| Narrative and Instructions |
| Rockford Corporation is a wholesale plumbing supply distributor. The corporation was organized |
| in 1981, under the laws of the State of Illinois, with an authorized capitalization of 100,000 shares |
| of no-par common stock with a stated value of $16 per share. The common stock is sold over the |
| the counter in the local area. You have been hired as of Thursday, December 25, 2018, to replace the |
| controller, who has resigned. As controller, you are responsible for the corporation's accounting |
| recrods, preparation of the financial statements, safeguarding the corporate assets, and providing |
| management with financial information to set prices and to monitor and control operations. |
| Rockford Corporation closes its books annually on December 31 but prepares financial statements |
| quarterly. Adjusting entries are posted to the general ledger only at year-end; at the end of the |
| first, second, and third quarter the adjustments are entered only on a work sheet, not in the general |
| ledger. Therefore, the adjusting entries to be recorded on December 31 are annual adjustments that |
| you must journalize and the post to the general ledger accounts before preparing the financial |
| statements. |
| Rockford Corporation maintains a perpetual inventory system and takes a physical count each year |
| to adjust the inventory carrying amount. Purchases are recorded at the gross amount (discounts |
| taken are recognized at the date of payment) of the supplier's invoice, and the terms vary with |
| each supplier. Sales on account are subject to terms of 2/10, n/30. Discounts are taken and granted |
| only when the terms are met. The cost of all inventory sold in December was 60% of the sales price. |
| The corporation uses the following journals and ledgers: |
| Journals |
| 1. A sales journal (S) - to record sales of merchandise on account. |
| 2. A purchase journal (P)- to record purchases of merchandise on account. |
| 3. A cash receipts journal (CR) - to record all cash receipts. |
| 4. A cash disbursements journal (CD) - to record all cash payments. |
| 5. A general journal (J) - to record all transacitons that cannot be recorded in the other journals. |
| Ledgers |
| 1. A general ledger |
| 2. An accounts receivable subsidiary ledger. |
| 3. An accounts payable subsidiary ledger. |
| In recording sales transactions, each sale should be posted on the day of the sale directly to the |
| customer's account in the subsidiary ledger, using the invoice number as the posting reference |
| number in the subsidiary account. Also, cash receipts from customers should be posted to the |
| subsidiary ledger on the day they are received. The purchase order number should be used as |
| the posting reference number in the subsidiary ledger for purchases on account from suppliers. |
| Purchases from suppliers and payments to them should be posted daily. All other individual posting |
| may be made weekly or at the month-end. Account numbers should be used as posting reference |
| numbers in the journals. Officers and office personnel are salaried employees and are paid monthly |
| on the last day of each month. The delivery truck drivers and warehouse employees are hourly wage |
| employees and are paid biweekly. Each biweekly pay period ends Friday. On the following Monday |
| you assistants provide you with a payroll summary from which you prepare general journal entries |
| to record the biweekly payroll and the employer's taxes on the payroll. The biweekly employees' |
| paychecks are distributed on the following day (Tuesday). |
| The January 1, 2018, balances appear in the general ledger accounts as well as the Noverber 30, 2018, |
| balances, for those accounts whose balances have changed. All transacitons affecting the non- |
| current accounts from January 1, 2018, through Noverber 30, 2018, with explanations, appear in |
| these accounts to facilitate the preparation of the statement of cash flows. |
| Subsidiary ledger account balances as of Noverber 30, 2018, are as follows: |
| Accounts Receivable | Acct No | Amount |
| Boecker Builders | 117 | 72,420 |
| The Potts Company | 122 | 42,300 |
| Swanson Brothers Contruction | 133 | 28,750 |
| A & B Hardware | 143 | - 0 |
| Trudy's Plumbing | 155 | 13,500 |
| Coconino Contractors Inc | 160 | 31,700 |
| Rankin Plumbing Corp | 166 | 76,350 |
| Beverly's Building Products | 175 | 12,800 |
