The unadjusted trial balance of Watson Anvils at December 31, 2018, and the data for the adjustments follow:

$$\begin{array}{c} \textbf{WATSON ANVILS}\\ \textbf{Unadjusted Trial Balance}\\ \textbf{December 31, 2018} \end{array}$$

$$\begin{array}{lrr} {\textbf{Account Title}}&\textbf{Debit\hspace{6pt}}&\textbf{Credit\hspace{4pt}}\\ \text{Cash}&\text{\$\hspace{5pt}13,560}\\ \text{Accounts Receivable}\hspace{10pt}&\text{17,000}\\ \text{Prepaid Rent}&\text{2,140}\\ \text{Office Supplies}&\text{2,800}\\ \text{Equipment}&\text{30,000}\\ \text{Accumulated Depreciation-Equipment}&&\text{\$\hspace{5pt}11,000}\\ \text{Accounts Payable}&&\text{7,200}\\ \text{Salaries Payable}&&\text{}\\ \text{Unearned Revenue}&&\text{5,600}\\ \text{Common Stock}&&\text{12,000}\\ \text{Retained Earnings}&&\text{17,600}\\ \text{Dividends}&\text{4,600}\\ \text{Service Revenue}&&\text{19,000}\\ \text{Salaries Expense}&\text{2,300}\\ \text{Rent Expense}&\text{}\\ \text{Depreciation Expense-Equipment}&\text{}\\ \text{Supplies Expense }&\text{\underline{\hspace{38pt}}}&\text{\underline{\hspace{38pt}}}\\ \text{Total}&\underline{\underline{\$\hspace{5pt}\text{72,400}}}&\underline{\underline{\$\hspace{5pt}\text{72,400}}}\\ \end{array}$$

Adjustment data: a. Unearned Revenue still unearned at December 31, $3,600. b. Prepaid Rent still in force at December 31,$2,000. c. Office Supplies used, $600. d. Depreciation,$400. e. Accrued Salaries Expense at December 31, $180.

Requirements

1. Open the T-accounts using the balances in the unadjusted trial balance.
2. Complete the worksheet for the year ended December 31, 2018 (optional).
3. Prepare the adjusting entries, and post to the accounts.
4. Prepare an adjusted trial balance.
5. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form.
6. Prepare the closing entries, and post to the accounts.
7. Prepare a post-closing trial balance.
8. Calculate the current ratio for the company.

Wesley Corp. is a medium-sized wholesaler of automotive parts. It has 10 stockholders who have been paid a total of $1 million in cash dividends for 8 consecutive years. The board’s policy requires that, for this dividend to be declared, net cash provided by operating activities as reported in Wesley’s current year’s statement of cash flows must exceed$1 million. President and CEO Samuel Gunkle’s job is secure so long as he produces annual operating cash flows to support the usual dividend.

At the end of the current year, controller Gerald Rondelli presents president Samuel Gunkle with some disappointing news: The net cash provided by operating activities is calculated by the indirect method to be only $970,000. The president says to Gerald, “We must get that amount above$1 million. Isn’t there some way to increase operating cash fl ow by another $30,000?” Gerald answers, “These figures were prepared by my assistant. I’ll go back to my offi ce and see what I can do.” The president replies, “I know you won’t let me down, Gerald.”

Upon close scrutiny of the statement of cash fl ows, Gerald concludes that he can get the operating cash flows above$1 million by reclassifying a $60,000, 2-year note payable listed in the financing activities section as “Proceeds from bank loan—$60,000.” He will report the note instead as “Increase in payables—$60,000” and treat it as an adjustment of net income in the operating activities section. He returns to the president, saying, “You can tell the board to declare their usual divide d. Our net cash flow provided by operating activities is$1,030,000.” “Good man, Gerald! I knew I could count on you,” exults the president.

Instructions (c) Are the board members or anyone else likely to discover the misclassification?

