Create the adjusted trial balance and the financial statements for a merchandising company for the fiscal year ending December 31, 2020. You will “make up” all numbers included in the adjusted trial balance, and ultimately the financial statements, except where a required balance is indicated, as detailed below.

The following must be reflected in those statements:

General information:

• it was the company’s first year of operations;
• the company is organized as a corporation;
• the company has both cumulative preferred and common stock issued;
• on December 31, the company still held all treasury stock that was repurchased during the year;
• the company declared dividends during December in an amount large enough for common stockholders to receive a dividend (Statement of Stockholders’ Equity must identify amount declared for preferred stockholders and amount declared for common stockholders);

Required account balances:

• the cash account has an ending balance of $20,000;
• the company recognized bad debt expense on December 31 in the amount of $10,000 (allowance for doubtful accounts method is used – not the direct method);
• the company issued $125,000 10-year, 6% bonds on July 1; the bonds pay interest semiannually on January 1 and July 1, and the effective interest rate method is used to amortize the bonds; the market rate of interest was 4% on the day of issuance (Use the present value tables in the back of your book that we used for Chapter 14..);
• on December 1, the company invested in one debt security investment, which it still held on December 31 and is classified as an available-for-sale security - the investment was (a) purchased for $150,000; (b) has an annual interest rate of 4%; (c) pays interest every March 31 and (d) has increased in value since its purchase (round any required balances to the nearest whole number);

Additional information pertaining to account balances:

• use only whole numbers throughout the project – no cents or place holders for cents;
• the company is a merchandiser with an ending inventory on December 31;
• the company purchased only one long-term, depreciable asset during the year and depreciation was recognized - in addition, the asset was still in service on December 31 and will be in service during 2021;
• the company has at least four current liabilities;
• the bond described in the “Required account balances” section above is the only interest-bearing liability that the corporation has ever entered into;
• the company had invested in only one non-influential equity investment, which it still held on December 31 – the investment had decreased in value since its purchase and management will sell it in April of 2021; and
• the income statement SHOULD NOT INCLUDE the earnings per share calculation, because the number of shares outstanding during the fiscal year did not remain constant throughout.

Worksheet 1 in your Excel document – labeled “Narrative”:

Part A: Narrative (5 points)

Provide the following on the first tab in your Excel file:

Company Name:

Product:

Preferred Stock Par:

Authorized:

Issued:

Outstanding:

Percentage:

Common Stock Par:

Authorized:

Issued:

Outstanding:

Worksheet 2 in your Excel document – labeled “ATB”:

Part B: Adjusted Trial Balance (25 points)

The accuracy of the “required” numbers will be assessed here and again in the financial statements.

On the ATB worksheet, complete the following tasks:

1. List the following labels in a column in the following order:
   • Total Assets
   • Total Liabilities
   • Total Equity (not including the income statement accounts)
   • Net Income
2. In the next column to the right, use a function to calculate the total for each of those respective items (listed in part 1 immediately above).
3. In the cell immediately below the total for “net income”, use a function to calculate the following: Total Assets minus Total Liabilities minus Total Equity minus Net Income (using the totals you calculated in step 2 immediately above).

NOTE: You should arrive at a total of zero.

Worksheets 3 – 7 in your Excel document – labeled “IS”, “CI”, “SHE”, “BS”, “CF” Part C: Financial Statements (75 points)

The set of financial statements must include the following:

1. Income Statement – you must use a multi-step income statement format
2. Statement of Comprehensive Income - presented as a separate statement from the Income Statement
3. Statement of Stockholders’ Equity
4. Classified Balance Sheet
5. Statement of Cash Flows - only the title and the last three lines of this statement should be prepared.

Worksheet 8 in your Excel document – labeled “Questions”:

Part D: Questions pertaining specifically to your company (15 points)

1. The normal balance of the Retained Earnings account is a credit. Please discuss why a debit balance appears on the Adjusted Trial Balance. Provide enough detail to convince me that you understand the concept.
2. What was the balance in the Income Summary account immediately before closing the Income Summary Account to Retained Earnings? – indicate amount and whether it held a debit or credit balance.
3. What amount do debits and credits on the Post-Closing Trial Balance each total?
4. Assume the bonds that were issued during 2020 are not redeemed during 2021. What amount of interest expense will be recognized during 2021 for the bonds? You must show your work to earn any credit for this answer.
5. Assume that during 2021 there are no stockholder equity transactions that involve the sale or purchase of any of the corporation’s stock, and that net income for 2021 is $1,500,000. Calculate earnings per share for 2021. You must show your work to earn any credit for this answer.

NOTE: 15 Project points have been allocated for following project instructions.

Answer rating: 100% (QA)

Company Name Acme Corporation Product Widgets Preferred Stock Par 100 Authorized 10000 shares Issued 5000 shares Outstanding 5000 shares Percentage 50 ... View the full answer