Question

Baltic Supplies Unadjusted Trial Balance as at December 31st, 2018 is as follows:

cash 620,000
Accounts receivable 410,000
Merchandise Inventory 480,000
Store Supplies 144,800
prepaid insurance expense 840,000
Building and equipment 2,000,000
Accumulated Depreciation-Building and Equipment 976,000
Accounts Payable 680,000
Travelling Expense Payable
Unearned sales Revenue 450,000
Note Payable-Long Term 213,800
Baltic,Capital 1,700,000
Baltic withdrawal 35,000
Sales revenue earned 2,550,500
Sales discount 45,100
sales returns and allowances 62,500
cost of goods sold 401,000
salaries expense 430,000
telephone expense 85,000
Depreciation expense-Building and Equipment
Insurance Expense 630,000
Store supplies expense 130,000
electricity expense 105,000
Bad Debt expense 65,400
Travelling Expense 25,000
Interest Expense 61,500
Total 6,570,300

The following additional information was made available at December 31, 2018

a) Unearned sales revenue, still NOT earned at December 31, 2018 amounted $65,500.

b) The prepaid insurance of $840,000 was paid on July 1, 2018 for 8-months to February 2019.

c) The Building and Equipment has an estimated life of ten (10) years and is being depreciated on the double declining balance method of depreciation, down to a residual value of $10,000.

d) Accrued travelling expense amounted to $8,800 at December 31, 2018.

e) A physical count of inventory at December 31, 2018, reveals $485,000 worth of inventory on hand.

Required:

1. Prepare the necessary adjusting entries on December 31, 2018.

2. Prepare the company’s Multiple-step Income Statement for the year ended December 31, 2018.

3. Prepare the company’s Statement of Owner’s Equity for the year ended December 31, 2018

4. Prepare the company’s classified Balance Sheet at December 31, 2018.

Answer 1

Baltic Supplies Adjusting Enteries Date Particulars 31.12.2018 Unearned Sales revenue a/c To Sales revenue earned (Revenue recognized) Dr. Debit in $ Credit in $ 384500 384500 630000 31.12.2018 Insurance expense a/c Dr. To Prepaid Insurance Expense (Insurance expensed) 840000 x 6/8 630000 204800 31.12.2018 Depreciation expense-building and equipment a/c Dr. To Accumulated depreciation- Building and Equipment (To record depreciation) 204800 8800 31.12.2018 Travelling expense a/c Dr. To Travelling expense payable (Travelling expense accrued) 8800 5000 31.12.2018 Cost of goods sold a/c Dr. To Merchandise Inventory (Loss of Inventory) 485000 - 480000 = 5000 5000

Double Declining Depreciation Beg. End Year WDV Depreciation WDV 2000000 400000 1600000 1600000 320000 1280000 1280000 256000 1024000 1024000 204800 819200 819200 163840 655360 655360 131072 524288 524288 104858 419430 419430 83886 335544 335544 67109 268435 268435 53687 214748 WDV x 2 x 1/slm rate WDV x 2 x 1/10

Worksheet For the Month ending 31.12.2018 Particulars Cash Accounts Receivable Merchandise Inventory Store supplies Prepaid Insurance Expense Building and Equipment Accumulated depreciation-Building and Equipment Accounts payable Travelling expense payable Unearned Sales revenue Note payable long term Baltic capital Baltic Withdrawal Sales revenue earned Sales discount Sales returns and allowances Cost of goods sold Salaries expense Telephone expense Depreciation expense-building and equipment Insurance expense Store supplies expense Electricity expense bad debt expense Travelling expense Interest expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 620000 620000 410000 410000 480000 5000 475000 144800 144800 840000 630000 210000 2000000 2000000 976000 204800 1180800 680000 680000 8800 8800 450000 384500 65500 213800 213800 1700000 1700000 35000 35000 2550500 384500 2935000 45100 45100 62500 62500 401000 5000 406000 430000 430000 85000 85000 204800 204800 630000 630000 1260000 130000 130000 105000 105000 65400 65400 25000 8800 33800 61500 61500 6570300 6570300 1233100 1233100 6783900 6783900

Statement of Income For the Month ending 31.12.2018 Sales revenue earned Sales discount Sales returns and allowances Net Sales Cost of goods sold Gross Profit 2935000 -45100 -62500 2827400 -406000 2421400 Salaries expense Telephone expense Depreciation expense-building and equipment Insurance expense Store supplies expense Electricity expense bad debt expense Travelling expense Operating Loss Non Operating Items Interest expense Net Loss 430000 85000 204800 1260000 130000 105000 65400 33800 2314000 107400 -61500 45900 Statement of Owner's Equity For the Month ending 31.12.2018 Baltic capital Net Loss 1700000 45900 1745900 -35000 1710900 Baltic Withdrawal

Amounts in $ Amounts in $ Balance Sheet As at 31.12.2018 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Store supplies Prepaid Insurance Expense Amounts in $ Amounts in $ Liabilities Current Liabilities 620000 Accounts payable 410000 Travelling expense payable 475000 Unearned Sales revenue 144800 210000 1859800 Non Current Liabilities Note payable long term 680000 8800 65500 754300 213800 Non Current Assets Building and Equipment Accumulated depreciation- Total Assets 2000000 -1180800 Owner's Equity 819200 Baltic capital 2679000 Total Liabilities & Equity 1710900 2679000