Selected transactions completed by Kornett company during its first fiscal year ended December 31, 2014 were as follows:
Jan. 3. Issued a check to establish a petty cash fund of $4,500.
Feb 26. Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $1,680; miscellaneous selling expense, $570; miscellaneous administrative expense, $880.
Apr. 14. Purchased $31,300 of merchandise on account, terms 1/10, n/30. The perpetual inventory system is used to account for inventory.
May 13. Paid the invoice of April 14 after the discount period had passed.
17. Received cash from daily cash sales for $21,200. The amount indicated by the cash register was $21,240.
June 2. Received a 60-day, 8% note for $180,000 on the Ryanair account.
Aug. 1. Received amount owed on June 2 note, plus interest at the maturity date.
24. Received $7,600 on the Finley account and wrote off the remainder owed on a $9,000 accounts receivable balance. (The Allowance method is used)
Sept. 15. Reinstated the Finley account written off on August 24 and received $1400 cash in full payment.
15. Purchased land by issuing a $670,000, 90-day note to Zahorik Co., which discounted it at 9%.
Oct. 17. Sold office equipment in exchange for $135,000 cash plus receipt of a $1,00,000, 90-day, 9% note. The equipment had a cost of $320,000 and accumulated depreciation of $64,000 as of October 17.
Nov. 30. Journalized the monthly payroll for November, based on the following data:
Salaries Deductions
Salaries Deduction
Sales salaries $135,000 Income tax withheld $39,266
Office salaries $77,250 Social security tax withheld $12,735
Total $212,250 Medicare tax withheld $3,184
Unemployment tax rates
State unemployment 5.4%
Federal unemployment 0.8%
Amount subject to unemployment taxes:
State unemployment $5,000
Federal unemployment 5,000
30. Journalized the employer’s payroll taxes on the payroll.
Dec. 14. Journalized the payment of the September 15 note at maturity.
31. The pension cost for the year was $190,400, of which $139,700 was paid to the pension plan trustee.
Instructions
1. Journalize the selected transactions.
2. Based on the following data, prepare a bank reconciliation for December of the current year:
a. Balance according to the bank statement at December 31, $283,000.
b. Balance according to the ledger at December 31, $245,410.
c. Checks outstanding at December 31, $68,540.
d. Deposit in transit, not recorded by bank, $29,500.
e. Bank debit memo for service charges, $750.
f. A check for $12,700 in payment of an invoice was incorrectly recorded in the accounts as $12,000.
3. Based on the bank reconciliation prepared in (2), journalize the entry or entries to be made by Kornett Company.
4. Based on the following selected data, journalize the adjusting entries as of December 31 of the current year:
a. Estimated uncollectible accounts at December 31, $16,000, based on an aging of accounts receivable. The balance of Allowance for Doubtful Accounts at December 31 was $2,000 (debit).
b. The physical inventory on December 31 indicated an inventory shrinkage of $3,300.
c. Prepaid insurance expired during the year, $22,820.
d. Office supplies used during the year, $3,920.
e. Depreciation is computed as follows:
Asset Cost Residual Value Useful life Method
Building $900,000 0 50 Double-declining
Office Equip. $246,000 26,000 5 Straight
Store equip 112,000 12,000 10 Straight
f. A patent costing $48,000 when acquired on January 2 has a remaining legal life of 10 years and is expected to have value for eight years.
g. The cost of mineral rights was $546,000. Of the estimated deposit of 910,000 tons of ore, 50,000 tons were mined and sold during the year.
h. Vacation pay expense for December, $10,500.
i. A product warranty was granted beginning December 1 and covering a one-year period. The estimated cost is 4% of sales, which totaled $1,900,000 in December.
j. Interest was accrued on the note receivable received on October 17.
5. Based on the following information and the post-closing trial balance shown below, prepare a balance sheet in report form at December 31 of the current year.
The merchandise inventory is stated at cost by the LIFO method.
The product warranty payable is a current liability.
Vacation pay payable:
Current liability ………. $7,140
Long-term liability …….. 3,360
The unfunded pension liability is a long-term liability.
Notes payable:
Current liability ……. $ 70,000
Long-term liability …. 630,000
Kornett Company
Post Closing Trial Balance
