ACCT 2690 – Capstone Accounting – Accounting Theory

Bearing, Inc. started business on January 1, 2015. The following is a list of information that will pertain to thisCorporation: Bearing is a Corporation that sells 3 styles of mirrors (M12, M16 & M17)The company uses the perpetual FIFO method in accounting for its inventory.Payroll is paid on the 15th of each month for the month prioro Two employeeso Employee 1 has a salary of $5,000 per month Federal Withholding = $550 State Withholding = $250o Employee 2 has a salary of $2,500 per month Federal Withholding = $200 State Withholding = $125o State Unemployment is paid on the first $7,000 of wages at 2.3%o Federal Unemployment is paid on the first $7,000 of wages at .6%o OASDI rate is 6.2%o HI rate is 1.45% Bearing makes its adjustments at the end of each year All sales and inventory are purchased on account Be sure to round all numbers to the nearest dollar.The company had the following Post-Closing Trial Balance at 12/31/2015Account NameCashAccounts ReceivableAllowance for Bad DebtInventorySupplies on HandPrepaid InsurancePrepaid LeaseLandBuildingA/D – BuildingEquipmentA/D – EquipmentAccounts PayableFIT Withholding PayableSIT Withholding PayableFICA PayableIncome Tax PaybleInterest PayableUnearned RentWages PayableDividend PayableNotes PayableCommon StockAPIC – Common StockRetained Earnings Debit2,175,254641,475 Credit 12,830255,862400753,40050,000200,0005,128100,000 3,426,466 14,286472,4753,0001,5004,59235,047153,5001,2005,80145,0001,925,000100,000500,000147,1073,426,466 Page 1 ACCT 2690 – Capstone Accounting – Accounting Theory Bearing uses the 200% double declining balance method to depreciate all 5, 7 & 10 year propertyBearing uses the SL, mid-month basis to depreciate all real propertyIncome tax rate is 35%The $100,000 of equipment has an expected life of 7 years and no salvage valueThe $200,000 building has an expected life of 39 years and no salvage valueInventory at 1/1/16 consists of:o M12 – 9,500 units at 10.75 eacho M16 – 5,750 units at 13.25 eacho M17 – 5,500 units at 14.10 eachNotes Payable at December 31, 2015 consisted of:o Foley Bank – 1,800,000, 9% interest rate. Interest is paid on Feb 1st of each year, principal to berepaid on 2/1/2019o Northern bank – 125,000, 8% interest rate, Interest is paid on June 30th of each year, principal tobe repaid on June 30, 2017 The following transactions and events occurred in 2016.20161/1Issued 150,000 share of $1 par common stock to investors at $15 per share1/1Paid monthly rent on computer equipment, $1,4001/1Issued 15,000 share of $10 par, 10% preferred stock to investors at $25 per share1/1Issued $400,000 in bonds at par value. The bonds have a stated interest rate of 10%, payablesemiannually on July 1 and January 11/1The estimated useful life and salvage value for the building that was purchased in 2015 waschanged. It is now estimated that the building has a remaining life (as of 1/1/16) of 20 yearsand a salvage value of $20,000.1/1Purchased a building and land for $790,000. The building has a 25 year expected useful life anda $70,000 expected salvage value. The land is valued at $70,000.1/1Leased equipment under a ten-year lease. The ten lease payments of 20,000 each are to bemade on December 31 of each year. The present value of the equipment is 134,202. Theinterest rate is 8% (life 10 years, no salvage value)1/10Purchased $750 of supplies for cash1/15Purchased inventory on account – 2,500 M12 mirrors for $10.75 each, 2,000 M16 for $13.25each and 2,750 M17 for $14.10 each.1/15Made a payment of $450,000 to pay off several Accounts Payable accounts1/15Paid the cash dividend declared in November 20151/15Paid Monthly Salaries1/31Paid Quarterly Payroll Taxes to the proper authorities (from the Oct – Dec 2015 paychecks)1/31Paid $1,200 for a 1 year insurance policy (effective 2/1/16 – 1/31/17)2/1Bearing repurchased 15,000 shares of its own common stock to be held as treasury stock. Theprice paid was $32 per share2/1Paid the interest on the loan from Foley Bank2/2Paid for inventory purchased on 1/152/15Purchased $250 of supplies for cash2/15Paid Monthly Salaries2/20Sold Inventory on account (sold 1800 M12 for $22, 1200 M16 for $27 and 1700 M17 for $30)terms 2/10, net 30Page 2 ACCT 2690 – Capstone Accounting – Accounting Theory3/23/53/103/123/153/153/203/253/294/14/24/104/154/305/15/15/155/205/206/16/56/106/156/207/17/17/17/1 7/17/157/318/18/28/108/10 Received