Bledsoe has developed plans to expand into the wholesale flowermarket and is in the process of negotiating a bank loan to financethe expansion. The bank is requesting 2017 financial statementsprepared on the accrual basis of accounting from Bledsoe. Duringthe course of a review engagement of Bledsoe, your firm, obtainedthe following information:
1.Amounts due from customers totaled $142,000 at 12/31/2017.During the year the company wrote off $7,400 of receivables thatwere deemed to be uncollectible. An analysis of the receivablesrevealed that an estimated 3% of the balance will probably not becollected in 2018. There were no uncollectable receivablesestimated at 12/31/2016. 2.Unpaid invoices for flower purchasestotaled $20,500 at December 31, 2017.
3. The inventory totaled $76,800 based on a physical count ofthe goods at December 31, 2017. The inventory was priced at cost,which approximates market value.
4. On May 1, 2017, Bledsoe paid $8,700 to renew itscomprehensive insurance coverage for one year. The premium on theprevious one-year policy, which expired on April 30, 2017, was$7,800. No adjustment was made in the prior year, Bledsoe had neverheard of a prepaid.
5. On January 2, 2017, Bledsoe entered into a 25 year operatinglease for the vacant lot adjacent to Bledsoe's North retail storefor use as a parking lot. As agreed in the lease, Bledsoe paved andfenced in the lot at a cost of $50,000. The improvements werecompleted on July 2, 2017, and have an estimated useful life of 10years. Depreciation on furniture and fixtures was $15,000 for2017.
6. Bledsoe is being sued for $100,000. The coverage under thecomprehensive insurance policy is limited to $50,000. Bledsoe'sattorney believes that an unfavorable outcome is probable and thata reasonable settlement is $65,000.
7. All employees are paid weekly on Friday. The average payrollis $3,000 (6 day work week) per week. Employees were last paid onFriday, December 29th, 2017 for the week ended December 22nd.
8. Bledsoe's has made estimated tax payments of $15,000 perquarter for the first three quarters of 2017. Bledsoe's estimatedtax rate is 35%.
9.Bledsoe's took out a 2 year note payable on April 1, 2017. Thenote bears interest at 4%. Principal and interest are due atmaturity.
10.The company had two locations and due to poor performance,they decided to discontinue operations related to the southlocation. The revenue for this location (which is included in theabove trial balance) amounted to $83,000 and the expenses, $91,000(purchases $50,000, salaries $26,000 and rent $15,000). The companydisposed of all assets of the south location for a loss of $10,000($31,000 original cost with accumulated depreciation of$17,000).
11. The investments account is comprised of two investments. One$100,000 bond was purchased at face value and Bledsoe’s intends tohold until it matures. The interest on these bonds are 3% and ispaid annually on January 31. Bledsoe purchased these bonds onSeptember 1st of the current year. The fair value of these bondsare $96,000. The other investment are shares of Google stock, whichwere purchased on 10/20/16 for $797/share. Assume the closing priceof Google on 12/31/16, was $814/share.
Prepare the adjusting Journal entries
