Question

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

Answer 1