REINFORCEMENT ACTIVITY 3, Part B, p. 715 10. Unadjusted Trial Balance December 31, 20X4 ACCOUNT TITLE DEBIT CREDIT Cash 25 0 0 1 40 Petty Cash 4 0 0 00 Accounts Receivable 15 7 8 9 20 Allowance for Uncollectible Accounts 2 9 3 8 80 Notes Receivable 7 2 0 0 00 Interest Receivable Merchandise Inventory 148 3 5 3 90 Supplies 6 1 9 8 10 Prepaid Insurance 17 2 0 0 00 Office Equipment 77 6 6 0 00 Accumulated Depreciation Office Equipment 14 3 2 0 00 Warehouse Equipment 92 2 2 0 00 Accumulated Depreciation Warehouse Equipment 14 0 8 0 00 Accounts Payable 28 2 2 5 30 Sales Tax Payable 12 4 2 1 32 Notes Payable 32 0 0 0 00 Interest Payable Unearned Rent Income 10 0 0 0 00 Employee Income Tax Payable 6 2 0 00 Social Security Tax Payable 1 3 8 3 84 Medicare Tax Payable 3 2 3 64 Medical Insurance Payable 2 2 1 0 00 Unemployment Tax Payable State 2 9 0 58 Unemployment Tax Payable Federal 4 3 06 Federal Income Tax Payable Dividends Payable 10 0 0 0 00 Bonds Payable 30 0 0 0 00 Capital Stock Common 65 0 0 0 00 Paid-in Capital in Excess of Par Common 20 0 0 0 00 Capital Stock Preferred 15 0 0 0 00 (Note: Unadjusted trial balance is continued on next page.) Reinforcement Activity 3, Part B 195
REINFORCEMENT ACTIVITY 3, Part B (continued) Unadjusted Trial Balance (Concluded) December 31, 20X4 ACCOUNT TITLE DEBIT CREDIT Paid-in Capital in Excess of Par Preferred Retained Earnings 47 7 7 8 40 Dividends 40 0 0 0 00 Income Summary Sales 1558 4 2 1 80 Sales Discount 3 7 7 8 40 Sales Returns and Allowances 12 3 4 9 60 Purchases 1058 0 4 4 80 Purchases Discount 7 1 9 2 16 Purchases Returns and Allowances 6 4 7 2 00 Advertising Expense 19 2 1 3 40 Cash Short and Over 4 0 18 Credit Card Fee Expense 29 0 5 8 80 Depreciation Expense Office Equipment 4 8 0 00 Depreciation Expense Warehouse Equipment 8 8 0 00 Insurance Expense Miscellaneous Expense 11 6 5 6 64 Payroll Taxes Expense 21 3 3 8 88 Rent Expense 42 0 0 0 00 Repairs Expense 2 7 8 9 60 Salary Expense 209 7 5 6 00 Supplies Expense Uncollectible Accounts Expense Utilities Expense 14 4 7 2 40 Federal Income Tax Expense 12 0 0 0 00 Interest Income 8 2 8 00 Rent Income Gain on Plant Assets 1 4 9 0 00 Interest Expense 6 7 0 0 00 Loss on Plant Assets 5 8 0 00 Totals 1878 1 0 0 10 1878 1 0 0 10 196 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (continued) 11., 15. DATE ACCOUNT TITLE Adjusting Entries GENERAL JOURNAL PAGE 13 1 1 20X4 2 2 Dec. 31 Uncollectible Accounts Expense 6165 4 2 0 0 00 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 21 21 DOC. NO. POST. REF. DEBIT CREDIT Allowance for Uncollectible Accounts 1120 4 2 0 0 00 31 Interest Receivable 1130 5 2 80 Interest Income 7105 5 2 80 31 Merchandise Inventory 1135 2 6 3 0 00 Income Summary 3215 2 6 3 0 00 31 Supplies Expense 6160 5 3 4 8 10 Supplies 1140 5 3 4 8 10 31 Insurance Expense 6130 8 0 0 0 00 Prepaid Insurance 1145 8 0 0 0 00 31 Depreciation Expense Office Equipment 6120 15 0 4 0 00 Accumulated Depr. Office Equipment 1210 15 0 4 0 00 31 Depreciation Expense Warehouse Equipment 6125 28 4 2 0 00 Accumulated Depr. Warehouse Equipment 