Knox Corp. 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, 2019, 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, 2019, 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, 2019. The balance of Retained Earnings on January 1, 2019, 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, 2019. Descriptions are not required.
Analyze: Assume that dividends were declared in equal amounts over the four quarters of fiscal 2019. What percentage of Knox Corp.€™s annual income before tax was spent on dividends to stockholders?

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Knox Corp Trlal Balance (Condensed) December 31, 2019 ACCOUNT NAME DEBIT CREDIT סOס0סא 52 800 00 Cash Accounts Receivable 700 00 Allowance for Doubtful Accounts 74 920 00 60 000 00 88 000 00 Merchandise Inventory Land Buildings Accumulated Depreciation-Buildings 8|이이이 00 78 000 00 Equipment Accumulated Depreciation-Equipment Accounts Payable 12 000 00 31 4 5 0 00 2400 00 Dividends Payable–Preferred Accrued Expenses Payable Income Tax Payable 80 000 00 6 000 00 80 000 00 89 170 00 445 | 이이이 00 Preferred Stock, 10% Paid-in Capital in Excess of Par Value-Preferred Common Stock Retained Earnings Sales (Net) 220 000 00 85이00 001 40 000 00 16 0 00 00 Purchases Selling Expenses Control General Expenses Control Income Tax Expense Income Summary 754 7 20 00 754 7 20 00 Totals