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Financial Accounting and Reporting - Homework Assignment 2 One Submission per Team Portobello Co.- Reconstructing the income statement and balance sheet Portobello Co. a retailer, is in its 10th year of operation. On December 28, 2008, three days before the close of its fiscal year, a Category 5 hurricane devastated the company's administrative office and destroyed almost all of its accounting records. The company saved the balance sheet on December 31, 2007 (see Exhibition the next page), the checkbook, the bank statements, and some sogy remains of the specific accounts receivable and accounts payable balances. Based on a review of the surviving documents and a series of interviews with company employees, you obtain the following information 1. The company's Insurance agency advises that a four year Insurance policy has stx months to run as of December 31, 2008. The policy cost $12,000 when the company paid the four-year premium during 2005. ii. During 2008, the company's board of directors declared $6,000 of dividends, of which the firm paid $3,000 in cash to shareholders during 2008 and will pay the remainder during 2009. Endly in 2008, the company also paid dividends of S1,800 cash that the board of directors had declared during 2007 iii. On April 1, 2008, the company received from Appleton Co. 510,900 cash, which included principal of $10,000 and interest, in full settlement of Appleton's nine month note dated July 1, 2007. According to the Terms of the note, Appleton was required to and paid all interest at maturity on April 1, 2008 a. The amount owed by the company to merchandise inventory) suppliers on December 31, 2008, was $16,000. During 2008, the company paid $115,000 to merchandise suppliers. The cost of merchandise inventory on December 31, 2008, based on a physical count, wis $40,000. The cost of goods sold was correctly calculated at $88.000. This was debuted to the cost of Goods Sold account and credited to the Merchandize inventory account b. On December 8, 2008, the company exchanged shares of its common stock for merchandise Inventory costing $11,000 The company purchased delivery trucks on March 1, 2008 for $60,000. The delivery trucks have an expected useful life of 10 years and an estimated salvage value of $6,000. The company uses the straight-line depreciation method 1 To finance the acquisition of the truck, it gave the seller S60,000 four-year note that bears Interest at 10% per year. The company must pay interest on the sole each si montes, beginning September 1, 2008. On September 1, the company made the required interest payment of 53,000 (60,000x10% x 6/12)) for the 6 month period (3/1-9/1) and recorded it accordingly. The company's computer system has a six-year total expected life oder expected salvage value 1. The company makes all sales on account and recognizes revente at the time of sluipment to customers. During 2008, the company received 5210,000 cash from sales to customers. A close examination revealed that $1.400 of the $210,000 cash from its customers cash received free customers during 2008 applies to merchandise that the company will not ship 2009. The company's accountant reconstructed the Accounts Receivable subsidiary leder, the detailed record of the amount owed to the company by each customer. It showed that customers owed the company 551.000 on December 31, 2008 b. The beginning balance in the "Advances from Customers account reflects S600 received in advance from customers during 2007 for merchandise shipped in 2008. The company paid $85.000 in cash to employees during 2008. Or this mont 56.500 relates to services that employees performed during 2007 and reflected in the "Salaries Payable account at the beginning of the period 54,000 relates to advance payment to employees for services to be performed ACAO UU?! U 64.1% - 50 during 2009. Advance payments to