1220 28 4 2 0 00 31 Interest Expense 8105 3 1 5 00 Interest Payable 2120 3 1 5 00 31 Unearned Rent Income 2125 3 0 0 0 00 Rent Income 7110 3 0 0 0 00 31 Federal Income Tax Expense 6205 5 3 6 2 49 Federal Income Tax Payable 2160 5 3 6 2 49 Adjusted Trial Balance amounts: Total of Income Statement Credit amounts, including Income Summary, $1,580,086.76 Total of Income Statement Debit amounts, $1,494,461.80 Net Income before Federal Income Tax: $1,580,086.76 2 $1,494,461.80 5 $85,624.96 (Calculation of Federal Income Tax is part of Instruction #14.) Interest Calculations NP19: Days accrued: 0 days October, 30 days November, 31 days December 5 61 days 61/360 3 0.09 3 $20,000.00 5 $305.00 (rounded) NP22: 3 days in December 3/360 3 0.10 3 $12,000.00 5 $10.00 (rounded) Reinforcement Activity 3, Part B 197
REINFORCEMENT ACTIVITY 3, Part B (continued) 14. Net Income before Federal Income Tax Of the Amount Over = Net Income Subject to Marginal Tax Rate Marginal Tax Rate = Marginal Income Tax $ 85,624.96 $ 75,000.00 = $ 10,624.96 34% = $ 3,612.49 Bracket Minimum Income Tax + Marginal Income Tax = Federal Income Tax $ 13,750.00 + $ 3,612.49 = $ 17,362.49 Federal Income Tax 2 Taxes Already Paid = Amount of Adjustment $ 17,362.49 2 $ 12,000.00 = $ 5,362.49 198 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (continued) 13., 16. Adjusted Trial Balance December 31, 20X4 ACCOUNT TITLE DEBIT CREDIT Cash 25 0 0 1 40 Petty Cash 4 0 0 00 Accounts Receivable 15 7 8 9 20 Allowance for Uncollectible Accounts 1 2 6 1 20 Notes Receivable 7 2 0 0 00 Interest Receivable 5 2 80 Merchandise Inventory 150 9 8 3 90 Supplies 8 5 0 00 Prepaid Insurance 9 2 0 0 00 Office Equipment 77 6 6 0 00 Accumulated Depreciation Office Equipment 29 3 6 0 00 Warehouse Equipment 92 2 2 0 00 Accumulated Depreciation Warehouse Equipment 42 5 0 0 00 Accounts Payable 28 2 2 5 30 Sales Tax Payable 12 4 2 1 32 Notes Payable 32 0 0 0 00 Interest Payable 3 1 5 00 Unearned Rent Income 7 0 0 0 00 Employee Income Tax Payable 6 2 0 00 Social Security Tax Payable 1 3 8 3 84 Medicare Tax Payable 3 2 3 64 Medical Insurance Payable 2 2 1 0 00 Unemployment Tax Payable State 2 9 0 58 Unemployment Tax Payable Federal 4 3 06 Federal Income Tax Payable 5 3 6 2 49 Dividends Payable 10 0 0 0 00 Bonds Payable 30 0 0 0 00 Capital Stock Common 65 0 0 0 00 Paid-in Capital in Excess of Par Common 20 0 0 0 00 Capital Stock Preferred 15 0 0 0 00 (Note: Adjusted trial balance is continued on next page.) Reinforcement Activity 3, Part B 199
REINFORCEMENT ACTIVITY 3, Part B (continued) adjusted Trial Balance (Concluded) December 31, 20X4 ACCOUNT TITLE DEBIT CREDIT Paid-in Capital in Excess of Par Preferred Retained Earnings 47 7 7 8 40 Dividends 40 0 0 0 00 Income Summary 2 6 3 0 00 Sales 1558 4 2 1 80 Sales Discount 3 7 7 8 40 Sales Returns and Allowances 12 3 4 9 60 Purchases 1058 0 4 4 80 Purchases Discount 7 1 9 2 16 Purchases Returns and Allowances 6 4 7 2 00 Advertising Expense 19 2 1 3 40 Cash Short and Over 4 0 18 Credit Card Fee Expense 29 0 5 8 80 Depreciation Expense Office Equipment 15 5 2 