Read ALL instructions before getting started!

ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2016.

Given on the first two tabs are ABC's 12/31/16 Unadjusted Trial Balance and a list of needed adjustments.

1. Make all 12 adjustments on the "Adjusting Journal Entries" tab. Remember to include a description under each journal entry.

2. Post the adjustments to the general ledger on the "12-31-16 T-Accounts" tab. You may have to add T-Accounts for new accounts.

Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE "BB" (BEGINNING BALANCES) FOR THE

T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/16.

3. Once the 12/31/16 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you

may have to insert lines for new accounts. Link the Adjusted Trial Balance to your T-Accounts.

4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet.

For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses,

Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company. For purposes

of the Balance Sheet, be sure to prepare a classifed Balance Sheet. Link your financial statements to your Adjusted Trial Balance.

If necessary, review financial statement preparation in Chapters 3 and 4 of your Intermediate Accounting textbook for a quick refresher.

5. When the Financial Statements are complete, make the closing entries on the "Closing Entries" tab.

6. When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting

journal entries are also on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. (Helpful hint: After you have completed

and posted all of your adjusting entries, make a duplicate copy of your "12-31-16 T-Accounts" tab to replace the existing blank

"Post-Close T Accounts" tab by right clicking on the completed "12-31-16 T-Accounts" tab, select Move or Copy,

then click on "Create a Copy" and then place at the desired location. You can then delete the original "Post-Close T-Accounts" tab and rename the

newly duplicated tab as your "Post-Close T-Accounts" tab).

7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts.

8. Double-check your work. Here are a few things to check for:

-Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom.

-Net income from the income statement will flow through to the Statement of Retained Earnings.

-Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet.

-The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts.

-Check figure 1: Income from operations = $389,229.

-Check figure 2: Income before income taxes = $345,658.

-Check figure 3: Total Current Assets at 12/31/16 = $1,294,564.

-Check figure 4: Retained Earnings at 12/31/16 = $186,308.

-Check figure 5: Total Stockholders' Equity at 12/31/16 = $427,308.

-Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat.

Otherwise, management may send back to you for revision!

-Include your work at the bottom of each tab as needed.

-Ask questions prior to the dayight before the due date. The due date is clearly indicated on the course schedule.

-Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment.

-Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. "Total Liabilities and Stockholders' Equity").

-DO NOT force any cells to match check figures given. Any adjustments in the T-Accounts or financial statements not supported by

legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade. ments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have

g your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this

comprehensive problem will serve you well in the rest of your accounting curriculum. ABC Corporation

Unadjusted Trial Balance

December 31, 2016

Debit

834,444

367,120 Cash

Accounts receivable

Allowance for doubtful accounts

Inventory

Allowance to Reduce Inventory to NRV

Purchases

247,000

Prepaid insurance

6,750

Land

88,000

37,500

Building

Accumulated depreciation: building

21,600

Equipment

Accumulated depreciation: equipment

50,000

Patent

Accounts payable

Notes payable

Income taxes payable

Unearned rent revenue

Bonds Payable

Premium on Bonds Payable

Common stock

PIC In Excess of Par-Common Stock

Retained earnings

20,000

Treasury stock

28,000

Dividends

Sales Revenue

9,240

Advertising expense

Wages expense

62,150

Office expense

14,370

Depreciation expense

10,150

33,571

Utilities expense

20,250

Insurance expense

99,000

Income taxes expense

$ 1,949,145 $ Credit - 1,150

9,000

74,721

40,000

99,000

13,500

700,000

56,774

125,000

40,000 790,000 1,949,145 1 On March 1, 2016, ABC purchased a one-year liability insurance policy for $27,000.

Upon purchase, the following journal entry was made:

Dr Prepaid insurance

27,000

Cr Cash

27,000

The expired portion of insurance must be recorded as of 12/31/16.

Notice that the expired portion from March through November has been recorded already.

Make sure that the Prepaid Insurance balance after the adjusting entry is correct. 2 Depreciation expense must be recorded for the month of December.

The building was purchased on February 1, 2016 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000.

The method of depreciation for the building is straight-line.

The equipment was purchased on February 1, 2016 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800.

The method of depreciation for the equipment is double-declining balance.

Depreciation has been recorded for the building and equipment for months February through November. 3 On December 1, 2016, XYZ Co. agreed to rent space in ABC's building for $4,500 per month,

and XYZ paid ABC on December 1 in advance for the first three months' rent.

The entry made on December 1 was as follows:

Dr Cash

13,500

Cr Unearned rent revenue

13,500

The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/16. 4 Per timecards, from the last payroll date through December 31, 2016, ABC's employees have worked a total of 275 hours.

Including payroll taxes, ABC's wage expense averages about $21 per hour. The next payroll date is January 5, 2017.

The liability for wages payable must be recorded as of 12/31/16. 5 On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable.

This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%.

The entry made on November 30 to record the borrowing was:

Dr Cash

40,000

Cr Notes payable

40,000

On February 28, 2017 ABC must pay the bank the amount borrowed plus interest.

Assume the beginning balance for Notes Payable is correct.

Interest through 12/31/16 must be accrued on the $40,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete

physical inventory at year-end. A physical count was taken on December 31, 2016, and the inventory on-hand at

that time totaled $55,000, which reflects historical cost. Record the adjusting entry for properly recognizing

2016 Cost of Goods Sold. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level.

A review of inventory data further indicated that the current retail sales value of the ending inventory is $50,000 and estimated costs of

completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory

using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting

for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined

that their intangible asset might be impaired on December 31, 2016. Record the impairment adjustment, if any.

