| 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 10,000 shares |
| of no-par common stock with a stated value of $30 per share. The common stock is sold over the |
| the counter in the local area. You have been hired as of Thursday, December 25, 2014, 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 80% 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, 2014, balances appear in the general ledger accounts as well as the Noverber 30, 2014, |
| balances, for those accounts whose balances have changed. All transacitons affecting the non- |
| current accounts from January 1, 2014, through Noverber 30, 2014, with explanations, appear in |
| these accounts to facilitate the preparation of the statement of cash flows. |
| Subsidiary ledger account balances as of Noverber 30, 2014, are as follows: |
| Accounts Receivable | | | Acct No | Amount |
| Boecker Builders | | | 117 | 62,920 |
| The Potts Company | | | 122 | 50,300 |
| Swanson Brothers Contruction | | | 133 | 24,050 |
| A & B Hardware | | | 143 | - 0 |
| Trudy's Plumbing | | | 155 | 15,100 |
| Coconino Contractors Inc | | | 160 | 27,800 |
| Rankin Plumbing Corp | | | 166 | 74,350 |
| Beverly's Building Products | | | 175 | 14,000 |
| Bilder Construction Co | | | 180 | 45,200 |
| Iwanaga Plumbing and Heating | | | 190 | 3,700 |
| Total | | | | 317,420 |
| Accounts Payable | | | Acct No | Amount |
| Phoenix Plastics | | | 14 | 17,450 |
| Business Basics Inc | | | 16 | - 0 |
| Edward's Plumbing Suppliers | | | 18 | 20,050 |
| DeKalb Transport | | | 20 | - 0 |
| Oxenford Copperworks | | | 35 | 26,400 |
| Smith Pipe Co | | | 39 | 38,100 |
| Ron & Rod's Plumbing Products | | | 44 | 14,850 |
| Khatan Steel Corp | | | 57 | 10,000 |
| Total | | | | 126,850 |
| 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-14 |
| 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 $23,569 from Swanson Brothers Contruction in full |
| | payment of invoice No. 1120 dated Novermber 26 in the amount of $24,050. |
| 1 | Sold sewer and drainage pipe to Beverly's Building Products on account, invoice No. 1201 |
| | for $13,150. |
| 2 | Purchased copper tubing and fittings from Edward's Plumbing Supplies Inc. on account, |
| | purchase order No. 315 for $24,320, terms n/60. |
| 2 | Issued check No. 1580 for $26,400 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 |
| | $44,900.00 |
| 4 | Received a check in the amount of $49,294 from the Potts Co in full payment of invoice |
| | No. 1128 dated November 27 for $50,300. |
| 4 | Sold plumbing supplies and plastic pipe to Coconino Contractors Inc. on account, invoice |
| | No. 1203 for $10,300. |
| 4 | Issued check No. 1581 for $810 to Standard Oil Co, in payment of gas, oil, and truck repair |
| | from Tierney's Standard Service. |
| 5 | Issued check No. 1582 for $9,900 to Khatan Steel Corp. in full settlement of purchase order |
| | No. 312 for $10,000. |
| 5 | Issued check No. 1583 for $10,486 to Phoenix Plastics in full payment of Phoenix's invoice |
| | dated November 28 in the amount of $10,700, for purchase order No. 313, terms 2/10, n/30. |
| 5 | Received a check in the amount of $72,863 from Rankin Plumbing Corp. in full payment |
| | of invoice No. 1129 dated November 28 for $74,350. |
| 8 | Sold cast pipe to Trudy's Plumbing on account, invoice No. 1204 for $29,300. |
| 8 | Received a check in the amount of $27,800 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 $52,700 terms 1/10, n/30. |
| 8 | Received a check in the amount of $29,000 from Boecker Builders in partial payment of |
| | balance outstanding covering invoice Nos. 1050 and 1071. |
| 9 | The payroll summary for the biweekly pay period ended Friday, December 5 contained the |
| | follwing information: |
| | Delivery and warehouse wages | | | | 4,860 |
| | FICA taxes withheld | | | | 350 |
| | Federal income taxes withheld | | | | 900 |
| | State income taxes withheld | | | | 190 |
| | | Net pay | | | 3,420 |
| | Employer's payroll taxes: |
| | FICA tax | | | | 350 |
| | 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 9, 2014. |
| 9 | Issued check No. 1585 for $600 to Scooter Gordon for lettering and sign painting on some |
| | delivery trucks. |
| 9 | Issued check No. 1586 for $6,750 to Phoenix Plastics, in payment of Phoenix's invoice dated |
| | November 12 in the amount of $6,750, our purchase order No. 299. |
| 10 | Issued check No. 1587 for $37,719 to Smith Pipe Co in full payment of their invoice dated |
| | November 28, terms 1/15, n/30, our purchase order No. 314. |
| 10 | Received a check in the amount of $15,100 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 |
