Question

Malasadas trading company

Unadjusted Trial balance as at december 31, 2016

Account	Debit	Credit
accounts receivable	340,000
allowance for bad debts		25,000
merchandise inventory	210,000
store supplies	120,000
prepaid insurance	156,000
office furniture	1,200,000
accumulated depreciation - office furniture		360,000
computer equipment	600,000
accumulated depreciation - computer equipment
accounts payable		345,000
wages payable
interest payable
notes payable long term		210,000
unearned sales revenue		265,000
donna malasadas capital		1,200,000
donna malasades withdrawal	190,000
sales revenue earned		1,755,200
sales discount	15,000
sales return and allowances	27,000
cost of goods sold	490,000
wages expense	215,000
insurance expense
depreciation expense office furniture
depreciation expense computer equipment
store supplies expense
utilities expense	119,000
bad debt expense
rent expense	205,000
interest expense	23,200
cash	250,000
total	4,160,200	4,160,200

the following additional information was made available at december 31, 2016

a) store supplies on hand at december 31, 2016 amounted to $42,000

b) insurance of $156,000 was paid on june 1, 2016 for (10) months

c) the office furniture has an estimated life of ten (10) years and is being depreciated on the straight line method of depreciation , down to a residual value of $0

d) the computer was acquired on april 1, 2016 and is being depreciated over five (5) years on the double declining method of depreciation down to a residue of $54,432

e) wages earned by the company's employees and are not paid at december 31, 2016, amounted to 33,500

f) accrued interest expense amounted to $2,850 at december 31, 2016

g) a physical count of inventory at december 31, 2016, reveals $280,300 worth of inventory on hand

h) at decemver 31, 2016 $195,000 of the previously unearned sales revenue had been earned

i) the aging of the accounts receivable schedule at december 31, 2016 indicated that the estimated uncollectible on accounts receivable is $34,000

other data:

j) $110,000 of the notes payable is due for payment on april 31, 2017

you are required to prepare:

1) adjusting journal entries on december 31, 2016

2) company's adjusted trial balance as at december 31, 2016

3) prepare the company multi step income statement for the year ended december 31, 2016

4)statement of owner's equity for the year ended december 31, 2016

5) prepare the company's classified balance sheet at december 31, 2016

please show all working where necessary

Answer 1

1) The required adjusting journal entries are shown as follows:- (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
12/31/16	Store supplies expense (120,000-42,000)	78,000
	Store supplies		78,000
	(To record the store supplies expense)
12/31/16	Insurance expense [(156,000/10 months)*7]	109,200
	Prepaid Insurance (from June to Dec)		109,200
	(To record the insurance expense)
12/31/16	Depreciation expense office furniture (1,200,000/10 yrs)	120,000
	Accumulated depreciation office furniture		120,000
	(To record the depreciation expense)
12/31/16	Depreciation expense computer equipment (see note 1)	180,000
	Accumulated depreciation - computer equipment		180,000
	(To record the depreciation expense)
12/31/16	Wages expense	33,500
	Wages payable		33,500
	(To record the wages expense payable)
12/31/16	Interest expense	2,850
	Interest payable		2,850
	(To record the interest payable)
12/31/16	Merchandise inventory (280,300-210,000)	70,300
	Cost of goods sold		70,300
	(To adjust the inventory balance at Dec 31, 2016)
12/31/16	Unearned sales revenue	195,000
	Sales revenue earned		195,000
	(To record the sales revenue)
12/31/16	Bad debt expense (34,000-25,000)	9,000
	Allowance for bad debts		9,000
	(To record the bad debt expense)

Notes:-

a) Double declining depreciation rate of computer equipment = (1/useful life)*2*100

= (1/5 yrs)*2*100 = 40%

Depreciation from Apr 1, 2016 to Dec 31, 2016 = $600,000*40%*9/12 = $180,000

b) No adjusting entries will be needed for notes payable due on April 30, 2017.

2) The company's adjusted trial balance is shown as follows:- (Amounts in $)

Account	Debit	Credit
Accounts receivable	340,000
Allowance for bad debts (25,000+9,000)		34,000
Merchandise inventory (210,000+70,300)	280,300
Store supplies (120,000-78,000)	42,000
Prepaid insurance (156,000-109,200)	46,800
Office furniture	1,200,000
Accumulated depreciation - office furniture (360,000+120,000)		480,000
Computer equipment	600,000
Accumulated depreciation - computer equipment		180,000
Accounts payable		345,000
Wages payable		33,500
Interest payable		2,850
notes payable long term ($110,000 payable within 6 months)		210,000
Unearned sales revenue (265,000-195,000)		70,000
Donna malasadas capital		1,200,000
Donna malasades withdrawal	190,000
Sales revenue earned (1,755,200+195,000)		1,950,200
Sales discount	15,000
Sales return and allowances	27,000
Cost of goods sold (490,000-70,300)	419,700
Wages expense (215,000+33,500)	248,500
Insurance expense	109,200
Depreciation expense office furniture	120,000
Depreciation expense computer equipment	180,000
Store supplies expense	78,000
Utilities expense	119,000
Bad debt expense	9,000
Rent expense	205,000
Interest expense (23,200+2,850)	26,050
Cash	250,000
Total	4,505,550	4,505,550

3) The company's multi step income statement (Amounts in $)

Sales revenue earned	1,950,200
Sales discount	(15,000)
Sales return and allowances	(27,000)
Net sales		1,908,200
Cost of goods sold		(419,700)
Gross profit (A)		1,488,500
Expenses:
Wages expense	248,500
Insurance expense	109,200
Depreciation expense office furniture	120,000
Depreciation expense computer equipment	180,000
Store supplies expense	78,000
Utilities expense	119,000
Bad debt expense	9,000
Rent expense	205,000
Interest expense	26,050
Total expenses (B)		1,094,750
Net Income		393,750

4) Statement of Owner's Equity (Amounts in $)

Donna Malasadas capital	1,200,000
Donna Malasadas withdrawal	(190,000)
Net Income	393,750
Owner's equity	1,403,750

5) Classified Balance Sheet at Dec 31, 2016 (Amounts in $)

Assets
Current Assets
Cash		250,000
Accounts receivable	340,000
Allowance for bad debts	(34,000)
Accounts receivable, net		306,000
Merchandise inventory		280,300
Store supplies		42,000
Prepaid insurance		46,800
Total Current Assets		925,100
Office furniture, gross	1,200,000
Accumulated depreciation - office furniture	(480,000)
Office furniture, net		720,000
Computer equipment, gross	600,000
Accumulated depreciation - computer equipment	(180,000)
Computer equipment, net		420,000
Total Assets		2,065,100
Liabilities and Owner's Equity
Current Liabilities
Accounts payable	345,000
Wages payable	33,500
Interest payable	2,850
Unearned sales revenue	70,000
Total Current Liabilities		451,350
Notes payable long term (payable within 6 months)		110,000
Notes payable long term (not payable within 6 months)		100,000
Owner's Equity		1,403,750
Total liabilities and owner's equity		2,065,100