Computers R Us Inc. began their business in January 1, 2015 and recently lost their accountant. Thankfully, they have been able to hire a fine accounting/finance student from University. They have provided you with the unadjusted trial balance for Computers R Us Inc. as of 12/31/17. The previous accountant recorded all original entries involving cash, etc. during the year. However, at year-end the previous accountant would make all necessary adjusting/reclassification journal entries so that the principles of US GAAP were followed. Your task will be to create and record all necessary adjusting, correcting, and reclassification entries so that 2017 financial statements in accordance with US GAAP can be issued. The below information was discovered by reviewing contracts, agreements, correspondence and discussions with management.
1. On the âAdjusting Journal Entriesâ worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2017. (Round all numbers to the nearest dollar).
a. Unadjusted cash balance is Debit $218,000. Computers R Us does banking at three different financial institutions. The details are as follows:
Bank Name Balance Capital Bank $ 85,000 Capital Bank $ (12,000) 1st Sony Bank $ 170,000 Sunny Bank $ (25,000)
What is the adjusting journal entry for this?
Computers R Us Inc. began their business in January 1, 2015 and recently lost their accountant. Thankfully, they have been able to hire a fine accounting/finance student from University. They have provided you with the unadjusted trial balance for Computers R Us Inc. as of 12/31/17. The previous accountant recorded all original entries involving cash, etc. during the year. However, at year-end the previous accountant would make all necessary adjusting/reclassification journal entries so that the principles of US GAAP were followed. Your task will be to create and record all necessary adjusting, correcting, and reclassification entries so that 2017 financial statements in accordance with US GAAP can be issued. The below information was discovered by reviewing contracts, agreements, correspondence and discussions with management.
1. On the âAdjusting Journal Entriesâ worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2017. (Round all numbers to the nearest dollar).
a. Unadjusted cash balance is Debit $218,000. Computers R Us does banking at three different financial institutions. The details are as follows:
Bank Name | Balance |
Capital Bank | $ 85,000 |
Capital Bank | $ (12,000) |
1st Sony Bank | $ 170,000 |
Sunny Bank | $ (25,000) |
What is the adjusting journal entry for this?
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Czar was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 520,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018.
1. On the âAdjusting Journal Entriesâ worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2018. (Round all numbers to the nearest dollar). Label journal entries a through t.
P- On 2,1, 2018, Czar rented a portion of one store to Pellston Inc. The contract was for 15 months and Czar required all of the cash up front. The rent is being earned equally each month. This is the only item in which rent is being earned by the company.
Q- Czar started to lease some new retail space in 2018 and added shelving and fixtures to this leased space. Based on your review of invoices, the previous accountant capitalized the cost of fixtures but did not capitalize the shipping and installation costs of $2,815. These costs were expensed and recorded as a miscellaneous selling expense. Czar has decided to use double declining balance (DDB) depreciation for this item and to take a full year of depreciation in the year of acquisition. The leasehold improvements have a useful life of 15 years with a salvage value of $12,000.
R- Czar uses the FIFO Inventory Method in valuing inventory. The inventory balance of $340,000 was based on a physical count at 12/31/2018. Based on your analysis, you have noted that $10,000 of marketing games that belonged to Pellston Inc. was included in the account. You also note that $5,600 of goods shipped to Czar f.o.b. destination were in transit on December 31, 2018 and included in the physical count.
