CHAPTER 3 HANDOUT ACCOUNTING INFORMATION SYSTEM [18 POINTS BACKGROUND Harmet's Hats is a hat retailer who buys hats from a hat manufacturer and then sells them in its stores The following information includes the company's December 31, 20Y6 balance sheet and the details of transactions occurring during 20Y7 Using the template provided on Blackboard, complete the following 1. Record the transactions in the General Journal. Be sure to label each transaction according to is REQUIRED number below Post the transactions from the General Journal to the General Ledgers (t-accounts). Prepare any necessary closing entries. Be sure to record them in the General Journal and post 2. 3. them to the General Ledgers 4. Prepare the balance sheet, retained earnings statement, and income statement for Harriet's Hats Inc. for the year ended December 31, 20Y7 HINT: Read through the entire assignment at least twice to become familiar with all of the important facts before beginning to do any work TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 207 1. Sales and Accounts Receivable a. The sales price of each hat was $30. All sales were made on account b. Cash collections on account amounted to $42,000 c. The company identified $350 of receivables as being uncollectble and wrote them off d. The company follows a percentage-of-receivables approach to estimate its accounts receivable that will become uncollectible. As of the end of 20Y7, the company estimates that 12% of its receivables wil be uncollectible. a. The company began 20Y7 with 500 hats which had a cost of $8 each. The following purchases (all on account) were Inventorynany began made during 207 (1) January 15-405 hats$10.00 each (2) March 23-310 hats12.00 each (3) July 2nd- 525 hats$14.00 each (4) October 31-430 hats$15.00 each Employees physically counted 530 hats remaining in the warehouse at the end of 20Y7. The company uses a periodic LIFO inventory system to cost its inventory 6450 b. The company made cash payments to inventory suppliers totaling $21,500 Property, Plant and Equipment a. Straight-line depreciation is used for all store fixtures and office equipment b. Below is a schedule of the store fixtures and office equipment the company had in place at the end of 20Y6 3. FIXTURES AND EQUIPMENT (as of December 31, 20Y6) Useful LNe ST700 I Syears 000 |Hstorical Cost! . Savage Value! Date Acured Jan. 1, 20Y1 ID# 1256 1876 4299 12,000 10 years $1.200 Jan. 1,20Y1 10 an. 1,20Y3120 $22,000 5 years $1,000 Jan. 1, 20Y6 CHAPTER 3 HANDOUT I PAGE 1 TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 20Y7 (CONT D) c d. On July 1, office equipment (De1876) was sold for $620. On January 1, new store fuxtures were purchased for $3,000 in cash. The company expects the fuxtures to have a5- year useful lfe and a $500 salvage value. 4. Debt a. On September 1,20Y7, the company paid-off the note payable that was outstanding at the beginning of the period The note had an 8% interest rate, had been issued on September 1, 20Y6, and required semiannual interest payments on February 28 and August 31 Also on September 1, 20Y7, the company bomowe interest rate with simlar payment terms as the note thet was just paid-off b. i o on a new note payable. The new note carries a 5% 5. Operations a. Two rent payments of $1,800 were made during 20Y7 (on March 1 and September 1). The payments were for rent b. Cash paid out for wages during 20Y7 totaled $12.200. Records i c. Other expenses (paid in cash) totaled $2,150. a. The company paid its 20Y6 income taxes in March of 20Y7. on the store building and were prepaid for six months each. The balance in the prepaid account at the end of 20Y7 represents the rent for January and February 208 indicate that salaries for the last week of December amounted to $300 and would be paid at the end of the first week in January (a two-week pay period). 6. Income Taxes b. The company has a 30% income tax rate for both 20Y6 and 2012 7. Common Stock a. Dividends of $3,600 were declared and paid during 20Y7 b. New common stock was issued for $10,000 during 2017 BALANCE SHEET as of DECEMBER 31, 20Y6 $15,000 Cash Accounts Receivable Less: Allowance for Bad Debts Net Accounts Receivable Prepaid Rent Inventory Total Current Assets Property, Plant, and Equipment Less: Accumulated Depreciation Net Property. Plant, and Equipment Total Assets 5,000 4,500 500 4,000 24,000 35,700 11,800 23,900 $47,900 Liabilities and Owner's Equity Accounts Payable Wages Payable Interest Payable ncome Taxes Payable Notes Payable Total Current Liabilities Common Stock Retained Earnings Total Liabilities and Owner's Equity $2,500 170 64 900 2,400 6,034 20,000 21.866 $47,900 CHAPTER 3 HANDOUT I PAGE 2