Expert Answers

1. Selfish Gene Company is a merchandising firm. The following events occurred during the month of May.
May 1 Received $40,000 cash as new stockholder investment.
3 Purchased inventory costing $8,000 on account from Dawkins Company; terms 2/10, n/30.
4 Purchased office supplies for $500 cash.
4 Held an office party for the retiring accountant. Balloons, hats, and refreshments cost $150 and were paid for with office staff contributions.
5 Sold merchandise costing $7,500 on account for $14,000 to Richard Company; terms 3/15, n/30.
8 Paid employee wages of $2,000. Gross wages were $2,450; taxes totaling
$450 were withheld.
9 Hired a new accountant; agreed to a first-year salary of $28,000.
9 Paid $1,500 for newspaper advertising.
10 Received payment from Richard Company.
12 Purchased a machine for $6,400 cash.
15 Declared a cash dividend totaling $25,000.
18 Sold merchandise costing $13,000 for $3,000 cash and $21,000 on account to Feynman Company; terms n/30.
19 Paid Dawkins Company account in full.
22 Company executives appeared on the cover of a national newsmagazine. Related article extolled Selfish Gene’s labor practices, environmental concerns, and customer service.
23 Market value of Selfish Gene’s common stock rose by $150,000.
25 Purchased a building for $15,000 cash and a $135,000 mortgage payable.
29 Paid dividends declared on May 15.

Instructions:
1. Record the preceding events in general journal form.
2. Which event do you think had the most significant economic impact on Selfish Gene Company? Are all economically relevant events recorded in the financial records?

2. On December 31, Trinkets Supply Company noted the following transactions that occurred during 2011, some or all of which might require adjustment to the books.
(a) Payment of $4,300 to suppliers was made for purchases on account during the year and was not recorded.
(b) Building and land were purchased on January 2 for $190,000. The building’s fair value was $141,000 at the time of purchase. The building is being depreciated over a 30-year life using the straight-line method, assuming no salvage value.
(c) Of the $52,000 in Accounts Receivable, 5% is estimated to be uncollectible. Currently, Allowance for Bad Debts shows a debit balance of $200.
(d) On September 1, $80,000 was loaned to a customer on a 12-month note with interest at an annual rate of 11%.
(e) During 2011, Trinkets Supply received $15,200 in advance for services, 80% of which will be performed in 2012. The $15,200 was credited to Sales Revenue.
(f) The interest expense account was debited for all interest charges incurred during the year and shows a balance of $2,300. However, of this amount, $300 represents a discount on a 60-day note payable, due January 30, 2012.

Instructions:
1. Give the necessary adjusting entries to bring the books up to date.
2. Indicate the net change in income as a result of the foregoing adjustments.

3. Account balances taken from the ledger of Builders’ Supply Corporation on December 31, 2011, before adjustment, follow information relating to adjustments on December 31, 2011:
(a) Allowance for Bad Debts is to be increased to a balance of $3,000.
(b) Buildings are depreciated at the rate of 5% per year.
(c) Accrued selling expenses are $3,840.
(d) There are supplies of $780 on hand.
(e) Prepaid insurance relating to 2012 totals $720.
(f) Accrued interest on long-term investments is $240.
(g) Accrued real estate and payroll taxes are $900.
(h) Accrued interest on the mortgage is $480.
(i) Income taxes are estimated to be 20% of the income before income taxes.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
Allowance for Bad Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,570
Long-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,400
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,600
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
Accumulated Depreciation—Buildings . . . . . . . . . . . . . . . . . . . . . . . . 19,800
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,800
Capital Stock, $10 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Retained Earnings, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . 14,840
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,400
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,000
Sales Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,360
Sales Discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,370
Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,440
Office Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,680
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,440
Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200
Taxes—Real Estate and Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,980
Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 660
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,640

Instructions:
1. Prepare a trial balance.
2. Journalize the adjustments.
3. Journalize the closing entries.
4. Prepare a post-closing trial balance.

 

4. (P2-40) Taipei International Corporation