The Accounting Cycle - Problem Set ABC Company Ltd. Balance Sheet on Nov. 30, 2014 Assets Equities Equipment 3 000 Paid-in Capital 5 000 Land 3 000 Retained Earnings 2 200 Office Store 3 000 Equipment Tax Payable 1 000 Raw materials 1 800 Loan Payable 4 000 Inventory Office Supplies 2 500 Salary payables 1 500 Inventory Accounts Receivable 3 500 Accounts payable 4 000 Unearned rent Cash, Bank 4 500 3 000 revenue Allowance for Prepaid expenses 1 000 uncollectible 1 600 accounts Total assets 22 300 Total equities 22 300 Summary of transactions during December: 1. Paid outstanding salary payables 2. Paid outstanding trade creditors in the amount of 1 500. 3. Paid outstanding tax payables. 4. Salaries to employees of 1500 were calculated for December to be paid in January. 5. Purchase of 1 800 of Office Supplies Inventory with 10% cash discount for cash transaction. 6. Purchase of raw materials Inventory of 1 700 was done with three-month trade credit. 7. Due to the low quality of the purchased RAW MATERIAL inventory the company returned back 500 of inventory that diminished the accounts payable by that amount. 8. The freight in for both supplies and raw material inventory was paid in the amount of 650. 9. Performed advertisement services for Customer XYZ, for which we will receive 4,800 on 3-month credit sale. 10. At the end of month the Customer XYZ made a claim on the advertisement services and we agreed to sales allowance (a reduction of the original selling price) in the amount of 15%. 11. Performed consulting services, in the amount of 3,000 with 5% for cash discount on sales (cash immediately received). 12. In November 2014 we performed additional consulting work, 3 500 on credit (10/30, n 90) and in December 2014 the customer used the discount for prompt payment. 13. We sold office supplies inventory on the market for 1 500 through credit card transaction (a straight 10% of credit card services were taken) WHICH COSTED 1 000. 14. The cost of office supplies used during December is 800. 15. The cost of raw materials inventory used during December is 1 200 16. In the beginning of August 2014 a subscription rights for local newspaper magazine of 6,000 was paid for 6 months term in advance; 17. In the beginning of September 2014 company receives rent for 6 months in advance, 6,000 18. At the end of the month Company repaid to the Bank credit tranche 1 500 and paid interest charges (interest rate as of 10% p.a.) 19. Depreciation of machinery equipment for December amounts to 700. 20. ABC company acknowledged the 1 200 worth of bad debts in December 2014 21. Office store equipment was sold for 3 200 half in cash and the rest with 60 credit term. The equipment was acquired for 9,000 on November 2, 2012. The useful life of the machine was estimated to be 3 years and its residual value was assumed to be zero. The company uses the linear method and calculates the annual depreciation charges according to the number of months used. Required: a) Prepare the opening journal entry on Dec. 1, 2014. b) Prepare the journal entries for the transactions (1-21) for the month of December and post them to the T-accounts, opening additional T-accounts for accounts as needed. Cross- reference the entries using the numbers of the transactions above. c) Prepare the adjusting journal entries and record them at the end of December in the T- accounts. d) Prepare the closing entries for the temporary accounts and the Income Statement. e) Prepare the closing entries for the permanent accounts and the Balance Sheet as of Dec. 31, 2014