ABC Corporation is a new company that buys and sells office supplies.  Business began on January 1, 2015.

Given on the first two tabs are ABC’s 12/31/15 Unadjusted Trial Balance and a list of needed adjustments.

1.  Make all 12 adjustments on the “Adjusting Journal Entries” tab.  Remember to include a description under each journal entry.
 
2.  Post the adjustments to the general ledger on the “12-31-15 T-Accounts” tab.  You may have to add T-Accounts for new accounts.
    Link your T-Account entries to your Journal Entries.  PLEASE NOTE THAT THE “BB” (BEGINNING BALANCES) FOR THE 
    T-ACCOUNTS REPRESENT THE BALANCES AS OF 12/31/15.  
 
3.  Once the 12/31/15 T-Accounts are complete, prepare the Adjusted Trial Balance.  There may be some accounts with zero dollars, and you
     may have to insert lines for new accounts.  Link the Adjusted Trial Balance to your T-Accounts.
 
4.  Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, and Balance Sheet.
     For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses,
     Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company.  For purposes
     of the Balance Sheet, be sure to prepare a classifed Balance Sheet.  Link your financial statements to your Adjusted Trial Balance.  
     If necessary, review financial statement preparation in Chapters 4 and 5 of your textbook for a quick refresher.  
 
5.  When the Financial Statements are complete, make the closing entries on the “Closing Entries” tab.
 
6.  When closing entries have been made, post the entries to the general ledger on the “Post-Close T-Accounts” tab.  Make sure your adjusting
     journal entries are also on your Post-Close T-Accounts.  They will not automatically flow from tab-to-tab. (Helpful hint:  After you have completed
     and posted all of your adjusting entries, make a duplicate copy of your “12-31-15 T-Accounts” tab to replace the existing blank 
    “Post-Close T Accounts” tab by right clicking on the completed “12-31-15 T-Accounts” tab, select Move or Copy,
     then click on “Create a Copy” and then place at the desired location.  You can then delete the original “Post-Close T-Accounts” tab and rename the
     newly duplicated tab as your “Post-Close T-Accounts” tab).
 
7.  The final step is the Post-Closing Trial Balance, which will use the ending balances from the Post-Close T-Accounts.
 
                      8.  Double-check your work.  Here are a few things to check for:  
-Adjusted Trial Balance:  Make sure debit column and credit column total to the same figure at the bottom.
-Net income from the income statement will flow through to the Statement of Retained Earnings.
-Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet.
-The Post-Closing Trial Balance should not have any revenue, expense, gain, or loss (temporary) accounts.
-Check figure 1:  Gross profit = $573,000.
-Check figure 2:  Income before income taxes = $345,266.
-Check figure 3:  Total Liabilities and Stockholders’ Equity = $1,298,480.
-Check figure 4:  Adjusted Trial Balance debit and credit columns total $2,010,321.
-Check figure 5:  Total Current Assets = $1,145,045.
-Remember:  Neatness matters in Financial Statements.  Print or Print Preview before submitting to make sure your statements are neat.
 Otherwise, management may send back to you for revision!
-Include your work at the bottom of each tab as needed.
-Ask questions prior to the day/night before the due date.  The due date is clearly indicated on the course schedule.
-Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment.
-Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. “Total Liabilities and Stockholders’ Equity”).
-DO NOT force any cells to match check figures given.  Any adjustments in the T-Accounts or financial statements not supported by 
 legitimate adjusting or closing entries will be considered financial statement misrepresentation sufficient to result in a failing grade.
 
Final comments:  This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have
studied during your Intermediate Accounting series.  It is very important to take the necessary time on this project to master these concepts.  The concepts mastered in this
comprehensive problem will serve you well in the rest of your accounting curriculum.
Please review the grading rubric tab as you start work on the assignment to make sure that you understand how your work will be evaluated.
ABC Corporation
Unadjusted Trial Balance
December 31, 2015
     
Particulars Debit Credit
Cash                707,650.00  
Accounts receivable                357,120.00  
Allowance for doubtful accounts    
Inventory    
Allowance to Reduce Inventory to Market Value                              –  
Purchases                267,000.00  
Prepaid insurance                    8,250.00  
Land                  88,000.00  
Building                  37,500.00  
Accumulated depreciation: building                      1,150.00
Equipment                  21,600.00  
Accumulated depreciation: equipment                      9,000.00
Patent                  20,000.00  
Accounts payable                    40,750.00
Notes payable                    40,000.00
Income taxes payable                    88,000.00
Unearned rent revenue                    15,000.00
Bonds Payable                  700,000.00
Discount on Bonds Payable                  51,520.00  
Common stock                  125,000.00
PIC In Excess of Par-Common Stock                    40,000.00
Retained earnings    
Treasury stock                  20,000.00  
Dividends                  28,000.00  
Sales Revenue                  790,000.00
Advertising expense                    9,240.00  
Wages expense                  62,150.00  
Office expense                  14,370.00  
Depreciation expense                  10,150.00  
Utilities expense                  33,600.00  
Insurance expense                  24,750.00  
Income taxes expense                  88,000.00  
Total             1,848,900.00

            1,848,900.00

 

 

1 On March 1, ABC purchased a one-year liability insurance policy for $33,000.  
  Upon purchase, the following journal entry was made:    
    Dr Prepaid insurance   33,000    
      Cr Cash     33,000  
  The expired portion of insurance must be recorded as of 12/31/15.  
  Notice that the expired portion from March through November has been recorded already.
  Make sure that the Prepaid Insurance balance after the adjusting entry is correct.  
               
