The unadjusted pre-closing 12/31/20 account balances for theMaloney Company are listed below:
Net Sales | $12,540 |
Net Purchases | 9,000 |
Selling Expenses | 424 |
Cash | 487 |
Machines | 6,019 |
Accumulated Depreciation, Machines | 2,154 |
Accounts Payable | 1,445 |
Retained Earnings | 4,182 |
Allowance for Doubtful Accounts | 60 |
Building | 4,800 |
Accumulated Depreciation, Building | 468 |
Common Stock | 4,760 |
Accounts Receivable | 2,877 |
Depreciation Expense, Machines | 1,077 |
Inventory @ 1/1/20 (periodic method used) | 925 |
During your audit, you discover the following four items thathave yet to be recorded:
- No depreciation on the building has been recorded in 2020.Depreciation on the building is based on Double-Declining Balance.It was purchased on 1/1/18 and has an estimated useful life of 40years. The estimated salvage value is $1,000.
- Maloney exchanged a machine for a similar machine on 12/31/20.The original machine cost $3,429 and had a book value of $2,134.The new machine had a fair value of $1,823; Maloney also received$511 in cash. The exchange lacked commercial substance.
- Maloney uses the Income Statement approach to record Bad Debts.Bad Debts in 2020 are estimated to be 4% of Sales.
- Ending Inventory is to be estimated using the Gross ProfitMethod. The historic Gross Profit percentage is 25%.
Required
- Record journal entries for items #1-#3 above; show supportingcomputations. In addition, compute ending inventory per #4 above;show supporting computations. Assume adjusting/closing entries toadjust inventory, close Purchases, and Record CGS were properlymade.
- Draft the 2020 Condensed Income Statement and the 12/31/20Balance Sheet. Use the Cabrera (Textbook Illustration 4-3 inChapter 4) and the Uptown Cabinet (Textbook Illustration 3-41 inChapter 3) format examples in the text. Assume no taxes. Do notinclude EPS.
