Pacific Corporation has been authorized to issue 10,000 shares of 10 percent noncumulative, nonparticipating preferred stock with a par value of $100 per share and 10,000 shares of common stock with a stated value of $100 per share. As of December 31, 2016, 800 shares of preferred stock and 800 shares of common stock have been issued and are outstanding. Dividends are paid quarterly on the preferred stock. A condensed trial balance as of December 31, 2016, is shown below.

INSTRUCTIONS
1. Enter the December 31 trial balance on an eight-column worksheet. Provide four lines for the Selling Expenses control account and three lines for the General Expenses control account. Total and rule the Trial Balance columns.
2. Enter the necessary adjustments on the worksheet, based on the following data for December 31:
a. Ending merchandise inventory is $78,000. Close the beginning inventory, and set up the ending inventory.
b. Allowance for Doubtful Accounts should be adjusted to a balance of $1,300 (debit Selling Expenses).
c. Depreciation of buildings is $4,000 ($3,600 is selling expense; $400 is general expense).
d. Depreciation of equipment is $6,000 ($2,000 is selling expense; $4,000 is general expense).
e. Accrued expenses are $3,800 ($1,200 is selling expense; $2,600 is general expense).
f. The $16,000 balance in Income Tax Expense represents the quarterly tax deposits. Adjust the Income Tax Expense account using the following procedure:
(1) Extend the adjusted income and expense items to the Income Statement columns. Using this data, compute the net income before income taxes.
(2) Assuming that taxable income is the same as net income before income taxes, use the tax rates given in this chapter to compute the federal income tax. Round the computed tax to the nearest whole dollar. Ignore state and local income taxes.
3. Complete the worksheet as shown in the text.
4. Prepare a condensed income statement for the year.
5. Prepare a balance sheet as of December 31, 2016. The balance of Retained Earnings on January 1, 2016, was $89,170. The only dividends declared during the year were dividends on preferred stock.
6. Journalize the adjusting and closing entries on December 31, 2016. Descriptions are not required.
Analyze: Assume that dividends were declared in equal amounts over the four quarters of fiscal 2016. What percentage of Pacific Corporation's annual income before tax was spent on dividends to stockholders?

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Pacific Corporation Trial Balance (Conden December 31, 2016 ACCOUNT NAME DEBIT 52 Allowance for Doubtful Accounts Accumulated Depreciation Buildings 0101 01 00 78 Accumulated Depreciation-Equipment 12 000 00 2400 00 Accrued Expenses Payable Preferred Stock, 10% Paid-in Capital in Excess of Par Value-Preferred 445 000 00 220 General Expenses Control 754 7 2 0 00