| Bilder Construction Co | 180 | 68,900 |
| Iwanaga Plumbing and Heating | 190 | 4,800 |
| Total | 351,520 |
| Accounts Payable | Acct No | Amount |
| Phoenix Plastics | 14 | 18,280 |
| Business Basics Inc | 16 | - 0 |
| Edward's Plumbing Suppliers | 18 | 20,050 |
| DeKalb Transport | 20 | - 0 |
| Oxenford Copperworks | 35 | 31,700 |
| Smith Pipe Co | 39 | 35,000 |
| Ron & Rod's Plumbing Products | 44 | 14,850 |
| Khatan Steel Corp | 57 | 18,000 |
| Total | 137,880 |
| The transactions through December 23 have already been recorded by the former controller. You |
| are to begin your work by entering the transaction of December 25 for the payment of cash to |
| repurchase stock. |
| Dec-18 |
| S | M | T | W | T | F | S |
| 1 |
| 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| 9 | 10 | 11 | 12 | 13 | 14 | 15 |
| 16 | 17 | 18 | 19 | 20 | 21 | 22 |
| 23 | 24 | 25 | 26 | 27 | 28 | 29 |
| 30 | 31 |
| December Transactions |
| December |
| 1 | Received a check in the amount of $28,175 from Swanson Brothers Contruction in full |
| payment of invoice No. 1120 dated Novermber 26 in the amount of $28,750. |
| 1 | Sold sewer and drainage pipe to Beverly's Building Products on account, invoice No. 1201 |
| for $25050. |
| 2 | Purchased copper tubing and fittings from Edward's Plumbing Supplies Inc. on account, |
| purchase order No. 315 for $35880, terms n/60. |
| 2 | Issued check No. 1580 for $31700 to Oxenford Copperworks in settlement of the |
| balance owned on purchase order No. 280. |
| 3 | A court notice indicates that Iwanaga Plumbing and Heating is bankrupt and payment |
| of its account improbable; the president orders the account to be written off as a |
| bad debt (invoice No. 780). |
| 3 | Sold bathroom fixtures to Bilder Construction Co on account, invoice No. 1202 for |
| $42720. |
| 4 | Received a check in the amount of $41454 from the Potts Co in full payment of invoice |
| No. 1128 dated November 27 for $42300. |
| 4 | Sold plumbing supplies and plastic pipe to Coconino Contractors Inc. on account, invoice |
| No. 1203 for $11200. |
| 4 | Issued check No. 1581 for $1120 to Standard Oil Co, in payment of gas, oil, and truck repair |
| from Tierney's Standard Service. |
| 5 | Issued check No. 1582 for $17820 to Khatan Steel Corp. in full settlement of purchase order |
| No. 312 for $18000. |
| 5 | Issued check No. 1583 for $12,054 to Phoenix Plastics in full payment of Phoenix's invoice |
| dated November 28 in the amount of $12,300, for purchase order No. 313, terms 2/10, n/30. |
| 5 | Received a check in the amount of $74823 from Rankin Plumbing Corp. in full payment |
| of invoice No. 1129 dated November 28 for $76350. |
| 8 | Sold cast pipe to Trudy's Plumbing on account, invoice No. 1204 for $23100. |
| 8 | Received a check in the amount of $31700 from Coconion Contractors, Inc. in full payment |
| of invoice No. 1091 dated October 20. |
| 8 | Purchased bathroom fixtures from Phoenix Plastics, on account, purchcase order No. 316 |
| for $51900 terms 3/10, n/30. |
| 8 | Received a check in the amount of $39100 from Boecker Builders in partial payment of |
| balance outstanding covering invoice Nos. 1050 and 1071. |
| 9 | Issued check No. 1585 for $790 to Scooter Gordon for lettering and sign painting on some |
| delivery trucks. |
| 9 | Issued check No. 1586 for $5980 to Phoenix Plastics, in payment of Phoenix's invoice dated |
| November 12 in the amount of $5980, our purchase order No. 299. |
| 10 | Issued check No. 1587 for $34300 to Smith Pipe Co in full payment of their invoice dated |
| November 28, terms 2/15, n/30, our purchase order No. 314. |
| 10 | Received a check in the amount of $13500 from Trudy's Plumbing in full settlement of |
| invoice No. 1106 dated November 7. |
| 10 | Sold pipe, fixtures, and accessories to Trudy's Plumbing on account, invoice No. 1205 for |
| $33850. |
| 11 | The payroll summary for the biweekly pay period ended Friday, December 5 contained the |
| follwing information: |
| Delivery and warehouse wages | 5,890 |
| FICA taxes withheld | 450 |
| Federal income taxes withheld | 1,472 |
| State income taxes withheld | 471 |
| Net pay | 3,497 |
| Employer's payroll taxes: |
| FICA tax | 450 |
| Federal unemployment tax | - 0 |
| State unemployment tax | - 0 |
| Issued check No. 1584 for the amount of the net pay and deposited it in the payroll bank |
| account. Individual payroll checks were then preppared for distributions to the biweekly |
