Attachment 2607
1.Physical count of inventory on Dec31,2006 indicated that the company had 480000$ of inventory on hand.
2.An aging of accounts receivable indicates that $75,000 is uncollectible
3.The company uses straight-line depriciation.The assets have a ten year life and zero salvage value.
4.The company used a third of the remaining insurance policy during 2006
5.The company pays interest for its bond payable on Dec 31 of every year.The coupon rate and the effective rate are both 10%per year
6.the company's tax rate is 35%.All income tax charges are recorded at the end of the year.
7. $200,000 shares of common stock were outstanding during 2006.

a.Prepare AJE
b.closing entries on Dec31,2006.
c.Income statement including Earnings per share dsclosure
d.statement of Retained Earnings.
e.what are the measures of income included on the statement?


I tried working on this problem . But I am confused whether I am doing the AJE and closing entries right or not.Please help me.

Adjusting Journal Entries:

1.Inventory(Ending) 480000
COGS 737000
Purchases 750000
Inventory(Beginning) 467000

2.Bad Debt Expense 25000
Allowance for Doubtful A/c 25000
(75000-50000)

3.Depreciation Expense 85000
Accumulated Depriciation 85000
(Should I be including Inventory and fixed assets here?)

4.Insurance Expense 20000
Prepaid Insurance 20000
(expense=1/3*60000)

5.Interest Expense 50000
Interest Payable 50000

6.

7.No AJE

8.Income tax liability(35000*.35) 12250
Extra Loss 12250

9.Income tax liability 21000
. Loss of accounting principle 21000

Am I doing it correct?Please advise.

1)
Dr. Supplies Expense 737,000
Cr. Supplies 737,000

At the beginning of the year you had 467,000, plus the 750,000 of purchases, less what you have at then end of the year 480,000.


2)
Dr. AFDA 75,000
Cr. AR 75,000

That leaves a debit balance of 25,000 in your AFDA though.

So,
Dr. Bad Debt Expense 25,000
Cr. AFDA 25,000


3)
Fixed Assets 850,000 / 10 = 85,000
Only include Fixed Assets, NOT inventory

Dr. Amortization Expense 85,000
Cr. Accumulated Amortization 85,000


4)
Dr. Insurance Expense 20,000
Cr. Prepaid Insurance 20,000

60,000 x 1 / 3 = 20,000


5)
Dr. Interest Expense 50,000
Cr. Cash 50,000

500,000 x .1 = 50,000
If they are to have paid it on Dec. 31, would it not be cash? Although assuming interest payable is fine as well.


6.the company's tax rate is 35%.All income tax charges are recorded at the end of the year.
You have to calculate your company's net income for the year. Then take 35 of that amount as tax.

7. $200,000 shares of common stock were outstanding during 2006.
That's nice, really you only need this for when you calculate EPS.

Where did 8 and 9 come from?

Thank you CaptainForest.
8 & 9 come from the columns of 1.extraordniary loss 2.Loss due to change in a/c ing principle.(Provided in the excel sheet columns above)
Shouldn't I be doing this?

For #6. I should be closing the entries first and then calculating net income?
I shall post my calculations for NI.Please verify.

Am I making correct entries to the Income statement?
Attachment 2625

Quote:

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Originally Posted by student07

Thank you CaptainForest.
8 & 9 come from the columns of 1.extraordniary loss 2.Loss due to change in a/c ing principle.(Provided in the excel sheet columns above)
Shouldn't i be doing this?

For #6. I should be closing the entries first and then calculating net income?
I shall post my calculations for NI.Please verify.

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Looks like a correct Income Statement, except that you forgot to add Bad Debt Expense of 25,000

S now my income is 0! Des it happen that way?
Attachment 2628

Quote:

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Originally Posted by CaptainForest

Looks like a correct Income Statement, except that you forgot to add Bad Debt Expense of 25,000

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