Question

On January 1, 2018, the general ledger of Freedom Fireworks includes the following account balances: Credit Debit $ 103,200 38,000 154,000 87,300 140,000 $ Accounts Cash Accounts Receivable Inventory Land Buildings Allowance for Uncollectible Accounts Accumulated Depreciation Accounts Payable Bonds Payable Discount on Bonds Payable Common Stock Retained Earnings Totals 3,800 11,600 39,700 140,000 32,000 220,000 139,400 $ 554,500 $ 554,500 During January 2018, the following transactions occur: January 1 Borrow $120,000 from Captive Credit Corporation. The installment note bears interest at 5% annually and matures in 5 years. Payments of $2,180 are required at the end of each month for 60 months. January 1 Called the bonds at the contractual call price of $120,000. The 6% bonds pay interest semiannually each June 30 and December 31. January 4 Receive $33,000 from customers on accounts receivable. January 10 Pay cash on accounts payable, $31,000. January 15 Pay cash for salaries, $30,900. January 30 Firework sales for the month total $206,000. Sales include $67,800 for cash and $139,000 on account. The cost of the units sold is $122,500. January 31 Pay the first monthly installment of $2,180 related to the $120,000 borrowed on January 1. Round your interest calculation to the nearest dollar. The following information is available on January 31, 2018. a. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $26,000. b. At the end of January, $5,000 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 2% will not be collected. No accounts were written off as uncollectible in January. c. Unpaid salaries at the end of January are $28,100. d. Accrued income taxes at the end of January are $7,000. Requirement General Journal General Ledger Trial Balance Income Statement Balance Sheet Analysis 1. Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1-8) assuming a FIFO perpetual inventory system. The transaction on January 30 requires two entries: one to record sales revenue and one to record cost of goods sold. Review the 'General Ledger' and the Trial Balance' tabs to see the effect of the transactions on the account balances. 2. Record adjusting entries on January 31. in the 'General Journal' tab (these are shown as items 9-12). 3. Review the adjusted 'Trial Balance' as of January 31, 2018, in the 'Trial Balance' tab. 4. Prepare a multiple-step income statement for the period ended January 31, 2018, in the 'Income Statement' tab. 5. Prepare a classified balance sheet as of January 31, 2018, in the 'Balance Sheet' tab. 6. Record the closing entries in the 'General Journal' tab (these are shown as items 13-15). 7. Using the information from the requirements above, complete the 'Analysis' tab.

Answer 1

	1.Journal entries
Date	Account Title	Debit	Credit
1-Jan	Cash	120000
	Installment Note		120000
	Bonds payable	140000
	Loss on Retirement	12000
	Discount on Bonds payable		32000
	Cash		120000
4-Jan	Cash	33000
	Accounts receivable		33000
10-Jan	Accounts payable	31000
	Cash		31000
15-Jan	Salaries expense	30900
	Cash		30900
30-Jan	Cash	67000
	Accounts receivable	139000
	Sales revenue		206000
	Cost of Goods Sold	122500
	Inventory		122500
31-Jan	Installment Note	1680
	Interest expense(120000*5%/12)	500
	Cash		2180
31-Jan	2.Adjusting Entries
a.	Depreciation expense	950
	Acc. Depn._buildings		950
	(140000-26000)/10 yrs./12 mths.
b.	Bad debt expense	1480
	Allowance for Uncollectible accounts		1480
	((5000*50%)+(139000*2%))-3800
c.	Salaries expense	28100
	Salaries Payable		28100
d.	Income tax expense	7000
	Income tax payable		7000
		735110	735110

3.Adjusted Trial Balance
Account Title	Debit	Credit
Cash	139120
Accounts receivable	144000
Allowance for Uncoll. accounts		5280
Inventory	31500
Land	87300
Buildings	140000
Acc. Depn.-buildings		12550
Accounts payable		8700
Salaries Payable		28100
Income tax payable		7000
Installment Note		118320
Common stock		220000
Retained Earnings		139400
Sales revenue		206000
Cost of Goods Sold	122500
Depreciation expense	950
Salaries expense	59000
Bad debt expense	1480
Loss on Retirement of bonds	12000
Interest expense	500
Income tax expense	7000
Totals	745350	745350

4. Multi-step Income Statement
Sales revenue		206000
Cost of Goods Sold		122500
Gross profit		83500
Less: Operating expenses:
Depreciation expense	950
Salaries expense	59000
Bad debt expense	1480
Total Operating expenses		61430
Operating Income		22070
Non-operating expenses:
Loss on Retirement of bonds	12000
Interest expense	500	12500
Income before tax		9570
Income tax expense		7000
Net Income		2570

5.Classified balance sheet
Current assets
Cash	139120
Accounts receivable	144000
Allowance for Uncoll. accounts	-5280
Inventory	31500
Total current assets		309340
Fixed assets:
Land	87300
Buildings	140000
Acc. Depn.-buildings	-12550
Total Fixed assets		214750
Total assets		524090
Liabilities & Owners'equity
Current Liabilities
Accounts payable	8700
Salaries Payable	28100
Income tax payable	7000
Total Current Liabilities		43800
Long-term liabilities
Installment Note		118320
Total Liabilities		162120
Owners'Equity
Common stock	220000
Retained Earnings(139400+2570)	141970
Total Owners'Equity		361970
Total Liabilities & Owners'equity		524090

6.Closing Entries
Income Summary	203430
Cost of Goods Sold		122500
Depreciation expense		950
Salaries expense		59000
Bad debt expense		1480
Loss on Retirement of bonds		12000
Interest expense		500
Income tax expense		7000
Sales revenue	206000
Income Summary		206000
Income Summary	2570
Retained Earnings		2570