FNEC 1600
Comprehensive Problem â Due Date: December 1, 2017
Fall 2017
Your score on the following problem will carry a weight of 13% in determining your overall course grade. A hard copy of your solution must be submitted by December 1st. Any submission after the beginning of class on that date is subject to a 10 point per day late point reduction.
Description:
You have been charged with preparing year-end adjusting entries along with a multiple-step income statement and a classified balance sheet for Fat Tire, Inc., a wholesaler of bicycles and bicycle parts. The financial statements will cover the year ended December 31, 2016. A December 31 bank reconciliation, an unadjusted trial balance, and other information to help with the adjusting entries follow.
Fat Tire, Inc.
Bank Reconciliation
31-Dec-16
Balance per Bank Statement
$297,000
Deposits in Transit
$4,500
Bank Error (See note 1 below)
1,200
Outstanding Checks
(2,000)
3,700
Adjusted Balance
$300,700
Balance per Fat Tire's Books
$300,000
Interest Earned per bank statement
$450
Book Error (See note 2 below)
1,170
NSF Check (See note 3 below)
(500)
December bank service charges
(420)
700
Adjusted Balance
$300,700
note 1: The bank incorrectly charged Fat Tire's account for a fee
that belonged to another client of the bank.
note 2: A check for $130 to pay a cash miscellaneous operating
expense was incorrectly recorded as $1,300 on Fat Tire's
books.
note 3: The bank returned a bad check deposited by Fat Tire
that represented a receipt of payment from one of Fat Tire's
customers.
Fat Tire, Inc.
Unadjusted Trial Balance
December 31, 2016
Debit
Credit
Accounts Payable
50,000
Accounts Receivable
425,700
Accumulated Depreciation (Equip)
4,305
Accumulated Depreciation (F & F)
23,600
Advertising Expense
18,000
Allowance for Doubtful Accounts
$1,500
Cash
$300,000
Common Stock
180,000
Cost of Goods Sold
2,613,000
Depreciation Expense
6,455
Equipment
10,000
Furniture & Fixtures
50,000
Income Tax Expense
228,323
Insurance Expense
7,500
Interest Revenue
5,200
Inventory
325,000
Miscellaneous Operating Expense
2,500
Note Payable
35,000
Payroll Tax Expense
23,680
Prepaid Insurance
10,500
Rent Expense
168,000
Rent Revenue
4,000
Retained Earnings
242,553
Salary Expense
264,500
Sales Discounts
42,000
Sales Returns
30,000
Sales Revenue
4,020,000
Supplies
2,000
Supplies Expense
17,000
Unearned Rent
2,000
Utilities Expense
24,000
Totals
4,568,158
4,568,158
Information related to adjusting entries:
No entries have been made for the December 31 bank reconciliation. Use the bank reconciliation provided to prepare the necessary entries.
Fat Tire pays employees and all payroll related liabilities semi-monthly. Each payment of payroll related liabilities is for the previous pay period. Thus, Fat Tire needs to accrue salaries and payroll related expenses for the December 16th-31st pay period. The following information was obtained for the last pay period of the year.
Gross Pay = $12,000
Federal Income Tax withholding rate = 20%
FICA rate for employees and employers = 8%
State unemployment taxes for the pay period = $250
Federal unemployment taxes for the pay period = $75
Fat Tire maintains a liability account for federal income tax withheld from employees and a separate liability account for its own corporate income taxes.
Based on a count taken on December 31st, the amount of supplies that remain on hand is $500.
Unbilled sales as of December 31 totaled $5,000. The cost of those bikes sold was $2,000.
The Allowance for Doubtful accounts is adjusted at the end of each year using the percentage of sales method. Fat Tires estimates that 1% of adjusted net sales will go uncollected.
The Prepaid Insurance balance represents an $18,000 one-year policy that began on July 1. The company adjusts any prepaid items on a monthly basis.
Fat Tire decided to sublease some of its rental space. On October 1, the company received $6,000 in advance from a neighboring business for 3 monthâs rent. The lease period began on October 1. Fat Tire adjusts rent related accounts on a monthly basis.
Furniture and Fixtures were acquired on January 2, 2012 at a cost of $50,000. Management selected a 10 year life and a $2,000 residual value. Fat Tire depreciates Furniture and Fixtures on a monthly basis using the straight-line method of depreciation.
The Equipment was purchased on January 2, 2015 at a cost of $10,000. Management selected a productive life of 6,000 hours and a $1,000 residual value. Fat Tire depreciates Equipment on a monthly basis using the units-of-production method. The equipment was used 200 hours in December.
