash sales of $350,000. The cost of the inventory sold was $700,000. 2. Purchased $820,000 of merchandise inventory on account. 3. Made cash payments of $400,000 to employees for salaries. This amount includes the wages due employees as of December 31, 1996. 4. Purchased $110,000 of supplies inventory by issuing a six-month note that matures on March 12, 1998. 5. Collected $850,000 from customers in payment of open accounts receivable. 6. Paid suppliers $870,000 for payment of open accounts payable. 7. Sold a long-term investment for $37,000. The investment had been purchased for $30,000. 8. Paid $60,000 cash for advertising, $36,000 cash for rent, and $52,000 cash for mainte¬ nance. It is company policy to expense all such payments. 252 Part 2 Use, Measurement, and Mechanics of Financial Statements