Merano Wool Company manufactures clothing from merino wool. The person preparing the adjusting entries at year-end left for a vacation prior to completing the adjustments. You have been given the following unadjusted trial balance along with some additional information for the December 31, 2014, year-end.

Other information:
1. Assume all accounts have a normal balance.
2. 30% of the balance in Unearned Sales is from sales earned during 2014; the remaining balance is for 2015 sales.
3. Merano warranties its clothing against manufacturer defects and estimates that 4.5% of the 18,800 garments sold during 2014 will be returned for replacement. The average cost of the garments is $75.
4. A partial amortization schedule for the note payable follows:

5. 3% of outstanding receivables are estimated to be uncollectible.
6. A physical count of the inventory showed a balance actually on hand of $143,940.
7. The balance in Income Tax Expense represents taxes accrued and paid for the 2014 period at the rate of $16,000 per month. Assume the income tax rate is 24%.

Required
1. Based on the information provided, journalize the adjusting entries at December 31, 2014.
2. Prepare a classified balance sheet (round all values on the balance sheet to wholenumbers).

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Unadjusted Balance Unadjusted Account Balance Account s 26,300 Gina Lejeune, capial 65,100 Income tax expense.... 176,000 Accum. deprec., equipment110,000 M Accum. deprec., furnitur Allowance for doubtful accounts Merchandise inventory157, 71,400 Note payable 1,200 119,000 Other operating expenses .1,439,000 17,600 2,015,000 36,500 900 Office supplies.... Equipment....4 Estimated warranty liabilities 416,000 Prepaid rent 123,000 Unearned sales Interest Expense Principal Portion Annual Payment Principal Balance at Dec. 31 Year 2012 2013 2014 2015 2016 $10,188 8,691 7,118 5,466 3,732 $29,959 31,456 33,029 34,681 36,415 $40,147 40,147 40,147 40,147 40,147 $173,810 142,354 109,325 74,644 38,229