BUS ADM 201 Introduction to Financial Accounting

1 Name:_________________ BUS ADM 201 Introduction to Financial Accounting TA:___________________  #:_________________ EXTRA CREDIT III  GRADING: Worth up to 15 points. Carefully READ the requirements on page 2 first. Partially completed problems will earn no credit—that means all requirements must be FULLY completed. All work must be completed by hand. If you complete all items as requested, you will earn at least 7.5 points. The remaining points are dependent upon the accuracy of your answers. Round amounts to the nearest dollar, if applicable. Jamukha Corporation prepares annual financial statements. The balance sheet at December 31, 2016, is presented below. Jamukha Corporation Balance Sheet December 31, 2016 Assets Liabilities and Stockholders' Equity Cash 22,500 Accounts payable 52,900 Accounts receivable 28,000 Common stock ($1 par) 10,000 Allowance for doubtful accounts (350) Paid-in capital in excess of par – Common stock 90,000 Inventory 55,000 Retained earnings 76,750 Prepaid insurance 4,500 Equipment 230,000 A/D – Equipment (110,000) 229,650 229,650 During 2017 the following transactions occurred: 1. Purchased $176,000 inventory on account. Jamukha Corp. uses a perpetual inventory system. 2. Sales of $335,000, plus 5.6% sales tax, were made to customers on account. Cost of goods sold was $194,500. 3. Received $26,000 cash down payment for orders that will be shipped next year. 4. Issued 12 year, $80,000 face value, 4% bonds on July 1 at 102. The bonds were sold to yield an effective annual rate of 3.79101%, and they pay interest every January 1 and July 1. 5. Collected $245,000 on account. 6. Paid general expenses of $41,250. 7. Paid $220,750 on account. 8. Paid the sales tax collected from customers to the State of Wisconsin. 9. On January 1, Jamukha Corp. sold for $9,000 cash equipment which originally cost $65,000. Accumulated depreciation for this equipment as of December 31, 2016, was $50,000. This transaction is exempt from sales tax. 2 10. Issued 1,600 shares of $100 par, 7% preferred stock for $194,000 cash. 11. Purchased equipment on July 1, 2017, for $180,000 cash. 12. Purchased 500 shares of Jamukha Corp. common stock from a disgruntled shareholder for $42 per share. 13. Recorded salaries and payroll taxes. Employee’s gross salaries were $60,000. FICA tax was withheld at a rate of 7.65%. Federal income taxes (FIT) of $6,000 were withheld, and state income taxes (SIT) of $3,000 were withheld. The federal unemployment tax (FUTA) rate was 1%, and the state unemployment tax (SUTA) rate was 3.25%. No cash has been paid yet, so record all the amounts due in the appropriate payable accounts. 14. The paychecks and payroll taxes from entry #13 were paid. Adjusting Journal Entries: 15. Straight-line depreciation with a 5 year useful life and no salvage value is used for equipment purchased in previous years. The equipment purchased on July 1, 2017 (#11) is depreciated using double-declining balance with a useful life of 15 years and a $30,000 salvage value. (Hint: The equipment was purchased midway through the year.) 16. Accrue bond interest payable and amortize bond discount/premium. Jamukha Corp. uses effective-interest amortization. (Hint: The bond was issued midway through the year.) 17. The prepaid insurance relates to a policy purchased on December 31, 2016. This insurance expires at a rate of $300 per month. Record as a general expense. 18. Jamukha estimates that 5% of accounts receivable are uncollectible. 