Czar Incorporated | ||||||
End of Period Worksheet | ||||||
For the Year Ended December 31, 2018 | ||||||
Unadjusted | Adjusted | |||||
Account Title | Trial Balance | Adjustments | Trial Balance | |||
DR | CR | DR | CR | DR | CR | |
Cash | 264,000 | - | ||||
Accounts Receivable | 555,984 | - | ||||
Allowance for Doubtful Accounts | - | 13,600 | ||||
Interest Receivable | - | - | ||||
Merchandise Inventory | 340,000 | - | ||||
Prepaid Insurance | - | - | ||||
LIFO Reserve | - | 25,600 | ||||
Prepaid Advertising | - | - | ||||
Prepaid Rent | 13,600 | - | ||||
Office Supplies | 4,800 | - | ||||
Note Receivable | 20,000 | |||||
Available for Sale Securities | 300,000 | - | ||||
Office Building | 3,000,000 | - | ||||
Accumulated Depreciation - Office Building | - | 70,000 | ||||
Storage Building | 1,020,000 | - | ||||
Accumulated Depreciation - Storage Building | - | - | ||||
Land | 600,000 | - | ||||
Leasehold Improvements | 180,000 | - | ||||
Accumulated Depreciation - Leasehold Improvements | - | - | ||||
Office Equipment | 260,000 | - | ||||
Accumulated Depreciation - Office Equipment | - | 52,000 | ||||
Patent | 120,000 | - | ||||
Accounts Payable | - | 276,000 | ||||
Sales Tax Payable | - | - | ||||
Salaries Payable | - | 113,600 | ||||
Payroll Taxes Payable | - | 20,000 | ||||
Interest Payable | - | - | ||||
Income Tax Payable | - | - | ||||
Unearned Rent Revenue | - | - | ||||
Loan Payable - First Trust | - | 520,000 | ||||
Loan Payable - Coldwell Bank | - | 1,600,000 | ||||
Common Stock | - | 520,000 | ||||
Additional Paid in Capital | - | 1,599,000 | ||||
Retained Earnings | - | 736,000 | ||||
Accumulated Other Comprehensive Income | - | 20,000 | ||||
Dividends | 67,800 | - | ||||
Sales | - | 3,622,560 | ||||
Sales Returns and Allowances | 33,800 | - | ||||
Sales Discounts | 15,400 | - | ||||
Cost of Goods Sold | 1,583,600 | - | ||||
Sales Salaries Expense | 349,120 | - | ||||
Office Salaries Expense | 219,200 | - | ||||
Advertising Expense | 12,800 | - | ||||
Depreciation Expense - Office Building | - | |||||
Depreciation Expense - Leasehold Improvements | - | - | ||||
Depreciation Expense - Office Equipment | - | - | ||||
Leasing Expense - Stores | 105,600 | - | ||||
Miscellaneous Selling Expense | 18400 | - | ||||
Research & Development Expense | 12,000 | |||||
Rent Expense - Storage Facility | - | - | ||||
Insurance Expense | 12,000 | - | ||||
Office Supplies Expense | 28,000 | - | ||||
Miscellaneous Administrative Expense | 7,336 | - | ||||
Rent Revenue | - | 60,000 | ||||
Interest Revenue on Note Receivable | - | - | ||||
Dividend Revenue on AFS Securities | - | 20,000 | ||||
Interest Expense | - | - | ||||
Bad Debt Expense | 28,000 | - | ||||
Amortization Expense | - | - | ||||
Income Tax Expense | - | - | ||||
Payroll Taxes Expense | 96,920 | - | ||||
Rebate Expense | - | - | ||||
Unrealized holding loss | - | - | ||||
Depreciation Expense-Storage Building | - | - | ||||
Loss on Impairment | - | - | ||||
Rebate Liability | - | - | ||||
Restricted Cash for Future Expansion | - | - | ||||
9,268,360 | 9,268,360 |
Ferntree Clothing Inc. is a company that makes and sellsclothing to upscale shops across the country. In 2005, the companydecided to add the sale of fabric to the company portfolio, sellingmainly to other clothing manufacturing companies. Ferntree soonrealized that this market was unprofitable with low margins andwith the continued increase in on-line sales ,their fabric divisionwas suffering.
The companyâs current controller vacated the position withoutnotice four months ago and Ferntree has hired you as their newcontroller to make any adjustments necessary and correct any errorsyou may find. The fiscal year end is January 31, 2017 and you willneed to correct errors, make adjustments and draft financialstatements using ASPE in preparation for the annual audit. Thefollowing information has been gathered for you to work with.
The trial balance at January 31, 2017, before any adjustments isprovided on the attached excel worksheet.
Your review through the company files has led you to thefollowing information, which may require adjustments:
1. In October of 2016, the shareholders met and decided to sellthe fabric division. By December 2016, it became apparent that abuyer is unlikely to be found. The only asset of this division isthe inventory, and all attempts have been made to sell this byyear-end. The company is expected to recover the book value of theinventory as it is being carried at its current fair value. Thereare no liabilities relating to this division. (Hint: Regardless ofa buyer, this would be classified as a gain/loss from discontinuedoperations).
2. The company paid a dividend of $25,000 to its shareholders inDecember 2016. This amount was incorrectly recorded as a cost ofgoods sold for the clothing division.
3. Last years accounts payable had been paid: $25,000 for theclothing division and $15,000 for the fabric division. When theywere paid, they had been debited to cost of goods sold for clothingdivision and operating expenses for the fabric division.