The Note Payable was issued on December 1, 2016. The terms of the note state that the principal and interest is to be paid two years from the issuance date. The interest rate stated on the note is 6 percent.
Accrued advertising expenses incurred but not yet paid totaled $1,000 on December 31.
Fat Tire makes quarterly payments for its income taxes. No entry has been made for the fourth quarter income taxes of 2016 which will be paid in 2017. To make this entry, you will have to determine the Income Before Tax for the year. One-fourth of that amount represents income earned in the fourth quarter. Fat Tireâs corporate tax rate is 40%.
Required:
Prepared the adjusting journal entries required on December 31, 2016.
Prepared a multiple-step income statement for the year ended December 31, 2016. Make sure your operating expenses are listed in descending order. Use the Income statement example that I provided as supplemental notes to chapter 6 as a guide.
Prepare a classified balance sheet as of December 31, 2016. List your current assets in order of liquidity.
Note: If it helps, prepare a supplemental schedule like we completed in problem 4.6A. It may help organize your data prior to preparing the financial statements.
Appropriate Use of Office Hours:
Office hours are held so that students can ask questions about assignments and/or concepts. For assignments that are to be submitted for a grade, it is unreasonable for you to ask âis my assignment correctâ or âcan you find my mistakesâ. That is why the assignments are graded. A reasonable request is to ask âhow toâ questions if you are stuck on a step or âcan you help me understand this data or this requirementâ. We (Iâm speaking for the TAs as well) want to help, but we are not there to complete your assignments for you.
Print Formats: Be sure to use the print preview feature in Excel and adjust your spreadsheets so that they can be easily read. Points will be deducted if I have to work just to read your printouts. Use normal size fonts and make sure that when reading left to right, you do not have sheets starting on one page and finishing on another. In other words, pretend Iâm your client.
FNEC 1600
Comprehensive Problem â Due Date: December 1, 2017
Fall 2017
Your score on the following problem will carry a weight of 13% in determining your overall course grade. A hard copy of your solution must be submitted by December 1st. Any submission after the beginning of class on that date is subject to a 10 point per day late point reduction.
Description:
You have been charged with preparing year-end adjusting entries along with a multiple-step income statement and a classified balance sheet for Fat Tire, Inc., a wholesaler of bicycles and bicycle parts. The financial statements will cover the year ended December 31, 2016. A December 31 bank reconciliation, an unadjusted trial balance, and other information to help with the adjusting entries follow.
| Fat Tire, Inc. | ||||||
| Bank Reconciliation | ||||||
| 31-Dec-16 | ||||||
| Balance per Bank Statement | $297,000 | |||||
| Deposits in Transit | $4,500 | |||||
| Bank Error (See note 1 below) | 1,200 | |||||
| Outstanding Checks | (2,000) | 3,700 | ||||
| Adjusted Balance | $300,700 | |||||
| Balance per Fat Tire's Books | $300,000 | |||||
| Interest Earned per bank statement | $450 | |||||
| Book Error (See note 2 below) | 1,170 | |||||
| NSF Check (See note 3 below) | (500) | |||||
| December bank service charges | (420) | 700 | ||||
| Adjusted Balance | $300,700 | |||||
| note 1: The bank incorrectly charged Fat Tire's account for a fee | ||||||
| that belonged to another client of the bank. | ||||||
| note 2: A check for $130 to pay a cash miscellaneous operating | ||||||
| expense was incorrectly recorded as $1,300 on Fat Tire's | ||||||
| note 3: The bank returned a bad check deposited by Fat Tire | ||||||
| that represented a receipt of payment from one of Fat Tire's | ||||||
| customers. | ||||||
| Fat Tire, Inc. | ||||||
| Unadjusted Trial Balance | ||||||
| December 31, 2016 | ||||||
| Debit | Credit | |||||
| Accounts Payable | 50,000 | |||||
| Accounts Receivable | 425,700 | |||||
| Accumulated Depreciation (Equip) | 4,305 | |||||
| Accumulated Depreciation (F & F) | 23,600 | |||||
| Advertising Expense | 18,000 | |||||
| Allowance for Doubtful Accounts | $1,500 | |||||
| Cash | $300,000 | |||||
| Common Stock | 180,000 | |||||
| Cost of Goods Sold | 2,613,000 | |||||
| Depreciation Expense | 6,455 | |||||
| Equipment | 10,000 | |||||
| Furniture & Fixtures | 50,000 | |||||
| Income Tax Expense | 228,323 | |||||
| Insurance Expense | 7,500 | |||||
| Interest Revenue | 5,200 | |||||
| Inventory | 325,000 | |||||
| Miscellaneous Operating Expense | 2,500 | |||||
| Note Payable | 35,000 | |||||
| Payroll Tax Expense | 23,680 | |||||
| Prepaid Insurance | 10,500 | |||||
| Rent Expense | 168,000 | |||||
| Rent Revenue | 4,000 | |||||
| Retained Earnings | 242,553 | |||||
| Salary Expense | 264,500 | |||||
| Sales Discounts | 42,000 | |||||
| Sales Returns | 30,000 | |||||
| Sales Revenue | 4,020,000 | |||||
| Supplies | 2,000 | |||||
| Supplies Expense | 17,000 | |||||
| Unearned Rent | 2,000 | |||||
| Utilities Expense | 24,000 | |||||
| Totals | 4,568,158 | 4,568,158 | ||||
Information related to adjusting entries:
No entries have been made for the December 31 bank reconciliation. Use the bank reconciliation provided to prepare the necessary entries.
