Topics: Balance sheet, Generally Accepted Accounting Principles, Liability Pages: 7 (969 words) Published: December 8, 2013
bProblem 1. Adjusting entries (18 points)
The following trial balance was taken from the books of Fisk Corporation on December 31, 2004.
Account Debit Credit
Cash$ 12,000
Accounts Receivable40,000
Note Receivable7,000
Allowance for Doubtful Accounts$ 1,800
Merchandise Inventory54,000
Unexpired Insurance4,800
Furniture and Equipment125,000
Accumulated Depreciation of F. & E.15,000
Accounts Payable10,800
Common Stock44,000
Retained Earnings55,000
Cost of Goods Sold131,000
Salaries Expense50,000
Rent Expense 12,800

At year end, the following items have not yet been recorded. a.Insurance expired during the year, $2,000.
b.Estimated bad debts, 1% of gross sales.
c.Depreciation on furniture and equipment, 12% per year.
d.Interest at 8% is receivable on the note for one full year. e.Rent paid in advance at December 31, $5,400 (originally charged to expense). f.Accrued salaries at December 31, $5,800.
(a)Prepare the necessary adjusting entries.

a. Insurance Expense 2,000
Unexpired Insurance2,000
b. Bad Debt Expense3,100
Allowance for Doubtful Accounts3,100
c. Depreciation Expense 15,000
Accumulated Depreciation 15,000
d. Accrued Interest Receivable 560
Interest Revenue 560
e. Prepaid Rent5,400
Rent Expense5,400
f. Salary Expense5,800
Salaries payable5,800

Problem 2 Multiple-step income statement (15 points)
Presented below is information related to Gregg Company.

Retained earnings, December 31, 2003$ 650,000
Selling and administrative expenses240,000
Hurricane loss (pre-tax) on plant (extraordinary item)250,000 Cash dividends declared on common stock33,600
Cost of goods sold960,000
Gain resulting from computation error on depreciation charge in 2002 (pre-tax)520,000 Other revenue60,000
Other expenses50,000

Prepare in good form a multiple-step income statement for the year 2004. Assume a 30% tax rate and that 100,000 shares of common stock were outstanding during the year.

Solution - Problem 2
Gregg Company
For the Year Ended December 31, 2004

Cost of goods sold 960,000
Gross profit640,000
Selling and administrative expenses 240,000
Income from operations400,000
Other revenue60,000
Other expenses (50,000)
Income before taxes410,000
Income taxes (123,000)
Income before extraordinary item287,000
Extraordinary loss, net of applicable income taxes of $75,000 (175,000) Net income$ 112,000

Per share of common stock—
Income before extraordinary item$2.87
Extraordinary item, net of tax (1.75)
Net income$1.12

Problem 3 Balance sheet format (20 points)
The following balance sheet has been submitted to you by an inexperienced bookkeeper. List your suggestions for improvements in the format of the balance sheet. Consider both terminology deficiencies as well as classification inaccuracies. Densen Industries, Inc.

Balance Sheet
For the Period Ended 12/31/04
Fixed Assets—Tangible
Less: reserve for depreciation (40,000)$ 70,000
Factory supplies22,000
Land and buildings400,000
Less: reserve for depreciation(150,000)250,000
Plant site held for future use 90,000$ 432,000
Current Assets
Accounts receivable175,000
Treasury stock (at cost) 20,000495,000
Fixed Assets--Intangible
Notes receivable 40,000
Patents 26,000 146,000
Deferred Charges
Advances to salespersons60,000
Prepaid rent27,000
Returnable containers 75,000 162,000
TOTAL ASSETS$1,235,000
Current Liabilities
Accounts payable$140,000
Allowance for doubtful accounts8,000...
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