50.1K

Verified Solution

Link Copied!

Spectrum Lamp Shade Company manufactures and distributes lamp shades. The Company has been in business for 50 years and has operated profitably Pertinent Facts surrounding the Company and its operations are shown below.

1. The Company uses the accrual method of accounting for both financial statement and income tax purposes. Its fiscal year is the calendar year.

2. The Company uses the FIFO method of accounting for inventory for both financial statement and income tax purposes.

3. The Company's Controller makes adjusting journal entries on a monthly basis. All closing entries are made on an annual basis at year end.

4. The bank statement for the month ending 12/31/10 shows a service charge of $35.

5. An aging of the Company's Accounts Receivable convinced management that the Allowance for Doubtful Accounts should have a balance of $8,000 at 12/31/10.

6. At 12/31/10, $750 of office supplies remained onhand.

7. The Company pays for its insurance policies 12 months in advance. Its most recent payment was made on 10/1/10. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.

8. The Company uses a perpetual inventory system. A year end physical inventory count revealed that several lampshades that were reported in inventory were actually missing. The cost of the missing lampshades was $825. This amount is not considered significant relative to the total cost of inventory on hand.

9. Depreciation Expense related to the Company's Building is $5,000 for the month of December.

10. Depreciation Expense related to the Company's Equipment is $2,300 for the month of December.

11. Some lampshades are custom made to a specific customer specifications and these customers are required to pay in advance for the entire cost of the lampshade, which is credited to an account entitled "Unearned Customer Deposits". As of 12/31/10 $3,500 of these deposits remained unearned. You may assume that the Company charges the entire cost of the lampshade to Cost of Goods Sold, and that Inventory is reduced, at the time that the order is delivered to the customer. Therefore, the adjusting entry only requires a decrease to Unearned Customer Deposits and an increase to Sales

12. Accrued Income Taxes Payable for the entire year ending 12/31/10 total $72,000. No income tax payments are due until early in 2011.

13. The Company was granted a Patent on a lampshade design on 6/1/10. The cost of the patent was $50,000 and the cost was capitalized. The life of the Patent is 20 years. The Company does not use the half-year convention when amortizing the cost of intangible assets. No Amortization Expense has been recorded for 2010.

14. The Company is carrying Goodwill from a prior acquisition. Management has determined that as of 12/31/10 there has been no impairment of such Goodwill.

15. On 12/1/10, the Company borrowed money $500,000 from PNC Bank and granted the bank a first mortgage lien on its Building as collateral. The principal amount of the loan is $500,000. The loan requires payment of interest only for the first 3 years, with the remaining balance amortized over the remaining 7 year term of the loan. The loan bears interest at the fixed rate of 5.00% per annum. The Company did not incur any fees associated with the loan. The December Interest was paid on 1/5/11. The Company records unpaid Interest Expense as part of Accounts Payable.

16. On 12/1/10, the Company also borrowed money $225,000 from PNC Bank and granted the bank a first lien on its Equipment as collateral. The principal amount of the loan is $225,000. The loan requires payment of interest only for the first 1 year, with the remaining balance amortized over the remaining 4 year term of the loan. The loan bears interest at the fixed rate of 6.50% per annum. The Company did not incur any fees associated with the loan. The December Interest was paid on 1/7/11. The Company records unpaid Interest Expense as part of Accounts Payable.

1. Prepare the entry at 12/31/10 to report the Company's accounts receivable at their net realizable value.

2. Prepare the entry to account for the lampshades missing from Inventory at the end of the year.

3. Prepare the entry to account for the office supplies used during December.

4. Prepare the entry to account for the Bank Service Charges incurred in December.

5. Prepare the entry to account for the expiration of the Company's insurance policies during December.

6. Prepare the entry to account for the Company's Interest Expense as of 12/31/10 on the loan for the Building.

7. Prepare the entry to account for the depreciation of the Company's Building during December.

8. Prepare the entry to account for the Company's Interest Expense as of 12/31/10 on the loan for the Equipment

. 9. Prepare the entry to account for the depreciation of the Company's Equipment during December.

10. Prepare the entry to report the portion of unearned customer deposits that were earned during December.

11. Prepare the entry to account for amortization of the Company's Patent for 2010.

12. Prepare the entry to account for amortization of the Company's Goodwill for 2010.

13. Prepare the entry to account for income tax expense that accrued during December.

14. Post all Adjusting Entries prepare the Adjusted Trial Balance at 12/31/10 after giving effect to the journal entries.

15. Prepare and post the Closing Entries and prepare a Post Closing Trial Balance

16. Prepare a Balance Sheet dated 12/31/10

17. Prepare an Income Statement for the year ending 12/31/10

18. What is the Company's Gross Profit percentage for the year ending 12/31/10?

19. What is the Company's Current Ratio as of 12/31/10?

20. What is the Company's Inventory Turnover for the year 2010? Merchandise Inventory as of 1/1/10 was $290,000.

Trial Balance worksheet

		Unadjusted Balance				Adjustments				Adjusted Balance				Closing Entries				Post-Closing Trial Balance
Account		Debit		Credit		Debit		Credit		Debit		Credit		Debit		Credit		Debit		Credit
Cash		45,000								45,000		0						45,000		0
Marketable Securities		25,000								25,000		0						25,000		0
Accounts Receivable		125,000								125,000		0						125,000		0
Allowance for Doubtful Accounts				5,000						0		5,000						0		5,000
Merchandise Inventory		250,000								250,000		0						250,000		0
Office Supplies		1,200								1,200		0						1,200		0
Prepaid Insurance		6,600								6,600		0						6,600		0
Land		64,800								64,800		0						64,800		0
Building		1,000,000								1,000,000		0						1,000,000		0
Accum. Depr. - Building				500,000						0		500,000						0		500,000
Equipment		791,000								791,000		0						791,000		0
Accum. Depr. - Equipment				300,000						0		300,000						0		300,000
Patents		50,000								50,000		0						50,000		0
Accum. Amort. - Patents				0
Goodwill		835,000								835,000		0						835,000		0
Accounts Payable				60,000						0		60,000						0		60,000
Unearned Customer Deposits				8,000						0		8,000						0		8,000
Income Taxes Payable				75,000						0		75,000						0		75,000
Wages Payable				10,000						0		10,000						0		10,000
Note Payable Building				500,000						0		500,000						0		500,000
Note Payable Equipment				225,000						0		225,000						0		225,000
Capital Stock				275,000						0		275,000						0		275,000
Retained Earnings				1,131,200						0		1,131,200						0		1,131,200
Sales				1,600,000						0		1,600,000						0		1,600,000
Cost of Goods Sold		958,000								958,000		0						958,000		0
Bank Service Charges		200								200		0						200		0
Bad Debts Expense		9,000								9,000		0						9,000		0
Salaries & Wages Expense		395,000								395,000		0						395,000		0
Office Supplies Expense		400								400		0						400		0
Insurance Expense		6,400								6,400		0						6,400		0
Utilities Expense		3,600								3,600		0						3,600		0
Interest Expense		0								0		0						0		0
Amortization Expense		0								0		0						0		0
Depreciation Expense		48,000								48,000		0						48,000		0
Income Tax Expense		75,000								75,000		0						75,000		0
		4,689,200		4,689,200		0		0		4,689,200		4,689,200		0		0		4,689,200		4,689,200

Answer & Explanation Solved by verified expert

See Answer