The expected future undiscounted net cash flows for this intangible asset totals $48,000, and the fair value of the asset is $45,000. 8 On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury

stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16,

ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock.

To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate

Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook

or Chapter 18 of your Intermediate Accounting textbook for a review.)

9 On 12/31/16, ABC issued 10,000 shares of $1 par value common stock at the closing market price of $8 per share. Prepare ABC's journal entry

to reflect the issuance of the stock on 12/31/16. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for

excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate

Accounting textbook for a review.)

10 On 7/1/16, ABC sold 10% bonds having a maturity value of $700,000 for $756,773.50, resulting in an effective yield of 8%. The bonds are

dated 7/1/16, and mature 7/1/21. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of

amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/16.

Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 ABC Corporation prepares an aging schedule on 12/31/16 that estimates total uncollectible accounts at $50,000. Assuming that the allowance

method is used, prepare the entry to record bad debt expense for the calendar year. Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes":

12 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.

However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full

on the return's March 15, 2017 due date.

ABC's income tax rate is 38%. The entire year's income tax expense was estimated at the beginning of 2016 to be $108,000,

so January through November income tax expense recognized amounts to $99,000 (11/12 months).

Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents

income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.

Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment

so that the entire year's tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November). 12/31/16

JE # Adjusting Journal Entries

Account Titles Debits Credits Beginning balances (bb) on these T-accounts are the 12/31/16 unadjusted balances.

Hint: If there is no beginning balance (bb), it is a new account. bb Cash

834,444 bb 834,444 Accounts receivable

367,120 bb 367,120 Inventory

- bb - Purchases

247,000 bb 247,000 Allowance for doubtful

accounts bb 6,750 Allowance to Reduce Inventory

to NRV

- bb - bb Prepaid insurance

6,750 Land

88,000 88,000 Bonds Payable Premium on Bonds Payable

56,774 bb 700,000 bb 700,000

- bb Accumulated depreciation:

building

1,150 bb Building

37,500 37,500 bb 1,150 Notes payable Accumulated depreciation:

equipment

9,000 bb Equipment

21,600 21,600 Income taxes payable

40,000 bb - bb 9,000 Unearned rent revenue 99,000 bb 56,774 Accounts payable

74,721 bb 50,000 Common stock 13,500 bb Patent

50,000 74,721 Retained earnings

125,000 bb PIC In Excess of Par-Common

Stock Dividends

- bb bb 40,000 bb 28,000 40,000

99,000 Sales Revenue

790,000 bb bb 790,000 Advertising expense

9,240 9,240 13,500 bb Wages expense

62,150 62,150 125,000 bb Office expense

14,370 14,370 28,000 - bb Depreciation expense

10,150 10,150 bb Utilities expense

33,571 33,571 40,000 bb Treasury stock

20,000 20,000 These additional T-acccounts are provided for your use as necessary when making the adjusting entries. Be sure to insert sum formulas as needed depending on nature of account. You can use the sum formulas as supplied on existing T-accounts above.

bb Insurance expense

20,250 20,250 bb Income taxes expense

99,000 99,000 ABC Corporation

Adjusted Trial Balance

December 31, 2016

Debit Credit ABC Corporation

Income Statement

For the Year Ended December 31, 2016 ABC Corporation

Statement of Retained Earnings

For the Year Ended December 31, 2016 ABC Corporation

Balance Sheet

For the Year Ended December 31, 2016 12/31/16

JE # Closing Entries

Account Titles Debits Credits Beginning balances (bb) on these T-accounts are the 12/31/16 unadjusted balances.

Hint: If there is no beginning balance (bb), it is a new account. bb Cash

834,444 bb 834,444 Accounts receivable

367,120 bb 367,120 Inventory

- bb - Purchases

247,000 bb 247,000 Allowance for doubtful

accounts bb 6,750 Allowance to Reduce Inventory

to NRV

- bb - bb Prepaid insurance

6,750 Land

88,000 88,000 Bonds Payable Premium on Bonds Payable

56,774 bb 700,000 bb 700,000

- bb Accumulated depreciation:

building

1,150 bb Building

37,500 37,500 bb 1,150 Notes payable Accumulated depreciation:

equipment

9,000 bb Equipment

21,600 21,600 Income taxes payable

40,000 bb - bb 9,000 Unearned rent revenue 99,000 bb 56,774 Accounts payable

74,721 bb 50,000 Common stock 13,500 bb Patent

50,000 74,721 Retained earnings

125,000 bb PIC In Excess of Par-Common

Stock Dividends

- bb bb 40,000 bb 28,000 40,000

99,000 Sales Revenue

790,000 bb bb 790,000 Advertising expense

9,240 9,240 13,500 bb Wages expense

62,150 62,150 125,000 bb Office expense

14,370 14,370 28,000 - bb Depreciation expense

10,150 10,150 bb Utilities expense

33,571 33,571 40,000 bb Treasury stock

20,000 20,000 These additional T-acccounts are provided for your use as necessary when making the adjusting entries. Be sure to insert sum formulas as needed depending on nature of account. You can use the sum formulas as supplied on existing T-accounts above.