Zeidman Security Services Co. offers security services to business clients. Complete the following end-of-period spreadsheet (work sheet) for Zeidman Security Services Co.

$$\begin{array}{c} \textbf{Zeidman Security Services Co.}\\ \textbf{End-of-Period Spreadsheet (Work sheet)}\\ \textbf{For the Year Ended July 31,2012}\\ \end{array}$$

$$\begin{array}{lccc} \hline&\textbf{Adjusted}&\textbf{Income}&\textbf{Balance}\\ &\underline{\textbf{Trial Balance}}&\underline{\textbf{Adjustment}}&\underline{\textbf{Trial balance}}\\ \textbf{Account Title}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.} \\ \hline\text{Cash}&12\quad\quad\quad\quad\quad\\ \text{Accounts Receivable}&89\quad\quad\quad\quad\quad\\ \text{Supplies}&3\quad\quad\quad\quad\quad\\ \text{Prepaid Insurance}&4\quad\quad\quad\quad\quad\\ \text{Land}&100\quad\quad\quad\quad\quad\\ \text{Equipment}&40\quad\quad\quad\quad\quad\\ \text{Accum. Depr.- Equipment}&8\\ \text{Accounts Payable}&36\\ \text{Wages Payable}&1\\ \text{Alex Zeidman, Capital}&170\\ \text{Alex Zeidman, Drawing}&8\quad\quad\quad\quad\quad\\ \text{Fees Earned}&99\\ \text{Wages Expense}&21\quad\quad\quad\quad\quad\\ \text{Rent Expense}&12\quad\quad\quad\quad\quad\\ \text{Insurance Expense}&8\quad\quad\quad\quad\quad\\ \text{Utilities Expense}&6\quad\quad\quad\quad\quad\\ \text{Supplies Expense}&5\quad\quad\quad\quad\quad\\ \text{Depreciation Expense}&4\quad\quad\quad\quad\quad\\ \text{Miscellaneous Expense}&2\quad\quad\quad\quad\quad\\ \hline &314\quad\quad\quad314\\ \hline\hline \text{Net income (loss)} \end{array}$$

Prepare adjusting journal entries, as needed, considering the account balances excerpted from the unadjusted trial balance and the adjustment data.

A. supplies actual count at year end, $6,500

Kari Downs, an auditor with Wheeler CPAs, is performing a review of Depue Company’s inventory account. Depue did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at yearend was $740,000. However, the following information was not considered when determining that amount.

1. Included in the company’s count were goods with a cost of$250,000 that the company is holding on consignment. The goods belong to Kroeger Corporation.

2. The physical count did not include goods purchased by Depue with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Depue warehouse until January 3.

3. Included in the inventory account was$14,000 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.

4. The company received an order on December 29 that was boxed and sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of$28,000. The goods were not included in the count because they were sitting on the dock.

5. On December 29, Depue shipped goods with a selling price of $80,000 and a cost of$60,000 to Macchia Sales Corporation FOB shipping point. The goods arrived on January 3. Macchia had only ordered goods with a selling price of $10,000 and a cost of$8,000. However, a sales manager at Depue had authorized the shipment and said that if Machia wanted to ship the goods back next week, it could.

6. Included in the count was $40,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Depue’s products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, “since that is what we paid for them, after all.”

Instruction

Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.

The trial balance of Buse’s Fashion Center contained the accounts below at November 30, the end of the company’s fiscal year.

