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Description:
You have been charged with preparing year-end adjusting entries along with a multiple-step income statement and a classified balance sheet for Fat Tire, Inc., a wholesaler of bicycles and bicycle parts. The financial statements will cover the year ended December 31, 2011. A December 31 bank reconciliation, an unadjusted trial balance, and other information to help with the adjusting entries that follow.
Fat Tire, Inc.
Bank Reconciliation
December 31, 2011
Balance per Bank Statement
$293,350
Deposits in Transit
$4,500
Bank Error (See note 1 below)
1,200
Outstanding Checks
(2,000)
3,700
Adjusted Balance
$297,050
Balance per Fat Tire's Books
$300,000
Interest Earned per bank statement
$500
NSF Check (See note 2 below)
(175)
December bank service charges
(125)
Book Error (See note 3 below)
(3,150)
(2,950)
note 1: The bank incorrectly charged Fat Tire's account for a fee
that belonged to another client of the bank.
note 2: The bank returned a bad check deposited by Fat Tire
that represented a receipt of payment from one of Fat Tire's
customers.
note 3: A check for $3,500 to pay an Accounts Payable
balance was incorrectly recorded as $350 on Fat Tire's books.
Unadjusted Trial Balance
Debit
Credit
Accounts Payable
$50,000
Accounts Receivable
$425,700
Accumulated Depreciation (Equipment)
7,292
Accumulated Depreciation (Furniture & Fixtures)
29,500
Advertising Expense
18,000
Allowance for Doubtful Accounts
2,000
Cash
300,000
Common Stock
200,000
Cost of Goods Sold
2,622,750
Depreciation Expense
7,792
Equipment
10,000
Furniture & Fixtures
60,000
Income Tax Expense
229,034
Insurance Expense
15,000
Interest Revenue
5,200
Inventory
350,000
Miscellaneous Operating Expense
2,500
Note Payable
40,000
Payroll Tax Expense
21,160
Prepaid Insurance
21,000
Rent Expense
168,000
Rent Revenue
3,000
Retained Earnings
247,944
Salary Expense
264,500
Sales Discounts
30,000
Sales Returns
35,000
Sales Revenue
4,035,000
Supplies Expense
17,000
Unearned Rent
1,500
Utilities Expense
24,000
Totals
$4,621,436
Information related to adjusting entries:
Required:
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