On January 2, 2013 Judah Smith decided to incorporate his business Smith's Bakery
Check Figures:
Unadjusted Net Income: $171,268
Adjusted Net Income: $74,928
Ending Retained Earnings Balance: $203,860
Journal Entries:
1. January 2: Smith sold 100,000 shares of common stock @ $10. The stock had a par value of $8
2. January 5: Smith collected $20,000 of prior accounts receivables by acquiring help from Jammie Nash.
3. January 5: Smith issued a bond (new bond) to raise the needed capital to enhance his company in Ozark, Missouri. The new bond is a five year 12%, $100,000 semi annual bond with an effective market rate of 10%. Payments are to be made semi-annually. The bond will be amortized using the effective interest method. Record the issuance of the new bond. Round to the nearest dollar.
4. February 4: Smith bought a new car to speed up delivery time. Smith bought the car outright for $20,000. The car is expected to have a useful life of 150,000 miles.
5. February 10: Smith bought $200,000 of inventory on account. The freight cost was $2,000. The terms were FOB Destination.
6. March 1: Smith paid off what he originally owed in accounts payable at the beginning of the year.
7. March 15: Smith paid income tax from last year.
8. April 1: Smith wrote off a $1,000 of accounts receivable that he knew that he would never be able to collect from Jack Ford. Record the write-off.
9. April 15: Smith sold on account $700,000 (2/10, n30) to city of Ozark. The cost of merchandise sold was $300,000
10. April 20: Cookie batches had contamination, they were returned. $100,000 of inventory was returned. The cost of merchandise sold was $40,000.
11. May 1: The city of Ozark paid Smith for the shipment of cookies in entry 9 and 10.
12. July 1: Smith made the third interest payment and amortized using the effective interest method on the old bond from January 1, 2012. This bond was a five year, semi annual bond with a face value of $100,000, effective market rate of 8%, and coupon rate of 6%. Payments are made semi-annual. Record the interest payment and the amortization. Round to the nearest dollar.
13. July 1: Smith made his first semi-annual interest payment on the new bond and amortized using effective interest method. Record the interest payment. Round to the nearest dollar.
14. July 1: Smith bought back 20,000 shares of treasury stock for $7 a share.
15. August 10: Smith paid the following expenses: Wage Exp $10,000, Rent Exp $20,000, Professional Fees $40,000, Sales Salary Exp $10,000, and Advertising Exp $60,000. (Combine the amounts into ONE cash entry)
16. August 25: Ford was able to pay off the debt he owed to Smith. This was the debt Smith previously wrote off.
17. September 15: Smith declared dividends $50,000.
18. September 30: Smith sold 10,000 of the treasury stock with a cost $7 for $12 per share.
19. October 20: Smith paid off the entire Notes Payable which was due in 2015. The amount Smith paid included the face value of Note plus $10,000 of interest.
20. November 1: Smith paid off the Notes Payable due in December 2013. Smith paid full carrying value of the Note plus $500 of interest.
21. December 31: Smith made a semi annual interest payment on the old bond and amortized. Round to the nearest dollar.
22. December 31: Smith made a semi annual interest payment on the new bond and amortized. Round to the nearest dollar.
23. December 31: Smith paid the dividends previously declared.
Adjustments: At December 31, 2013, Smith made the following adjusting entries to update the books.
A1. At year end, it was estimated that 6% of the year end accounts receivable will not be collected.
A2. Smith accrued for 2013 income taxes which are to be paid March 15, 2014, $70,000
A3. Smith earned the remaining amount of unearned sales revenue in 2013.
A4. Smith incurred the following depreciation expenses for the year:
Equipment (10 year straight line bought in 2011)
Machinery (10 year double decline bought in 2011)
Car (driven 75,000 miles during the year)
Combine depreciation expense into one entry
A5. All prepaid expenses expired during the year.
A6. Office supplies were counted to $3,000 worth at year end.
A7. Accounts Receivables not recorded, $10,000
Closing Entries:
At December 31, 2013, the following closing entries were needed:
C1. & C2. Close all revenue and expense accounts.
C3. Close income summary to retained earnings.
C4. Close the Dividends account.