Fun Depot is a retail store that sells toys, games, and bicycles. On December 31, 2013, the firm’s general ledger contained the following accounts and balances.
INSTRUCTIONS
1. Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2013.
2. Enter the adjustments below in the Adjustments section of the worksheet. Identify each adjustment with the appropriate letter.
3. Complete the worksheet.
ACCOUNTS AND BALANCES
Cash | $ 26,400 Dr. |
Accounts Receivable | 22,700 Dr. |
Allowance for Doubtful Accounts | 320 Cr. |
Merchandise Inventory | 138,000 Dr. |
Supplies | 11,600 Dr. |
Prepaid Advertising | 5,280 Dr. |
Store Equipment | 32,500 Dr. |
Accumulated Depreciation—Store Equipment | 5,760 Cr. |
Office Equipment | 8,400 Dr. |
Accumulated Depreciation—Office Equipment | 1,440 Cr. |
Accounts Payable | 8,600 Cr. |
Social Security Tax Payable | 5,920 Cr. |
Medicare Tax Payable | 1,368 Cr. |
Federal Unemployment Tax Payable |
|
State Unemployment Tax Payable |
|
Salaries Payable |
|
Janie Fielder, Capital | 112,250 Cr. |
Janie Fielder, Drawing | 100,000 Dr. |
Sales | 1,043,662 Cr. |
Sales Returns and Allowances | 17,200 Dr. |
Purchases | 507,600 Dr. |
Purchases Returns and Allowances | 5,040 Cr. |
Rent Expense | 125,000 Dr. |
Telephone Expense | 4,280 Dr. |
Salaries Expense | 164,200 Dr. |
Payroll Taxes Expense | 15,200 Dr. |
Income Summary |
|
Supplies Expense |
|
Advertising Expense | 6,000 Dr. |
Depreciation Expense—Store Equipment |
|
Depreciation Expense—Office Equipment |
|
Uncollectible Accounts Expense |
|
ADJUSTMENTS
a.–b. Merchandise inventory on December 31, 2013, is $148,000.
c. During 2013, the firm had net credit sales of $440,000. The firm estimates that 0.7 percent of these sales will result in uncollectible accounts.
d. On December 31, 2013, an inventory of the supplies showed that items costing $2,960 were on hand.
e. On September 1, 2013, the firm signed a six-month advertising contract for $5,280 with a local newspaper and paid the full amount in advance.
f. On January 2, 2012, the firm purchased store equipment for $32,500. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $3,700.
g. On January 2, 2012, the firm purchased office equipment for $8,400. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $1,200.
h. On December 31, 2013, the firm owed salaries of $8,000 that will not be paid until 2014.
i. On December 31, 2013, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $8,000 of accrued wages.
j. On December 31, 2013, the firm owed federal unemployment tax (assume 0.8 percent) and state unemployment tax (assume 5.4 percent) on the entire $8,000 of accrued wages.
Analyze: If the adjustment for advertising had not been recorded, what would the reported net income have been?
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