Fat Tire pays employees and all payroll related liabilities semi-monthly. Each payment of payroll related liabilities is for the previous pay period. Thus, Fat Tire needs to accrue salaries and payroll related expenses for the December 16th-31st pay period. The following information was obtained for the last pay period of the year.
Gross Pay = $12,000
Federal Income Tax withholding rate = 20%
FICA rate for employees and employers = 8%
State unemployment taxes for the pay period = $250
Federal unemployment taxes for the pay period = $75
Fat Tire maintains a liability account for federal income tax withheld from employees and a separate liability account for its own corporate income taxes.
Based on a count taken on December 31st, the amount of supplies that remain on hand is $500.
Unbilled sales as of December 31 totaled $5,000. The cost of those bikes sold was $2,000.
The Allowance for Doubtful accounts is adjusted at the end of each year using the percentage of sales method. Fat Tires estimates that 1% of adjusted net sales will go uncollected.
The Prepaid Insurance balance represents an $18,000 one-year policy that began on July 1. The company adjusts any prepaid items on a monthly basis.
Fat Tire decided to sublease some of its rental space. On October 1, the company received $6,000 in advance from a neighboring business for 3 monthâs rent. The lease period began on October 1. Fat Tire adjusts rent related accounts on a monthly basis.
Furniture and Fixtures were acquired on January 2, 2012 at a cost of $50,000. Management selected a 10 year life and a $2,000 residual value. Fat Tire depreciates Furniture and Fixtures on a monthly basis using the straight-line method of depreciation.
The Equipment was purchased on January 2, 2015 at a cost of $10,000. Management selected a productive life of 6,000 hours and a $1,000 residual value. Fat Tire depreciates Equipment on a monthly basis using the units-of-production method. The equipment was used 200 hours in December.
The Note Payable was issued on December 1, 2016. The terms of the note state that the principal and interest is to be paid two years from the issuance date. The interest rate stated on the note is 6 percent.
Accrued advertising expenses incurred but not yet paid totaled $1,000 on December 31.
Fat Tire makes quarterly payments for its income taxes. No entry has been made for the fourth quarter income taxes of 2016 which will be paid in 2017. To make this entry, you will have to determine the Income Before Tax for the year. One-fourth of that amount represents income earned in the fourth quarter. Fat Tireâs corporate tax rate is 40%.
Required:
Prepared the adjusting journal entries required on December 31, 2016.
Prepared a multiple-step income statement for the year ended December 31, 2016. Make sure your operating expenses are listed in descending order. Use the Income statement example that I provided as supplemental notes to chapter 6 as a guide.
Prepare a classified balance sheet as of December 31, 2016. List your current assets in order of liquidity.
Note: If it helps, prepare a supplemental schedule like we completed in problem 4.6A. It may help organize your data prior to preparing the financial statements.
Appropriate Use of Office Hours:
Office hours are held so that students can ask questions about assignments and/or concepts. For assignments that are to be submitted for a grade, it is unreasonable for you to ask âis my assignment correctâ or âcan you find my mistakesâ. That is why the assignments are graded. A reasonable request is to ask âhow toâ questions if you are stuck on a step or âcan you help me understand this data or this requirementâ. We (Iâm speaking for the TAs as well) want to help, but we are not there to complete your assignments for you.
Print Formats: Be sure to use the print preview feature in Excel and adjust your spreadsheets so that they can be easily read. Points will be deducted if I have to work just to read your printouts. Use normal size fonts and make sure that when reading left to right, you do not have sheets starting on one page and finishing on another. In other words, pretend Iâm your client.
