Comprehensive Project. Intermediate Accounting
Posted: Wed Jul 06, 2022 6:09 am
Comprehensive Project. Intermediate Accounting
1 On January 1, 2021, ABC purchased a one-year liability insurance policy for $50,000 Upon purchase, the following journal entry was made: Dr Prepaid insurance Cr Cash 50,000 50,000 The expired portion of insurance must be recorded as of 12/31/21. Notice that the expired portion from January through November has been recorded already. Make sure that the Prepaid Insurance balance after the adjusting entry is correct. 2 Depreciation expense must be recorded for the month of December. The building was purchased on February 1, 2021 for $500,000 with a remaining useful life of 25 years and a salvage value of $3,000. The method of depreciation for the building is straight-line. The equipment was purchased on February 1, 2021 for $260,000 with a remaining useful life of 4 years and a salvage value of $1,800. The method of depreciation for the equipment is double-declining balance. Depreciation has been recorded for the building and equipment for months February through November. 3 On December 1, 2021, XYZ Co. agreed to rent space in ABC's building for $5,000 per month, and XYZ paid ABC on December 1 in advance for the first three months' rent. The entry made on December 1 was as follows: Dr Cash 15,000 Cr Unearned rent revenue 15,000 The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/21. 4 Per timecards, from the last payroll date through December 31, 2021, ABC's employees have worked a total of 300 hours. Including payroll taxes, ABC's wage expense averages about $30 per hour. The next payroll date is January 5, 2022. The liability for wages payable must be recorded as of 12/31/21.
5 On November 30, 2021, ABC borrowed $100,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2022), along with interest computed at an annual rate of 7%. The entry made on November 30 to record the borrowing was: Dr Cash 100,000 Cr Notes payable 100,000 On February 28, 2022 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/21 must be accrued on the $100,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2021, and the inventory on-hand at that time totaled $50,000, which reflects historical cost. Record the adjusting entry for properly recognizing 2021 Cost of Goods Sold. Hint: This was the first year of operations, so beginning inventory balance is zero. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $45,000 and estimated costs of completion and shipping is 10% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined that their intangible asset might be impaired on December 31, 2021. Record the impairment adjustment, if any. The expected future undiscounted net cash flows for this intangible asset totals $175,000, and the fair value of the asset is $165,000. 8 On 7/1/21, ABC purchased 5,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $10 per share, or $50,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/21, ABC reissued 2,000 shares of the treasury stock at $15 per share. Record the journal entry required for the reissuance of the treasury stock. To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.)
9 On 12/31/21, ABC issued 20,000 shares of $1 par value common stock at the closing market price of $15 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/21. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 10 On 7/1/21, ABC sold 10% bonds having a maturity value of $1,000,000 for $1,081,105, resulting in an effective yield of 8%. The bonds are dated 7/1/21, and mature 7/1/26. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/21. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 ABC Corporation prepares an aging schedule on 12/31/21 that estimates total uncollectible accounts at $40,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense for the calendar year. 12 ABC Corporation purchased 5,000 shares of XYZ Company common stock for $20.00 per share on 11/30/21. The investment represents a 5% voting interest and is classified as a trading security. At 12/31/21, the stock is trading at $25.00 per share. Prepare the appropriate adjusting journal entry for end-of-year valuation purposes. 13 On 12/31/21, ABC Corporation exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $20,000 (original cost of $65,000 less accumulated depreciation of $45,000) and $17,000, respectively. Assume ABC paid $10,000 in cash and the exchange has commercial substance. Prepare the approriate journal entry to reflect the nonmonetary exchange. 14 Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes": Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2022 due date. ABC's income tax rate is 20%. The entire year's income tax expense was estimated at the beginning of 2021 to be $52,000, so January through November income tax expense recognized amounts to $47,667 (11/12 months). Since we are assuming estimates are not paid during the year, the balance in Income taxes payable represents income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment so that the entire year's tax expense is correct (1.e. the difference between total income tax expense and the amount already accrued through November).
