Question

On November 30, 2016, Davis Company had the following account balances: Debit Credit Cash $3,090 Accounts...

On November 30, 2016, Davis Company had the following account balances:

Debit

Credit

Cash $3,090
Accounts Receivable 9,900
Allowance for Doubtful Accounts $100
Inventory 17,750
Supplies 1,400
Land 9,000
Buildings and Equipment 42,000
Accumulated Depreciation 4,200
Accounts Payable 10,700
Common Stock 20,000
Retained Earnings (1/1/2016) 42,400
Dividends 2,000
Sales Revenue 69,700
Cost of Goods Sold 36,860
Salaries Expense 12,500
Advertising Expense 8,100
Other Expenses 4,500

During the month of December, Davis entered into the following transactions:

Date

Transaction

Dec. 4 Made cash sales of $3,000; the cost of the inventory sold was $1,800.
7 Purchased $2,400 of inventory on credit.
14 Collected $900 of accounts receivable.
18 Sold land for $7,800; the land originally cost $5,000.
20 Made credit sales of $4,000; the cost of the inventory sold was $2,400.
21 Returned $360 of defective inventory to supplier for credit to the Davis Company’s account.
27 Purchased $1,250 of inventory for cash.
28 Paid $1,100 of accounts payable.
31 Purchased land at a cost of $6,000; made a $1,000 down payment and signed a 12%, 2-year note for the balance.
Required:
1. Prepare general journal entries to record the preceding transactions.
2. Post to general ledger T-accounts.
3. Prepare a year-end trial balance on a worksheet and complete the worksheet using the following information:
a. accrued salaries at year-end total $1,200;
b. for simplicity, the building and equipment are being depreciated using the straight-line method over an estimated life of 20 years with no residual value;
c. supplies on hand at the end of the year total $630;
d. bad debts expense for the year totals $830;
e. the income tax rate is 30%; income taxes are payable in the first quarter of 2017
4. Prepare the company’s financial statements for 2016.
5. Prepare the 2016 (a) adjusting and (b) closing entries in the general journal.
CHART OF ACCOUNTS
Davis Company
General Ledger
ASSETS
111 Cash
121 Accounts Receivable
122 Allowance for Doubtful Accounts
131 Inventory
141 Supplies
142 Prepaid Insurance
180 Land
181 Buildings and Equipment
182 Accumulated Depreciation
LIABILITIES
211 Accounts Payable
221 Notes Payable
224 Interest Payable
231 Salaries Payable
261 Income Taxes Payable
EQUITY
311 Common Stock
331 Retained Earnings
351 Dividends
391 Income Summary
REVENUE
411 Sales Revenue
601 Gain on Sale of Land
EXPENSES
510 Cost of Goods Sold
521 Salaries Expense
525 Interest Expense
531 Advertising Expense
532 Bad Debt Expense
534 Insurance Expense
535 Supplies Expense
536 Utilities Expense
539 Other Expenses
541 Depreciation Expense
551 Income Tax Expense
701 Loss on Sale of Land
Labels
Contributed capital
Current assets
Current liabilities
Long-term liabilities
Operating expenses
Other item
Property, plant, and equipment
Amount Descriptions
Dividends
Earnings per share (2,000 shares)
Gross profit
Income before income taxes
Income from operations
Net income
Net loss
Retained earnings, December 31, 2016
Retained earnings, January 1, 2016
Total assets
Total current assets
Total current liabilities
Total liabilities
Total liabilities and shareholders’ equity
Total operating expenses
Total property, plant, and equipment
Total shareholders’ equity

Prepare general journal entries to record the December transactions.

PAGE 10

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Prepare the 2016 (a) adjusting and (b) closing entries in the general journal at December 31. Additional Instructions

PAGE 11

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

Adjusting Entries

2

3

4

5

6

7

8

9

10

11

12

Closing Entries

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Post to general ledger T-accounts. Additional Instructions

Cash
12/01 Bal 12/27
12/04 12/28
12/14 12/31
12/18
12/31 Bal
Accounts Receivable
12/01 Bal
12/31 Bal
Inventory
12/01 Bal
12/31 Bal
Land
12/01 Bal
12/31 Bal
Accounts Payable
12/01 Bal
12/31 Bal
Notes Payable
12/01 Bal
12/31 Bal
Sales Revenue
12/01 Bal
12/31 Bal
Gain on Sale of Land
12/01 Bal
12/31 Bal
Cost of Goods Sold
12/01 Bal
12/31 Bal
Prepare a year-end trial balance on a worksheet and complete the worksheet using the following information:
a. accrued salaries at year-end total $1,200;
b. for simplicity, the building and equipment are being depreciated using the straight-line method over an estimated life of 20 years with no residual value;
c. supplies on hand at the end of the year total $630;
d. bad debts expense for the year totals $830;
e. the income tax rate is 30%; income taxes are payable in the first quarter of 2017.

Additional Instructions

DAVIS COMPANY

Worksheet

For the Year Ended December 31, 2016

1

Trial Balance

Trial Balance

Adjustments

Adjustments

Income Statement

Income Statement

Retained Earnings

Retained Earnings

Balance Sheet

Balance Sheet

2

Account Titles

Debit

Credit

Debit

Credit

Debit

Credit

Debit

Credit

Debit

Credit

3

Cash

4

Accounts receivable

5

Allow for doubtful accounts

6

Inventory

7

Supplies

8

Land

9

Buildings and equipment

10

Accumulated depreciation

11

Accounts payable

12

Notes payable

13

Common stock

14

Retained earnings (1/1/16)

15

Dividends

16

Sales revenue

17

Gain on sale of land

18

Cost of goods sold

19

Salaries expense

20

Advertising expense

21

Other expense

22

Totals

23

24

25

26

27

28

29

30

31

Net income

32

33

Retained Earnings (12/31/16)

34

Prepare the company’s income statement for 2016. Additional Instructions

DAVIS COMPANY

Income Statement

For the Year Ended December 31, 2016

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

Earnings per share (2,000 shares)

Prepare the statement of retained earnings for 2016. Additional Instructions

DAVIS COMPANY

Statement of Retained Earnings

For the Year Ended December 31, 2016

1

2

3

4

5

Prepare the balance sheet for 2016. Additional Instructions

DAVIS COMPANY

Balance Sheet

December 31, 2016

1

Assets

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Liabilities

16

17

18

19

20

21

22

23

24

Shareholders’ Equity

25

26

27

28

29

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