bb Insurance expense

20,250 20,250 bb Income taxes expense

99,000 99,000 ABC Corporation

Post-Closing Trial Balance

December 31, 2016

Debit Credit Grading Rubric for AC322 Comprehensive Problem

Adjusting Entries

1

2

3

4

5

6

7

8

9

10

11

12 Adjusted Trial Balance

Correct totals (based on formula)

Totals balance Points Possible

8

8

8

8

8

8

8

8

8

8

8

8

96

Points Possible

8

8

16 Income Statement

Points Possible

Correct Format

8

Correct Income Before Income Taxes (based on formula)

8

Correct Gross Profit (based on formula)

8

Correct Income Tax Expense

8

Components Sum to Net Income

8

40

Balance Sheet

Correct Form

Assets=Liabilities+Stockholders Equity

Correct Totals for Assets, Liab, & Equity

Components Sum Correctly Statement of Retained Earnings

Correct Form

Correct Ending Retained Earnings Closing Entries

1

2

3

4 After-Closing Trial Balance

Correct totals (based on formula)

Totals balance Total Grade Points Earned 0

Points Earned 0

Points Earned 0 Points Possible

8

8

10

8

34 Points Earned Points Possible

8

8

16 Points Earned 0 0 Points Possible

8

8

8

8

32 Points Earned Points Possible

8

8

16 Points Earned 250 0 0 0

Read ALL instructions before getting started! ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2016. Given on the first two tabs are ABC's 12/31/16 Unadjusted Trial Balance and a list of needed adjustments. 1. Make all 12 adjustments on the "Adjusting Journal Entries" tab. Remember to include a description under each journal entry. 2. Post the adjustments to the general ledger on the "12-31-16 T-Accounts" tab. You may have to add T-Accounts for new accounts. Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE "BB" (BEGINNING BALANCES) FOR THE T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/16. 3. Once the 12/31/16 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you may have to insert lines for new accounts. Link the Adjusted Trial Balance to your T-Accounts. 4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet. For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses, Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company. For purposes of the Balance Sheet, be sure to prepare a classifed Balance Sheet. Link your financial statements to your Adjusted Trial Balance. If necessary, review financial statement preparation in Chapters 3 and 4 of your Intermediate Accounting textbook for a quick refresher. 5. When the Financial Statements are complete, make the closing entries on the "Closing Entries" tab. 6. When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting journal entries are also on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. (Helpful hint: After you have completed and posted all of your adjusting entries, make a duplicate copy of your "12-31-16 T-Accounts" tab to replace the existing blank "Post-Close T Accounts" tab by right clicking on the completed "12-31-16 T-Accounts" tab, select Move or Copy, then click on "Create a Copy" and then place at the desired location. You can then delete the original "Post-Close T-Accounts" tab and rename the newly duplicated tab as your "Post-Close T-Accounts" tab). 7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts. 8. Double-check your work. Here are a few things to check for: -Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom. -Net income from the income statement will flow through to the Statement of Retained Earnings. -Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet. -The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts. -Check figure 1: Income from operations = $389,229. -Check figure 2: Income before income taxes = $345,658. -Check figure 3: Total Current Assets at 12/31/16 = $1,294,564. -Check figure 4: Retained Earnings at 12/31/16 = $186,308. -Check figure 5: Total Stockholders' Equity at 12/31/16 = $427,308. -Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat. Otherwise, management may send back to you for revision! -Include your work at the bottom of each tab as needed. -Ask questions prior to the dayight before the due date. The due date is clearly indicated on the course schedule. -Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment. -Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. "Total Liabilities and Stockholders' Equity"). -DO NOT force any cells to match check figures given. Any adjustments in the T-Accounts or financial statements not supported by legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade. ments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have ng your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this comprehensive problem will serve you well in the rest of your accounting curriculum. ABC Corporation Unadjusted Trial Balance December 31, 2016 Debit Cash 834,444 367,120 Accounts receivable Allowance for doubtful accounts Inventory Allowance to Reduce Inventory to NRV 247,000 Purchases 6,750 Prepaid insurance 88,000 Land Building 37,500 Accumulated depreciation: building 21,600 Equipment Accumulated depreciation: equipment Patent 50,000 Accounts payable Notes payable Income taxes payable Unearned rent revenue Bonds Payable Premium on Bonds Payable Common stock PIC In Excess of Par-Common Stock Retained earnings 20,000 Treasury stock 28,000 Dividends Sales Revenue 9,240 Advertising expense 62,150 Wages expense 14,370 Office expense Depreciation expense 10,150 33,571 Utilities expense 20,250 Insurance expense 99,000 Income taxes expense $ 1,949,145 $ Credit - 1,150 9,000 74,721 40,000 99,000 13,500 700,000 56,774 125,000 40,000 790,000 1,949,145 1 On March 1, 2016, ABC purchased a one-year liability insurance policy for $27,000. Upon purchase, the following journal entry was made: Dr Prepaid insurance 27,000 Cr Cash 27,000 The expired portion of insurance must be recorded as of 12/31/16. Notice that the expired portion from March through November has been recorded already. Make sure that the Prepaid Insurance balance after the adjusting entry is correct. 