Kornett company during its first fiscal year ended December 31, 2016 were as follows

Selected transactions completed by Kornett Company during its first fiscal year ended December 31, 2016, were as follows:

Jan.
3
Issued a check to establish a petty cash fund of $4,500.
Feb.
26
Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $1,680; miscellaneous selling expense, $570; miscellaneous administrative expense, $880.
Apr.
14
Purchased $31,300 of merchandise on account, terms 1/10, n/30. The perpetual inventory system is used to account for inventory.
May
13
Paid the invoice of April 14 after the discount period had passed.
17
Received cash from daily cash sales for $21,200. The amount indicated by the cash register was $21,240.


Jun.
2
Received a 60-day, 8% note for $180,000 on the Ryanair account.
Aug.
1
Received amount owed on June 2 note, plus interest at the maturity date. Assume a 360-day year.
24
Received $7,600 on the Finley account and wrote off the remainder owed on a $9,000 accounts receivable balance. (The allowance method is used in accounting for uncollectible receivables.)


Sep.
15
Reinstated the Finley account written off on August 24 and received $1,400 cash in full payment. (Record as two entries.)
 

Record the following on journal page 22.

Sep.
15
Purchased land by issuing a $670,000, 90-day note to Zahorik Co., which discounted it at 9%. Assume a 360-day year.
Oct.
17
Sold office equipment in exchange for $135,000 cash plus receipt of a $100,000, 90-day, 9% note. The equipment had a cost of $320,000 and accumulated depreciation of $64,000 as of October 17.
Nov.
30
Journalized the monthly payroll for November, based on the following data:
 

Salaries:
 Sales salaries
$135,000
 Office salaries
77,250
$212,250


Deductions:


 Income tax withheld
$39,266
 Social security tax withheld
12,735
 Medicare tax withheld
3,184
Unemployment Tax rates:


State unemployment
5.4%
Federal unemployment
0.8%
Amount subject to unemployment taxes:


State unemployment
$5,000
Federal unemployment
5,000
 

30
Journalized the employer’s payroll taxes on the payroll.
Dec.
14
Journalized the payment of the September 15 note at maturity.
31
The pension cost for the year was $190,400, of which $139,700 was paid to the pension plan trustee.


 

Required:
1.
Journalize the selected transactions, starting on page 21 of the journal.*
2.
Based on the following data, prepare a bank reconciliation for December 2016. Refer to the Labels and Amount Descriptions list for exact wording of text entries. Enter all amounts as positive numbers.


Balance according to the bank statement at December 31, $283,000.

Balance according to the ledger at December 31, $245,410.

Checks outstanding at December 31, $68,540.

Deposit in transit, not recorded by bank, $29,500.

Bank debit memo for service charges, $750.

A check for $12,700 in payment of an invoice was incorrectly recorded in the accounts as $12,000.
3.
Based on the bank reconciliation prepared in (2), journalize the entry or entries to be made by Kornett Company on page 23 of the journal. Kornett Company uses the Miscellaneous Administrative Expense account for bank service charges.
4.
Based on the following selected data, journalize the adjusting entries as of December 31, 2016 on page 23 of the journal:


Estimated uncollectible accounts at December 31, $16,000, based on an aging of accounts receivable. The balance of Allowance for Doubtful Accounts at December 31 was $2,000 (debit).

The physical inventory on December 31 indicated an inventory shrinkage of $3,300.

Prepaid insurance expired during the year, $22,820.

Office supplies used during the year, $3,920.

Depreciation is computed as follows:
 





Buildings
$900,00
$0
January 2
50
Double-declining-balance
Office Equip.
246,000
26,000
January 3
5
Straight-line
Store Equip.
112,000
12,000
July 1
10
Straight-line
 


A patent costing $48,000 when acquired on January 2 has a remaining legal life of 10 years and is expected to have value for eight years.

The cost of mineral rights was $546,000. Of the estimated deposit of 910,000 tons of ore, 50,000 tons were mined and sold during the year.

Vacation pay expense for December, $10,500.

A product warranty was granted beginning December 1 and covering a one-year period. The estimated cost is 4% of sales, which totaled $1,900,000 in December.

Interest was accrued on the note receivable received on October 17. Assume a 360-day year.

* Refer to the Chart of Accounts for exact wording of account titles.
5.
Based on the following information and the post-closing trial balance that follows, prepare a balance sheet in report form at December 31, 2016. Be sure to complete the heading of the balance sheet. Enter assets in the order in which they appear in the post-closing trial balance. Refer to information given in the problem and the Labels and Amount Descriptions list for exact wording of text entries. There is no need to include “(current portion)” or a due date with any account titles. The word “Less” and colons will appear automatically. Enter all amounts as positive numbers.


The merchandise inventory is stated at cost by the LIFO method.

The product warranty payable is a current liability.

Vacation pay payable:

Current liability: $7,140
Long-term liability: 3,360

The unfunded pension liability is a long-term liability.

Notes payable:

Current liability: $70,000
Long-term liability: 630,000
 

Kornett Company POST-CLOSING TRIAL BALANCE

December 31, 2016



1
Petty Cash
4,500.00
 
2
Cash
243,960.00
 
3
Notes Receivable
100,000.00
 
4
Accounts Receivable
470,000.00
 
5
Allowance for Doubtful Accounts
 
16,000.00
6
Merchandise Inventory
320,000.00
 
7
Interest Receivable
1,875.00
 
8
Prepaid Insurance
45,640.00
 
9
Office Supplies
13,400.00
 
10
Land
654,925.00
 
11
Buildings
900,000.00
 
12
Accumulated Depreciation-Buildings
 
36,000.00
13
Office Equipment
246,000.00
 
14
Accumulated Depreciation-Office Equipment
 
44,000.00
15
Store Equipment
112,000.00
 
16
Accumulated Depreciation-Store Equipment
 
5,000.00
17
Mineral Rights
546,000.00
 
18
Accumulated Depletion
 
30,000.00
19
Patents
42,000.00
 
20
Social Security Tax Payable
 
25,470.00
21
Medicare Tax Payable
 
4,710.00
22
Employees Federal Income Tax Payable
 
40,000.00
23
State Unemployment Tax Payable
 
270.00
24
Federal Unemployment Tax Payable
 
40.00
25
Salaries Payable
 
157,000.00
26
Accounts Payable
 
131,600.00
27
Interest Payable
 
28,000.00
28
Product Warranty Payable
 
76,000.00
29
Vacation Pay Payable
 
10,500.00
30
Unfunded Pension Liability
 
50,700.00
31
Notes Payable
 
700,000.00
32
J. Kornett, Capital
 
2,345,010.00
33
Totals
3,700,300.00
3,700,300.00
5. Based on the following information and the post-closing trial balance on the Instructions panel, prepare a balance sheet in report form at December 31, 2016. Be sure to complete the heading of the balance sheet. Enter assets in the order in which they appear in the post-closing trial balance. Refer to information given in the problem and the Labels and Amount Descriptions list for exact wording of text entries. There is no need to include “(current portion)” or a due date with any account titles. The word “Less” and colons will appear automatically. Enter all amounts as positive numbers.
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