General Information Introduction Jones Widget Company (JWC) incorporated at the
ID: 2482322 • Letter: G
Question
General Information
Introduction
Jones Widget Company (JWC) incorporated at the beginning of 2014. Below is the post closing trial balance as of 12/31/14.
Account Title
Balance
Cash
10,700
Accounts Receivable
12,300
Allowance for Doubtful Account
(685)
Inventory
12,300
Prepaid Rent
1,500
Equipment
25,000
Accumulated Depreciation-Equipment
(2,400)
Total assets
58,715
Sales Tax payable
800
FICA Taxes Payable
600
FIT (i.e., Federal Income) Taxes Payable
500
Wages Payable
1,600
Unearned Revenue
6,500
Interest Payable
440
Notes Payable
22,000
Common Stock
23,100
Retained Earning
3,175
Total liabilities + stockholders’ equity
58,715
Additional Information:
JWC establishes a policy that it will sell inventory at $130 per unit. Sales taxes are 5%.
JWC will use the FIFO method and record COGS on a perpetual basis.
Employee wages are $4,000 per month, the federal income taxes (FIT) withheld are $500 and the FICA taxes are $300 per month payable on the first (1st) and sixteenth (16th) of the month.
The Beginning inventory of $12,300 consists of 200 units.
The Prepaid Rent balance is for the month of January.
The equipment was purchased on July 1, 2014. It has a residual value of $1,000 and an expected life of five years. It is being depreciated using the straight line method.
Unearned Revenue is for 50 units ordered by two customers in late December. One order will be filled in January, the remainder in early February.
The Notes payable represents a $22,000 bank loan received on November 1 at 12% annual interest.
State unemployment taxes amount to $200 and Federal unemployment taxes amount to $250 per month.
Common stock includes 4,260 shares at $5 par value.
Round all transactions to the nearest dollar.
Below are transactions for January 2015
Jan 1: A $100,000 6% six year bond is issued at 105.074. The market rate at issue of the bond is 5%.
Jan 1: A truck (record as Truck) is purchased for $10,000 cash. It is estimated the truck will be used for 50,000 miles and will have no salvage value. The truck will be depreciated using the units-of-production method.
Jan 2: Machinery (record as Furniture) is purchased for $120,000 cash. The machinery will be used for 8 years, has a salvage value of $8,000, and will be depreciated using the double-declining balance method.
Jan 3: Paid December 31 payroll (“wages payable”) on Jan 1.
Jan 4: Payroll taxes withheld (FIT payable & FICA payable) during December are remitted to the IRS.
Jan 5: A $500 customer account is written off as uncollectible.
Jan 6: Sales on account of 180 units of inventory occurred during January.
Jan 8: Sales taxes collected in December 2014 are remitted to the local tax collector.
Jan 10: An additional 70 units of inventory were purchased on account for $4,410.
Jan 11: Sold 50 units of merchandise inventory for cash totaling $6,825, which includes 5% sales taxes.
Jan 12: The equipment purchased in 2014 for $25,000 is sold for $24,500. No additional depreciation is recorded for January.
Jan 14: Having sold the equipment, JWC paid off the equipment loan received on November 1 in full. The amount paid was $22,550, which included interest through Jan 14.
Jan 15: A portion of the advance order from December (30 units) is delivered. There is no sales tax on this order.
Jan 16: (a) Paid employee payroll (in cash).
Jan 16: (b) Record the employer’s payroll tax expense.
Jan 17: Collections from sales on account totaled $5,000.
Jan 18: JWC issued 2,500 shares of $3.60 par value common stock for cash at $8 per share.
Jan 19: JWC issued 300 shares of $12 par-value preferred stock for cash at $102 per share.
Jan 21: JWC Purchased 4,000 shares of its common stock for the treasury at a cost of $16,000.
Jan 25: JWC issued a second bond with a face value of $250,000, a stated rate of 10% (used to calculate interest payments), with a maturity of 4 years. At the time of issuance, the market rate (used to calculate the present values) for bonds of similar characteristics was 12%.
Jan 28: Declared and paid a $0.50 per share cash dividend on 2,400 shares of $5 par value.
Jan 30: Purchased a small company and recorded goodwill for $150,000. (Indefinite life – no record of amortization expense)
Below are transactions requiring adjusting entries for January 2015
AJE 1: Record depreciation expense for the truck (Truck) purchased on Jan 1 using the units-of-activity method. During January, the truck is driven 800 miles.
AJE 2: Record the depreciation expense for the machinery (Furniture) purchased on Jan 1.
AJE 3: Record January rent expired.
AJE 4: Accrue January 28 payroll, which will be paid on February 1 and the related payroll tax expense.
AJE 5: Record the accrual of interest expense on the bonds issued on Jan 1.
AJE 6: Record the accrual of interest expense on the bonds issued on Jan 25.
AJE 7: Record the accrual of bad debt expense assuming that $941 is the estimate of uncollectible receivables from the aging schedule.
AJE 8: Record the accrual of income tax expense assuming that the tax rate is 25% of income before taxes.
