Becky Olson established her corporation, Olson Sports, Inc., several years ago in Boulder, Colorado, to sell hiking and ski equipment in her store and online. The annual reporting period for the company ends December 31. Becky prepared the adjusted trial balance below at the end of 2020. However, her CPA audited the trial balance information she presented and found several items that need to be updated before financial statements can be prepared. These items are listed below Becky’s trial balance. All amounts in the trial balance and in the listed items to be updated are in thousands of dollars.

OLSON SPORTS, INC.
Adjusted Trial Balance
December 31, 2020
(prepared by Becky Olson)
($ in thousands)	Debit				Credit
Cash	$	570
Accounts receivable		373
Allowance for doubtful accounts					$	18
Inventories		539
Prepaid expenses		59
Land		22
Building		189
Equipment (furniture, fixtures, and computers)		360
Accumulated depreciation						222
Software		90
Patents		1
Goodwill		161
Accounts payable						252
Accrued liabilities						182
Income taxes payable						16
Long-term debt						49
Common stock						3
Additional paid-in capital						243
Retained earnings						1,107
Sales revenue						2,487
Credit card discounts		53
Cost of sales		1,306
Advertising expense		145
Utilities expense		85
Wages expense		625
Interest expense		1
Totals	$	4,579			$	4,579

1. On the last day of the year, failed to record the $100 sale of hiking merchandise to a customer who paid with his Visa credit card. Visa charges Olson Sports a 3 percent fee.
2. On December 31, failed to write off a $3 bad debt.
3. Failed to record bad debt expense for the year. After the write-off in (b), based on an aging of the accounts receivable, Olson Sports calculated that $21 will likely be uncollectible.
4. The auditor noted that the inventory is listed on the trial balance at current cost using the first-in, first-out method. However, it should be measured using the last-in, first-out method. Beginning inventory was 15 units at $10 per unit, the April 10 purchase was 40 units at $11 per unit, the July 2 purchase was 52 units at $13 per unit, and the October 4 purchase was 28 units at $16 per unit. The count of inventory on hand at the end of the year was 35 units.
5. Failed to record $10 in new store fixtures (equipment) that arrived at Olson Sports’s shipping dock during the last week of the year, with payment due to the manufacturer within 30 days. Olson Sports paid $1 cash for delivery and $3 to install the new fixtures.
6. On December 31, failed to record the sale of old computers (equipment) with a cost of $20 and a net book value of $8 for $3 cash. When they were sold, no depreciation had been recorded for the year. Olson Sports depreciates computer equipment using the straight-line method with a residual value of $4 over a four-year useful life. [Hint: Prepare two entries.]
7. Failed to amortize the accounting software that Olson Sports purchased at the beginning of the year. It is estimated to have a three-year useful life with no residual value. The company does not use a contra-account.
8. Failed to record the annual depreciation for the building and furniture (equipment):

• The building is depreciated using the straight-line method with a residual value of $9 over a 20-year useful life.
• Furniture costing $120 is depreciated using the double-declining-balance method with a residual value of $20 over a 10-year useful life. The accumulated depreciation of the furniture at the beginning of the year was $60.

9. Failed to record income tax expense for the year. Including the effects of the above entries, record Olson Sports’s income tax expense at an effective rate of 24 percent.

Prepare Journal Entries to record transactions and adjustments listed (a) through (i).

1- Record the $100 sale of hiking merchandise to a customer along with a 3% fee charged by Visa for credit card payment.

2- Record the write off a $3 bad debt.

3 – Record bad debt expense for the year based on an aging of the accounts receivable.

4- Record the cost of sales resulting from a change in the method of valuing current cost of inventory for FIFO to LIFO.

5 – Record the purchase of $10 in new story fixtures (equipment), $1 paid for its delivery and $3 for its installation.

6 – Record the depreciation on sale of old computers (equipment) with a cost of $20 and a net book value of $8 for $3 cash.

7 – Record the loss on sale of old computers (equipment) sold for $3 cash.

8 – Record the amortization of accounting software.

9 – Record the annual depreciation for the building and furniture

10 – Record the income Tax expense for the year.

Prepare Income Statement

 Prepare Statement of Stockholder Equity

 Prepare Balance Sheet (shown in two parts)

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Transcribed Image Text:

OLSON SPORTS, INC. Income Statement For the Year Ended December 31, 2020 (in thousands) Gross profit Operating expenses: Total operating expenses Other item: 60 O 0 O 0 OLSON SPORTS, INC. Income Statement For the Year Ended December 31, 2020 (in thousands) Gross profit Operating expenses: Total operating expenses Other item: 60 O 0 O 0

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