notice that customer from 2015 declared bankruptcy and will not be able to pay theremaining balance owed on their bill, $4,600Sold Inventory on account (sold 50 M12 for $22, 100 M16 for $27 and 750 M17 for $30) terms2/10, net 30Received payment for the 2/20 transactionReceived payment for merchandise sold on 3/5Paid income taxes owed from the 2015 fiscal year.Paid Monthly SalariesPurchased inventory on account – 4000 M12 mirrors for $11.00 each, 2000 M16 for $13.75each and 3750 M17 for $14.00 each. Terms net 30Signed a 1-year lease for a copy machine. Lease payments are to be made the first day of themonth in the amount of $200Paid for merchandise purchased on 3/20Made lease payment on copy machineSold Inventory on account (sold 500 M12 for $22, 1,000 M16 for $27 and 1,750 M17 for $30)terms 2/10, net 30Customer made a payment of $44,345 from the 4/2 transactionPaid Monthly SalariesPaid Quarterly Payroll Taxes to the proper authorities (from the Jan – March paychecks)Made lease payment on copy machineSold Inventory on account (sold 2800 M12 for $22, 2200 M16 for $27 and 2700 M17 for $30)terms 2/10, net 30Paid Monthly SalariesCustomer from the 5/1 transaction returned inventory (200 M12) all inventory was still in goodworking orderCustomer paid their remaining balance from the 4/2 transactionPurchased inventory on account – 1500 M12 mirrors for $11 each, 2500 M16 for $13.75 eachand 2750 M17 for $14.25 each.Returned 500 units of M17 from the 6/1 purchasePaid the remaining balance from the 6/1 purchasePaid Monthly SalariesCustomer from the 5/1 transaction made a payment of $10,000Paid the interest on the bondsMade interest payment of equipment noteMade lease payment on copy machinePurchased $125,000 of equipment using a bank loan at 7% interest to be paid in 2 years.Interest is due on June 30 of each year. The equipment has a life of 7 years and a 5,000 salvagevalue.Sold Inventory on account (sold 1250 M12 for $22, 2750 M16 for $27 and 2000 M17 for $30)terms 2/10, net 30Paid Monthly SalariesPaid Quarterly Payroll Taxes to the proper authorities (from the Apr – June paychecks)Made lease payment on copy machinePurchased $600 of supplies for cashReceived ½ of payment from the 7/1 transactionPurchased inventory on account – 5000 M12 mirrors for $11.00 each, 3000 M16 for $13.75each and 4500 M17 for $14.25 each. net 30Page 3 ACCT 2690 – Capstone Accounting – Accounting Theory8/159/19/19/159/1510/110/1510/1510/3111/111/111/111/1511/1712/112/112/1512/1512/2812/2512/31 Paid Monthly SalariesMade lease payment on copy machinePaid $8,000 cash to lease a truck for one yearPaid for inventory purchased on 8/10Paid Monthly SalariesMade lease payment on copy machinePurchased $350 of supplies for cashPaid Monthly SalariesPaid Quarterly Payroll Taxes to the proper authorities (from the July – Sept paychecks)Purchased inventory on account – 2000 M12 mirrors for $111.50 each, 3000 M16 for $13.75each and 2750 M17 for $14.25 each.Received $2,400 from a tenant for 6 months’ rent (11/1/16 to 4/30/17)Made lease payment on copy machinePaid Monthly SalariesPaid a cash dividend of $.30 per share on outstanding shares and paid dividends to preferredshareholdersSold Inventory on account (sold 8500 M12 for $22, 7500 M16 for $27 and 9600 M17 for $30)terms 2/10, net 30Made lease payment on copy machinePaid Monthly SalariesPurchased inventory on account – 12,000 M12 mirrors for $11.25 each, 8,000 M16 for $14each and 9,750 M17 for $14.35 each.Sold Inventory on account (sold 5500 M12 for $22, 4500 M16 for $27 and 6500 M17 for $30)terms 2/10, net 30Received payments totaling $1,432,000 from customers for past due invoicesMade Lease Payment on 10-year lease Other Information: At year end $2
50 worth of supplies are on hand The company uses the % of Receivables method in estimating bad debts; 2% of the ending receivablesbalance is deemed to be uncollectibleRequired: Prepare all journal entries to record the information for 2016. Prepare all adjusting journal entries as necessary Prepare an adjusted Trial Balance as of December 31, 2016 Prepare a multiple-step income statement, statement of retained earnings and a balance sheet as ofDecember 31, 2016 Prepare a cash flow statement, using the indirect method, for the year ended December 31, 2016 Close all accounts as necessary and prepare a post-closing Trial Balance Please include a sheet on how you calculated your adjusting Journal entries and inventory Page 4