Related questions
Problem 7-5A (Part Level Submission)
Ivanhoe Company of Emporia, Kansas, spreads herbicides andapplies liquid fertilizer for local farmers. On May 31, 2017, thecompanyâs Cash account per its general ledger showed a balance of$6,858.90.
The bank statement from Emporia State Bank on that date showed thefollowing balance.
EMPORIA STATE BANK | ||||
|---|---|---|---|---|
Checks and Debits | Deposits and Credits | Daily Balance | ||
| XXX | XXX | 5-31 7,088.00 | ||
A comparison of the details on the bank statement with the detailsin the Cash account revealed the following facts.
| 1. | The statement included a debit memo of $64.00 for the printingof additional company checks. | |
| 2. | Cash sales of $907.15 on May 12 were deposited in the bank. Thecash receipts journal entry and the deposit slip were incorrectlymade for $957.15. The bank credited Ivanhoe Company for the correctamount. | |
| 3. | Outstanding checks at May 31 totaled $267.25, and deposits intransit were $1,904.15. | |
| 4. | On May 18, the company issued check No. 1181 for $686.00 to H.Moses, on account. The check, which cleared the bank in May, wasincorrectly journalized and posted by Ivanhoe Company for$668.00. | |
| 5. | A $2,834.00 note receivable was collected by the bank forIvanhoe Company on May 31 through electronic funds transfer. | |
| 6. | Included with the canceled checks was a check issued by TominsCompany to C. Pernod for $336.00 that was incorrectly charged toIvanhoe Company by the bank. | |
| 7. | On May 31, the bank statement showed an NSF charge of $500.00for a check issued by Sara Ballard, a customer, to Ivanhoe Companyon account. |
a.)Prepare the bank reconciliation at May 31, 2017
b.) Prepare the necessary adjusting entries for Blossom Companyat May 31, 2017. (Credit account titles areautomatically indented when amount is entered. Do not indentmanually.)
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companyâs accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31, 2018.
| MUSIC-IS-US, INC. | |||||||
| TRIAL BALANCE | |||||||
| DECEMBER 31, 2018 | |||||||
| Cash | $ | 45,000 | |||||
| Marketable securities | 26,000 | ||||||
| Accounts receivable | 130,000 | ||||||
| Allowance for doubtful accounts | $ | 5,100 | |||||
| Merchandise inventory | 256,000 | ||||||
| Office supplies | 1,900 | ||||||
| Prepaid insurance | 7,040 | ||||||
| Building and fixtures | 1,794,000 | ||||||
| Accumulated depreciation | 797,000 | ||||||
| Land | 66,800 | ||||||
| Accounts payable | 69,000 | ||||||
| Unearned customer deposits | 7,800 | ||||||
| Income taxes payable | 75,000 | ||||||
| Capital stock | 960,000 | ||||||
| Retained earnings | 238,200 | ||||||
| Unrealized holding gain on investments | 5,100 | ||||||
| Sales | 1,651,340 | ||||||
| Cost of goods sold | 953,000 | ||||||
| Bank service charges | 200 | ||||||
| Uncollectible accounts expense | 8,300 | ||||||
| Salary and wages expense | 392,000 | ||||||
| Office supplies expense | 300 | ||||||
| Insurance expense | 6,000 | ||||||
| Utilities expense | 3,000 | ||||||
| Depreciation expense | 44,000 | ||||||
| Income tax expense | 75,000 | ||||||
| $ | 3,808,540 | $ | 3,808,540 | ||||
Other information pertaining to the companyâs trial balance is provided as follows.
1. The most recent bank statement reports a balance of $47,175. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bankâs monthly service charge was $25. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $4,100; no. 511, $9,400; and no. 521, $7,900. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.
2. Music-Is-Us has a portfolio of marketable securities that originally cost $20,000. As of December 31, the market value of these securities was $28,800. All short-term investments are classified as "available for sale."
3. During December, $6,100 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable led management to conclude that an allowance for doubtful accounts of $8,200 is needed at December 31, 2018.
4. The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,300. This amount is not considered significant relative to the total cost of inventory on hand.
5. At December 31, approximately $830 in office supplies remained on hand.
6. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2018. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
7. Depreciation expense related to the company's building and fixtures is $4,000 for the month ending December 31, 2018.
8. Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled âUnearned Customer Deposits.â As of December 31, $4,000 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.
9. Accrued income taxes payable for the entire year ending December 31, 2018, total $81,000. No income tax payments are due until early in 2019.
Please Prepare:
A Bank Reconciliation
Journal Entries
Adjusting Entries
