One Product Corp. (OPC) incorporated at the beginning of last year. The balances

Question

One Product Corp. (OPC) incorporated at the beginning of last year. The balances on its postclosing
trial balance prepared on December 31, at the end of its first year of operations, were:

The following information is relevant to the first month of operations in the following year:

  

OPC sell its inventory at $150 per unit, plus sales tax of 6%. OPC’s January 1 inventory balance consists of 180 units at a total cost of $12,060. OPC’s policy is to use the FIFO method, recorded using a perpetual inventory system.

The equipment was purchased on July 1 of last year. It has a residual value of $1,000 and an expected life of five years. It is being depreciated using the straight-line method.

Employee wages are $4,000 per month. Employees are paid on the 16th for the first half of the month and on the first day of the following month for the second half of each month. Withholdings each pay period include $250 of income taxes and $150 of FICA taxes. These withholdings and the employer’s matching contribution are paid monthly on the second day of the following month. In addition, unemployment taxes of $50 are accrued each pay period, and will be paid on March 31.

Unearned Revenue is for 30 units ordered and paid for in advance by two customers in late December. One order of 25 units is to be filled in January, and the other will be filled in February.

  

January Transactions

On 1/01, OPC paid employees’ salaries and wages that were previously accrued on December 31.

A truck is purchased on 1/02 for $10,000 cash. It is estimated this vehicle will be used for 50,000 miles, after which it will have no residual value.

Payroll withholdings and employer contributions for December are remitted on 1/03.

OPC declares a $0.50 cash dividend on each share of common stock on 1/04, to be paid on 1/10.

A $950 customer account is written off as uncollectible on 1/05.

On 1/10, OPC distributes the $0.50 cash dividend declared on January 4. The company’s stock price is currently $5 per share.

The equipment purchased last year for $25,000 is sold on 1/15 for $23,000 cash. Record depreciation for the first half of January prior to recording the equipment disposal.

Payroll for January 1-15 is recorded and paid on 1/16. Be sure to accrue unemployment taxes and the employer’s matching share of FICA taxes.

Having sold the equipment, OPC pays off the note payable in full on 1/17. The amount paid is $22,585 which includes interest accrued in December and an additional $90 interest through January 17.

On 1/27, OPC records sales of 30 units of inventory on account. Sales tax is charged but not yet collected or remitted.

A portion of the advance order from December (25 units) is delivered on 1/29. No sales tax is collected on this transaction because the customer is a United States governmental organization that is exempt from sales tax.

To obtain funds for purchasing new equipment, OPC issued bonds on 1/30 with a total face value of $90,000, stated interest rate of 5 percent, annual compounding, and six-year maturity date. OPC received $81,420 from the bond issuance, which implies a market interest rate of 7 percent.

OPC estimates that 2% of the ending accounts receivable balance will be uncollectible. Adjust the applicable accounts on 1/31, using the allowance method.

References

Section BreakC11-2 Recording Daily and Adjusting Entries, and Preparing and Evaluating Financial Statements (Part A: Chapters 3, 4, 6, 7, 8, 9, 10, and 11; Part B: Chapter 11 Supplement B; Part C: Appendix C) [LO 3-3, 4-2, 4-3, 4-4, 6-3, 6-4, 7-3, 8-2, 9-2, 9-3,

1.

value:
13.00 points

Required information

C11-2 Part A

References

eBook & Resources

General LedgerDifficulty: 3 HardLearning Objective: 11-03 Explain and analyze cash dividends, stock dividends, and stock split transactions.

C11-2 Part ALearning Objective: 11-02 Explain and analyze common stock transactions.Learning Objective: 11-S2 Record journal entries for large and small stock dividends.

2.

value:
2.00 points

Required information

C11-2 Part B (Chapter 11 Supplement B)

     

     

eBook & Resources

WorksheetDifficulty: 3 HardLearning Objective: 11-03 Explain and analyze cash dividends, stock dividends, and stock split transactions.

C11-2 Part B (Chapter 11 Supplement B)Learning Objective: 11-02 Explain and analyze common stock transactions.Learning Objective: 11-S2 Record journal entries for large and small stock dividends.

One Product Corp. (OPC) incorporated at the beginning of last year. The balances on its postclosing
trial balance prepared on December 31, at the end of its first year of operations, were:

Explanation / Answer

In the books of One Product Corp.:

January Transactions and Adjustments:

Contd.

30 % dividend is a large stock dividend. Therefore the capitalization happens at par value of the shares of common stock. On January 4, the company had 6,150 shares of common stock outstanding. Therefore the stock dividend would be for 6,150 x 30% = 1,845 shares. The relevant journal entry :

However, a 10% stock dividend is a small stock dividend. Therefore, capitalization happens at the market price of the shares of common stock. The relevant journal entry:

Transaction / Event Date Account Titles Debit Credit $ $ 1. 1/01 Salaries and Wages Payable 1,600 Cash 1,600 2, 1/02 Truck 10,000 Cash 10,000 3. 1/03 FICA Payable 600 Withheld Income Taxes Payable 500 Unemployment Tax Payable 300 Cash 1,100 4. 1/04 Retained Earnings [( $ 13,300/ $ 2) - 500] x $ 0.50 3,075 Dividends Payable 3,075 5. 1/05 Allowance for Doubtful Accounts 950 Accounts Receivable 950 6. 1/06 Accounts Receivable 27,825 Sales 26,250 Sales Tax Payable 1,575 Cost of Goods Sold 11,725 Inventory 11,725 7. 1/07 Sales Tax Payable 500 Cash 500 8. 1/08 Cash 2,400 Treasury Stock 2,400 9. 1/09 Cash 8,500 Accounts Receivable 8,500 10. 1/10 Dividends Payable 3,075 Cash 3,075 11. 1/11 Inventory 4,410 Accounts Payable 4,410 12. 1/15 Depreciation Expense 200 Accumulated Depreciation : Equipment 200 1/15 Cash 23,000 Accumulated Depreciation : Equipment 2,600 Equipment 25,000 Gain on Disposal of Equipment 600

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