1 2 3 A w 4 56 7 682 9 10 5.0% cash date 7/1/2021 1/1/2022 7/1/2022 1/1/2023 27,027.63 7/1/2023 27,027.63 1/1/2024 27,027.63 6/30/2024 27,027.63 12/31/2024 27,027.63 6/30/2025 27,027.63 12/31/2025 27,027.63 7/1/2026 27,027.63 face amount cash rate years to maturity interest rate interest payment 27,027.63 27,027.63 1,000,000 5% 5 4% $ 27,027.63 4.0% interest $21,622.10 $21,513.99 $21,403.72 $21,291.24 $21,176.51 $21,059.49 $20,940.13 $20,818.38 $20,694.19 $20,567.52 premium amort ($5,405.53) ($5,513.64) ($5,623.91) ($5,736.39) ($5,851.11) ($5,968.14) ($6,087.50) ($6,209.25) ($6,333.43) ($6,460.10) carrying value 1,081,105.00 1,075,699.48 1,070,185.84 1,064,561.93 1,058,825.54 1,052,974.43 1,047,006.29 1,040,918.80 1,034,709.55 1,028,376.11 1,021,916.01
Beginning balances (bb) on these T-accounts are the 12/31/21 unadjusted balances. Hint: If there is no beginning balance (bb), it is a new account. bb bb bb Cash 442,736 30,000 300,000 612,736 Delivery Trucks 65,000 Building 500,000 100,000 10,000 50,000 500,000 65,000 bb bb Accounts receivable 300,000 300,000 Investment in XYZ Company Stock 125,000 125,000 Accumulated depreciation: building 16,570 bb 1,657 18,227 bb bb Inventory 40,500 40,500 Allowance for doubtful accounts Equipment 260,000 195,000 - bb 40,000 40,000 65,000 bb Purchases 350,000 350,000 Allowance to Reduce Inventory to NRV equipment - bb 4,500 Accumulated depreciation: 4,500 108,333 10,833 119,166 bb bb bb Prepaid insurance Bonds Payable Patent 200,000 165,000 4,167 1,000,000 bb 1,000,000 35,000
ABC Corporation Income Statement (Multiple Step Format) For the Year Ended December 31, 2021 Sales Revenue COGS Gross Profit Operating Expenses: Advertising Expenses Wages Expenses Office Expenses Utilities Expenses Insurance Expenses Inventory Total Operating Expenses Income from Operations: Other Income and Expenses: Interest Expense Rent Revenue Loss on exchange of Property Total Other Revenue and Expenses Income before Income Taxes Less Income Taxes (20%) Net Income After Taxes es $ $ $ $ $ $ $ $ $ $ $ $ $ (43,827) (10,000) (3,000) 9,240 71,150 54,083 33,571 50,000 40,500 258,544 $ 258,544 1,050,491 (309,500) 740,991 $ 482,447 $ $ $ $ (53,827) 428,620 85,724 342,896 355,057 -61,327 293730
ABC Corporation Statement of Shareholders' Equity For the Year Ended December 31, 2021 Balance as of January 1, 2021 1/1, sold 125,000 shares of Common Stock, par $1 7/1, repurchased 5,000 shares at $10 each for Treasury Stock PIC Commo Common Treasury Stock n Stock Stock (125,000) 12/31, 2,000 shares of Treasury stock resold for $15 each 12/31 issued 20,000 shares of Commn Stock par $1, for $15 e 20,000 Net Income Less: Dividends Balance as of December 31, 2021 (145,000) 280,000 50,000 (30,000) 280,000 20,000 PIC Treasury Stock Retained Earnings 428,620 234,984 (28,000) 0 635,604 Total Shareholders 'Equity 651,984
A ABC Corporation Balance Sheet For the Year Ended December 31, 2021 E
ABC Corporation Post-Closing Trial Balance December 31, 2021
- Comprehensive Project Intermediate Accounting 1 (52.88 KiB) Viewed 18 times
5 On November 30, 2021, ABC borrowed $100,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2022), along with interest computed at an annual rate of 7%. The entry made on November 30 to record the borrowing was: Dr Cash 100,000 Cr Notes payable 100,000 On February 28, 2022 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/21 must be accrued on the $100,000 note. 6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2021, and the inventory on-hand at that time totaled $50,000, which reflects historical cost. Record the adjusting entry for properly recognizing 2021 Cost of Goods Sold. Hint: This was the first year of operations, so beginning inventory balance is zero. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $45,000 and estimated costs of completion and shipping is 10% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value. 7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC determined that their intangible asset might be impaired on December 31, 2021. Record the impairment adjustment, if any. The expected future undiscounted net cash flows for this intangible asset totals $175,000, and the fair value of the asset is $165,000. 8 On 7/1/21, ABC purchased 5,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $10 per share, or $50,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/21, ABC reissued 2,000 shares of the treasury stock at $15 per share. Record the journal entry required for the reissuance of the treasury stock. To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.)
