Reference no: EM13350813

Question

Sanford Company

The Sanford Company had the following balance sheet as of December 31, 20x2. The transactions for the first three months of 20x3 are also presented along with other information about specific accounts.

Sanford Company
Balance Sheet
December 31, 20x2

ASSETS			LIABILITIES
Cash	$ 57,000		Accounts Payable	$ 34,000
Marketable Securities	8,000		Wages Payable	11,200
Accounts Receivable	75,000		Taxes Payable	8,000
Uncollectible Accounts	-2,000		Short-Term Notes Payable	12,000
Inventory	84,000		Interest Payable	800
Supplies	7,000		Unearned Revenue	13,000
Prepaid Insurance	6,000
Total Current Assets	$235,000		Total Current Liabilities	$ 79,000
Land	$114,000		Long-Term Notes  Payable	$ 20,000
Equipment	227,000		Bonds Payable	100,000
Accumulated Depreciation	-87,000		Mortgage Payable	320,000
Building	560,000		Total Long-Term  Liabilities	$440,000
Accumulated Depreciation	-130,000
Intangible Assets	70,000		STOCKHOLDER EQUITY
Total Long-Term Assets	$754,000		Capital Stock	$100,000
			Paid in Capital	250,000
			Retained Earnings	120,000
			Total Stockholders Equity	$470,000
Total Assets	$989,000		Total Liabilities & Equity	$989,000

 

Additional Information

Accounts Receivable

The following table indicates the historical breakout of accounts receivable

 

Days	Current	30 to 60	60 to 90	Over 90
Percent of Balance	50%	30%	15%	5%
Percent Collectible	95%	90%	80%	60%

 

The company uses the gross method of recording all sales on accounts.Marketable Securities
The interest rate earned on marketable securities is 6.0%.

Inventory

In 20x2, the company had used the gross method to record inventory purchases on account. As of January 1, 20x3, the company is using the net method to record inventory purchases on account.

Prepaid Insurance
A three-year insurance policy in the amount of $7,200 was purchased on July 1, 20x2.

Equipment
Equipment is depreciated at an average amount of $3,000 per month.

Building
The current building was purchased on January 1, ten years ago and has an expected 40-year life at which time its salvage value will be $40,000.

Intangible Assets
Intangible assets were initially valued at $80,000 and are being depreciated over 40 years at $2,000 per year.

Short-Term Notes Payable
The one-year short-term notes payable are due on March 1, 20x3. The interest rate is 8.0% which is payable at maturity.

Long-Term Notes Payable
The long-term notes payable are due in ten years. The interest rate on the notes is 7.5%.

Bonds Payable
The bonds payable mature in twenty years. The interest rate on the bonds is 7.0%.

Mortgage Payable
The following amortization schedule can be used for the January, 20x3 mortgage payment on the 10.0%, 30- year mortgage.

Month	Payment	Interest	Principal	Balance
January	$3,500	$2,667	$833	$320,000 $319,167

Capital Stock
The capital stock is common stock at $10 par value with 50,000 shares authorized, and 10,000 shares issued and outstanding.

Journal Entries

Jan 1 Equipment with a historical cost of $10,000 and an accumulated depreciation of $3,000 was sold for $6,000

Jan 2 Equipment with a historical cost of $20,000 and an accumulated depreciation of $18,000 was disposed of with an additional disposal cost of $1,300.

Jan 2 Sanford Company borrowed $24,000 on a short-term discounted 90 day, 9.0% noninterest-bearing note payable.

Jan 3 Sanford Company paid $18,000 in advance for the 6 month rental of a warehouse.

Jan 3 Equipment with a historical cost of $50,000 and an accumulated depreciation of $40,000 was traded for new similar equipment valued at $75,000. Sanford Company received $14,500 as a trade in for the old equipment, paid $7,500 and established a 7.5% long-term note payable for the balance due.

Jan 4 Equipment with a historical cost of $35,000 and an accumulated depreciation of $20,000 was traded for new dissimilar equipment valued at $60,000. The salvage value of the old equipment was $5,000 and the trade in value was $7,000. Sanford paid $4,000 for the equipment and established a 7.5% long-term note payable for the balance due.

Jan 5 Sanford Company declared a dividend of $2.00 per share payable on February 10, 20x3 to all shareholders of record on January 20, 20x3.

Jan 6 The amount in wages payable and taxes payable was paid in full.

Jan 8 Sanford Company paid a total of $18,000 on accounts payable and was able to take advantage of $1,500 in purchase discounts for early payment. The original inventory purchase was recorded at the full amount (gross method).

Jan 15 Cash sales for two weeks equalled $22,000. The cost of inventory sold equalled $12,000.

Jan 20 Supplies in the amount of $4,200 were purchased for cash.

Jan 21 A customer who owed $10,000 on an account receivable, agreed to sign a 60-day note receivable with an interest rate of 8.0%. The interest earned on the note will be paid at the maturity date of the note receivable.

Jan 29 The balance of $14,500 in accounts payable was paid.

Jan 30 The company purchased $45,000 of inventory on account with the terms 2/10, net 30. The company has decided to switch to the net method for all inventory purchases on account beginning in 20x3.

Jan 31 Cash sales for two weeks equalled $24,000. The cost of inventory sold equalled $13,000.

Jan 31 Sales on account for the month of January totalled $55,000 with the terms 2/10, net 30. The cost of inventory sold equalled $26,000.

Jan 31 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $4,000 of the revenue was earned in January.

Jan 31 Collected cash of $48,000 from the accounts receivable, plus there was a total sales discount of $1,000 for the payment of receivables within the ten day discount period.

Jan 31 Salary expenses in the amount of $14,000 and tax expenses in the amount of $8,000 were paid.

