Reference no: EM132568815

Question - James Ltd.'s statement of financial position at December 31, 2018, is presented below.

JAMES LTD. Statement of Financial Position December 31, 2018

Equipment £43,000

Prepaid insurance 5,600

Inventory 25,750

Cash 30,500

£104,850

Share capital-ordinary £20,000

Retained earnings 18,600

Bonds payable 50,000

Accounts payable 13,750

Interest payable 2,500

£104,850

During 2019, the following transactions occurred.

1. James paid £2,500 interest on the bonds on January 1, 2019.

2. James purchased £241,100 of inventory on account.

3. James sold for £450,000 cash inventory which cost £250,000. James also collected £31,500 sales taxes.

4. James paid £230,000 on accounts payable.

5. James paid £2,500 interest on the bonds on July 1, 2019.

6. The prepaid insurance (£5,600) expired on July 31.

7. On August 1, James paid £12,000 for insurance coverage from August 1, 2019, through July 31, 2020.

8. James paid £24,000 sales taxes to the government.

9. Paid other operating expenses, £91,000.

10. Redeemed the bonds on December 31, 2019, by paying £47,000 plus £2,500 interest.

11. Issued £90,000 of 8% bonds on December 31, 2019, at 104. The bonds pay interest every December 31.

Adjustment data:

1. Recorded the insurance expired from item 7.

2. The equipment was acquired on December 31, 2018, and will be depreciated on a straight-line basis over 5 years with a £3,000 residual value.

3. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Instructions - You may want to set up T-accounts to determine ending balances.

(a) Prepare journal entries for the transactions listed above and adjusting entries.

(b) Prepare an adjusted trial balance at December 31, 2019.

(c) Make an income statement and a retained earnings statement for the year ending December 31, 2019, and a classified statement of financial position as of December 31, 2019.