Objectives - The objective of this project is to give the students an opportunity to learn accounting for intangibles, current liabilities and long term liabilities in real world scenario and to understand how these transactions impact financial reporting. Working through this project, the student will understand and learn the application, analysis and synthesis of accounting and reporting principles governing intangible assets, current liabilities and long term liabilities.
Description - General Products Inc. is incorporated in Nevada, USA on Jan 1st 2013 to take over a local retail chain. The objective of the company is to supply goods of everyday use to customers at the most competitive prices. General Products has established a chain of stores throughout USA. The retail operations of the company are so designed that customers can shop seamlessly in stores and online.
You may use the attached Balance Sheet of GeneralProducts as of Dec 2015 and the financial data for 2016.The same information is provided below:
Balance Sheet of GeneralProducts Inc. on December 31, 2015
ASSETS
Current Assets
Cash and Cash Equivalent 11,980
Accounts Receivables 20,520
Inventory 317,060
Inventory of Premiums (@0.10 per premium) 660
Total Current Assets 350,220
LONG TERM ASSETS
Investments 66,775
Property Plant and Equipment 750,000
Less Accumulated Depreciation 90,000 660,000
Total Long Term Assets 726,775
INTANGIBLE ASSETS
Trade Marks 190,000
Total Assets 1,266,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable 50,772
Liability for Premiums and Coupons 550
5% Short Term Notes Payable due on March 31, 2016 8,000
Accrued Interest on 6% Bonds Payable 3,000
Total Current Liabilities 62,272
6% Bonds Payable due 2020 100,000
Unamortized Discount on Bonds Payable 6,732 93,268
Total Liabilities 155,540
Stockholder's Equity
Common Stock
125,000 shares, par value $1 authorized 100,000 shares issued and outstanding 130,000
Paid in Capital in Excess of Par 946,000
Retained Earnings 35,455
Total Stockholders' Equity 1,111,455
Total Liabilities and Stockholders' Equity 1,266,995
GeneralProducts provides us financial and business related data for 2016 below.
1. Trades Marks were acquired for $200,000 in 2015.Estimated useful at the time of acquisition was 20 years
2. There was a litigation brought out by a competitor against the Trade Mark. GeneralProducts could successfully defend this litigation at a cost of $ 45,000. New useful life of Trade Mark is estimated to be 25 years from the date of acquisition.
3. All sales are on credit and total $ 940,560. COGS are $780,650.
4. Included in the total sales of $940,560 are the sales of GeneralProducts brand 6000 soap powder boxes GeneralProducts includes one coupon in every soap powder box. Customers can redeem 4 coupons for one Kitchen utensil. Based on past experience 60% of the coupons are redeemed by customers. During 2016 3,400 coupons were redeemed. Purchase of premiums during 2016 total 1,000 premiums @ $1.10 each on credit.
5. 6% Bonds Payable are issued on Jan 1 2015 to yield 8% interest. Interest is paid semi-annualy on Jan 1st and June 30th.
6. General Products can redeem these Bonds any time after June 30,2016 @ 101.
7. To take advantage of lower interest rates and to finance the redemption of 6% Bonds on Sept.1st 2016, GeneralProducts issued 5%Bonds in the face value of $100,000 to yield 6% The maturity period of these 5% Bonds is 10 years and interest is paid semi-annually on 1st Jan and 30th June. The proceeds from the issue of 5% Bonds are used to redeem 6% Bonds Payable @ 101 on Sept.1st 2016.
8. Selling Administrative Expenses excluding depreciation are $87,345. PP&E is depreciated on Striaght Line Method over 25 years of life.
9. Cash collected from customers total $906,450
10. Cash paid to suppliers for credit purchases total $728,254
11. Purcahses of inventory total $689,525.All purchases are on credit.
12. GeneralProducts purchased Land for $30,000 for construction of building
Requirements
1. Record the necessary journal entries for 2016.
2. Prepare Income Statement and Retained Earnings Statement for the year 2016.
3. Prepare Balance Sheet on December 31, 2016.
4. Show full work of all the financial items reported in Income Statement and Balance Sheet. Please round your calculations closest to $. Ignore tax.