2 Depreciation expense must be recorded for the month of December. The building was purchased on February 1, 2016 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000. The method of depreciation for the building is straight-line. The equipment was purchased on February 1, 2016 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800. The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November. 3 On December 1, 2016, XYZ Co. agreed to rent space in ABC's building for $4,500 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dr Cash 13,500 Cr Unearned rent revenue 13,500 The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/16. 4 Per timecards, from the last payroll date through December 31, 2016, ABC's employees have worked a total of 275 hours. Including payroll taxes, ABC's wage expense averages about $21 per hour. The next payroll date is January 5, 2017. The liability for wages payable must be recorded as of 12/31/16. 5 On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%. The entry made on November 30 to record the borrowing was: Dr Cash 40,000 Cr Notes payable 40,000 On February 28, 2017 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/16 must be accrued on the $40,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2016, and the inventory on-hand at that time totaled $55,000, which reflects historical cost. Record the adjusting entry for properly recognizing 2016 Cost of Goods Sold. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $50,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined that their intangible asset might be impaired on December 31, 2016. Record the impairment adjustment, if any. The expected future undiscounted net cash flows for this intangible asset totals $48,000, and the fair value of the asset is $45,000. 8 On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16, ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock. To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 9 On 12/31/16, ABC issued 10,000 shares of $1 par value common stock at the closing market price of $8 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/16. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 10 On 7/1/16, ABC sold 10% bonds having a maturity value of $700,000 for $756,773.50, resulting in an effective yield of 8%. The bonds are dated 7/1/16, and mature 7/1/21. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/16. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 ABC Corporation prepares an aging schedule on 12/31/16 that estimates total uncollectible accounts at $50,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense for the calendar year. Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes": 12 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2017 due date. ABC's income tax rate is 38%. The entire year's income tax expense was estimated at the beginning of 2016 to be $108,000, so January through November income tax expense recognized amounts to $99,000 (11/12 months). Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment so that the entire year's tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November). 12/31/16 JE # Adjusting Journal Entries Account Titles Debits Credits Beginning balances (bb) on these T-accounts are the 12/31/16 unadjusted balances. Hint: If there is no beginning balance (bb), it is a new account. bb Cash 834,444 bb 834,444 Accounts receivable 367,120 bb 367,120 Inventory - bb - Purchases 247,000 bb 247,000 Allowance for doubtful accounts bb 6,750 Allowance to Reduce Inventory to NRV - bb - bb Prepaid insurance 6,750 Land 88,000 88,000 Bonds Payable Premium on Bonds Payable 56,774 bb 700,000 bb 700,000 - bb Accumulated depreciation: building 1,150 bb Building 37,500 37,500 bb 1,150 Notes payable Accumulated depreciation: equipment 9,000 bb Equipment 21,600 21,600 Income taxes payable 99,000 bb 40,000 bb - 56,774 bb 9,000 Unearned rent revenue 13,500 bb Patent 50,000 Accounts payable 74,721 bb 50,000 Common stock 74,721 Retained earnings 125,000 bb - bb bb PIC In Excess of Par-Common Stock 40,000 bb Dividends 28,000 40,000 99,000 Sales Revenue 790,000 bb bb Advertising expense 9,240 bb Income taxes expense 99,000 790,000 9,240 13,500 bb Wages expense 62,150 62,150 125,000 bb Office expense 14,370 14,370 28,000 - bb Depreciation expense 10,150 10,150 bb Utilities expense 33,571 33,571 40,000 bb Treasury stock 20,000 20,000 These additional T-acccounts are provided for your use as necessary when making the adjusting entries. Be sure to insert sum formulas as needed depending on nature of account. You can use the sum formulas as supplied on existing T-accounts above. bb Insurance expense 20,250 20,250 99,000 ABC Corporation Adjusted Trial Balance December 31, 2016 Debit Credit ABC Corporation Income Statement For the Year Ended December 31, 2016 ABC Corporation Statement of Retained Earnings For the Year Ended December 31, 2016 ABC Corporation Balance Sheet For the Year Ended December 31, 2016 12/31/16 JE # Closing Entries Account Titles Debits Credits Beginning balances (bb) on these T-accounts are the 12/31/16 unadjusted balances. Hint: If there is no beginning balance (bb), it is a new account. bb Cash 834,444 bb 834,444 Accounts receivable 367,120 bb 367,120 Inventory - bb - Purchases 247,000 bb 247,000 Allowance for doubtful accounts bb 6,750 Allowance to Reduce Inventory to NRV - bb - bb Prepaid insurance 6,750 Land 88,000 88,000 Bonds Payable Premium on Bonds Payable 56,774 bb 700,000 bb 700,000 - bb Accumulated depreciation: building 1,150 bb Building 37,500 37,500 bb 1,150 Notes payable Accumulated depreciation: equipment 9,000 bb Equipment 21,600 21,600 Income taxes payable 99,000 bb 40,000 bb - 56,774 bb 9,000 Unearned rent revenue 13,500 bb Patent 50,000 Accounts payable 74,721 bb 50,000 Common stock 74,721 Retained earnings 125,000 bb - bb bb PIC In Excess of Par-Common Stock 40,000 bb Dividends 28,000 40,000 99,000 Sales Revenue 790,000 bb bb Advertising expense 9,240 bb Income taxes expense 99,000 790,000 9,240 13,500 bb Wages expense 62,150 62,150 125,000 bb Office expense 14,370 14,370 28,000 - bb Depreciation expense 10,150 10,150 bb Utilities