| emplyees on Tuesday, December 11, 2018. |
| 11 | Sold pumbing supplies and copper tubing to The Potts Company on account, invoice No. |
| 1206 for $51450. |
| 11 | Received a check in the amount of $33,320 from Boecker Builders in full payment of invoice |
| No. 1071. |
| 11 | Cash sales to date totaled $15258. |
| 12 | Received a check in the amount of $22638 from Trudy's Plumbing in payment of inoivce |
| No. 1204. |
| 12 | Sold plumbing fixtures and supplies to Boecker Builders, on account, invoice No. 1207 |
| for $24,730. |
| 15 | The Potts Co returned defective copper tubing that is purchased on December 11. A credit |
| memo in the amount of $5145 is issued relative to invoice No. 1206. The copper tubing |
| had a cost of $3087. |
| 15 | The defective copper tubing is returned to Edward's Plumbing supplies, Inc. along with |
| a debit memo in the amount of $3087 in reduction of purchase order No. 315. |
| 15 | Issud check No. 1588 for $599 in payment of November telephone bill to Northern |
| Illinois Communications. |
| 16 | Issued check No. 1589 in the amount of $12,360 in payment of federal withholding taxes, |
| $10,573, and FICA taxes, $1787, payable on November salaries and wages; The check is |
| remitted to the Winnebago County Bank as the depository. |
| 16 | Issued check No. 1590 for $50,343 to Phoenix Plastics, Inc, in payment of purchase order |
| No. 316. |
| 17 | The president informs you that Bilder Construction Co agrees to convert the $68900 |
| overdue account receivable (invoice No. 1120) to a 6% note due six months from today. |
| 17 | Purchased plumbing materials from Smith Pipe Company on account, purcase order No. |
| 317 for $,55,120 terms 2/15, n/60. |
| 17 | Sold drain tile, plastic pipe, and copper tubing to A & B Hardware on account, invoice No. |
| 1208 for $8,340. |
| 18 | Sold fixtures and materials to Coconino Contractors, Inc. on account, invoice No. 1209 for |
| $47,930. |
| 18 | An invoice in the amount of $1,021 was received from S. White Trucking Company for |
| freight on purchase order No. 317 and paid by issuing check No. 1591. |
| 18 | Received a check in the amount of $33,173 from Trudy's Plumbing in payment of invoice |
| No. 1205. |
| 19 | Purchased office supplies from the Pen & Pad, issuing check No. 1592 in the amount of |
| $1,460. (Note: Debit asset account). |
| 19 | Purchased a new Faith computer for $7600 from Business Basics, Inc, purchase order |
| No, 318, paying $600 down through check No. 1593 with the balance due in thirty days |
| (n/30). The computer has an estmated life of 6 years with a salvage value of $1600. |
| 22 | Purchased bathroom and kitchen fixtures from Phoenix Plastics, on account, purchase |
| order No. 319 for $48,330, terms 1/10, n/30. |
| 22 | Received a bill from DeKalb Transport for $3520 for freight costs incurred during the last 30 |
| days, terms n/30. |
| NOTE: Transactions up to this point have been recorded. At this point you became |
| controller and are responsible for recordign all further transactions. |
| 25 | The board of directors voted to purchase 3,800 shares of its own stock from stockholder |
| Dionne Schivone at $48 per share and issued check No. 1595 in payment. Stock repurchases |
| are recorded at cost. Rockford is purchasing these shares because Ms. Schivone had been |
| a valuable employee. |
| 25 | The payroll summary for the biweekly pay period ended Friday, December 21 contained the |
| follwing information: |
| Delivery and warehouse wages | 5,970 |
| FICA taxes withheld | 456 |
| Federal income taxes withheld | 1,493 |
| State income taxes withheld | 477 |
| Net pay | 3,545 |
| Employer's payroll taxes: |
| FICA tax | 456 |
| Federal unemployment tax | - 0 |
| State unemployment tax | - 0 |
| Issued check No. 1594 for the amount of the net pay and deposited it in the payroll bank |
| account. Individual payroll checks were then prepared for distributions to the biweekly |
| emplyees on Tuesday, December 25. |
| 26 | The baord of directors declared a $1.20 per share cash dividend payable on January 14 to |
| shareholders of record by the end of the day of December 26. |
| 26 | The president informs you that Beverly's Building Products agrees to convert the $12,800 |
| overdue accounts receivable (invoice No. 1119) balance to a 8% note due six months from |
| today. |
| 29 | A half-acre parcel of land adjacent to the building is acquired in exchange for 850 shares |
