201 EXTRA CREDIT 3 FALL 2014 A+ SOLUTIONS
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Extra Credit 3 - Due in TA mailbox Saturday December 13th at 10pm. | ||||
GRADING: Worth up to 15 points. Read the requirements carefully. | ||||
Partially completed problems will earn no credit—that means all requirements must be FULLY completed. | ||||
If you complete all items as requested, you will earn at least 8 points. | ||||
The remaining points are dependent upon the accuracy of your answers! | ||||
Konkle Bells, Inc. balance sheet at 12/31/13 is presented below. | ||||
Three Wise Konks Company | ||||
Balance Sheet | ||||
12/31/2013 | ||||
Cash | $ 73,400 | Accounts payable | $ 32,400 | |
Merchandise Inventory | 36,000 | Common stock ($1 par) | 10,000 | |
Prepaid Insurance | 3,600 | Paid in capital in excess of par | 60,000 | |
Equipment | 75,000 | Retained earnings | 64,600 | |
Accumulated depreciation | (21,000) | |||
$ 167,000 | $ 167,000 | |||
During 2013, the following transactions occurred: | ||||
1. Purchased $119,500 inventory on account. Three Wise Konks Company uses the perpetual method for valuing inventory. | ||||
2. $180,000 in sales, plus 5.6% sales tax, were made to customers on account. Cost of the goods sold were $105,600. | ||||
3. Received $26,000 cash down payment for orders that will be shipped next year. | ||||
4. Issued 20 year, $40,000 face value, 8% bonds on 7/2/14 at 106. The bonds pay interest every 1/1 and 7/1. | ||||
5. Collected $135,200 on account. | ||||
6. Paid other operating expenses of $22,600. | ||||
7. Paid $117,630 on account. | ||||
8. Paid $10,000 to the state for a portion of the sales tax collected from customers. | ||||
9. On 1/1/14 sold equipment with an original cost of $15,000 for $5,000 cash. The equipment's | ||||
accumulated depreciation is $8,500. | ||||
10. Issued 1,200 shares of $125 par 8% preferred stock for $165,000 cash. | ||||
11. Purchased equipment on 7/1/14 for $100,000 cash. | ||||
12. Purchased 500 shares of Three Wise Konks Inc. common stock from a disgruntled shareholder for $40 per share. | ||||
13. Recorded wage and payroll taxes. Employee gross wages were $30,000, FICA tax was withheld at a 7.65% rate, | ||||
federal income taxes (FIT) of $1,800 were withheld, and state income taxes (SIT) of $600 were withheld. | ||||
Additionally, the Federal unemployment tax (FUTA) rate is 0.9% and the state unemployment (SUTA) rate is 3.5%. | ||||
The net wage checks were cut and immediately given to employees. The payroll taxes are not due to be remitted until | ||||
after year end. | ||||
Requirement A: | ||||
i - Journalize 1 - 13 above | ||||
ii - Post to the ledger | ||||
iii - Prepare an unadjusted trial balance which will be used as the first 2 columns of a worksheet. | ||||
(See Requirement B.) | ||||
***FourOptional solution templates have been prepared to assist you. They can be accessed by clicking on | ||||
the tabs below. Use of Microsoft Excel is optional. Hand prepared solutions are also acceptable. | ||||
Requirement B: | ||||
Using the unadjusted trial balance prepared in requirement A-iii above and the following data for adjusting | ||||
entries, prepare a 10 column worksheet similar to the one in chapter 4 appendix of your text. | ||||
(a) Straight-line depreciation, with a 10-year useful life and no salvage value is used for equipment purchased in previous years. | ||||
For the 2014 purchase (#11 above) use double declining balance with a useful life of 10 years, and $15,000 salvage value. | ||||
(b) Accrue bond interest payable and amortize bond premium as well. | ||||
(c) The prepaid insurance relates to a policy purchased last year that expires at a rate of $80 per month. | ||||
(d) The company estimates that all accounts receivable are collectible--in other words, don't worry about bad debts. | ||||
Requirement C: | ||||
Prepare a Statement of Cash Flows. | ||||
Hints: In operating activities subtract gains and premium amortization. | ||||
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