expense 33,571 33,571 40,000 bb Treasury stock 20,000 20,000 These additional T-acccounts are provided for your use as necessary when making the adjusting entries. Be sure to insert sum formulas as needed depending on nature of account. You can use the sum formulas as supplied on existing T-accounts above. bb Insurance expense 20,250 20,250 99,000 ABC Corporation Post-Closing Trial Balance December 31, 2016 Debit Credit Grading Rubric for AC322 Comprehensive Problem Adjusting Entries 1 2 3 4 5 6 7 8 9 10 11 12 Adjusted Trial Balance Correct totals (based on formula) Totals balance Points Possible 8 8 8 8 8 8 8 8 8 8 8 8 96 Points Possible 8 8 16 Income Statement Points Possible Correct Format 8 Correct Income Before Income Taxes (based on formula) 8 Correct Gross Profit (based on formula) 8 Correct Income Tax Expense 8 Components Sum to Net Income 8 40 Balance Sheet Correct Form Assets=Liabilities+Stockholders Equity Correct Totals for Assets, Liab, & Equity Components Sum Correctly Statement of Retained Earnings Correct Form Correct Ending Retained Earnings Closing Entries 1 2 3 4 After-Closing Trial Balance Correct totals (based on formula) Totals balance Total Grade Points Earned 0 Points Earned 0 Points Earned 0 Points Possible 8 8 10 8 34 Points Earned Points Possible 8 8 16 Points Earned 0 0 Points Possible 8 8 8 8 32 Points Earned Points Possible 8 8 16 Points Earned 250 0 0 0 Read ALL instructions before getting started! ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2016. Given on the first two tabs are ABC's 12/31/16 Unadjusted Trial Balance and a list of needed adjustments. 1. Make all 12 adjustments on the "Adjusting Journal Entries" tab. Remember to include a description under each journal entry. 2. Post the adjustments to the general ledger on the "12-31-16 T-Accounts" tab. You may have to add T-Accounts for new accounts. Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE "BB" (BEGINNING BALANCES) FOR THE T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/16. 3. Once the 12/31/16 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you may have to insert lines for new accounts. Link the Adjusted Trial Balance to your T-Accounts. 4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet. For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses, Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company. For purposes of the Balance Sheet, be sure to prepare a classifed Balance Sheet. Link your financial statements to your Adjusted Trial Balance. If necessary, review financial statement preparation in Chapters 3 and 4 of your Intermediate Accounting textbook for a quick refresher. 5. When the Financial Statements are complete, make the closing entries on the "Closing Entries" tab. 6. When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting journal entries are also on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. (Helpful hint: After you have completed and posted all of your adjusting entries, make a duplicate copy of your "12-31-16 T-Accounts" tab to replace the existing blank "Post-Close T Accounts" tab by right clicking on the completed "12-31-16 T-Accounts" tab, select Move or Copy, then click on "Create a Copy" and then place at the desired location. You can then delete the original "Post-Close T-Accounts" tab and rename the newly duplicated tab as your "Post-Close T-Accounts" tab). 7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts. 8. Double-check your work. Here are a few things to check for: -Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom. -Net income from the income statement will flow through to the Statement of Retained Earnings. -Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet. -The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts. -Check figure 1: Income from operations = $389,229. -Check figure 2: Income before income taxes = $345,658. -Check figure 3: Total Current Assets at 12/31/16 = $1,294,564. -Check figure 4: Retained Earnings at 12/31/16 = $186,308. -Check figure 5: Total Stockholders' Equity at 12/31/16 = $427,308. -Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat. Otherwise, management may send back to you for revision! -Include your work at the bottom of each tab as needed. -Ask questions prior to the dayight before the due date. The due date is clearly indicated on the course schedule. -Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment. -Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. "Total Liabilities and Stockholders' Equity"). -DO NOT force any cells to match check figures given. Any adjustments in the T-Accounts or financial statements not supported by legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade. ments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have g your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this comprehensive problem will serve you well in the rest of your accounting curriculum. ABC Corporation Unadjusted Trial Balance December 31, 2016 Debit 834,444 367,120 Cash Accounts receivable Allowance for doubtful accounts Inventory Allowance to Reduce Inventory to NRV Purchases 247,000 Prepaid insurance 6,750 Land 88,000 37,500 Building Accumulated depreciation: building 21,600 Equipment Accumulated depreciation: equipment 50,000 Patent Accounts payable Notes payable Income taxes payable Unearned rent revenue Bonds Payable Premium on Bonds Payable Common stock PIC In Excess of Par-Common Stock Retained earnings 20,000 Treasury stock 28,000 Dividends Sales Revenue 9,240 Advertising expense Wages expense 62,150 Office expense 14,370 Depreciation expense 10,150 33,571 Utilities expense 20,250 Insurance expense 99,000 Income taxes expense $ 1,949,145 $ Credit - 1,150 9,000 74,721 40,000 99,000 13,500 700,000 56,774 125,000 40,000 790,000 1,949,145 1 On March 1, 2016, ABC purchased a one-year liability insurance policy for $27,000. Upon purchase, the following journal entry was made: Dr Prepaid insurance 27,000 Cr Cash 27,000 The expired portion of insurance must be recorded as of 12/31/16. Notice that the expired portion from March through November has been recorded already. Make sure that the Prepaid Insurance balance after the adjusting entry is correct. 