Pinkerton Corporation\'s trial balance at December 31, 2010, is presented below.

ID: 2384848 • 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

Explanation / Answer

(a) 1. Equipment..................................................................................... 13,800

Cash........................................................................................ 13,800

2. Depreciation Expense—Equipment............................................ 450

Accumulated Depreciation—Equipment............................. 450

Cash............................................................................................... 3,500

Accumulated Depreciation—Equipment................................... 2,250

Equipment.............................................................................. 5,000

Gain on Disposal.................................................................... 750

3. Accounts Receivable..................................................................... 9,000

Sales......................................................................................... 9,000

Cost of Goods Sold....................................................................... 6,300

Merchandise Inventory......................................................... 6,300

4. Bad Debts Expense....................................................................... 3,500

Allowance for Doubtful Accounts........................................ 3,500

5. Interest Receivable ($10,000 X .08 X 9/12)................................... 600

Interest Revenue.................................................................... 600

6. Insurance Expense....................................................................... 2,400

Prepaid Insurance.................................................................. 2,400

7. Depreciation Expense—Building................................................ 4,000

Accumulated Depreciation—Building................................. 4,000

8. Depreciation Expense—Equipment............................................ 9,900

Accumulated Depreciation—Equipment............................. 9,900

[($60,000 – $5,000 – $5,500) ÷ 5]

9. Depreciation Expense—Equipment............................................ 1,600

Accumulated Depreciation—Equipment............................. 1,600

[($13,800 – $1,800) ÷ 5] X 8/12

10. Amortization Expense—Patents................................................. 900

Patent...................................................................................... 900

11. Salaries Expense........................................................................... 2,200

Salaries Payable..................................................................... 2,200

12. Unearned Rent............................................................................. 2,000

Rent Revenue......................................................................... 2,000

13. Interest Expense........................................................................... 4,140

Interest Payable...................................................................... 4,140

($11,000 + $35,000) X .09

(b) WINTERSCHID COMPANY

December 31, 2008

Debits

Credits

Cash ($28,000 – $13,800 + $3,500)..........................................

Accounts Receivable................................................................

Notes Receivable......................................................................

Interest Receivable...................................................................

Merchandise Inventory...........................................................

Prepaid Insurance....................................................................

Land

Building.....................................................................................

Equipment ($60,000 + $13,800 – $5,000)...............................

Patent........................................................................................

Allowance for Doubtful Accounts..........................................

Accumulated Depreciation—Building...................................

Accumulated Depreciation—Equipment...............................

Accounts Payable.....................................................................

Salaries Payable.......................................................................

Unearned Rent.........................................................................

Notes Payable (short-term)......................................................

Interest Payable........................................................................

Notes Payable (long-term).......................................................

Common Stock.........................................................................

Retained Earnings...................................................................

Dividends..................................................................................

Sales

Interest Revenue......................................................................

Rent Revenue...........................................................................

Gain on Disposal......................................................................

Bad Debts Expense..................................................................

Cost of Goods Sold..................................................................

Depreciation Expense—Building............................................

Depreciation Expense—Equipment.......................................

Insurance Expense...................................................................

Interest Expense.......................................................................

Other Operating Expenses......................................................

Amortization Expense–Patents...............................................

Salaries Expense.......................................................................

Total

$ 17,700

45,800

10,000

600

29,900

1,200

20,000

150,000

68,800

8,100

12,000

3,500

636,300

4,000

11,950

2,400

4,140

61,800

900

112,200

$1,201,290

$ 4,000

54,000

33,700*

27,300

2,200

4,000

11,000

4,140

35,000

75,000

38,600

909,000

600

2,000

750

$1,201,290

*($24,000 + $450 – $2,250 + $9,900 + $1,600)

(c) WINTERSCHID COMPANY

For the Year Ended December 31, 2008

Sales

Cost of Goods Sold..................................................................

Gross Profit..............................................................................

Operating Expenses

Salaries Expense..................................................................

Other Operating Expenses.................................................

Depr. Expense—Equipment..............................................

Depr. Expenses—Building.................................................

Bad Debts Expense.............................................................

Insurance Expense..............................................................

Amortization Expense—Patents........................................

Total Operating Expense.........................................................

Income From Operations........................................................

Other Revenues and Gains

Rent Revenue......................................................................

Gain on Disposal.................................................................

Interest Revenue.................................................................

Other Expenses and Losses

Interest Expense.................................................................

Net Income................................................................................

$112,200

61,800

11,950

4,000

3,500

2,400

900

2,000

750

600

3,350

4,140

$909,000

636,300

272,700

196,750

75,950

(790)

$ 75,160

WINTERSCHID COMPANY

Retained Earnings Statement

For the Year Ended December 31, 2008

Retained Earnings, 1/1/08.................................................................................

Add: Net Income...............................................................................................

Less: Dividends..................................................................................................

Retained Earnings, 12/31/08.............................................................................

$ 38,600

75,160

113,760

12,000

$101,760

(d) WINTERSCHID COMPANY

December 31, 2008

Current Assets

Cash..............................................................................

Accounts Receivable....................................................

Allowance for Doubtful Accounts.............................

Notes Receivable..........................................................

Interest Receivable......................................................

Merchandise Inventory...............................................

Prepaid Insurance.......................................................

Total Current Assets.........................................

Property, Plant, and Equipment

Land.............................................................................

Building........................................................................

Less Accum. Depr.......................................................

Equipment....................................................................

Less Accum. Depr.......................................................

Total Property, Plant, and Equip....................

Intangible Assets

Patent............................................................................

Total Assets.......................................................................

Current Liabilities

Notes Payable (short-term).........................................

Accounts Payable........................................................

Interest Payable...........................................................

Unearned Rent............................................................

Salaries Payable...........................................................

Total Current Liabilities...................................

Long-term Liabilities

Notes Payable (long-term)...........................................

Total Liabilities.................................................................

Stockholders’ Equity

Common Stock............................................................

Retained Earnings................................................................................

Total Stockholders’ Equity..................................................

Total Liabilities and Stockholders’ Equity..........................................

$ 45,800

4,000

150,000

54,000

68,800

33,700

$17,700

41,800

10,000

600

29,900

1,200

20,000

96,000

35,100

$11,000

27,300

4,140

4,000

2,200

75,000

101,760

$101,200

151,100

8,100

$260,400

48,640

35,000

83,640

176,760