| | $28,850.00 |
| 11 | Sold pumbing supplies and copper tubing to The Potts Company on account, invoice No. |
| | 1206 for $31,450. |
| 11 | Received a check in the amount of $33,920 from Boecker Builders in full payment of invoice |
| | No. 1071. |
| 11 | Cash sales to date totaled $12,292. |
| 12 | Received a check in the amount of $28,714 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 $4,680 is issued relative to invoice No. 1206. The copper tubing |
| | had a cost of $3,550. |
| 15 | The defective copper tubing is returned to Edward's Plumbing supplies, Inc. along with |
| | a debit memo in the amount of $3,550 in reduction of purchase order No. 315. |
| 15 | Issud check No. 1588 for $399 in payment of November telephone bill to Northern |
| | Illinois Communications. |
| 16 | Issued check No. 1589 in the amount of $11,360 in payment of federal withholding taxes, |
| | $9,573, 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 $52,173 to Phoenix Plastics, Inc, in payment of purchase order |
| | No. 316. |
| 17 | The president informs you that Bilder Construction Co agrees to convert the $45,200 |
| | overdue account receivable (invoice No. 1120) to a 14% note due six months from today. |
| 17 | Purchased plumbing materials from Smith Pipe Company on account, purcase order No. |
| | 317 for $50,800 terms 1/15, n/60. |
| 17 | Sold drain tile, plastic pipe, and copper tubing to A & B Hardware on account, invoice No. |
| | 1208 for $7,920. |
| 18 | Sold fixtures and materials to Coconino Contractors, Inc. on account, invoice No. 1209 for |
| | $42,780.00 |
| 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 $28,273 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 |
| | $1,360. (Note: Debit asset account). |
| 19 | Purchased a new Faith computer for $6,100 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 five years with a salvage value of $1,300. |
| 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 $2,300 for freight costs incurred during the last 30 |
| | days, terms n/30. |
| 23 | The payroll summary for the biweekly pay period ended Friday, December 19 contained the |
| | follwing information: |
| | Delivery and warehouse wages | | | | 5,770 |
| | FICA taxes withheld | | | | 415 |
| | Federal income taxes withheld | | | | 1,067 |
| | State income taxes withheld | | | | 225 |
| | | Net pay | | | 4,063 |
| | Employer's payroll taxes: |
| | FICA tax | | | | 415 |
| | 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 preppared for distributions to the biweekly |
| | emplyees on Tuesday, December 23. |
| | 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 1,000 shares of its own stock from stockholder |
| | Dionne Schivone at $83 per share and issued check No. 1595 in payment. Stock repurchases |
| | are recroded at cost. Rockford is purchasing these shares because Ms. Schivone had been |
| | a valuable employee. |
| 26 | The baord of directors declared a $1.80 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 $14,000 |
| | overdue accounts receivable (invoice No. 1119) balance to a 12% note due six months from |
| | today. |
| 29 | A half-acre parcel of land adjacent to the building is acquired in exchange for 600 shares |
| | of unissued common stock. The land has a fair value of $54,000 and will be used |
| | immediately as an outside storage lot and parking lot. |
| 29 | An invoice in the amount of $2,650 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 |
| | $49,040.00 |
| 30 | Issued check No. 1597 in the amount of $500 to the Northern Star for adverstisement run in |
| | the home building supplement of December 13. |
| 30 | Issued check No. 1598 in the amount of $925 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 $63,940, terms 1/10, n/30. |
| 30 | Check No. 1599 for $15,000 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 $24,650. |
| 31 | Received a check for $24,730 from Boecker Builders in payment of invoice No. 1207. |
| 31 | Issued check No. 1600 for $50,292 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 | | | $38 |
| | United Parcel (freight-out) | | | 23 |
| | C.O.D postage (freight costs) | | | 51 |
| | Christmas office decorations | | | 30 |
| | Check No. 1601 is issued and cashed to reimburse the fund. |
| 31 | Sold an electric truck-lift to Leila Stierman Co. for $2,500 cash. The original cost was |
| | $7,900 with salvage value of $900, a life of 10 years, and accumulated depreciation |
| | recorded through 11/31/13 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 $55,770. |
| 31 | Because for some time the petty cash fund has been smaller than required for monthly |
