Pinkerton Corporation\'s trial balance at December 31, 2010, is presented below.
ID: 2345815 • Letter: P
Question
Pinkerton Corporation's trial balance at December 31, 2010,
is presented below. All 2010 transactions have been recorded except for the
items described after the trial balance
Cash $28,000
Accounts Receivable 36,800
Notes Receivable 10,000
Interest Receivable -0-
Merchandise Inventory 36,200
Prepaid Insurance 3,600
Land 20,000
Building 150,000
Equipment 60,000
Patent 9,000
Allowance for Doubtful Accounts $500
Accumulated
Depreciation-Building 50,000
Accumulated
Depreciation-Equipment 24,000
Accounts Payable
27,300
Salaries Payable -0-
Unearned Rent 6,000
Notes Payable
(short-term) 11,000
Interest Payable -0-
Notes Payable (long-term) 35,000
Common Stock 50,000
Retained Earnings
63,600
Dividends 12,000
Sales 900,000
Interest Revenue -0-
Rent Revenue -0-
Gain on Disposal -0-
Bad Debts Expense -0-
Cost of Goods Sold 630,000
Depreciation Expense-Buildings -0-
Depreciation Expense-Equipment -0-
Insurance Expense -0-
Interest Expense -0-
Other Operating Expenses 61,800
Amortization Expense-Patents -0-
Salaries Expense 110,000
Total
$1,167,400
Unrecorded transactions
on May 1, 2010, Pinkerton purchased equipment for $16,000
plus sales taxes of $800 (all paid in cash).
On July 1, 2010,
Pinkerton sold for $3,500 equipment which originally cost $5,000. Accumulated
depreciation on this equipment at January 1, 2010, was $1,800; 2010
depreciation prior to the sale of equipment was $450.
On December 31, 2010,
Pinkerton sold for $5,000 on account inventory that cost $3,500.
Pinkerton estimates
that uncollectible accounts receivable at year-end are $4,000.
The note receivable
is a one-year, 8% note dated April 1, 2010. No interest has been recorded.
The balance in
prepaid insurance represents payment of a $3,600, 6-month premium on September
1, 2010.
The building is being
depreciated using the straight-line method over 30 years. The salvage value is
$30,000.
The equipment owned
prior to this year is being depreciated using the straight-line method over 5
years. The salvage value is 10% of cost.
The equipment
purchased on May 1, 2010, is being depreciated using the straightline method
over 5 years, with a salvage value of $1,800.
The patent was
acquired on January 1, 2010, and has a useful life of 9 years from that date.
Unpaid salaries at
December 31, 2010, total $2,200.
The unearned rent of
$6,000 was received on December 1, 2010, for 3 months rent.
Both the short-term
and long-term notes payable are dated January 1, 2010, and carry a 10% interest
rate. All interest is payable in the next 12 months.
Income tax expense
was $15,000. It was unpaid at December 31.
(a) prepare journal entries for the transactions listed above
(b) prepare an updated december 31, 2011 trial balance
(c) prepare a 2011 income statement and a 2011 retained earnings statement
(d) prepare a december 31 2011 balance sheet
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Explanation / Answer
On May 1, 2010, Pinkerton purchased equipment for $16,000 plus sales taxes of $800 (all paid in cash). Dr Equipment 16,800 Cr Cash 16,800 On July 1, 2010, Pinkerton sold for $3,500 equipment which originally cost $5,000. Accumulated depreciation on this equipment at January 1, 2010, was $1,800; 2010 depreciation prior to the sale of equipment was $450. 3,500 - (5,000 - 1,800 - 450) = 750 gain on sale Dr Depreciation Expense--Equipment 450 Cr Accumulated Depreciation--Equipment 450 Dr Cash 3,500 Dr Accumulated Depreciation--Equipment 2,250 Cr Gain on Sale of Equipment 750 Cr Equipment 5,000 On December 31, 2010, Pinkerton sold for $5,000 on account inventory that cost $3,500. Dr Accounts Receivable 5,000 Cr Sales 5,000 Dr Cost of Goods Sold 3,500 Cr Merchandise Inventory 3,500 Pinkerton estimates that uncollectible accounts receivable at year-end are $4,000. 4,000 - 500 = 3,500 Dr Bad Debt Expense 3,500 Cr Allowance for Doubtful Accounts 3,500 The note receivable is a one-year, 8% note dated April 1, 2010. No interest has been recorded. 10,000 x 8% x 9/12 = 600 Dr Interest Receivable 600 Cr Interest Revenue 600 The balance in prepaid insurance represents payment of a $3,600, 6-month premium on September 1, 2010. 3,600 x 4/6 = 2,400 Dr Insurance Expense 2,400 Cr Prepaid Insurance 2,400 The building is being depreciated using the straight-line method over 30 years. The salvage value is $30,000. (150,000 - 30,000) / 30 = 4,000 depreciation per year Dr Depreciation Expense--Building 4,000 Cr Accumulated Depreciation--Building 4,000 The equipment owned prior to this year is being depreciated using the straight-line method over 5 years. The salvage value is 10% of cost. (60,000 - 5,000) x 10% = 5,500 salvage value (60,000 - 5,000 - 5,500) / 5 = 9,900 Depreciation per year Dr Depreciation Expense--Equipment 9,900 Cr Accumulated Depreciation--Equipment 9,900 The equipment purchased on May 1, 2010, is being depreciated using the straight line method over 5 years, with a salvage value of $1,800. [(16,800 - 1,800) / 5] x 8/12 = 2,000 Depreciation for the year Dr Depreciation Expense--Equipment 2,000 Cr Accumulated Depreciation--Equipment 2,000 The patent was acquired on January 1, 2010, and has a useful life of 9 years from that date. 9,000 / 9 = 1,000 Amortization per year Dr Amortization Expense--Patents 1,000 Cr Patents 1,000 Unpaid salaries at December 31, 2010, total $2,200. Dr Salaries Expense 2,200 Cr Salaries Payable 2,200 The unearned rent of $6,000 was received on December 1, 2010, for 3 months rent. 6,000 / 3 = 2,000 Dr Unearned Rent 2,000 Cr Rent Revenue 2,000 Both the short-term and long-term notes payable are dated January 1, 2010, and carry a 10% interest rate. All interest is payable in the next 12 months. (11,000 + 35,000) x 10% = 4,600 Dr Interest Expense 4,600 Cr Interest Payable 4,600 Income tax expense was $15,000. It was unpaid at December 31. Dr Income Tax Expense 15,000 Cr Taxes Payable 15,000