Special Note:
The chart of accounts for JWC, Inc. includes the following
CASH
ACCOUNTS RECEIVABLE
ALLOWANCE FOR DOUBTFUL ACCOUTNS
INVENTORY
PREPAID RENT
EQUIPMENT
ACCUMMULATED DEPRECIATION_EQUIPMENT
TRUCK
ACCUMMULATED DEPRECIATION_TRUCK
FURNITURE
ACCUMMULATED DEPRECIATION_ FURNITURE
GOODWILL
ACCOUNTS PAYABLE
SALES TAX PAYABLE
WAGES PAYABLE
FICA TAX PAYABLE
FIT TAX PAYABLE
UNEARNED REVENUE
INTEREST PAYABLE
INCOME TAX PAYABLE
STATE UNEMPLOYMENT TAX PAYABLE
FEDERAL UNEMPLOYMENT TAX PAYABLE
NOTES PAYABLE
BONDS PAYABLE
PREMIUM ON BONDS PAYABLE
DISCOUNT ON BONDS PAYABLE
DIVIDENDS
COMMON STOCK
APIC-CS
PREFERRED STOCK
APIC-PS
TREASURY STOCK
RETAINED EARNINGS
SALES REVENUE
COGS
WAGES EXPENSE
RENT EXPENSE
PAYROLL TAX EXPENSE
DEPRECIATION EXPENSE
BAD DEBT EXPENSE
GAIN ON DISPOSAL
INTEREST EXPENSE
INCOME TAX EXPENSE
REQUIRED 1: Prepare the debit section of the adjusted trial balance.
JWC, Inc.
Trial balance
For the period January 1 – January 31, 2014
ACCOUNT NAME
DEBIT AMOUNT
ACCOUNT NAME
CREDIT AMOUNT
Total debit = $487,191
Total credit = $487,191
REQUIRED 2: Prepare the income statement using the multiple-step format.
JWC, Inc.
(Multiple-step) Income Statement
For the period January 1 – January 31, 2014
SALES REVENUE
Less:
GROSS PROFIT
LESS: OPERATING EXPENSES
Total Operating Expenses
OPERATING INCOME
ADD: Other Revenues & Gains
LESS: Other Expenses & Losses
INCOME BEFORE TAXES
NET INCOME
REQUIRED 3: Prepare the Statement of Retained Earnings.
JWC, Inc.
Statement of Retained Earnings
For the period January 1 – January 31, 2015
RETAINED EARNINGS, BEGINNING OF PERIOD
ADD:
LESS:
RETAINED EARNINGS, END OF PERIOD
REQUIRED 4: Prepare a classified balance sheet.
JWC, Inc.
Classified Balance Sheet
as of January 31, 2015
ASSETS (13 pts)
LIABILITIES (13 pts)
CURRENT ASSETS (CL)
CURRENT LIABILITIES (CL)
Total CA
Total CL
PLANT ASSETS (PPE)
LONG-TERM LIABILITIES (LT)
Total LT
Total PPE
TOTAL LIABILITIES
INTANGIBLE ASSETS (IA)
STOCKHOLDERS’ EQUITY (SE)
Total IA
Total SE
TOTAL ASSETS (the correct value is = $416,256)
TOTAL LIABILITIES
& STOCKHOLDERS’ EQUITY
Account Title
Balance
Cash
10,700
Accounts Receivable
12,300
Allowance for Doubtful Account
(685)
Inventory
12,300
Prepaid Rent
1,500
Equipment
25,000
Accumulated Depreciation-Equipment
(2,400)
Total assets
58,715
Sales Tax payable
800
FICA Taxes Payable
600
FIT (i.e., Federal Income) Taxes Payable
500
Wages Payable
1,600
Unearned Revenue
6,500
Interest Payable
440
Notes Payable
22,000
Common Stock
23,100
Retained Earning
3,175
Total liabilities + stockholders’ equity
58,715
Explanation / Answer
JE for sale of eqpt. Debit Credit Cash 24500 Acc.depn 2400 Eqpt. 25000 Gain on sale 1900 Inventory calculations Date Inflow Outflow Balance Units Rate Value 01-Jan Op/Inv 200 61.5 12300 200 61.5 12300 06-Jan 180 61.5 11070 20 61.5 1230 10-Jan 70 63 4410 20 61.5 1230 70 63 4410 11-Jan 20 61.5 1230 30 63 1890 40 63 2520 15-Jan 30 63 1890 10 63 630 Total 270 16710 260 16080 10 63 630 (COGS) (Cl.Inv.) Bond-2 PV=( PMT*(1-(1+r)^-n)/r)+(Fv/(1+r)^n) PV=(25000*(1-(1+0.12)^-4)/0.12)+(250000/(1+0.12)^4) 234813.253 Discount 15186.7467 (carried on asset side of Balance sheet till amortised in full) JWC, Inc. (Multiple-step) Income Statement For the period January 1 – January 31, 2014 SALES REVENUE 33800 Less: COGS 16080 GROSS PROFIT 17720 LESS: OPERATING EXPENSES Employee Wages 4000 Rent Expense 1500 State unemployment taxes 200 Federal unemployment taxes 250 Depreciation-Truck-10000/50000*800 160 Depreciation-Furniture(120000-8000)/8/12*200% 2333 Bad dedts(941+500-685) 756 9199 Total Operating Expenses OPERATING INCOME 8521 ADD: Other Revenues & Gains Gain on sale of eqpt.(24500+2400-25000) -1900 LESS: Other Expenses & Losses Int. on Bank notes payable- 22000*12%/12/2 110 Mkt.Interest on bond105074*5%/12 438 Mkt.Interest on bond234813*12%/12 2348 996 INCOME BEFORE TAXES 7525 1881 NET INCOME 5644 JWC, Inc. Statement of Retained Earnings For the period January 1 – January 31, 2015 RETAINED EARNINGS, BEGINNING OF PERIOD 3175 ADD: Current month Net IAT 5644 LESS: Cash Dividends 1200 RETAINED EARNINGS, END OF PERIOD 7619
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