$$\begin{array}{c} \textbf{BUSE’S FASHION CENTER}\\ \textbf{Trial Balance}\\ \textbf{November 30, 2014}\\ \end{array}$$

$$\begin{array}{lcc} &\underline{\textbf{Debit}}&\underline{\textbf{Credit}}\\[3pt] \text{Cash}&\text{\$\hspace{7pt}37,700}\\ \text{Accounts Receivable}&\text{\hspace{12pt}33,700}\\ \text{Inventory}&\text{\hspace{12pt}43,000}\\ \text{Supplies}&\text{\hspace{17pt}8,800}\\ \text{Equipment}&\text{\hspace{7pt}143,000}\\ \text{Accumulated Depreciation—Equipment}&&\text{\$\hspace{7pt}41,000}\\ \text{Notes Payable}&&\text{\hspace{12pt}62,000}\\ \text{Accounts Payable}&&\text{\hspace{12pt}17,800}\\ \text{Common Stock}&&\text{\hspace{12pt}80,000}\\ \text{Retained Earnings}&&\text{\hspace{12pt}30,000}\\ \text{Dividends}&\text{\hspace{12pt}12,000}\\ \text{Sales Revenue}&&\text{\hspace{7pt}757,200}\\ \text{Sales Returns and Allowances}&\text{\hspace{17pt}6,200}\\ \text{Cost of Goods Sold}&\text{\hspace{7pt}505,400}\\ \text{Salaries and Wages Expense}&\text{\hspace{7pt}110,000}\\ \text{Advertising Expense}&\text{\hspace{12pt}26,400}\\ \text{Utilities Expense}&\text{\hspace{12pt}14,000}\\ \text{Maintenance and Repairs Expense}&\text{\hspace{12pt}12,100}\\ \text{Freight-Out}&\text{\hspace{12pt}11,700}\\ \text{Rent Expense}&\underline{\text{\hspace{12pt}24,000}}&\underline{\hspace{40pt}}\\ &\underline{\underline{\text{\$\hspace{1pt}}988,000}}&\underline{\underline{\text{\$\hspace{1pt}}988,000}}\\ \end{array}$$

Adjustment data:

 1. Store supplies on hand total $4,000.
 2. Depreciation is$14,000 on the store equipment and $6,000 on the delivery equipment.
 3. Interest of$4,400 is accrued on notes payable at November 30.
 4. Income tax due and unpaid at November 30 is $3,000.

Other data:$24,000 of notes payable are due for payment next year.

Instructions

(b) Prepare T-accounts for all accounts used in part (a). Enter the trial balance amounts into the T-accounts and post the adjusting entries.

On December 1, 2014, Boline Distributing Company had the following account balances.

$$\begin{array}{lclc} &\underline{\textbf{Debit}}&&\underline{\textbf{Credit}}\\[3pt] \text{Cash}&\text{\$\hspace{5pt}7,200}&\text{Accumulated Depreciation—Equipment}&\text{\$\hspace{5pt}2,200}\\ \text{Accounts Receivable}&\text{\hspace{10pt}4,600}&\text{Accounts Payable}&\text{\hspace{10pt}4,500}\\ \text{Inventory}&\text{\hspace{5pt}12,000}&\text{Salaries and Wages Payable}&\text{\hspace{10pt}1,000}\\ \text{Supplies}&\text{\hspace{10pt}1,200}&\text{Common Stock}&\text{\hspace{5pt}15,000}\\ \text{Equipment}&\underline{\text{\hspace{5pt}22,000}}&\text{Retained Earnings}&\underline{\text{\hspace{5pt}24,300}}\\ &\underline{\underline{\text{\$\hspace{1pt}47,000}}}&&\underline{\underline{\text{\$\hspace{1pt}47,000}}}\\ \end{array}$$

During December, the company completed the following summary transactions.

Dec.  6 Paid $1,600 for salaries due employees, of which$600 is for December and $1,000 is for November salaries payable.
      8 Received$1,900 cash from customers in payment of account (no discount allowed).
     10 Sold merchandise for cash $6,300. The cost of the merchandise sold was$4,100.
     13 Purchased merchandise on account from Gong Co. $9,000, terms 2/10, n/30.
     15 Purchased supplies for cash$2,000.
     18 Sold merchandise on account $12,000, terms 3/10, n/30. The cost of the merchandise sold was$8,000.
     20 Paid salaries $1,800.
     23 Paid Gong Co. in full, less discount.
     27 Received collections in full, less discounts, from customers billed on December 18.