0 00 Depreciation Expense Warehouse Equipment 29 3 0 0 00 Insurance Expense 8 0 0 0 00 Miscellaneous Expense 11 6 5 6 64 Payroll Taxes Expense 21 3 3 8 88 Rent Expense 42 0 0 0 00 Repairs Expense 2 7 8 9 60 Salary Expense 209 7 5 6 00 Supplies Expense 5 3 4 8 10 Uncollectible Accounts Expense 4 2 0 0 00 Utilities Expense 14 4 7 2 40 Federal Income Tax Expense 17 3 6 2 49 Interest Income 8 8 0 80 Rent Income 3 0 0 0 00 Gain on Plant Assets 1 4 9 0 00 Interest Expense 7 0 1 5 00 Loss on Plant Assets 5 8 0 00 Totals 1931 1 8 1 59 1931 1 8 1 59 200 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (continued) 17. Income Statement For Year Ended December 31, 20X4 Operating Revenue: Sales 1558 4 2 1 80 Less: Sales Discount 3 7 7 8 40 Sales Returns and Allowances 12 3 4 9 60 16 1 2 8 00 Net Sales 1542 2 9 3 80 100.0 Cost of Merchandise Sold: Merchandise Inventory, Jan. 1, 20-- 148 3 5 3 90 Purchases 1058 0 4 4 80 Less: Purchases Discount 7 1 9 2 16 Purchases Returns and Allowances 6 4 7 2 00 13 6 6 4 16 Net Purchases 1044 3 8 0 64 Total Cost of Merchandise Available for Sale 1192 7 3 4 54 Less Merchandise Inventory, Dec. 31, 20-- 150 9 8 3 90 Cost of Merchandise Sold 1041 7 5 0 64 67.5 Gross Profit 500 5 4 3 16 32.5 Operating Expenses: Advertising Expense 19 2 1 3 40 Cash Short and Over 4 0 18 Credit Card Fee Expense 29 0 5 8 80 Depreciation Expense Office Equipment 15 5 2 0 00 Depreciation Expense Warehouse Equipment 29 3 0 0 00 Insurance Expense 8 0 0 0 00 Miscellaneous Expense 11 6 5 6 64 Payroll Taxes Expense 21 3 3 8 88 Rent Expense 42 0 0 0 00 Repairs Expense 2 7 8 9 60 Salary Expense 209 7 5 6 00 Supplies Expense 5 3 4 8 10 Uncollectible Accounts Expense 4 2 0 0 00 Utilities Expense 14 4 7 2 40 % OF SALES 412 6 9 4 00 26.8 Income from Operations 87 8 4 9 16 5.7 Other Revenue: Interest Income 8 8 0 80 Rent Income 3 0 0 0 00 Gain on Plant Assets 1 4 9 0 00 Total Other Income 5 3 7 0 80 Other Expenses: Interest Expense 7 0 1 5 00 Loss on Plant Assets 5 8 0 00 Total Other Expenses 7 5 9 5 00 Net Deduction (2 2 2 4 20) (0.1) Net Income before Federal Income Tax 85 6 2 4 96 5.6 Less Federal Income Tax Expense 17 3 6 2 49 1.1 Net Income after Federal Income Tax 68 2 6 2 47 4.4 Reinforcement Activity 3, Part B 201
REINFORCEMENT ACTIVITY 3, Part B (continued) 18. Statement of Stockholders Equity For Year Ended December 31, 20X4 Common Stock: $10.00 Par Value January 1, 20--, 6,000 Shares Issued 60 0 0 0 00 Issued during Current Year, 500 Shares 5 0 0 0 00 Balance December 31, 20--, 6,500 Shares Issued 65 0 0 0 00 Paid-in Capital in Excess of Par Common: Balance, January 1, 20-- Issued during Current Year 20 0 0 0 00 Balance, December 31, 20-- 20 0 0 0 00 Preferred Stock: $50.00 Par Value, 5% January 1, 20--, 0 Shares Issued Issued during Current Year, 300 Shares 15 0 0 0 00 Balance, December 31, 20--, 300 Shares Issued 15 0 0 0 00 Retained Earnings: Balance, January 1, 20-- 47 7 7 8 40 Net Income after Federal Income Tax for 20-- 68 2 6 2 47 Less Dividends Declared during 20-- 40 0 0 0 00 Net Increase during 20-- 28 2 6 2 47 Balance, December 