FA9 Problem: Financial Statements - Martina Company

FA9 Problem: Financial Statements - Martina Company

 

The unadjusted trial balance for Martina Company is presented for the year ended December 31,20x5, along with some additional information.

 Debits Credits

Cash $ 104,690Accounts Receivable 195,550Allowance for doubtful accounts $ 2,950Inventory 289,776Prepaid Expenses 30,376Land 152,500Building 445,938Accumulated Amortization 96,812Equipment 320,700Accumulated Amortization 117,500Intangible Assets 26,960Accounts Payable 162,876Interest Payable 20,312Taxes Payable 46,000Bonds payable 481,500Future income taxes 21,000Common Stock 250,000Retained Earnings 107,758Sales Revenue 3,329,440Cost of Goods Sold 2,049,170Amortization expense 85,000Selling expense 348,300Administrative expense 451,188Income tax expense 46,000Interest Expense 40,000Dividends 50,000$4,636,148 $4,636,148

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 Additional Information

 Assume that all adjusting and correcting entries have been made except for the following items:1. A sale in the amount of $9,100 and its related cost of goods sold was not recorded as of December 31, 20x57. Martina sells its inventory at a 40% markup on cost and uses a perpetual inventory system.2.

 

Martina Company estimates bad debts to be equal to 0.25% of sales.3. On December 28, 20x5, a letter was received from a trustee in bankruptcy informing usthat one of our customers has been released from bankruptcy and that we would not bereceiving any money on the account owing. The amount owing from this client was$5,000 and is included in the accounts receivable balance at December 31, 20x5.4. As of December 31, no accrual for electricity expense had been made. An electricity billfor the warehouse for $5,000 was received January 15, 20x6, for electrical consumptionfrom December 12, 20x5, through January 12, 20x6. The bill was paid on February 16,20x6, and debited to administrative expenses at that time.5. Martina Company purchased equipment on July 1, 20x5, for $35,000 cash. This amountwas debited to selling expenses. The equipment has an estimated useful life of ten yearsand a salvage value of $10,000. The company uses the double declining method of amortization.6. Insurance was paid on January 31, 20x5, for $5,580 for the time period of January 31, 20x5, through January 31, 20x6. The full amount was debited toadministrative expenses at the time it was paid.7. Wages for the time period of December 25, 20x5, through January 7, 20x6, were paid onJanuary 15, 20x6, in the amount of $8,000.8. Total tax expense for 20x5 should be 34% of income before taxes.

 Required -

a. Prepare adjusting and correcting entries for the additional information. b. Prepare the following financial statements for the year ending December 31, 20x5:i. An income statement.ii. A statement of changes in retained earnings.iii. A statement of financial position (balance sheet)

 

 

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