Selected pre-adjustment account balances and adjusting information of Sunset Cosmetics Inc. for the year ended December 31,

Question:

Selected pre-adjustment account balances and adjusting information of Sunset Cosmetics Inc. for the year ended December 31, 2013, are as follows:

Retained Earnings, January 1, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440,670

Sales Salaries and Commissions . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000

Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,090

Legal Services . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,225

Insurance and Licenses . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,500

Travel Expense-Sales Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,560

Depreciation Expense-Sales/Delivery Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,100

Depreciation Expense-Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800

Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700

Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400

Telephone and Postage Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,475

Supplies Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180

Miscellaneous Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,000

Dividend Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,150

Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,520

Allowance for Bad Debts (Cr. balance) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Officers' Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,600

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,200

Sales Returns and Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,200

Sales Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880

Gain on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,500

Inventory, January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,700

Inventory, December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,550

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,000

Freight-In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525

Accounts Receivable, December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261,000

Gain from Discontinued Operations (before income taxes) . . . . . . . . . . . . . . . . . . . . . . . . 40,000

Extraordinary Loss (before income taxes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,600

Shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000

Adjusting information:

(a) Cost of inventory in the possession of consignees as of December 31, 2013, was not included in the ending inventory balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,600

(b) After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for bad debts to a percentage of the ending accounts receivable balance . . . . . . . . . 3%

(c) Purchase returns and allowances were unrecorded. They are computed as a percentage of purchases (not including freight-in). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%

(d) Sales commissions for the last day of the year had not been accrued.

Total sales for the day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600

Average sales commissions as a percent of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%

(e) No accrual had been made for a freight bill received on January 3, 2014, for goods received on December 29, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800

(f) An advertising campaign was initiated November 1, 2013. This amount was recorded as prepaid advertising and should be amortized over a 6-month period. No amortization was recorded.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,818

(g) Freight charges paid on sold merchandise and not passed on to the buyer were netted against sales. Freight charge on sales during 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,200

(h) Interest earned but not accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $690

(i) Depreciation expense on a new forklift purchased March 1, 2013, had not been recognized. (Assume that all equipment will have no salvage value and the straight-line method is used. Depreciation is calculated to the nearest month.)

Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,800

Estimated life in years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

(j) A "real" account is debited upon the receipt of supplies.

Supplies on hand at year-end. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$1,600

(k) Income tax rate (on all items) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35%

Instructions:

Prepare a corrected multiple-step income statement and a retained earnings statement for the year ended December 31, 2013. Assume all amounts are material?

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...