Jan 31 The utility bill of $2,500 was paid.

Jan 31 A bill in the amount of $3,600 for advertising expenses incurred during the month of January was received.

Jan 31 The monthly payment for January of the mortgage payable was made.

Feb 1 The Sanford Company made a new issue of 5,000 shares of common stock for cash. The market price of the stock was $40 per share.

Feb 2 A petty cash fund in the amount of $500 was established.

Feb 3 The Sanford Company bought back 1,000 shares of its own common stock for $40 per share.

Feb 8 The purchase of inventory on account on Jan 30th was paid in full.

Feb 10 Sanford Company sold the note receivable from Jan 21st to the bank, which discounted the note at 12.0%.

Feb 15 Cash sales for two weeks equalled $20,000. The cost of inventory sold equalled $11,000.

Feb 20 The company purchases $20,000 of inventory on account with the terms 2/10, net 30.

Feb 27 The company paid an advertising bill for $5,600 which included the February advertising expense of $2,000 plus the balance due from January.

Feb 28 Cash sales for two weeks equalled $25,000. The cost of inventory sold equalled $14,000.

Feb 28 The monthly payment for February of the mortgage payable was made.

Feb 28 The company collected cash of $59,000 from the accounts receivable, plus there was a total sales discount of $1,100 for the payment of receivables within the ten day discount period.

Feb 28 Salary expenses in the amount of $21,000 and tax expenses in the amount of $9,000 were paid.

Feb 28 The utility bill of $2,100 was paid.

Feb 28 Sales on account for the month of February totalled $60,000 with the terms 2/10, net 30. The cost of inventory sold equalled $30,000.

Mar 1 The short-term note payable that was due on March 1st plus all appropriate interest was paid.

Mar 3 The amount of the petty cash fund was increased by $200.

Mar 10 Supplies in the amount of $2,700 were purchased for cash.

Mar 15 Cash sales for two weeks equalled $27,000. The cost of inventory sold equalled $15,000.

Mar 20 Sanford Company reissued 300 shares of its own stock for $42 per share.

Mar 21 The bank notified Sanford Company that the note receivable from January 21st had not been paid. The bank collected the amount of the note plus the interest due and a $20 protest fee from Sanford Company. Sanford Company charged the full amount of the note receivable plus related fees against the customer's account receivable balance.

Mar 25 The company purchased $50,000 of inventory on account with the terms 2/10, net 30.

Mar 28 The purchase of inventory on account on Feb 20th was paid in full.

Mar 29 The petty cash fund had $150 in cash and receipts in total amounts for the following expense categories: entertainment$160, travel $170, postage $90, and supplies $115. The petty cash fund was replenished.

Mar 30 Cash sales for two weeks equalled $20,000. The cost of inventory sold equalled $11,000.

Mar 30 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $9,000 of the revenue was earned in March.

Mar 31 Sales on account for the month of March totalled $67,000 with the terms 2/10, net 30. The cost of inventory sold equalled $36,000.

Mar 31 Salary expenses in the amount of $16,000 and tax expenses in the amount of $7,000 were paid.

Mar 31 Collected cash of $70,000 from the accounts receivable, plus there was a total sales discount of $1,200 for the payment of receivables within the ten day discount period.

Mar 31 A warehouse building was acquired for $250,000. Closing costs on the acquisition equaled $7,000, and there were costs of $10,300 to get the building into an operational condition to be used by Sanford Company. Employee salaries specifically related to the building renovation were an additional $5,400. This salary expense was part of the normal monthly expenses and would have been incurred regardless of whether the employees worked on the warehouse or did other activities within the company. Sanford Company paid $100,000 in cash as a down payment with the balance due being added to the mortgage payable account.

Mar 31 The utility bill of $3,000 was paid.

Mar 31 Sanford Company repaid the 90 day discounted note payable from January 2nd in full.

Mar 31 The equipment depreciation entry for the three months of 20x3 was completed.

Mar 31 The depreciation entry for the building for the months of January, February, and March was entered.

Mar 31 The amortization of intangible assets for the three months of 20x3 was completed.

Mar 31 The bad debt expense based on the aging schedule for accounts receivable was determined for the three month period. Note: The total balance in accounts receivable should be $76,853.

Mar 31 Salary expenses incurred during the month of March but not yet paid equalled $8,400 and tax expenses equalled $2,800.

Mar 31 A physical inventory of supplies indicated a total amount of $5,000 of supplies still on hand.

Mar 31 A customer sent advance payment of $10,000 for the use of special equipment in April and May.

Mar 31 The amount of rent expense for the warehouse for the first three months of 20x3 was recognized.

Mar 31 Sanford Company provided services to a customer in the amount of $3,000 during March but a bill has not been sent.

Mar 31 The amount of insurance expense for the first three months of 20x3 was recognized.

Mar 31 The amount of interest earned on marketable securities for the three months of 20x3 was recognized.

Mar 31 The amount of interest expense for the total long-term notes payable for the first three months of 20x3 was recognized.

Mar 31 The amount of interest expense for the bonds payable for the three months of 20x3 was recognized.

Mar 31 The monthly payment for March of the mortgage payable was made.

Required

1. Provide journal entries for each of the transactions. The numbers in the journal entries can be rounded to the nearest dollar.

2. Build up an income statement in good form for Sanford Company for the first three months of 20x3.

3. Increase a statement of retained earnings in good form as of March 31, 20x3 for Sanford Company

4. Enlarge a balance sheet in good form as of March 31, 20x3 for Sanford Company.

Fulfil all required journal entries for each of the long-term activities, which took place during 20x7. Keep in mind to account for the appropriate depreciation expense for the year on any of the long-term assets.