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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 Merchandise Inventory 36.000 Common stock ($1 par) Prepaid Insurance 3.600 Paid in capital in excess of par Equipment 75.000 Retained earnings Accumulated depreciation (21.000) $ 167.000 $ 32.400 10.000 60.000 64.600 $ 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.) ***Four Optional 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. Extra Credit 3- SOLUTION G E a.1. a.2. a.3. a.4. a.5. a.6. a.7. a.8. a.9. a.10. a.11. N E R A L J O U R N A L a.12 a.13 Extra Credit 3- SOLUTION G E N E R A L CASH L E D G DR E R Page 1 CR BALANCE Beginning 0 item 3 0 item 4 0 item 5 0 item 6 0 item 7 0 item 8 0 item 9 0 item 10 0 item 11 0 item 12 0 item 13 0 ACCOUNTS RECEIVABLE DR CR BALANCE Beginning 0 item 2 0 item 5 0 MERCHANDISE INVENTORY DR CR BALANCE Beginning 0 item 1 0 item 2 0 PREPAID INSURANCE DR CR BALANCE Beginning EQUIPMENT 0 DR CR BALANCE Beginning 0 item 9 0 item 11 0 ACCUMULATED DEPRECIATION DR CR BALANCE Beginning 0 item 9 0 G E N E R A L ACCOUNTS PAYABLE L E D G DR E R Page 2 CR BALANCE Beginning 0 item 1 0 item 7 0 SALES TAX PAYABLE DR CR BALANCE item 2 0 item 8 0 UNEARNED REVENUE DR CR BALANCE item 3 FICA PAYABLE 0 DR CR BALANCE item 13 0 item 13 0 FIT PAYABLE DR CR BALANCE item 13 SIT PAYABLE 0 DR CR BALANCE item 13 FUTA PAYABLE 0 DR CR BALANCE item 13 SUTA PAYABLE 0 DR CR BALANCE item 13 BONDS PAYABLE 0 DR CR BALANCE item 4 PREMIUM ON BONDS PAYABLE 0 DR CR BALANCE item 4 COMMON STOCK Beginning 0 DR CR BALANCE 0 G E N E R A L L Preferred Stock E D G DR E R Page 3 CR BALANCE item 10 PAID IN CAPITAL IN EXCESS OF PAR 0 DR CR BALANCE Beginning 0 item 10 0 TREASURY STOCK DR CR BALANCE item 12 RETAINED EARNINGS 0 DR CR BALANCE Beginning SALES 0 DR CR BALANCE item 2 COST OF GOODS SOLD 0 DR CR BALANCE item 2 OPERATING EXPENSES 0 DR CR BALANCE item 6 WAGE EXPENSE 0 DR CR BALANCE item 13 PAYROLL TAX EXPENSE 0 DR CR BALANCE item 13 LOSS ON DISPOSAL OF EQUIPMENT item 9 0 DR CR BALANCE 0 Requirement B Account Title Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Equipment Accumulated depreciation Accounts Payable Sales Tax Payable Unearned Revenue FICA Payable FIT Payable SIT Payable FUTA Payable SUTA Payable Bonds Payable Premium on Bonds Payable Common Stock Preferred Stock Paid in Capital in Excess of Par Treasury Stock Retained Earnings Sales Cost of Goods Sold Operating Expenses Wage Expense Payroll Tax Expense Loss on disposal Additional accounts: Depreciation Expense Interest Expense Interest payable Insurance Expense Totals Net Loss Totals Three Wise Konks Company Work Sheet For the Year Ended December 31, 2014 Unadjusted Adjusted Trial Balance Adjustments Trial Balance DR CR DR CR DR CR 0 0 0 0 0 0 0 c 0 0 0 0 a 0 0 0 0 0 0 0 0 0 0 b 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a b b c 0 Income Statement DR CR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Balance Sheet DR CR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Three Wise Konks Company Statement of Cash Flows For the Year ended 12/31/14 CASH FROM OPERATING ACTIVITIES: Net Cash From Operations 0 CASH FROM INVESTNG ACTIVITIES: Net Cash From Investing 0 CASH FROM FINANCING ACTIVITIES: Net Cash From Financing NET INCREASE IN CASH 0 0 Cash at beginning of year Cash at end of year 0
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