31, 20-- 76 0 4 0 87 Total Stockholders' Equity, December 31, 20-- 176 0 4 0 87 202 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (continued) 19. Balance Sheet December 31, 20X4 Assets Current Assets: Cash 25 0 0 1 40 Petty Cash 4 0 0 00 Accounts Receivable 15 7 8 9 20 Less: Allowance for Uncollectible Accounts 1 2 6 1 20 14 5 2 8 00 Notes Receivable 7 2 0 0 00 Interest Receivable 5 2 80 Merchandise Inventory 150 9 8 3 90 Supplies 8 5 0 00 Prepaid Insurance 9 2 0 0 00 Total Current Assets 208 2 1 6 10 Plant Assets: Office Equipment 77 6 6 0 00 Less Accumulated Depreciation Office Equipment 29 3 6 0 00 48 3 0 0 00 Warehouse Equipment 92 2 2 0 00 Less Accumulated Depreciation Warehouse Equipment 42 5 0 0 00 49 7 2 0 00 Total Plant Assets 98 0 2 0 00 Total Assets 306 2 3 6 10 Liabilities Current Liabilities: Accounts Payable 28 2 2 5 30 Sales Tax Payable 12 4 2 1 32 Notes Payable 32 0 0 0 00 Interest Payable 3 1 5 00 Unearned Rent Income 7 0 0 0 00 Employee Income Tax Payable 6 2 0 00 Social Security Tax Payable 1 3 8 3 84 Medicare Tax Payable 3 2 3 64 Medical Insurance Payable 2 2 1 0 00 Unemployment Tax Payable State 2 9 0 58 Unemployment Tax Payable Federal 4 3 06 Federal Income Tax Payable 5 3 6 2 49 Dividends Payable 10 0 0 0 00 Total Current Liabilities 100 1 9 5 23 Long-term Liabilities: Bonds Payable 30 0 0 0 00 Total Long-term Liabilities 30 0 0 0 00 Total Liabilities 130 1 9 5 23 Stockholders' Equity Capital Stock Common 65 0 0 0 00 Paid-in Capital in Excess of Par Common 20 0 0 0 00 Capital Stock Preferred 15 0 0 0 00 Retained Earnings 76 0 4 0 87 Total Stockholders' Equity 176 0 4 0 87 Total Liabilities and Stockholders' Equity 306 2 3 6 10 Reinforcement Activity 3, Part B 203
REINFORCEMENT ACTIVITY 3, Part B (continued) 20. Statement of Cash Flows For Year Ended December 31, 20X4 Cash flows from operating activities: Cash receipts from: Sales 1534 0 7 2 65 Interest 8 7 5 00 Rent 10 0 0 0 00 Total cash receipts 1544 9 4 7 65 Cash payments for: Inventory purchases (1024 2 7 3 20) Salaries and wages (210 5 7 3 25) Insurance (15 0 0 0 00) Interest (6 8 5 1 23) Taxes (16 4 1 2 88) Rent (48 0 0 0 00) Other operating expenses (174 5 8 5 94) Total cash payments (1495 6 9 6 50) Net cash provided/(used) by operating activities 49 2 5 1 15 Cash flows from investing activities: Sale of equipment 33 0 0 0 00 Purchase of equipment (25 5 0 0 00) Net cash provided/(used) by investing activities 7 5 0 0 00 Cash flows from financing activities: Issuance of stock 40 0 0 0 00 Issuance of bonds (40 0 0 0 00) Payment of notes payable (17 0 0 0 00) Payment of cash dividends (30 0 0 0 00) Net cash provided/(used) by financing activities (47 0 0 0 00) Net change in cash 9 7 5 1 15 Cash balance, January 1, 20-- 15 2 5 0 25 Cash balance, December 31, 20-- 25 0 0 1 40 204 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (continued) 21. DATE ACCOUNT TITLE Closing Entries GENERAL JOURNAL PAGE 14 1 1 20X4 2 2 Dec. 31 Sales 4105 1558 4 2 1 80 Purchases Discount 5110 7 1 9 2 16 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 