Big accounting problem.

Big accounting problem

 

Sears Corporation prepares quarterly financial statements. The balance sheet at 12/31/11 is presented below.

Balance Sheet
12/31/2011
Cash $24,300 Accounts payable $22,370
Accounts receivable 22,400 Common stock 85,000
Allowance for doubtful accounts (1,200) Retained earnings 23,130
Land 20,000
Equipment 30,000
Accumulated depreciation –
equipment (20,000)
Building 70,000
Accumulated depreciation –
building (15,000)
$130,500 $130,500

During the first quarter of 2012 the following transactions occurred:

1. Performed services for $140,000 on account.

2. On 2/1/12, collected fees of $12,000 in advance. $1,000 worth of services are to be performed each month from 2/1/12 to 1/30/13.

3. On 2/1/12, purchased equipment for $15,000 plus sales taxes of $750. $3,000 cash was paid with the remaining balance on account. Check #455 was used.

4. Collected $133,000 on 3/5/12 from customers on account.

5. Paid $16,370 on accounts payable. Check #456 was used.

6. Paid operating expenses of $97,500. Check #457 was used.

7. Acquired a patent with a 10-year life for $9,600 cash on 3/1/12. Check #458 was used.

8. Wrote off a receivable of $200 for a customer who went bankrupt.

9. On 3/31/12, Sears Corp sold for $2,620 cash equipment which originally cost $13,000. It had an estimated life of 5 years and salvage of $2,000. It had an
estimated life of 5 years and a salvage of $2,000. Accumulated depreciation as of 12/31/2011 was $8,000 using the straight line method. (1) Record depreciation on
the equipment sold, then (2) record the sale.

10. AJE 3/31/2012: Record revenue earned from item 2 above.

11. AJE: At 3/31/2012, $26,000 of Accounts Receivable is not yet due. The bad debt percentage for these current receivables is 4%. The remaining balance in
Accounts Receivable is past due. The bad debt percentage for these receivables is 23.75%. Record bad debt expense.
HINT: You will need to calculate the balance in accounts receivable before calculating bad debt expense.

12. AJE: Record depreciation as of 3/31/12. The new equipment purchased in February is being depreciated using the double declining balance method over 5 years.
The equipment has an estimated salvage value of $1,000. The equipment that was on the books on 12/31 that is still owned by Sears is being depreciated over a 10
year life using straight line with no salvage value.

13. AJE: Depreciation is recorded on the building on a straight-line basis using a 30-year life and a salvage value of $10,000.

14. AJE: Amortization is recorded on the patent.

15. The company reconciles its bank statement every quarter. Information from the 12/31/11 Bank Reconciliation is provided below:

Deposit in transit 12/30/11 $5,000

Outstanding Checks #440 $3,444
#452 333
#453 865
#454 5,845

The Bank statement received for the quarter ended 3/31/10 was:
Beginning balance per bank $ 29,787
Deposits: 1/2/12 $5,000; 2/2/12 $12,000; 3/6/12 $133,000 150,000
Checks: #452 $333; #453 $865; #456 $16,370; #457 $97,500 ( 115,068)
Debit memo: Bank service charge (Record as operating expense) (100)
Ending bank balance $ 64,619

16. AJE: Sears Corp’s income tax rate is 40%. The tax will be paid when the tax return is due in April.
Hint: Prepare the income statement up to income before taxes and multiply by 40% to compute the amount of income tax expense.
a. Enter the transactions numbered 1-9 in the general journal.
b. Enter the 12/31/11 balances in ledger accounts. Use the ledger account running balance format accounts provided on the following pages.
c. Post the journal entries to the ledger accounts for items 1-9.
d. Prepare an unadjusted trial balance at March 31st and enter on the worksheet.
Using your unadjusted trial balance above and the data for adjusting entries, prepare a 10 column worksheet.
e. Prepare a bank reconciliation in good form. (Item 15 above.) Use your own paper. Record the necessary AJE.
f. Journalize and post all other adjusting entries. (Items 10-16)
g. Prepare an income statement and a retained earnings statement for the quarter ended 3/31/12 and a classified balance sheet at 3/31/12. Use your own paper. (No
formatted sheets are supplied as for the other items.)

Parts: a, e and f

Extra Credit 2 ‘ General Journal Debit Credit
a.1.

a.2.

a.3.

a.4.

a.5.

a.6.

a.7.

a.8.

a.9.

a.10.

a.11.

a.12.

a.13.

a.14.

a.15.

a.16.

General Ledger Parts: b, c and d
CASH DR CR BALANCE
Beginning
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 9
Item 15

ACCOUNTS RECEIVABLE DR CR BALANCE
Beginning
Item 1
Item 4
Item 8

ALLOWANCE FOR DOUBTFUL ACCTS DR CR BALANCE
Beginning
Item 8
Item 11

LAND DR CR BALANCE
Beginning

EQUIPMENT DR CR BALANCE
Beginning
Item 3
Item 9

ACCUM DEPR EQUIPMENT DR CR BALANCE
Beginning
Item 9
Item 9
Item 12

General Ledger continued
BUILDING DR CR BALANCE
Beginning

ACCUM DEPR BUILDING DR CR BALANCE
Beginning
Item 13

PATENTS DR CR BALANCE
Item 7
Item 14

ACCOUNTS PAYABLE DR CR BALANCE
Beginning
Item 3
Item 5

UNEARNED REVENUE DR CR BALANCE
Item 2
Item 10

INCOME TAXES PAYABLE DR CR BALANCE
Item 16

COMMON STOCK DR CR BALANCE
Beginning

RETAINED EARNINGS DR CR BALANCE
Beginning

SERVICE REVENUE DR CR BALANCE
Item 1
Item 10

OPERATING EXPENSES DR CR BALANCE
Item 6
Item 15

General Ledger continued
DEPRECIATION EXPENSE DR CR BALANCE
Item 9
Item 12
Item 13

AMORTIZATION EXPENSE DR CR BALANCE
Item 14

LOSS ON DISPOSAL DR CR BALANCE
Item 9

BAD DEBT EXPENSE DR CR BALANCE
Item 11

INCOME TAX EXPENSE DR CR BALANCE
Item 16

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