| of unissued common stock. The land has a fair value of $48,000 and will be used |
| immediately as an outside storage lot and parking lot. |
| 29 | An invoice in the amount of $1,060 is received from Wayne McManus, lawyer, for legal |
| services involved in the acquisition of the adjacent parcel of land; check No. 1596 is issued. |
| 29 | Sold pipe and plumbing materials to Boecker Builders on account, invoice No. 1210 for |
| $49,800 |
| 30 | Issued check No. 1597 in the amount of $5,940 to the Northern Star for adverstisement run in |
| the home building supplement of December 13. |
| 30 | Issued check No. 1598 in the amount of $1,350 to Standard Oil Co. in payment of gas, oil, |
| and truck repairs from Standard Oil Co. (use Freight-out). |
| 30 | Purchased copper and cast iron pipe from Oxenford Copperworks on account, purchase |
| order No. 320 for $55,840, terms 1/10, n/30. |
| 30 | Check No. 1599 for $10,400 is issued to the bond sinking fund trustee, Chicago Trust Co., |
| for deposit in the sinking fund. (Use Other Assets). |
| 30 | Sold plumbing supplies to Swanson Brothers Construction on account, invoice No. 1211 |
| for $22,150. |
| 31 | Received a check for $24,730 from Boecker Builders in payment of invoice No. 1207. |
| 31 | Issued check No. 1600 for $54,018 to Smith Pipe Company in payment of purchase order |
| No. 317. |
| 31 | The custodian of the petty cash fund submits the following receipts for reimbursement |
| and reports a cash-on-hand count of $8. |
| Postage stampls used (supplies) | $38 |
| United Parcel (freight-out) | 23 |
| C.O.D postage (freight costs) | 51 |
| Christmas office decorations (Misc exp) | 30 |
| Check No. 1601 is issued and cashed to reimburse the fund. |
| 31 | Sold an electric truck-lift to Leila Stierman Co. for $2620 cash. The original cost was |
| $7900 with salvage value of $900, a life of 10 years, and accumulated depreciation |
| recorded through 12/31/17 is $4,550. The straight-line method is used. (Note: the |
| company follows the practice of recording a half year's depreciation in the year of |
| acquisition and a half year in the year of disposal.) First, bring the depreciation expense |
| up to date in the general journal. Then journalize the entire entry for the sale in the cash |
| receipts journal. |
| 31 | Sold bathroom fixtures and plumbing supplies to Trudy's Plumbing on account, invoice |
| No. 1212 for $50370. |
| 31 | Because for some time the petty cash fund has been smaller than required for monthly |
| expenditures, the fund is increased by $105 by cashing check No. 1602 and placing the |
| money in the petty cash fund. |
| 31 | The payroll summary for the monthly paid employees in submitted so that December |
| checks can be distributed before the year-end; the details are as follows: |
| Office and administrative salaries | $40,900 |
| Federal income taxes withheld | 10,225 |
| State income taxes withheld | 3,272 |
| FICA taxes withheld | 3,129 |
| Net pay | $24,274 |
| Issued check No, 1603 for the amount of the net pay and deposited it in the payroll bank |
| account. Individual payroll checks were prepared for distribution to all monthly employees |
| by the end of the day. |
| Employer's payroll taxes: |
| FICA tax (all office and administrative) | $3,129 |
| Federal unemployment tax | 0 |
| State unemployment tax | 0 |
| 31 | Cash sale since December 12 total $59160. |
| Instructions |
| 1 | Make the entries in the appropriate journal for December 25 through December 31. |
| (adjusting entries are recorded in general journal) |
| 2 | Post any amounts to be posted as individual amounts from journals to the general ledger |
| and update the receivable and payable subsidiary ledger accounts. |
| (only a few entries are posted for Dec, e.g., account receivable. Please post all other entries) |
| 3 | Foot and cross-foot the columnar journals and complete the month-end postings of all |
| books of orginal entry. |
| 4 | Prepare a trial balance by entering the accout balance from the general ledger in the |
| work sheet (list all accounts, including those with zero balances). |
| 5 | From the following information prepare adjusting entries in the general journal and |
| enter them in the work sheet. |
| a | The annual provison for doubtful accounts receivable is recorded by |
| providing a charge to Bad Debt Expense in an amount equal to 2.5% of net |