employees were debited to "Advances to Employees" account Employees performed the remainder of the services during 2008 1. On December 31, 2008, the company owes employees 51,300 for services performed during the last several days of 2008. The amount has not been recorded. ix. a. The company paid $27,000 in cash for property and income taxes during 2008. Or this amount, $10,000 relates to income taxes applicable to 2007, and $3,000 relates to future property taxes applicable to 2009. b. The company owes and has yet to record S4,000 in income taxes on December 31, 2008. X. On December 9, 2008, Portobello Co. entered into a contract with a management consulting firm for consulting services at a cost of $48,000 per year. The consulting firm had performed 10% of the estimated total consulting services under the contract by December 31, 2008. However, the accountant at Portobello Co. forgot to record an adjusting entry on December 31, 2008 for the consulting expenses incurred during the period. Exhibit 1 Portobello Co. Balance Sheet December 31, 2007 $ 18,600 33.000 10,000 600 22.000 4.500 $ 88,700 Cash Accounts Receivable Notes Receivable Interest Receivable Merchandise Inventories Prepaid Insurance Total Current Assets Computer System: At Cost Less Accumulated Depreciation Net Computer System Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable for Merchandise Dividend Payable Salaries Payable Taxes Payable Advances from Customers Total Liabilities Common Stock Retained Earnings Total Shareholders' Equity. Total Liabilities and Shareholders' Equity $ 78,000 26.000) $ 52.000 $140.700 $36.000 1.800 6,500 10.000 5 54,900 $ 40,000 45.800 $85.800 $140.700 REQUIRED: Determine the missing amounts in the T accounts provided in the following pages using information provided in the above transactions. Transactions provided in bold have not been recorded in the T accounts. Prepare a Trial Balance for the period ended December 31, 2008. Use the template provided on page 6 of this exercise Homework Assignment 2 Team Assignment 1 Solution Template 1.Cash Bal. 2. Accounts Receivable 18,600 Bal. 33,000 10,900 1,800 (ii) (vii.) 226,600 208,600 (vii.a)* (vii) 210,000 115,000 (iv) (210.000-1.400) 3,000 (ii) Bal. 51.000 85,000 (viii.a) 27,000 (ix) 3,000 (v.b) Bal. 4.700 Bal. 3.Notes Receivable 10,000 5. Interest Receivable Bal 600 (iii) Bal. ? (iii) Bal. Bal. Bal 6.Merchandise Inventory 22,000 (iv.a) 95,000 $88,000(iv.) COGS (iv.b) Bal. Ball 7- Prepaid Insurance 4,500 (iv) 8-Accounts Payable (A/P) 36,000 Bal 115.000 95.000 civa) 16,000 Bal 9. Notes Payable O Bal. 60,000 (v.b) 60,000 Bal 11. Prepaid Taxes 10-Advances to Employees (Prepaid Wages) Bal Bal (villa) 14.000 lix.a) Bal. 4.000 Bal. 12.Computer System at Coat) Bal. 78,000 13.Accumulated Depreciation Computer System 26,000 Bal. 13.000 (vi) 89.000 Bal. Bal. 78,000 14-Delivery Trucks Bal (v.b) Bal. 15-Accumulated Depreciation Delivery Trucks 0 Bal. 4,500 (v.a) 4.500 Bal 60.000 60.000 16-Interest Payable 0 Bal 2v.b) $? Bal. (ii) 17-Dividends Payable 1.800 1.800 Bal. 3.000 6.000 (1) 3,000 Bal. 18. Salaries Payable 6,500 Bal. (viii.a) 6,500 ?(viii.b) ? Bal. 19. Taxes Payable 10,000 Bal. ? (ix.b) (ix a) ? Bal. 20-Consulting Fee Payable 0 Bal 4.800 (x) 4.800 Bal. 21. Advances from Customers (Unearned Rev) 600 Bal. (viib) 2 1 .400 (vii.a) ? Bal 22-Common Stock 40,000 Bal. 23- Retained Earnings 45,800 Bal. ? liv.b) Bal 6,000 39.800 Bal 24.Sales Revenue 226,600 (via) ? (viib) Bal. $? 25. Interest Revenue 7 (111) Bals? 26-Cost of Goods Sold (COGS) 88.000 27a-Depreciation Expense - Del. Truck (v.a) 4.500 Bal. $ 88,000 Bal. 4,500 27b-Depreciation Expense - Computer (vi) Bal. 13,000 $ 13.000 29. Tax Expense 28-Salary Expense (viii.a) 74,500 (viii.b) Bal. (ix.a) (ix.b) Bal. 30-Insurance Expense (i) (x) 31-Consulting Expense 4,800 Bal. Ball 4.800 (v.b) 132 Interest Expense 8.000 Bal

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