Chapter 11, Problem 3CPP

1.

To determine

Record the journal entries.

Explanation of Solution

The following are the journal entries.

20Y5		Particulars	Debit ($)	Credit ($)
January	3	Petty Cash	4,500
		Cash		4,500
February	26	Office Supplies	1,680
		Miscellaneous Selling Expense	570
		Miscellaneous Administrative Expense	880
		Cash		3,130
April	14	Inventory	31,300
		Accounts Payable		31,300
May	13	Accounts Payable	31,300
		Cash		31,300
	17	Cash	21,200
		Cash Short and Over	40
		Sales		21,240
June	2	Notes Receivable	180,000
		Accounts  Receivable		180,000
August	1	Cash	182,400
		Notes Receivable		180,000
		Interest Revenue		2,400
	24	Cash	7,600
		Allowance for Doubtful Accounts	1,400
		Accounts  Receivable		9,000
September	15	Accounts  Receivable	1,400
		Allowance for Doubtful  Accounts		1,400
	15	Cash	1,400
		Accounts  Receivable		1,400
September	15	Land	654,925
		Interest Expense	15,075
		Notes Payable		670,000
October	17	Cash	135,000
		Notes Receivable	100,000
		Accumulated Depreciation—Office Equipment	64,000
		Loss on Sale of Office Equipment	21,000
		Office Equipment		320,000
November	30	Sales Salaries Expense	135,000
		Office Salaries Expense	77,250
		Employees Income Tax Payable		39,266
		Social Security Tax Payable		12,735
		Medicare Tax Payable		3,184
		Salaries Payable		157,065
	30	Payroll Tax Expense	16,219
		Social Security Tax Payable		12,735
		Medicare Tax Payable		3,184
		State Unemployment Tax Payable		270
		Federal Unemployment Tax Payable		30
December	14	Notes Payable	670,000
		Cash		670,000
	31	Pension Expense	190,400
		Cash		139,700
		Unfunded Pension Liability		50,700

Table (1)

2.

To determine

Prepare the bank reconciliation statement for December.

Explanation of Solution

Prepare the bank reconciliation statement for Company K.

K Company
Bank Reconciliation December 31, 20Y5
Particulars	Amount ($)	Amount ($)
Balance according to bank statement		283,000
Adjustments:
Deposit in transit, not recorded by bank	29,500
Deduct outstanding checks	(68,540)
Total adjustments		(39,040)
Adjusted balance		243,960
Balance according to company’s records		245,410
Adjustments:
Bank service charges	(750)
Error in recording check	(700)
Total adjustments		(1,450)
Adjusted balance		243,960

Table (2)

3.

To determine

Record the bank service charges using miscellaneous administrative expense account.

Explanation of Solution

Record the journal entry.

20Y5		Particulars	Debit ($)	Credit ($)
December	31	Miscellaneous Expense	750
		Accounts Payable	700
		Cash		1,450

Table (3)    

• Miscellaneous expense is an expense account and it decreases the value of equity by $750. Therefore, debit miscellaneous expense account with $750.
• Accounts payable is a liability and it is decreased by $700. Therefore, debit accounts payable account with $700.
• Cash is an asset and it is decreased by $1,450. Therefore, credit cash account with $1,450.

4.

To determine

Record the adjusting entries.

Explanation of Solution

Record the adjusting entries.

20Y5		Particulars	Amount ($)	Amount ($)
a	31-Dec	Bad Debt Expense	18,000
		Allowance for Doubtful Accounts		18,000
		(To record estimated uncollectible accounts.)
b	31-Dec	Cost of Goods Sold	3,300
		Inventory		3,300
		(To record inventory shrinkage.)
c	31-Dec	Insurance Expense	22,820
		Prepaid Insurance		22,820
		(To record expired insurance.)
d	31-Dec	Office Supplies Expense	3,920
		Office Supplies		3,920
		(To record supplies used during the period.)
e	31-Dec	Depreciation  Expense—Buildings	36,000
		Depreciation Expense—Office Equipment	44,000
		Depreciation Expense—Store Equipment	5,000
		Accumulated  Depreciation—Buildings		36,000
		Accumulated Depreciation—Office Equipment		44,000
		Accumulated Depreciation—Store Equipment		5,000
		(To record depreciation for the period.)
20Y5		Particulars	Amount ($)	Amount ($)
f	31-Dec	Amortization  Expense—Patents	6,000
		Patents		6,000
		(To record patent amortization)
g	31-Dec	Depletion Expense	30,000
		Accumulated Depletion		30,000
		(To record depletion.)
h	31-Dec	Vacation Pay Expense	10,500
		Vacation Pay Payable		10,500
		(To record vacation pay for the period.)
i	31-Dec	Product Warranty Expense	76,000
		Product Warranty Payable		76,000
		(To record product warranty for the period.)
j	31-Dec	Interest Receivable	1,875
		Interest Revenue		1,875
		(To record interest earned on note receivable.)

Table (4)

5.

To determine

Prepare the balance sheet as at December 31, 20Y5 of Company K.

Explanation of Solution

Prepare the balance sheet.

K Company
Balance Sheet
As on December 31, 20Y5
Assets	Amount ($)	Amount ($)	Amount ($)
Current assets:
Petty cash		4,500
Cash		243,960
Notes receivable		100,000
Accounts receivable	470,000
Allowance for doubtful accounts	(16,000)
Accounts receivable, net		454,000
Inventory		320,000
Interest receivable		1,875
Prepaid insurance		45,640
Office supplies		13,390
Total current assets			1,183,365
Property, plant, and equipment:
Land		654,925
Buildings	900,000
Accumulated  depreciation—buildings	(36,000)
Book value—buildings		864,000
Office equipment	246,000
Accumulated depreciation— office equipment	(44,000)
Book value—office equipment		202,000
Store equipment	112,000
Accumulated depreciation— store equipment	(5,000)
Book value—store equipment		107,000
Mineral rights	546,000
Accumulated depletion—mineral rights	(30,000)
Book value—mineral rights		516,000
Total property, plant, and equipment Intangible assets:			2,343,925
Patents			42,000
Total assets			3,569,290
Liabilities
Current liabilities:
Social security tax payable		25,470
Medicare tax payable		4,710
Employees federal income tax payable		40,000
State unemployment tax payable		270
Federal unemployment tax payable		30
Salaries payable		157,000
Accounts payable		131,600
Interest payable		28,000
Product warranty payable		76,000
Vacation pay payable (current portion)		7,140
Notes payable (current portion)		70,000
Total current liabilities			540,220
Long-term liabilities:
Vacation pay payable		3,360
Unfunded pension liability		50,700
Notes payable		630,000
Total long-term liabilities			684,060
Total liabilities			1,224,280
Stockholders’ Equity
Mr. J’s Capital		2,345,010
Total stockholders’ equity			2,345,010
Total liabilities and stockholders’ equity			3,569,290

Table (5)