Adjustment data:

1. Accrued salaries payable$800.
2. Depreciation $200 per month.
3. Supplies on hand$1,500.
4. Income tax due and unpaid at December 31 is $200.

Instructions

(e) Prepare an income statement and a retained earnings statement for December and a classified balance sheet at December 31.

Morgan Company’s balance sheet at December 31, 2016, is presented below.

$$\begin{array}{c} \textbf{MORGAN COMPANY}\\ \textbf{Balance Sheet}\\ \textbf{December 31, 2016}\\ \end{array}$$

$$\begin{array}{lrlr} \text { Cash } & \$ 30,000 & \text { Accounts Payable } & \$ 13,750 \\ \text { Inventory } & 30,750 & \text { Interest Payable } & 250 \\ \text { Prepaid Insurance } & 6,000 & \text { Notes Payable } & 50,000 \\ \text { Equipment } & \underline{~~~~38,000} & \text { Owner's Capital } & \underline{~~~40,750} \\ &\underline{\underline{\$ 104,750}} & & \underline{\underline{\$ 104,750}} \\ \end{array}$$

During January 2017, the following transactions occurred. (Morgan Company uses the perpetual inventory system.)

1. Morgan paid $\$ 250$ interest on the note payable on January 1, 2017. The note is due December 31, 2018.
2. Morgan purchased $\$ 261,100$ of inventory on account.
3. Morgan sold for $\$ 440,000$ cash, inventory which cost $\$ 265,000$. Morgan also collected $\$ 28,600$ in sales taxes.
4. Morgan paid $\$ 230,000$ in accounts payable.
5. Morgan paid $\$ 17,000$ in sales taxes to the state.
6. Paid other operating expenses of $\$ 30,000$.
7. On January 31, 2017, the payroll for the month consists of salaries and wages of $\$ 60,000$. All salaries and wages are subject to $7.65 \%$ FICA taxes. A total of $\$ 8,900$ federal income taxes are withheld. The salaries and wages are paid on February 1.

Adjustment data: 8. Interest expense of $\$ 250$ has been incurred on the notes payable. 9. The insurance for the year 2017 was prepaid on December 31, 2016. 10. The equipment was acquired on December 31, 2016, and will be depreciated on a straight-line basis over 5 years with a $\$ 2,000$ salvage value. 11. Employer's payroll taxes include $7.65 \%$ FICA taxes, a $5.4 \%$ state unemployment tax, and an $0.8 \%$ federal unemployment tax.

Instructions (You may need to set up T-accounts to determine ending balances.) (b) Prepare an adjusted trial balance at January 31, 2017.

Zeidman Security Services Co. offers security services to business clients. Complete the following end-of-period spreadsheet (work sheet) for Zeidman Security Services Co.

$$\begin{array}{c} \textbf{Zeidman Security Services Co.}\\ \textbf{End-of-Period Spreadsheet (Work sheet)}\\ \textbf{For the Year Ended July 31,2012}\\ \end{array}$$

