January 2, 2013 Mr. Burnâ€™s
decided to incorporate his business Mr. Smith GoodOld Fashion Cookies
Unadjusted Net Income: $171,268
Adjusted Net Income: $74,928
Ending Retained Earnings Balance:
1. January 2: Smith sold 100,000 shares of
common stock @ $10. The stock had a par value of $8
2. January 5: Smith collected $20,000 of prior
accounts receivables by acquiring help from Jammie Nash.
3. January 5: Smith issued a bond (new bond)
to raise the needed capital to enhance his company in Ozark, Missouri. The new
bond is a five year 12%, $100,000 semi annual bond with an effective market
rate of 10%. Payments are to be made semi-annually. The bond will be amortized
using the effective interest method. Record the issuance of the new bond. Round
to the nearest dollar.
4. February 4: Smith bought a new car to speed
up delivery time. Smith bought the car outright for $20,000. The car is
expected to have a useful life of 150,000 miles.
5. February 10: Smith bought $200,000 of
inventory on account. The freight cost was $2,000. The terms were FOB
6. March 1: Smith paid off what he originally
owed in accounts payable at the beginning of the year.
7. March 15: Smith paid income tax from last
8. April 1: Smith wrote off a $1,000 of
accounts receivable that he knew that he would never be able to collect from
Jack Ford. Record the write-off.
9. April 15: Smith sold on account $700,000
(2/10, n30) to city of Ozark. The cost of merchandise sold was $300,000
10. April 20: Cookie batches had
contamination, they were returned. $100,000 of inventory was returned. The cost
of merchandise sold was $40,000.
11. May 1: The city of Ozark paid Smith for
the shipment of cookies in entry 9 and 10.
12. July 1: Smith made the third interest
payment and amortized using the effective interest method on the old bond from
January 1, 2012. This bond was a five year, semi annual bond with a face value
of $100,000, effective market rate of 8%, and coupon rate of 6%. Payments are
made semi-annual. Record the interest payment and the amortization. Round to
the nearest dollar.
13. July 1: Smith made his first semi-annual
interest payment on the new bond and amortized using effective interest method.
Record the interest payment. Round to the nearest dollar.
14. July 1: Smith bought back 20,000 shares of
treasury stock for $7 a share.
15. August 10: Smith paid the following
expenses: Wage Exp $10,000, Rent Exp $20,000, Professional Fees $40,000, Sales
Salary Exp $10,000, and Advertising Exp $60,000. (Combine the amounts into
ONE cash entry)
16. August 25: Ford was able to pay off the
debt he owed to Smith. This was the debt Smith previously wrote off.
17. September 15: Smith declared dividends
18. September 30: Smith sold 10,000 of the
treasury stock with a cost $7 for $12 per share.
19. October 20: Smith paid off the entire
Notes Payable which was due in 2015. The amount Smith paid included the face
value of Note plus $10,000 of interest.
20. November 1: Smith paid off the Notes
Payable due in December 2013. Smith paid full carrying value of the Note plus
$500 of interest.
21. December 31: Smith made a semi annual
interest payment on the old bond and amortized. Round to the nearest dollar.
22. December 31: Smith made a semi annual
interest payment on the new bond and amortized. Round to the nearest dollar.
23. December 31: Smith paid the dividends
Adjustments: At December 31, 2013,
Smith made the following adjusting entries to update the books.
A1. At year end, it was estimated that 6% of
the year end accounts receivable will not be collected.
A2. Smith accrued for 2013 income taxes which
are to be paid March 15, 2014, $70,000
A3. Smith earned the remaining amount of
unearned sales revenue in 2013.
A4. Smith incurred the following depreciation
expenses for the year:
Equipment (10 year straight line bought in
Machinery (10 year double decline bought in
Car (driven 75,000 miles during the year)
Combine depreciation expense into
A5. All prepaid expenses expired during the
A6. Office supplies were counted to $3,000
worth at year end.
A7. Accounts Receivables not recorded, $10,000
At December 31, 2013, the following closing
entries were needed:
C1. & C2. Close all revenue and expense
C3. Close income summary to retained earnings.
C4. Close the Dividends account.