2 Depreciation expense must be recorded for the month of December. The building was purchased on February 1, 2016 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000. The method of depreciation for the building is straight-line. The equipment was purchased on February 1, 2016 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800. The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November. 3 On December 1, 2016, XYZ Co. agreed to rent space in ABC's building for $4,500 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dr Cash 13,500 Cr Unearned rent revenue 13,500 The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/16. 4 Per timecards, from the last payroll date through December 31, 2016, ABC's employees have worked a total of 275 hours. Including payroll taxes, ABC's wage expense averages about $21 per hour. The next payroll date is January 5, 2017. The liability for wages payable must be recorded as of 12/31/16. 5 On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%. The entry made on November 30 to record the borrowing was: Dr Cash 40,000 Cr Notes payable 40,000 On February 28, 2017 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/16 must be accrued on the $40,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2016, and the inventory on-hand at that time totaled $55,000, which reflects historical cost. Record the adjusting entry for properly recognizing 2016 Cost of Goods Sold. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $50,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined that their intangible asset might be impaired on December 31, 2016. Record the impairment adjustment, if any. The expected future undiscounted net cash flows for this intangible asset totals $48,000, and the fair value of the asset is $45,000. 8 On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16, ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock. To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 9 On 12/31/16, ABC issued 10,000 shares of $1 par value common stock at the closing market price of $8 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/16. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 10 On 7/1/16, ABC sold 10% bonds having a maturity value of $700,000 for $756,773.50, resulting in an effective yield of 8%. The bonds are dated 7/1/16, and mature 7/1/21. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/16. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 ABC Corporation prepares an aging schedule on 12/31/16 that estimates total uncollectible accounts at $50,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense for the calendar year. Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes": 12 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2017 due date. ABC's income tax rate is 38%. The entire year's income tax expense was estimated at the beginning of 2016 to be $108,000, so January through November income tax expense recognized amounts to $99,000 (11/12 months). Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment so that the entire year's tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November). 12/31/16 JE # Adjusting Journal Entries Account Titles 1 Insurance expense Prepaid insurance 2 Depreciation expense Accumulated depreciation - Building Depreciation expense Accumulated depreciation - Equipment 3 Unearned rent revenue Rent revenue 4 Wages expense Wages payable 5 Interest expense Interest Payable 6 Cost of goods sold Inventory Loss on valuation of inventory Allowance to Reduce Inventory to NRV 7 Impairment of intangible assets Patent 8 Cash Additional paid in capital - Treasury stock Treasury stock 9 Cash Common stock Additional paid in capital in excess of par 10 Interest expense Premium on bonds Cash 11 Bad debts expense Allowance for uncollectible accounts Debits 2,250 Credits 2,250 115 115 900 900 4,500 4,500 5,775 5,775 300 300 192,000 192,000 5,000 5,000 3,000 3,000 32,000 12,000 20,000 80,000 10,000 70,000 35,000 5,667 40,667 50,000 50,000 ABC Corporation Adjusted Trial Balance December 31, 2016 Debit 905,506 Cash 367,120 Accounts receivable Allowance for doubtful accounts 55,000 Inventory Allowance to Reduce Inventory to NRV Purchases 4,500 Prepaid insurance 88,000 Land 37,500 Building Accumulated depreciation: building 21,600 Equipment Accumulated depreciation: equipment 47,000 Patent Accounts payable Notes payable Income taxes payable Unearned rent revenue Bonds Payable Premium on Bonds Payable Common stock PIC In Excess of Par-Common Stock Retained earnings Treasury stock 28,000 Dividends Sales Revenue 9,240 Advertising expense Wages expense 14,370 Office expense Depreciation expense 33,571 Utilities expense Insurance expense 99,000 Income taxes expense Loss in valuation of inventory 5,000 Impairment of intangible assets 3,000 Additional paid in capital - Treasury stock Wages payable Bad debts expense 50,000 Cost of goods sold 192,000 Interest payable Rent revenue Interest expense Credit 50,000 5,000 1,265 9,900 74,721 40,000 99,000 9,000 700,000 51,107 135,000 110,000 790,000 12,000 5,775 300 4,500 35,300 1,995,707 2,097,568 ABC Corporation Income Statement For the Year Ended December 31, 2016 Sales revenue Cost of goods sold Gross profit Advertising expense Wages expense Office expense Depreciation expense Utilities expense Insurance expense Bad debts expense Total expenses Income from operations Other Income and expenses Rent revenue Loss in valuation of inventory Impairment of patents 790,000 $ 192,000 598,000 9,240 67,925 14,370 11,165 33,571 22,500 50,000 208,771 389,229 4,500 (5,000) (3,000) Interest expense Income before income taxes (35,300) 345,658 Income tax expense 131,350 Income after tax 214,308 ABC Corporation Statement of Retained Earnings For the Year Ended December 31, 2016 Retained Earnings $ Net Income $ Dividends Ending Retained earnings balance 214,308 28,000 $ 186,308 ABC Corporation Balance Sheet For the Year Ended December 31, 2016 ASSETS