$$\begin{array}{lccc} \hline&\textbf{Adjusted}&\textbf{Income}&\textbf{Balance}\\ &\underline{\textbf{Trial Balance}}&\underline{\textbf{Adjustment}}&\underline{\textbf{Trial balance}}\\ \textbf{Account Title}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.}&\textbf{Dr.}\quad\quad\quad\textbf{Cr.} \\ \hline\text{Cash}&12\quad\quad\quad\quad\quad\\ \text{Accounts Receivable}&89\quad\quad\quad\quad\quad\\ \text{Supplies}&3\quad\quad\quad\quad\quad\\ \text{Prepaid Insurance}&4\quad\quad\quad\quad\quad\\ \text{Land}&100\quad\quad\quad\quad\quad\\ \text{Equipment}&40\quad\quad\quad\quad\quad\\ \text{Accum. Depr.- Equipment}&8\\ \text{Accounts Payable}&36\\ \text{Wages Payable}&1\\ \text{Alex Zeidman, Capital}&170\\ \text{Alex Zeidman, Drawing}&8\quad\quad\quad\quad\quad\\ \text{Fees Earned}&99\\ \text{Wages Expense}&21\quad\quad\quad\quad\quad\\ \text{Rent Expense}&12\quad\quad\quad\quad\quad\\ \text{Insurance Expense}&8\quad\quad\quad\quad\quad\\ \text{Utilities Expense}&6\quad\quad\quad\quad\quad\\ \text{Supplies Expense}&5\quad\quad\quad\quad\quad\\ \text{Depreciation Expense}&4\quad\quad\quad\quad\quad\\ \text{Miscellaneous Expense}&2\quad\quad\quad\quad\quad\\ \hline &314\quad\quad\quad314\\ \hline\hline \text{Net income (loss)} \end{array}$$

prepare an income statement, statement of owner’s equity, and balance sheet for Zeidman Security Services Co.

Prepare adjusting journal entries, as needed, considering the account balances excerpted from the unadjusted trial balance and the adjustment data.

D. salaries owed to employees, $2,400

Pete's Tennis Shop has the following transactions related to its top-selling Wilson tennis racket for the month of August:

$$\begin{matrix} \text{Date} & \text{Transactions} & \text{Units} & \text{Cost per Unit} & \text{Total Cost}\\ \hline \text{August 1} & \text{Beginning inventory} & \text{8} & \text{\$160} & \text{\$1,280}\\ \text{August 4} & \text{Sale $(\$ 225 \text { each) }$} & \text{5} & \text{ } & \text{ }\\ \text{August 11} & \text{Purchase} & \text{10} & \text{150} & \text{1,500}\\ \text{August 13} & \text{Sale $(\$ 240 \text { each) }$} & \text{8} & \text{ } & \text{ }\\ \text{August 20} & \text{Purchase} & \text{10} & \text{140} & \text{1,400}\\ \text{August 26} & \text{Sale $(\$ 250 \text { each) }$} & \text{11} & \text{ } & \text{ }\\ \text{August 29} & \text{Purchase} & \text{11} & \text{130} & \underline{1,430}\\ \text{ } & \text{ } & \text{ } & \text{ } & \underline{\underline{\$5,610}}\\ \end{matrix}$$

1. Calculate ending inventory and cost of goods sold at August 31, using the specific identification method. The August 4 sale consists of rackets from beginning inventory, the August 13 sale consists of rackets from the August 11 purchase, and the August 26 sale consists of one racket from beginning inventory and 10 rackets from the August 20 purchase. 2. Using FIFO, calculate ending inventory and cost of goods sold at August 31. 3. Using LIFO, calculate ending inventory and cost of goods sold at August 31. 4. Using weighted-average cost, calculate ending inventory and cost of goods sold at August 31. 5. Calculate sales revenue and gross profit under each of the four methods. 6. Comparing FIFO and LIFO, which one provides the more meaningful measure of ending inventory? Explain. 7. If Pete's chooses to report inventory using LIFO, record the LIFO adjustment.

The following information was taken from the records of Clark Cosmetics, Inc., at December 31, 2016:

$$\begin{array}{lrlr} \text{Prior-period adjustment—net of taxes}&&\text{Interest expense}&\$24,000\\ \quad\text{debit to Retained Earnings}&\$8,000&\text{Gain on lawsuit settlement}&8,000\\ \text{Income tax expense (savings):}&&\text{Dividend revenue}&14,000\\ \quad\text{Continuing operations }&26,440&\text{Treasury stock, common}&\\ \quad\text{Income from discontinued}&&\quad\text{(1,000 shares at cost)}&17,000\\ \quad\text{operations}&6,320&\text{General expenses}&72,900\\ \text{Loss on sale of plant assets.}&12,000&\text{Sales revenue}&542,000\\ \text{Income from discontinued}&&\text{Retained earnings, beginning, }&\\ \quad\text{operations}&16,000&\quad\text{as originally reported}&198,000\\ \text{Preferred stock, 10\\\%, \$10 par,}&&\text{Selling expenses}&83,000\\ \quad\text{4,000 shares issued }&40,000&\text{Common stock, no par,}&\\ \text{Cost of goods sold}&306,000&\quad\text{23,000 shares authorized}&\\ \text{Dividends declared on common stock}&27,000&\quad\text{and issued}&370,000\\ \end{array}$$