9 On 12/31/21, ABC issued 20,000 shares of $1 par value common stock at the closing market price of $15 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/21. To refresh your memory, a Paid-in Capital in Excess of Par account should be used to account for excess proceeds over par value in a stock issuance transaction. (See your Principles of Accounting textbook or Chapter 18 of your Intermediate Accounting textbook for a review.) 10 On 7/1/21, ABC sold 10% bonds having a maturity value of $1,000,000 for $1,081,105, resulting in an effective yield of 8%. The bonds are dated 7/1/21, and mature 7/1/26. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/21. Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense. 11 ABC Corporation prepares an aging schedule on 12/31/21 that estimates total uncollectible accounts at $40,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense for the calendar year. 12 ABC Corporation purchased 5,000 shares of XYZ Company common stock for $20.00 per share on 11/30/21. The investment represents a 5% voting interest and is classified as a trading security. At 12/31/21, the stock is trading at $25.00 per share. Prepare the appropriate adjusting journal entry for end-of-year valuation purposes. 13 On 12/31/21, ABC Corporation exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $20,000 (original cost of $65,000 less accumulated depreciation of $45,000) and $17,000, respectively. Assume ABC paid $10,000 in cash and the exchange has commercial substance. Prepare the approriate journal entry to reflect the nonmonetary exchange. 14 Do this final adjusting entry after preparing the Income Statement through the line "Income Before Income Taxes": Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2022 due date. ABC's income tax rate is 20%. The entire year's income tax expense was estimated at the beginning of 2021 to be $52,000, so January through November income tax expense recognized amounts to $47,667 (11/12 months). Since we are assuming estimates are not paid during the year, the balance in Income taxes payable represents income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment so that the entire year's tax expense is correct (1.e. the difference between total income tax expense and the amount already accrued through November).
1 2 3 A w 4 56 7 682 9 10 5.0% cash date 7/1/2021 1/1/2022 7/1/2022 1/1/2023 27,027.63 7/1/2023 27,027.63 1/1/2024 27,027.63 6/30/2024 27,027.63 12/31/2024 27,027.63 6/30/2025 27,027.63 12/31/2025 27,027.63 7/1/2026 27,027.63 face amount cash rate years to maturity interest rate interest payment 27,027.63 27,027.63 1,000,000 5% 5 4% $ 27,027.63 4.0% interest $21,622.10 $21,513.99 $21,403.72 $21,291.24 $21,176.51 $21,059.49 $20,940.13 $20,818.38 $20,694.19 $20,567.52 premium amort ($5,405.53) ($5,513.64) ($5,623.91) ($5,736.39) ($5,851.11) ($5,968.14) ($6,087.50) ($6,209.25) ($6,333.43) ($6,460.10) carrying value 1,081,105.00 1,075,699.48 1,070,185.84 1,064,561.93 1,058,825.54 1,052,974.43 1,047,006.29 1,040,918.80 1,034,709.55 1,028,376.11 1,021,916.01
Beginning balances (bb) on these T-accounts are the 12/31/21 unadjusted balances. Hint: If there is no beginning balance (bb), it is a new account. bb bb bb Cash 442,736 30,000 300,000 612,736 Delivery Trucks 65,000 Building 500,000 100,000 10,000 50,000 500,000 65,000 bb bb Accounts receivable 300,000 300,000 Investment in XYZ Company Stock 125,000 125,000 Accumulated depreciation: building 16,570 bb 1,657 18,227 bb bb Inventory 40,500 40,500 Allowance for doubtful accounts Equipment 260,000 195,000 - bb 40,000 40,000 65,000 bb Purchases 350,000 350,000 Allowance to Reduce Inventory to NRV equipment - bb 4,500 Accumulated depreciation: 4,500 108,333 10,833 119,166 bb bb bb Prepaid insurance Bonds Payable Patent 200,000 165,000 4,167 1,000,000 bb 1,000,000 35,000
ABC Corporation Income Statement (Multiple Step Format) For the Year Ended December 31, 2021 Sales Revenue COGS Gross Profit Operating Expenses: Advertising Expenses Wages Expenses Office Expenses Utilities Expenses Insurance Expenses Inventory Total Operating Expenses Income from Operations: Other Income and Expenses: Interest Expense Rent Revenue Loss on exchange of Property Total Other Revenue and Expenses Income before Income Taxes Less Income Taxes (20%) Net Income After Taxes es $ $ $ $ $ $ $ $ $ $ $ $ $ (43,827) (10,000) (3,000) 9,240 71,150 54,083 33,571 50,000 40,500 258,544 $ 258,544 1,050,491 (309,500) 740,991 $ 482,447 $ $ $ $ (53,827) 428,620 85,724 342,896 355,057 -61,327 293730
ABC Corporation Statement of Shareholders' Equity For the Year Ended December 31, 2021 Balance as of January 1, 2021 1/1, sold 125,000 shares of Common Stock, par $1 7/1, repurchased 5,000 shares at $10 each for Treasury Stock PIC Commo Common Treasury Stock n Stock Stock (125,000) 12/31, 2,000 shares of Treasury stock resold for $15 each 12/31 issued 20,000 shares of Commn Stock par $1, for $15 e 20,000 Net Income Less: Dividends Balance as of December 31, 2021 (145,000) 280,000 50,000 (30,000) 280,000 20,000 PIC Treasury Stock Retained Earnings 428,620 234,984 (28,000) 0 635,604 Total Shareholders 'Equity 651,984
A ABC Corporation Balance Sheet For the Year Ended December 31, 2021 E
ABC Corporation Post-Closing Trial Balance December 31, 2021