The unadjusted trial balance for PT&M, Inc. is below. OnDecember 31, 20xx the balance of inventory is $30,000 not countingany estimated returned inventory. The company uses GAAP forfinancial reporting. Additional information is on the next page.The cost principle requires that all costs reasonable and necessaryto put an asset into a working condition should be capitalized. Theaccrual method requires that revenues be recorded when earned andexpenses when incurred. The conservative convention means thataccountants do not want to overstate assets, revenues or owner’sequity.

Penn, Teller & Mifflin, Inc.
Unadjusted Trial Balance
December 31, 20xx
Cash	$5,000
Prepaid Insurance	$10,000
Accounts Receivable	$30,000
Allowance for Bad debts		$0
Inventory (Jan. 1, 20xx bal.)	$15,000
Estimated Inventory Returns	$0
Land	$20,000
Building	$180,000
Accumulated Depreciation		$0
Accounts Payables		$20,000
Wages Payable		$0
Inventory Refunds Payable		$0
Interest Payable		$0
Unearned Revenue		$0
Notes Payable (Due in 7 Yrs)		$80,000
Common Stock		$65,000
Retained Earnings		$0
Dividends	$25,000
Income Summary		$0
Sales		$280,000
Purchases	$50,000
Purchases Returns		$3,000
Purchases Discounts		$2,000
Freight In	$5,000
Operating Expense	$90,000
Wages Expense	$5,000
Depreciation Expense	$0
Interest Expense	$0
Loss from Natural Disaster	$15,000
	$450,000	$450,000

1. Prepare the adjusting journal entries.2. Prepare the closing journal entries. Don’tforget to adjust ending inventory onto the books.3. Use columns 7 and 8 of the worksheet to verifythat the net income equals the closing journal entry to close theincome summary account and increase retained earnings. Useexcel.

A. The company sold goods near the end of the year with aselling price of $200,000 and terms of 5/30, N/120. Thistransaction was recorded as a debit to Accounts Receivable and acredit to Sales for $200,000.

B. The company made a sale on 6/30/20xx for $80,000 recorded asa debit to Cash and a credit to Sales for $80,000. $44,000 of thecontract price related to goods sold FOB shipping point and theremainder related to services that will be provided over the next24 months.

C. Inventory returns are estimated to be three percent ofmerchandise sales. None of the inventory has actually been returnedyet. Cost of Goods Sold is twenty-five percent of the merchandiseselling price.

D. The company paid $10,000 for prepaid Insurance on 10/1/20xx.The prepaid insurance is a one-year contract.

E. An aging of accounts receivables reveals that $3,500 ofaccounts receivables is expected to be uncollectible.

F. The land and building was purchased on 4/1/20xx for a lumpsum of $200,000. If purchased separately, they would have cost45,000 and $255,000 for the L and B. Additional costs needed to getthe building ready for use were $3,000 and were charged to theOperating Expenses account. The building’s estimated useful live is20 years and the estimated salvage value is $0. The straight-linemethod is used to depreciate long-term assets.

G. The company owes its employees $1,000 that has not yet beenrecorded. Unrecorded Interest expense on the note payable is$1,500.   

I. The replacement value of inventory at 12/31/20xx is$32,000.

K. At the end of the year, the accounting department did a bankreconciliation to verify that the accounting records matched up tothe bank’s balance for cash and discovered that the bank hadcollected a $2,500 account receivable on the company’s behalf.