1. Using the End-of-Chapter Summary Problem as an example, prepare Clark Cosmetics’ single-step income statement, which lists all revenues together and all expenses together, for the fiscal year ended December 31, 2016. Include earnings-per-share data. For purposes of earnings per share, assume dividends have been declared on preferred stock as of December 31.

2. Evaluate income for the year ended December 31, 2016. Clark’s top managers hoped to earn income from continuing operations equal to 6% of sales.

From inception of operations to December 31, 2012, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Fortner’s usual credit terms are net 30 days.

The balance in Allowance for Doubtful Accounts was $130,000 at January 1, 2012. During 2012, credit sales totaled$9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to$15,000. Fortner installed a computer system in November 2012, and an aging of accounts receivable was prepared for the first time as of December 31, 2012. A summary of the aging is as follows.

$$\begin{array}{lrc} \textbf{Classification by Month of Sale} & \textbf{Balance in} & \textbf{Estimated \%}\\ & \textbf{Each Category} & \textbf{Uncollectible}\\ \\ \text{November–December 2012} & \$1,080,000 & 2\%\\ \text{July–October} & 650,000 & 10\%\\ \text{January–June} & 420,000 & 25\%\\ \text{Prior to 1/1/12} & \underline{150,000} & 80\%\\ & \underline{\underline{\$2,300,000}}\\ \end{array}$$

Based on the review of collectibility of the account balances in the “prior to 1/1/12” aging category, additional receivables totaling $60,000 were written off as of December 31, 2012. The 80% uncollectible estimate applies to the remaining$90,000 in the category. Effective with the year ended December 31, 2012, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Instructions

(a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2012. Show supporting computations in good form. (Hint: In computing the 12/31/12 allowance, subtract the $60,000 write-off).

(b) Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2012.

Park Co.’s long-term available-for-sale portfolio at December 31, 2010, consists of the following.

Park enters into the following long-term investment transactions during year 2011.

Jan. 29 Sold 7,000 shares of Company B common stock for $158,375 less a brokerage fee of$3,100.
Apr. 17 Purchased 20,000 shares of Company W common stock for $395,000 plus a brokerage fee of$3,500. The shares represent a 30% ownership in Company W.
July 6 Purchased 9,000 shares of Company X common stock for $253,125 plus a brokerage fee of$3,500. The shares represent a 10% ownership in Company X.
Aug. 22 Purchased 100,000 shares of Company Y common stock for $750,000 plus a brokerage fee of$8,200. The shares represent a 51% ownership in Company Y.
Nov. 13 Purchased 17,000 shares of Company Z common stock for $533,800 plus a brokerage fee of$6,900. The shares represent a 5% ownership in Company Z.
Dec. 9 Sold 80,000 shares of Company A common stock for $1,030,000 less a brokerage fee of$4,100.

The fair values of its investments at December 31, 2011, are: B, $162,750; C,$1,220,625; W, $382,500; X,$236,250; Y, $1,062,500; and Z,$557,600.

Required
1. Calculate the amount Park should report on its December 31, 2011, balance sheet for its long-term investments in available-for-sale securities.
2. Prepare any necessary December 31, 2011, adjusting entry to record the fair value adjustment for the long-term investments in available-for-sale securities.
3. What amount of gains or losses on transactions relating to long-term investments in available-for-sale securities should Park report on its December 31, 2011, income statement?