Block 1 Case Study #2 Safe and Sound Security, Inc. is a security business with the following account balances as of 1/1/20X2. Cash $ 122,475 Petty cash 100 Accounts receivable 27,400 Allowance for doubtful accounts 4,390 Supplies inventory 165 Prepaid rent 3,000 Merchandise inventory (38 @ $290) 11,020 Equipment 9,000 Van 27,000 Accumulated depreciation 17,100 Sales tax payable 290 Federal income tax payable 500 FICA - Social Security tax payable 600 FICA - Medicare tax payable 150 Warranty payable 312 Unemployment tax payable 630 Interest payable 320 Note payable - State Bank 12,000 Common stock 50,000 Retained earnings 113,868 Note: although all accounts are shown with a positive balance, they have the normal debit or credit balance that accounts in their account type have (e.g. - assets have a debit balance, liabilities have a credit balance). During 20X2, Safe and Sound Security, Inc. experienced the following transactions: 1) Paid the sales tax payable from 20X1. 2) Paid the balance of all the payroll liabilities due for 20X1. 3) On January 1, 20X2, purchased land and a building for $150,000. The building was appraised at $125,000 and the land at $25,000. Safe and Sound paid $50,000 cash and financed the balance. The balance was financed with a 10-year installment note. The note had an interest rate of 7% and annual payments of $14,238 (including both principal and interest) due on the last day of the year. 4) Purchased $660 of Supplies inventory. 5) Purchased 170 alarm systems at a cost of $300. Cash was paid for the purchase. 6) After numerous attempts to collect from customers, wrote off $2,450 of uncollectible accounts receivable. 7) Sold 160 alarm systems for $580 each plus sales tax of 5 percent. All sales were on account. (Be sure to compute cost of goods sold using the FIFO cost flow method). 8) Billed $120,000 of monitoring services for the year. Credit card sales amounted to $36,000, and the credit card company charged a 4% fee. The remaining $84,000 were sales on account. Sales tax is not charged on this service (net credit card sales are posted to accounts receivable until cash is received from the credit card company). 9) Replenished the petty cash fund at June 30. The fund had $11 cash and receipts of $65 for year moving and $24 for office supplies expense. 10) Collected the amount due from the credit card company. 11) Paid the sales tax collected on $85,000 of the alarm sales. 12) Collected $167,000 of accounts receivable during the year. 13) Paid installers and other employees a total of $82,000 for salaries for the year. Use the current Social Security tax and Medicare rates of 6.2% and 1.45%, respectively. Federal income taxes withheld amounted to $9,600. The net amount of salaries was paid in cash. (Disregard unemployment taxes in this entry). 14) Paid $1,250 in warranty repairs during the year for systems installed in the previous year. Prior year warranty expense was estimated at 2% of sales. 15) On September 1, paid in full the note payable owed to State Bank plus $960 of interest. All interest payable at January 1 was owed to State Bank relating to this note payable. 16) Paid $18,000 of advertising expense during the year. 17) Paid payroll liabilities, both the amounts withheld from the salaries plus the employer share of Social Security tax and Medicare tax, on $75,000 of the salaries plus $8,600 of the federal income tax that was withheld. (Disregard unemployment taxes in this entry). 18) Payment was made on the building note payable. Adjustments: 19) There was $210 of supplies inventory on hand at the end of the year. 20) Recognized the expired rent for the office building for the year. Twenty-four months of rent were originally paid at 1/1/20X1. 21) Recognized the uncollectible accounts expense for the year using the allowance method. Safe and Sound now estimates that 5.0% of sales on account will not be collected. 22) Recognized depreciation expense on the equipment, van, and building. The equipment has a five-year life, the van has a four-year life, and the building has a 40-year life. The company uses straight-line method for all fixed assets. The equipment and van were purchased in 20X0 and had a full year depreciation in both 20X0 and 20X1. Required: 1) Record the above transactions. Round all amounts to dollars (do not include cents). Use the transaction/adjustment numbers above to identify each of the transactions in your general journal. Your general journal should be set up as follows: Event # Account Title Debit Credit 2) Post the transactions to the T-accounts. Use the transaction/adjustment numbers above to identify each of the transaction in your T-accounts. Be sure to include all calculations (these can be shown on a separate tab in excel) for any amounts requiring additional calculations (such as interest expense on building purchase notes payable and cost of goods sold). 3) Prepare a trial balance. 4) Prepare an income statement, statement of stockholders equity, and balance sheet. Hint: The following is a listing of all the accounts that you will use in the case study. They are listed in alphabetical order. You must list them in the correct order (not alphabetically) for your trial balance. Accounts payable Accounts receivable Accumulated depreciation Advertising expense Alarm sales Allowance for doubtful accounts Building