Current Assets Cash Accounts receivable Inventory Prepaid Insurance Total current assets Non-current assets Land Building Equipment Patent Total Assets Total shareholder"s equity and Liabilities Current liabilities Accounts payable Income taxes payable Unarned rent revenue Wages payable Interest payable Total current liabilities Non-current liabilities Notes payable Bonds payable Total liabilities Shareholder's equity Common stock Additional paid in capital excess of par Additional paid in capital - Treasury st Retained earnings Total stockholder's equity Total stockholder's equity and liabilitie 922944 317120 50000 4500 1294564 88000 36235 11700 47000 1477499 74721 131350 9000 5,775 300 221146 40000 700000 961146 135000 110000 12,000 186,308 427308 1477499 Debit Dividends Sales Revenue Advertising expense Wages expense Office expense Depreciation expense Utilities expense Insurance expense Income taxes expense Loss in valuation of inventory Impairment of intangible assets Bad debts expense Cost of goods sold Rent revenue Interest expense Credit 28,000 790,000 9,240 14,370 33,571 99,000 5,000 3,000 50,000 192,000 4,500 35,300 Retained Earnings 186,308 (To close off all revenues and expenses to retained earnings) Beginning balances (bb) on these T-accounts are the 12/31/16 unadjusted balances. Hint: If there is no beginning balance (bb), it is a new account. bb JE#8 JE#9 Cash 834,444 32,000 80,000 40,667 JE#10 bb 905,506 Accounts receivable 367,120 JE#11 bb 367,120 Inventory 247,000 bb Purchases 247,000 247,000 bb Prepaid insurance 6,750 2,250 bb Land 88,000 192,000 55,000 - Allowance for doubtful accounts 4,500 Allowance to Reduce Inventory to NRV - bb 5,000 - bb 50,000 88,000 Bonds Payable Premium on Bonds Payable 5,667 56,774 bb 700,000 bb 700,000 50,000 bb Accumulated depreciation: building 1,150 bb Building 37,500 bb 5,000 Accumulated depreciation: equipment 9,000 bb Equipment 21,600 115 37,500 21,600 Income taxes payable 40,000 bb bb Patent 50,000 Accounts payable 74,721 bb 3,000 900 1,265 Notes payable 51,107 9,900 Unearned rent revenue 99,000 bb 4,500 47,000 Common stock 13,500 bb 74,721 Retained earnings 125,000 bb 10,000 - bb 186,308 PIC In Excess of Par-Common Stock Dividends bb 28,000 40,000 bb 70,000 28,000 40,000 Sales Revenue 790,000 790,000 bb bb - 99,000 9,000 Advertising expense 9,240 9,240 Wages expense 62,150 67,925 5,775 - bb - bb Office expense 14,370 135,000 186,308 14,370 Depreciation expense 10,150 11,165 1,015 - bb - - bb Utilities expense 33,571 33,571 - 110,000 bb Treasury stock 20,000 20,000 - These additional T-acccounts are provided for your use as necessary when making the adjusting entries. Be sure to insert sum formulas as needed depending on nature of account. You can use the sum formulas as supplied on existing T-accounts above. bb Insurance expense 20,250 22,500 bb Income taxes expense 99,000 2,250 32,350 - 131,350 Wages Payable Rent revenue 5,775 4,500 4,500 Loss in valuation of inventory 5,000 5,000 Impairment of intangible assets 3,000 3,000 Interest payable Interest expense 300 35,300 35,300 Additional paid-in capital - Treasury 12,000 Bad debts expense 50,000 50,000 Cost of goods sold 192,000 192,000 ABC Corporation Post Closing Trial Balance December 31, 2016 Cash Accounts receivable Allowance for doubtful accounts Inventory Allowance to Reduce Inventory to NRV Purchases Prepaid insurance Land Building Accumulated depreciation: building Equipment Accumulated depreciation: equipment Patent Accounts payable Notes payable Income taxes payable Unearned rent revenue Bonds Payable Premium on Bonds Payable Common stock PIC In Excess of Par-Common Stock Retained earnings Treasury stock Additional paid in capital - Treasury stock Wages payable Interest payable Rent revenue Debit 905,506 367,120 Credit 50,000 55,000 5,000 4,500 88,000 37,500 1,265 21,600 9,900 47,000 74,721 40,000 131,350 9,000 700,000 51,107 135,000 110,000 186,308 - 1,526,226 12,000 5,775 300 4,500 1,526,226 Grading Rubric for AC322 Comprehensive Problem Adjusting Entries 1 2 3 4 5 6 7 8 9 10 11 12 Adjusted Trial Balance Correct totals (based on formula) Totals balance Points Possible 8 8 8 8 8 8 8 8 8 8 8 8 96 Points Possible 8 8 16 Income Statement Points Possible Correct Format 8 Correct Income Before Income Taxes (based on formula) 8 Correct Gross Profit (based on formula) 8 Correct Income Tax Expense 8 Components Sum to Net Income 8 40 Balance Sheet Correct Form Assets=Liabilities+Stockholders Equity Correct Totals for Assets, Liab, & Equity Components Sum Correctly Statement of Retained Earnings Correct Form Correct Ending Retained Earnings Closing Entries 1 2 3 4 After-Closing Trial Balance Correct totals (based on formula) Totals balance Total Grade Points Earned 0 Points Earned 0 Points Earned 0 Points Possible 8 8 10 8 34 Points Earned Points Possible 8 8 16 Points Earned 0 0 Points Possible 8 8 8 8 32 Points Earned Points Possible 8 8 16 Points Earned 250 0 0 0 Read ALL instructions before getting started! ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2016. Given on the first two tabs are ABC's 12/31/16 Unadjusted Trial Balance and a list of needed adjustments. 1. Make all 12 adjustments on the "Adjusting Journal Entries" tab. Remember to include a description under each journal entry. 2. Post the adjustments to the general ledger on the "12-31-16 T-Accounts" tab. You may have to add T-Accounts for new accounts. Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE "BB" (BEGINNING BALANCES) FOR THE T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/16. 3. Once the 12/31/16 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you may have to insert lines for new accounts. Link the Adjusted Trial Balance to your T-Accounts. 4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet. For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses, Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company. For purposes of the Balance Sheet, be sure to prepare a classifed Balance Sheet. Link your financial statements to your Adjusted Trial Balance. If necessary, review financial statement preparation in Chapters 3 and 4 of your Intermediate Accounting textbook for a quick refresher. 