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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
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a.2.
a.3.
a.4.
a.5.
a.6.
a.7.
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a.10.
a.11.
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a.13
Extra Credit 3- SOLUTION
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CASH
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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
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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