4. Upon reviewing the aged accounts receivable, it is apparentthat one account in the amount $5,000 had become uncollectible andwas written off to bad debt expense. In the past, 1% of accountsreceivable had been used to estimate the allowance for doubtfulaccounts, but this year given the past history, they have decidedto increase that amount to 2% of accounts receivable. All accountsreceivable and the allowance account relate to the clothingdivision.(Hint: adjust the bad debt expense and allowance accountfirst before you adjust for the allowance for doubtfulaccounts).
5. In January 2017, some old equipment was sold for proceeds of$250 cash. The original equipment cost $5,000 and had accumulateddepreciation of $4,900. The entry made when depositing the cash wasdebit Cash, credit equipment for $250. The equipment is beingamortized using the straight-line method over 10 years.Depreciation has not been recorded for the current year for theremainder of the equipment in this account.
6. FV-NI investments are long-term investments. The fair valueof the portfolio investments at January 31, 2017 was $35,000.
7. Insurance is paid each November 30th and covers a 12-monthperiod. When the company paid the insurance, it was debited toinsurance expense.
8. The note payable is due in two equal installments of $25,000each, plus interest on January 31, 2018 and 2019. The annualinterest rate is 5% and the note has been outstanding since August1, 2016.
9. Unpaid salaries and wages amounted to $1,500 at January 31,2017 and will be paid in the first payroll of February 2017. Thesehave not been recorded.
10. In reviewing sales, it was determined that the balance inthe unearned revenue account as at January 31, 2017 should be$30,000. The entire amount relates to the clothing division.
11. Ferntree has been making some income tax installments anddebiting these payments to the Income Taxes Payable account. It hasbeen determined that the applicable tax rate is 25%. The adjustingentry needed for taxes has not been recorded yet. (Hint: do thisentry last)
Required: a) Prepare all adjusting and correcting entries basedon the above information.
b) Post these entries journal entries to the trial balance andcomplete other columns of the work in good form
c) Prepare the January 31, 2017 Combined IncomeStatement/Comprehensive Income using the Multi-step incomestatement format, Statement of Financial Position and Statement ofRetained Earnings for Ferntree Clothing Inc. for the fiscal yearended January 31, 2017
Ferntree Clothing Inc. | January 31, 2017 | ||||||
Unadjusted Trial Balance | Adjustments | Adjusted Trial Balance | |||||
Account | Debit | Credit | Debit | Credit | Debit | Credit | |
Petty Cash | 500 | ||||||
Cash | 63,250 | ||||||
Accounts Receivable | 252,000 | ||||||
Allowance for doubtful accounts | 7,500 | ||||||
Preapaid Insurance | 5,000 | ||||||
Inventory- Clothing | 400,000 | ||||||
Inventory- Fabric | 150,000 | ||||||
FV-NI Investments | 30,000 | ||||||
Equipment | 499,750 | ||||||
Accum. Depreciation- Equipment | 200,000 | ||||||
Goodwill | 25,000 | ||||||
Accounts Payable | 75,000 | ||||||
Salaries & wages Payable | 0 | ||||||
Interest payable | 0 | ||||||
Notes Payable | 50,000 | ||||||
Unearned Revenue | 20,000 | ||||||
Income tax payable | 60,000 | ||||||
Common shares | 75,000 | ||||||
Retained Earnings | 588,000 | ||||||
Dividends | 0 | ||||||
Sales Revenue- Clothing | 2,000,000 | ||||||
Sales Revenue- Fabric | 250,000 | ||||||
Unrealized Gain/loss- FV-NI | 0 | ||||||
Gain/loss on disposal of equipment | 0 | ||||||
Cost of Goods sold- Clothing | 1,200,000 | ||||||
Cost of Goods sold- Fabric | 275,000 | ||||||
Operating expenses-Fabric | 100,000 | ||||||
Operating Expenses-Clothing: | |||||||
Depreciation expense | 0 | ||||||
Office expense | 12,000 | ||||||
Travel expense | 4,800 | ||||||
Insurace expense | 7,200 | ||||||
Interest expense | 1,200 | ||||||
Utilities expense | 2,600 | ||||||
Rent expense | 41,000 | ||||||
Salaries & wages expense | 125,000 | ||||||
Supplies expense | 500 | ||||||
Bad debt expense | 5,000 | ||||||
Telephone & internet expense | 4,200 | ||||||
Repairs & maintenance expense | 1,500 | ||||||
Income tax expense | 0 | ||||||
3,265,500 | 3,265,500 | 0 | 0 | 0 | 0 | ||