5. When the Financial Statements are complete, make the closing entries on the "Closing Entries" tab. 6. When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting journal entries are also on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. (Helpful hint: After you have completed and posted all of your adjusting entries, make a duplicate copy of your "12-31-16 T-Accounts" tab to replace the existing blank "Post-Close T Accounts" tab by right clicking on the completed "12-31-16 T-Accounts" tab, select Move or Copy, then click on "Create a Copy" and then place at the desired location. You can then delete the original "Post-Close T-Accounts" tab and rename the newly duplicated tab as your "Post-Close T-Accounts" tab). 7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts. 8. Double-check your work. Here are a few things to check for: -Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom. -Net income from the income statement will flow through to the Statement of Retained Earnings. -Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet. -The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts. -Check figure 1: Income from operations = $389,229. -Check figure 2: Income before income taxes = $345,658. -Check figure 3: Total Current Assets at 12/31/16 = $1,294,564. -Check figure 4: Retained Earnings at 12/31/16 = $186,308. -Check figure 5: Total Stockholders' Equity at 12/31/16 = $427,308. -Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat. Otherwise, management may send back to you for revision! -Include your work at the bottom of each tab as needed. -Ask questions prior to the dayight before the due date. The due date is clearly indicated on the course schedule. -Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment. -Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. "Total Liabilities and Stockholders' Equity"). -DO NOT force any cells to match check figures given. Any adjustments in the T-Accounts or financial statements not supported by legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade. ments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have g your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this comprehensive problem will serve you well in the rest of your accounting curriculum. ABC Corporation Unadjusted Trial Balance December 31, 2016 Debit 834,444 367,120 Cash Accounts receivable Allowance for doubtful accounts Inventory Allowance to Reduce Inventory to NRV Purchases 247,000 Prepaid insurance 6,750 Land 88,000 37,500 Building Accumulated depreciation: building 21,600 Equipment Accumulated depreciation: equipment 50,000 Patent Accounts payable Notes payable Income taxes payable Unearned rent revenue Bonds Payable Premium on Bonds Payable Common stock PIC In Excess of Par-Common Stock Retained earnings 20,000 Treasury stock 28,000 Dividends Sales Revenue 9,240 Advertising expense Wages expense 62,150 Office expense 14,370 Depreciation expense 10,150 33,571 Utilities expense 20,250 Insurance expense 99,000 Income taxes expense $ 1,949,145 $ Credit - 1,150 9,000 74,721 40,000 99,000 13,500 700,000 56,774 125,000 40,000 790,000 1,949,145 1 On March 1, 2016, ABC purchased a one-year liability insurance policy for $27,000. Upon purchase, the following journal entry was made: Dr Prepaid insurance 27,000 Cr Cash 27,000 The expired portion of insurance must be recorded as of 12/31/16. Notice that the expired portion from March through November has been recorded already. Make sure that the Prepaid Insurance balance after the adjusting entry is correct. 2 Depreciation expense must be recorded for the month of December. The building was purchased on February 1, 2016 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000. The method of depreciation for the building is straight-line. The equipment was purchased on February 1, 2016 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800. The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November. 3 On December 1, 2016, XYZ Co. agreed to rent space in ABC's building for $4,500 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dr Cash 13,500 Cr Unearned rent revenue 13,500 The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/16. 4 Per timecards, from the last payroll date through December 31, 2016, ABC's employees have worked a total of 275 hours. Including payroll taxes, ABC's wage expense averages about $21 per hour. The next payroll date is January 5, 2017. The liability for wages payable must be recorded as of 12/31/16. 5 On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%. The entry made on November 30 to record the borrowing was: Dr Cash 40,000 Cr Notes payable 40,000 On February 28, 2017 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/16 must be accrued on the $40,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2016, and the inventory on-hand at that time totaled $55,000, which reflects historical cost. Record the adjusting entry for properly recognizing 2016 Cost of Goods Sold. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $50,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined that their intangible asset might be impaired on December 31, 2016. Record the impairment adjustment, if any. The expected future undiscounted net cash flows for this intangible asset totals $48,000, and the fair value of the asset is $45,000. 8 On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16, ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock. To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 9 On 12/31/16, ABC issued 10,000 shares of $1 par value common stock at the closing market price of $8 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/16. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 10 On 7/1/16, ABC sold 10% bonds having a maturity value of $700,000 for $756,773.50, resulting in an effective yield of 8%. The bonds are dated 7/1/16, and mature 7/1/21. Interest is payable semiannually on July 1 and January 1. ABC uses th