Financial Accounting: Comprehensive Problem (Chapters 1-5) Bearing Inc.

Financial Accounting
Comprehensive Problem Chapters 1-5
As a recently hired accountant for a small business, Bearing, Inc., you are provided with last year's balance sheet statement and post-closing trial balance to familiarize yourself with the business.
Bearing, Inc.
Balance Sheet
December 31, 2011
Assets
Cash 22,100
Accounts Receivable 27,000
Inventory 13,500
Supplies 600
Total Assets $63,200
Liablities & Stockholders' Equity
Liabilities:
Accounts Payable 17,000
Salaries Payable 3,500
Income Taxes Payable 3,200
Total Liabilities 23,700
Stockholders' Equity:
Capital stock (10,000 shares outstanding) 20,000
Retained Earnings 19,500
Total Stockholders' Equity 39,500
Total Liabilities and Stockholders' Equity $63,200

Bearing, Inc.
Income Statement
For the Year Ended December 31, 2011
Sales revenue 143,000
Rent revenue 4,000
Total revenues 147,000
Less: cost of goods sold 85,000
Gross margin 62,000
Less: Operating expenses:
Supplies expense 1,200
Salaries expense 31,000
Miscellaneous expense 6,400 38,600
Income before taxes 23,400
Less: income taxes 8,190
Net Income $15,210

Earnings per share ($15,210/10,000 shares) $1.52

Bearing, Inc.
Post-Closing Trial Balance
December 31, 2011
Debits Credits
Cash 22,100
Accounts Receivable 27,000
Inventory 13,500
Supplies 600
Accounts Payable 17,000
Salaries Payable 3,500
Income Taxes Payable 3,200
Capital stock 20,000
Retained Earnings 19,500
Totals $63,200 $63,200

You are also given the following information that summarizes the business activity for the current year, 2012:
a. Issued 6,000 additional shares of capital stock for $30,000 cash.
b. Borrowed $10,000 on January 2, 2012 from Metropolis Bank as a long-term loan. Interest for the year is $700, payable on January 2, 2012.
c. Paid $5,100 cash on September 1 to lease a truck for one year
d. Received $1,800 on November 1 from a tenant for six months' rent.
e. Paid $900 on December 1 for a one-year insurance policy.
f. Purchased $250 of supplies for cash.
g. Purchased inventory for $80,000 on account
h. Sold inventory for $105,000 on account; cost of the merchandise sold was $60,000.
i. Collected $95,000 cash from customers' accounts receivable.
j. Paid $65,000 cash for inventories purchased during the year.
k. Paid $34,000 for sales reps' salaries, including $3,500 owed at the beginning of 2012.
l. No dividends were paid during the year
m. The income taxes payable for 2011 were paid
n. For adjusting entries, all prepaid expenses are initially recorded as assets, and all unearned revenues are initially recorded as liabilities
o. At year-end, $400 worth of supplies are on hand
p. At year-end, an additional $4,000 of sales salaries are owed, but have not yet been paid
q. Income tax expense is based on a 35% corporate tax rate.

You are asked to do the following:
1. Journalize the transactions for the current year, 2012, using the accounts listed on the financial statements and other appropriate accounts (you may omit explanations).
2. Set up T accounts and enter the beginning balances from the December 31, 2011, post-closing trail balance for Bearing. Post all current year journal entries to the T-accounts.
3. Journalize and post any necessary adjusting entries at the end of 2012. (Hing: Items b,c,d,e,m,o and p required adjustment).
4. After the adjusting entries are posted, prepare a balance sheet, and income statement for 2012 (Hint: Income before income taxes should equal $8,175).
5. Journal and post closing entries for 2012 and prepare a post-closing trial balance.
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