19. Jamukha Corp. is an S-corporation and is not subject to income tax. REQUIRED: Print out the solution pages for the general journal, ledger, and worksheet that follow and enter the following transactions. I suggest that you use a pencil. a. Enter the transactions numbered 1-14 in the general journal provided on the following pages. b. Post the journal entries to the ledger accounts for items 1-14. Look at the cash account for an example of how to use the running balance ledger. I have completed the first two lines of it for you. It is a good idea to keep track of whether your balance column is a debit or a credit, particularly for contra accounts. c. Prepare an unadjusted trial balance at December 31, 2017 and enter on the worksheet. d. Worksheet requirement: Using your unadjusted trial balance (c) above and the data for adjusting entries (#15-19), prepare a 12-column worksheet similar to worksheet for Sierra Corporation in Chapter 4 and the prior extra credit assignments. You will not receive any credit if the worksheet is incomplete. To save time, you are not required to formally journalize or post your adjusting entries (you can just enter them on the worksheet). You are not required to record closing entries. e. Prepare a formal statement of cash flows using the T-account approach. Templates for the statement and the T-account worksheet are attached. (You are not required to formally present the other statements— just complete them on the worksheet.) 3 EXTRA CREDIT III SOLUTION Name _____________________ Journal: Requirement (a) General Journal Debit Credit a.1. a.2. a.3. a.4. a.5. a.6. a.7. a.8. a.9. a.10. a.11. a.12. a.13. a.14. 4 General Ledger: Requirement (b) CASH DR CR BALANCE Beginning 22,500 22,500 DR Item 3 26,000 48,500 DR ACCOUNTS RECEIVABLE DR CR BALANCE Beginning 28,000 28,000 DR ALLOWANCE FOR DOUBTFUL ACCOUNTS DR CR BALANCE Beginning 350 350 CR INVENTORY DR CR BALANCE Beginning 55,000 55,000 DR PREPAID INSURANCE DR CR BALANCE Beginning 4,500 4,500 DR EQUIPMENT DR CR BALANCE Beginning 230,000 230,000 DR ACCUM DEPRECIATION - EQUIPMENT DR CR BALANCE Beginning 110,000 110,000 CR 5 General Ledger: Requirement (b) continued ACCOUNTS PAYABLE DR CR BALANCE Beginning 52,900 52,900 CR SALARIES PAYABLE DR CR BALANCE SALES TAX PAYABLE DR CR BALANCE FICA PAYABLE DR CR BALANCE FIT PAYABLE DR CR BALANCE SIT PAYABLE DR CR BALANCE FUTA PAYABLE DR CR BALANCE SUTA PAYABLE DR CR BALANCE UNEARNED REVENUE DR CR BALANCE BONDS PAYABLE DR CR BALANCE PREMIUM ON BONDS PAYABLE DR CR BALANCE 6 General Ledger: Requirement (b) continued COMMON STOCK ($1 PAR) DR CR BALANCE Beginning 10,000 10,000 CR PREFERRED STOCK ($100 PAR) DR CR BALANCE PAID-IN CAPITAL IN EXCESS OF PAR – COMMON STOCK DR CR BALANCE Beginning 90,000 90,000 CR PAID-IN CAPITAL IN EXCESS OF PAR – PREFERRED STOCK DR CR BALANCE TREASURY STOCK DR CR BALANCE RETAINED EARNINGS DR CR BALANCE Beginning 76,750 76,750 CR SALES REVENUE DR CR BALANCE COST OF GOODS SOLD DR CR BALANCE GENERAL EXPENSES DR CR BALANCE SALARIES EXPENSE DR CR BALANCE PAYROLL TAX EXPENSE DR CR BALANCE LOSS ON DISPOSAL DR CR BALANCE 7 Account Title DR CR DR CR DR CR DR CR DR CR DR CR Totals Net loss Totals Ending retained earnings Totals Sheet Jamukha Corporation Worksheet: Requirement (c), (d) For the Year Ended December 31, 2017 Unadjusted Adjusted Income Retained Balance Trial Balance Adjustments Trial Balance Statement Earnings Statement 8 Jamukha Corporation Statement of Cash Flows: Requirement (e) For the Year Ended December 31, 2017 CASH FROM OPERATING ACTIVITIES: Increases Decreases Net Cash From Operating Activities CASH FROM INVESTNG ACTIVITIES: Net Cash From Investing Activities CASH FROM FINANCING ACTIVITIES: Net Cash From Financing Activities NET INCREASE IN CASH Cash at beginning of year Cash at end of year 9 110,000 10,000 28,000 52,900 0 350 0 90,000 55,000 0 0 4,500 0 76,750 230,000 0 0 Accounts receivable Accounts payable Pref. stock ($100 par) Statement of Cash Flows T-Account Worksheet Requirement (e) Use the formal statement to show activity within the cash account. On this statement, debits to cash correspond to increases and credits correspond to decreases. A/D - Equipment Common stock ($1 par) Allow. for doubtful accts Interest payable PICEP - CS Inventory Unearned revenue PICEP - PS Prepaid insurance Bonds payable Retained earnings Equipment Premium on B/P Treasury stock