On December 31, 2010, Clean and White Linen Supplies Ltd. had the following account balances:
Cash……………………………………$90,000
Accounts receivable…………………… 96,000
Uniforms for sale……………………… 60,000
Supplies on hand………………………. 2,000
Investment in Golden Company………. 80,000
Equipment……………………………...330,000
Accumulated depreciation…………….. 90,000
Accounts payable……………………… 60,000
Wages payable………………………… 8,000
Long-term bank loan, 7%.......................150,000
Share capital…………………………...250,000
Retained earnings……………………… 100,000
In 2011, the following transactions occurred:
1. On January 1, paid $3,900 for a three-year fire insurance policy.
2. Purchased additional uniforms on credit for $120,000.
3. Sold uniforms for $180,000 on account. The inventory that was sold had been purchased for $100,000.
4. Performed cleaning services for customers for $520,000. One-quarter of this amount was paid in cash and the remainder was on account.
5. Paid $130,000 to suppliers to settle some of the accounts payable.
6. Received $246,000 from customers in settlement of amounts owed to the company.
7. Paid $12,000 for advertising.
8. At the end of 2011, paid the interest on the bank loan for the year, as well as $30,000 on the principal.
9. Received a $3,000 dividend from the investment in Golden Company.
10. Paid $15,000 for utilities for the year.
11. Paid dividends of $12,000 at the end of the year.
12. Paid $102,000 for wages during the year. At year end, the company still owed $2,000 to the employees for the last week of work in December.
13. Amortized the equipment for the year. The company had bought its equipment at the be-ginning of 2008, and it was expected to last 10 years and have a residual value of $30,000.
14. Made an adjustment for the cost of the insurance that expired in 2011.
Required:
a. Prepare journal entries to record each of the above transactions and adjustments.
b. Create T accounts. Enter the beginning balances from 2010, post the 2011 journal entries, and determine the ending balances for 2011.
c. Prepare an adjusted trial balance, and ensure that the total of the debit balances is equal to the total of the credit balances. (If your totals are not equal, you should use the procedures outlined in the Helpful Hint on page 179 to try to locate the error.)
d. Prepare a statement of earnings and a statement of financial position for 2011.
e. Prepare the closing entries and post them to the T accounts.