               
2 Depreciation expense must be recorded for the month of December.  
  The building was purchased on February 1, 2015 for $37,500 with a remaining useful life of 25 years and a salvage value of $3,000.  
    The method of depreciation for the building is straight-line.    
  The equipment was purchased on February 1, 2015 for $21,600 with a remaining useful life of 4 years and a salvage value of $1,800. 
    The method of depreciation for the equipment is double-declining balance.
  Depreciation has been recorded for the building and equipment for months February through November.
               
               
3 On December 1, XYZ Co. agreed to rent space in ABC’s building for $5,000 per month,
  and XYZ paid ABC on December 1 in advance for the first three months’ rent.  
  The entry made on December 1 was as follows:      
    Dr Cash     15,000    
      Cr Unearned rent revenue   15,000  
  The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/15.
               
               
4 Per timecards, from the last payroll date through December 31, 2015, ABC’s employees have worked a total of 275 hours.
  Including payroll taxes, ABC’s wage expense averages about $21 per hour.  The next payroll date is January 5, 2016.
  The liability for wages payable must be recorded as of 12/31/15.    
               
               
5 On November 30, 2015, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable.
  This loan is to be repaid in three months (on February 28, 2016), along with interest computed at an annual rate of 9%.  
  The entry made on November 30 to record the borrowing was:    
    Dr Cash     40,000    
      Cr Notes payable   40,000  
  On February 28, 2016 ABC must pay the bank the amount borrowed plus interest.  
  Assume the beginning balance for Notes Payable is correct.    
  Interest through 12/31/15 must be accrued on the $20,000 note.    
               
               
6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete
  physical inventory at year-end.  A physical count was taken on December 31, 2015, and the inventory on-hand at
  that time totaled $50,000, which reflects historical cost.  A review of inventory data further indicated that current 
  replacement value of the ending inventory is $45,000, the retail sales value of the ending inventory is $182,000, estimated
  cost of completion and disposal is 72.5% of retail, and normal profit margin is 1.25% of retail value.
  Record the adjusting entry for properly recognizing 2015 Cost of Goods Sold.  
               
  Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost or market at a total inventory level.
  Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology.
               
               
7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized
  that their intangible asset might be impaired on December 31, 2015.  Record the impairment if any.
  The expected future undiscounted net cash flows for this intangible asset totals $15,000, and the fair value of the asset is $17,500.
               
               
8 On 7/1/15, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock.  The cost of the treasury 
  stock was $5 per share, or $20,000 in total.  The effects of this transaction are already shown in the unadjusted trial balance.  On 12/31/15,
  ABC reissued 2,000 shares of the treasury stock at $8 per share.  Record the journal entry required for the reissuance of the treasury stock. 
               
               
9 On 12/31/15, ABC issued 9,000 shares of $3 par value common stock at the closing market price of $4 per share.  Prepare ABC’s journal entry
   to reflect the issuance of the stock on 12/31/15.      
               
               
10 On 7/1/15, ABC sold 10% bonds having a maturity value of $700,000 for $648,480, resulting in an effective yield of 12%.  The bonds are
  dated 7/1/15, and mature 7/1/20.  Interest is payable semiannually on July 1 and January 1.  ABC uses the effective interest method of 
  amortization for bond premium or discount.  Record the adjusting entry for the accrual of interest and the related amortization on 12/31/15.
  Hint:  Develop an abbreviated amortization schedule to accurately determine the interest expense.
               
               
11 ABC Corporation prepares an aging schedule on 12/31/15 that estimates total uncollectible accounts at $25,000.  Assuming that the allowance method is used,
  prepare the entry to record bad debt expense.      
               
               
  Do this step after preparing the Income Statement except for the Income taxes line:  
12 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.  
  However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full 
  on the return’s March 15, 2016 due date.      
  ABC’s income tax rate is 40%.  The entire year’s income tax expense was estimated at the beginning of 2015 to be $96,000,
  so January through November income tax expense recognized amounts to $88,000 (11/12 months).
  Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents
  income tax accrued for January through November.  Assume no deferred tax assets or deferred tax liabilities.
  Based on the income before income taxes figure from the income statement, record December’s income tax expense  
  so that the entire year’s tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November).
                             
                             
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