Problem 1
Start with the year-end 12/31/2012 balance sheet of BehrendCorp. illustrated in Exhibit 1.5. Based upon the followinginformation, record entries for the year 2013 in accountingequation format and based upon those entries provide:
1) a multi-stepincome statement for 2013,
2) a statement ofstockholders’ equity for 2013,
3) a statement ofcash flows for 2013 (use the direct method),
4) a classifiedbalance sheet at 12/31/13.
SUMMARY ENTRIES
a. Purchased inventory on account from suppliers for $1,300,000.
b. Goods (inventory) areprovided to customers on account for an aggregate selling price of$2,100,000. Assume that Behrend’s cost of the inventory transferredto customers is $1,250,000.
c. Cash of $2,050,000 is collected from customers on account.
d. Cash of$1,130,000 is paid to suppliers on accounts payable.
e. Employees are paid monthly inthe month following the month of service. There is a one month timelag between employees providing services and Behrend paying themfor those services. For example, employees are paid for workperformed in December 2012 in January 2013, work performed inJanuary 2013 is paid in February 2013, ….. and work performed inDecember 2013 will not be paid by Behrend until January 2014.Behrend pays salaries and wages during 2013 in the amount of$640,000. (Hint – Remember that a portion of this payment ($60,000)relates to employee services that were provided in December2012.
f. Paid $22,000 for income taxes based uponestimated 2013 taxable income of $110,000 and tax rate of 20%.
SPECIFIC TRANSACTIONS AND EVENTS
g. Interest on outstanding debt is payable annually on 6/30 at a 10%rate. Interest is calculated as: PRINCIPAL x INTEREST RATE xPORTION OF YEAR. Interest for the one year period ending 6/30/13 is$40,000 ($400,000 x 10% x 12/12), ½ of which is for the period7/1/12-12/31/12, and the other ½ is for the period 1/1/13 -6/30/13. A principal payment of $100,000 is due for payment on6/30/2014.
h. On 10/01/13 Behrenddeclared and paid a cash dividend to shareholders @ $.25/share x150,000 shares = $37,500.
i. On 12/31/13 Behrend purchased 1,000 shares of IBM stock to be heldas a short-term investment for a total cash payment of$100,000.
ADJUSTING ENTRIES
j. Recognize 2013depreciation expense in the amount of $40,000.
k. Recognize interest expense incurred but not paid on outstandingdebt.
l. Recognize salariesand wages expense for employee services provided in December 2013that will be paid in January 2014. Assume that the December 2013payroll is $70,000.
m. Theactual amount of income tax due for 2013 is 20% of reported incomebefore tax per the income statement. Make the appropriateadjustment by comparing the actual tax due (must be calculated) vs.the $22,000 estimated tax paid (in transaction f) by recognizing acurrent asset “tax refund receivable” or a current liability “taxesdue,” depending upon whether there was overpayment or underpaymentof tax for 2013.
Problem 2:
For each situation, provide the necessary year-end (12/31/13)adjusting entry in accounting equation format for Doran Corp.
On 6/1/13 Doran paid $1,200 for a one year fire insurance policycovering the period 6/1/13-5/31/14. The full amount was initiallyrecorded as “prepaid insurance.”
On 11/1/13 Doran received $6,000 from a tenant that rents somevacant office space. The rent payment was for the three monthperiod 11/1/13-1/31/14. Doran initially recorded the full amount as“rent revenue.”
Doran pays a 3% sales commission on all sales. Commissions arepaid to salesmen in the month following the month of revenuerecognition. The 2013 income statement will include December 2013sales of $50,000. No entry has been made related to the $1,500 insales commissions that will be paid in January 2014.
Use the excel template provided for your answers to #2 – on sameworksheet as problem #1 transactions.
PROBLEM 1
cash
SCF class
investmts
accounts receivable
inventory
operating assets (net)
=
accounts payable
income taxes pay
debt currently due
salaries & wages payable
interest payable
long term debt
+
paid in capital
retained earnings
explaination of change in retainedearnings
B/S 12/31/12
70,000
0
150,000
350,000
360,000
80,000
0
0
60,000
20,000
400,000
150,000
220,000
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
debt reclass.
B/S 12/31/13
PROBLEM 2
cash
SCF class
Prepaid Insurance
=
unearned rent revenue
sales com payable
+
paid in capital
retained earnings
explaination of change in retainedearnings
2. 6/01/2013
3.adjustment
1.in fin stmts
2. 11/1/2013
3.adjustment
1. in fin stmts
2. no entry
3.adjustment
1. in fin stmts
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