| | expenditures, the fund is increased by $75 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 | | | | $42,900 |
| | Federal income taxes withheld | | | | 7,696 |
| | State income taxes withheld | | | | 1,517 |
| | FICA taxes withheld | | | | 3,120 |
| | | Net pay | | | $30,567 |
| | 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) | | | | $3,120 |
| | Federal unemployment tax | | | | 0 |
| | State unemployment tax | | | | 0 |
| 31 | Cash sale since December 12 total $29,980. |
| 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% of net |
| | | credit sale. All cash sales were executed in December. |
| | b | An inventory count of the office supplies revealed $830 of supplies on hand |
| | | at year end. |
| | c | The prepaid insurance on January 1, 2014 was $3,220, which covers the period |
| | | January 1 through August 31, 2014. The insurance premium of $7,800 recorded |
| | | in August covers the period of September 1, 2014 through August 31, 2015. |
| | | Rockford estimates that 75% of the premiums are attributable to general |
| | | activities (Use Insurance Expense) and 25% to selling activities. (Use |
| | | Miscellaneous Expense). |
| | d | The payroll summary for the employees who are paid biweekly shows the |
| | | following information at December 31, 2014: |
| | | Delivery and Warehouse Wages | | | | $6,100 |
| | | FICA Taxes Payable | | | | 430 |
| | | Federal Withholding Taxes | | | | 1,036 |
| | | State Withholding Taxes | | | | 218 |
| | | | Net pay | | | 4,416 | (will pay in 2015) |
| | e | The employer's share of the FICA tax ($430) 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 manimum |
| | | subject to unemployment tax. |
| | f | Interest has accrued at 8% on the long-term notes payable since July 1,2014. |
| | | These interests are due on January 1, 2015 (The first six-month interests have |
| | | been recorded and paid in July). |
| | | Interest on bonds is accrued and paid annually, at a 4% coupon rate. |
| | | The next interest payment is due on January 1, 2015. The bonds are dated |
| | | January 1, 2008, and mature January 1, 2018. Market interest rate was 5% |
| | | at issurance . Use effective interest amortization method. |
| | g | The interest accrued to 12/31/14 on notes receivable is composed of the |
| | | following: |
| | | Platteville Plumbers, 10%, 6 months, due March 31, 2015 | | | | | | $1,125 |
| | | Bilder Construction, 11%, 6 months, due June 14, 2015 | | | | | | 232 |
| | | Beverly's Building, 9%, 6 months, due June 26, 2015 | | | | | | 17 |
| | | | | | | | | $1,374 |
| | | The interst accrued at 12/31/14 on the note payable (current) of $15,000 @ 10% is |
| | | $1,500. Interest is payable on January 2, 2015. (The note is due in 2015) |
| | h | A warehouse lease payment of $9,600 was made on Septermber 1, 2014, |
| | | for rental through February 28, 2015. (The Prepaid Rent account is for |
| | | advance lease payments on the warehouse.) |
| | i | $530 is owned to Northern Electric Co. and $279 is owned to City of Rockford |
| | | for utility services proved during December 2014. |
| | j | Plant and equipmentto be depreciated are composed of the following: |
| | | Assets | Date
Acquired | cost | estimated
usage or life | salvage
value | depreciation
method |
| | | Building | 7/1/10 | $306,000 | 25 years | $20,000 | sum-of-years' digits |
| | | Truck #1 | 4/1/10 | 28,000 | 60,000 miles | 3,100 | miles driven |
| | | Truck #2 | 9/1/11 | 33,000 | 60,000 miles | 4,200 | miles driven |
| | | Lift #1* | 8/17/07 | 7,900 | 10 years | 900 | straight-line |
| | | Lift #2 | 3/29/11 | 4,500 | 10 years | 500 | straight-line |
| | | Lift #3 | 9/16/12 | 5,000 | 10 years | 500 | straight-line |
| | | Office Equipment | Prior to 1/1/14 | 32,800 | 7 years | 2,000 | straight-line |
| | | Computer | 12/19/14 | 6,100 | 4 years | 1,300 | Double-decling |
| | | * | sold 12/31/14 |
| | | Truck No. 1has been driven 45,000 miles prior to 1/1/14 and truck No. 2 has |
| | | been driven 30,500 miles prior to 1/1/14. During 2014 truck No. 1 was driven |
| | | 12,000 miles and truck No. 2 was driven 14,000 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 $50,000 | | 15% |
| | | next 25,000 | | 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 2014's income statement (assume the weighted-average number of shares outstanding |
| | for the year 2014 is 5,600 shares). Assume that bad debt expense and depreciation expense |
| | are administrative expenses. |
| 9 | Prepare 2014's statement of retained earnings. |
| 10 | Prepare 2014's balance sheet. |
coolstudent1
project_v2.xlsx
