Question - James Corporation's balance sheet at December 31, 2014, is presented below.
JAMES CORPORATION Balance Sheet December 31, 2014
Cash $30,500 Accounts Payable $13,750
Inventory $25,750 Bonds Payable $50,000
Prepaid Insurance $5,600 Common Stock $20,000
Equipment $43,000 Retained Earnings $18,600
104,850 $104,850
During 2015, the following transactions occurred.
1. James paid $2,500 interest on the bonds on January 1, 2015.
2. James purchased $241,100 of inventory on account.
3. James sold for $450,000 cash inventory which cost $250,000. James also collected $31,500 sales taxes.
4. James paid $230,000 on accounts payable.
5. James paid $2,500 interest on the bonds on July 1, 2015.
6. The prepaid insurance ($5,600) expired on July 31.
7. On August 1, James paid $12,000 for insurance coverage from August 1, 2015, through July 31, 2016.
8. James paid $24,000 sales taxes to the state.
9. Paid other operating expenses, $91,000.
10. Retired the bonds on December 31, 2015, by paying $47,000 plus $2,500 interest.
11. Issued $90,000 of 8% bonds on December 31, 2015, at 104. The bonds pay interest every June 30 and December 31.
Adjustment data:
1. Recorded the insurance expired from item 7.
2. The equipment was acquired on December 31, 2014, and will be depreciated on a straight-line basis over 5 years with a $3,000 salvage value.
3. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)
Instructions - (You may want to set up T-accounts to determine ending balances.)
(a) Journal entries for the transactions listed above and adjusting entries.
(b) Adjusted trial balance at December 31, 2015.
(c) Income statement and a retained earnings statement for the year ending December 31, 2015, and a classified balance sheet as of December 31, 2015.