21 21 22 22 23 23 24 24 25 25 26 26 27 27 28 28 29 29 30 30 31 31 32 32 33 33 DOC. NO. POST. REF. DEBIT Purchases Returns and Allowances 5115 6 4 7 2 00 Interest Income 7105 8 8 0 80 Rent Income 7110 3 0 0 0 00 Gain on Plant Assets 7115 1 4 9 0 00 CREDIT Income Summary 3215 1577 4 5 6 76 31 Income Summary 3215 1511 8 2 4 29 Sales Discount 4110 3 7 7 8 40 Sales Returns and Allowances 4115 12 3 4 9 60 Purchases 5105 1058 0 4 4 80 Advertising Expense 6105 19 2 1 3 40 Cash Short and Over 6110 4 0 18 Credit Card Fee Expense 6115 29 0 5 8 80 Depreciation Expense Office Equipment 6120 15 5 2 0 00 Depreciation Expense Warehouse Equipment 6125 29 3 0 0 00 Insurance Expense 6130 8 0 0 0 00 Miscellaneous Expense 6135 11 6 5 6 64 Payroll Taxes Expense 6140 21 3 3 8 88 Rent Expense 6145 42 0 0 0 00 Repairs Expense 6150 2 7 8 9 60 Salary Expense 6155 209 7 5 6 00 Supplies Expense 6160 5 3 4 8 10 Uncollectible Accounts Expense 6165 4 2 0 0 00 Utilities Expense 6170 14 4 7 2 40 Federal Income Tax Expense 6205 17 3 6 2 49 Interest Expense 8105 7 0 1 5 00 Loss on Plant Assets 8110 5 8 0 00 31 Income Summary 3215 68 2 6 2 47 Retained Earnings 3205 68 2 6 2 47 31 Retained Earnings 3205 40 0 0 0 00 Dividends 3210 40 0 0 0 00 Reinforcement Activity 3, Part B 205
REINFORCEMENT ACTIVITY 3, Part B (continued) 22. Post-Closing Trial Balance December 31, 20X4 ACCOUNT TITLE DEBIT CREDIT Cash 25 0 0 1 40 Petty Cash 4 0 0 00 Accounts Receivable 15 7 8 9 20 Allowance for Uncollectible Accounts 1 2 6 1 20 Notes Receivable 7 2 0 0 00 Interest Receivable 5 2 80 Merchandise Inventory 150 9 8 3 90 Supplies 8 5 0 00 Prepaid Insurance 9 2 0 0 00 Office Equipment 77 6 6 0 00 Accumulated Depreciation Office Equipment 29 3 6 0 00 Warehouse Equipment 92 2 2 0 00 Accumulated Depreciation Warehouse Equipment 42 5 0 0 00 Accounts Payable 28 2 2 5 30 Sales Tax Payable 12 4 2 1 32 Notes Payable 32 0 0 0 00 Interest Payable 3 1 5 00 Unearned Rent Income 7 0 0 0 00 Employee Income Tax Payable 6 2 0 00 Social Security Tax Payable 1 3 8 3 84 Medicare Tax Payable 3 2 3 64 Medical Insurance Payable 2 2 1 0 00 Unemployment Tax Payable State 2 9 0 58 Unemployment Tax Payable Federal 4 3 06 Federal Income Tax Payable 5 3 6 2 49 Dividends Payable 10 0 0 0 00 Bonds Payable 30 0 0 0 00 Capital Stock Common 65 0 0 0 00 Paid-in Capital in Excess of Par Common 20 0 0 0 00 Capital Stock Preferred 15 0 0 0 00 Paid-in Capital in Excess of Par Preferred Retained Earnings 76 0 4 0 87 Totals 379 3 5 7 30 379 3 5 7 30 206 Working Papers TE
REINFORCEMENT ACTIVITY 3, Part B (concluded) 23. DATE ACCOUNT TITLE Reversing Entries GENERAL JOURNAL PAGE 15 1 1 20X5 2 2 Jan. 1 Interest Income 7105 5 2 80 Interest Receivable 1130 5 2 80 3 3 1 Interest Payable 2120 3 1 5 00 4 4 5 5 6 6 7 7 8 8 DOC. NO. POST. REF. DEBIT CREDIT Interest Expense 8105 3 1 5 00 1 Federal Income Tax Payble 2160 5 3 6 2 49 Federal Income Tax Expense 6205 5 3 6 2 49 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 21 21 22 22 23 23 24 24 25 25 26 26 27 27 28 28 29 29 30 30 31 31 32 32 33 33 Reinforcement Activity 3, Part B 207