| credit sale. All cash sales were executed in December. |
| b | An inventory count of the office supplies revealed $700 of supplies on hand |
| at year end. |
| c | The prepaid insurance on January 1, 2018 was $3400 which covers the period |
| January 1 through August 31, 2018. The insurance premium of $6800 recorded |
| in August covers the period of September 1, 2018 through August 31, 2019. |
| Rockford estimates that 50% of the premiums are attributable to general |
| activities (Use Insurance Expense) and 50% to selling activities. (Use |
| Miscellaneous Expense). |
| d | The payroll summary for the employees who are paid biweekly shows the |
| following information at December 31, 2018: |
| Delivery and Warehouse Wages | $6,000 |
| FICA Taxes Payable | 459 |
| Federal Withholding Taxes | 1,500 |
| State Withholding Taxes | $480.00 |
| Net pay | 3,561 | (will pay in 2019) |
| e | The employer's share of the FICA tax ($459) must be accrued; no state or |
| federal unemployment tax is incurred during the fourth quarter because all |
| wages and salries earned during the last quarter exceed the maximum |
| subject to unemployment tax. |
| f | Interest has accrued at 6% on the long-term notes payable since July 1,2018. |
| These interests are due on January 1, 2019 (The first six-month interests have |
| been recorded and paid in July). |
| Interest on bonds is accrued and paid semi-annually, at a 4% annual coupon rate. |
| The next interest payment is due on January 1, 2019. The bonds are dated |
| January 1, 2012, and mature January 1, 2022. Market interest rate was 6% |
| at issurance . Use effective interest amortization method. |
| g | The interest accrued to 12/31/18 on notes receivable is composed of the |
| following: |
| Platteville Plumbers, 10%, 6 months, due March 31, 2019 | $1,052 |
| Bilder Construction, 6%, 6 months, due June 14, 2019 | 161 |
| Beverly's Building, 8%, 6 months, due June 26, 2019 | 23 |
| $1,236 |
| The interst accrued at 12/31/18 on the note payable (current) of $16000 is |
| $1250. Interest is payable on January 2, 2019. (The note is due in 2019) |
| h | A warehouse lease payment of $8400 was made on Septermber 1, 2018, |
| for rental through February 28, 2019. (The Prepaid Rent account is for |
| advance lease payments on the warehouse.) |
| i | $815 is owned to Northern Electric Co. and $425 is owned to City of Rockford |
| for utility services proved during December 2018. |
| j | Plant and equipmentto be depreciated are composed of the following: |
| Assets | Date
Acquired | cost | estimated
usage or life | salvage
value | depreciation
method |
| Building | 7/1/14 | $306,000 | 25 years | $20,000 | sum-of-years' digits |
| Truck #1 | 4/1/14 | 28,000 | 60,000 miles | 3,100 | miles driven |
| Truck #2 | 9/1/15 | 33,000 | 60,000 miles | 4,200 | miles driven |
| Lift Truck #1* | 8/17/11 | 7,900 | 10 years | 900 | straight-line |
| Lift Truck #2 | 3/29/15 | 4,500 | 10 years | 500 | straight-line |
| Lift Truck #3 | 9/16/16 | 5,000 | 10 years | 500 | straight-line |
| Office Equipment | 7/1/16 | 32,800 | 7 years | 2,000 | straight-line |
| Computer | 12/19/18 | 7,600 | 4 years | 1,600 | Double-decling |
| * | sold 12/31/18 |
| Truck No. 1has been driven 45,000 miles prior to 1/1/18 and truck No. 2 has |
| been driven 30,500 miles prior to 1/1/18. During 2018 truck No. 1 was driven |
| 12000 miles and truck No. 2 was driven 16000 miles. Remember that Rockford |
| Company takes a half-year's depreciation in the year of acquisition and a half- |
| year in the year of sale. |
| 6 | Complete the worksheet. Compute State of Illinois corporate income taxes at 4.5% of pretax |
| income. The state income tax is deductible on the federal tax return, and the federal tax is |
| not deductible on the Illinois return. Assume federal corporate income tax on income |
| subject to federal tax is as follows: |
| first $50000 | 15% |
| next 25000 | 25% |
| remainder | 34% |
| Income between $100,000 and $335,000 is assessed a 5% federal surtax, not to exceed |
| $11,750.00 |
| 7 | Prepare the journal entry for income taxes. Post all adjusting entries. |
| 8 | Prepare 2018's income statement (assume the weighted-average number of shares outstanding |
| for the year 2018 is 5,600 shares). Assume that bad debt expense and depreciation expense |
| are administrative expenses. |
| 9 | Prepare 2018's statement of retained earnings. |
| 10 | Prepare 2018's balance sheet. |