Read ALL instructions before getting started!

ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2014.
Given on the first two tabs are ABC's 12/31/14 Unadjusted Trial Balance and a list of needed adjustments.
1. Make all 16 adjustments on the "Adjusting Journal Entries" tab. Remember to include a description under each journal entry.
2. Post the adjustments to the general ledger on the "12-31-14 T-Accounts" tab. You may have to add T-Accounts for new accounts.
Link your T-Account entries to your Journal Entries. PLEASE NOTE THAT THE "BB" (BEGINNING BALANCES) FOR THE
T-ACCOUNTS REPRESENT THE UNADJUSTED BALANCES AS OF 12/31/14.
3. Once the 12/31/14 T-Accounts are complete, prepare the Adjusted Trial Balance. There may be some accounts with zero dollars, and you
may have to insert lines for new accounts (some blank T-Accounts have already been provided for you). Link the Adjusted Trial Balance to your T-Accounts.
4. Use the Adjusted Trial Balance numbers to complete the Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows.
For purposes of the Income Statement, prepare using the multiple step format and assume that Rent Revenue, any Unrealized Holding Gains/Losses,
Interest Expense, Interest Revenue, and any other Gains/Losses are NOT part of the major central ongoing operations of the company.
Link your financial statements to your Adjusted Trial Balance. Use the Income Statement and Balance Sheet to finish the partially completed Statement
of Cash Flows. Since this is ABC's first year of operations, several line items on the Statement of Cash Flows have already been supplied to you.
If necessary, review financial statement preparation in Chapters 4 and 5 of your textbook for a quick refresher. Plan on using your knowledge gained in
completing Chapter 23 to help with the preparation of the Statement of Cash Flows. Additionally, since this is ABC Corporation's first year of operations,
the adjusted trial balance for all current assets and liabilities represents the change during the year for Statement of Cash Flows analysis purposes.
5. When the Financial Statements are complete, make the closing entries on the "Closing Entries" tab being mindful of the four closing entries you've learned.
6. When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting
journal entries are also posted on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. Suggestion: As an alternative, after you've
finished posting your adjusting journal entries to the accounts in the "12-31-14 T Accounts" tab, make a duplicate of this worksheet to use for posting your
closing entries and then just relabel the tab as "Post-Close T-Accounts." Just be sure to delete the original "Post-Close T-Accounts" tab already in the
workbook before you do this since you can't have two worksheets with the same name.
7. The final step is the Post-Closing Trial Balance, which will use the ending balances from the 1/1/15 T-Accounts.
8. Double-check your work. Here are a few things to check for:
-Adjusted Trial Balance: Make sure debit column and credit column total to the same figure at the bottom.
-Net income from the income statement will flow through to the Statement of Retained Earnings.
-Ending Retained Earnings from the Statement of Retained Earnings will flow through to the Balance Sheet.
-Ending Cash balance from the Balance Sheet should match your ending Cash balance on the Statement of Cash Flows.
-The Post-Closing Trial Balance should not have any revenue, expense, gain, loss, or other temporary accounts.
-Check figure 1: Income from operations = $270,341.
-Check figure 2: Total Current Assets = $1,726,156.
-Check figure 3: Total Liabilities & Stockholders' Equity = $2,182,393.
-Check figure 4: Cash flow used by operating activities = $(9,260).
-Check figure 5: Adjusted Trial Balance debit and credit columns total $3,033,472.
-Check figure 6: Cash flow provided by financing activities $1,706,367.
-Remember: Neatness matters in Financial Statements. Print or Print Preview before submitting to make sure your statements are neat.
Otherwise, management may send back to you for revision!
-Include your work at the bottom of each tab as needed.
-Ask questions prior to the day/night before the due date. The due date is clearly indicated on the course schedule.
-Utilize formulas and worksheet linkings in your financial statements to improve accuracy and save time in completing the assignment.
-Please take advantage of Excel by using formulas to calculate groups of numbers (i.e. "Total Liabilities and Stockholders' Equity").

Final comments: This project is intended to make sure that you understand the accounting cycle as well as several key financial accounting transactions that you have
studied during your Intermediate Accounting series. It is very important to take the necessary time on this project to master these concepts. The concepts mastered in this
comprehensive problem will serve you well in Advanced Accounting and the rest of your accounting curriculum.

ABC Corporation
Unadjusted Trial Balance
December 31, 2014

Cash
Short term investments
Fair value adjustment (Trading)
Accounts receivable
Allowance for doubtful accounts
Inventory
Purchases
Prepaid insurance
LT (Debt) investments (HTM)
Land
Building
Accumulated depreciation: building
Equipment
Accumulated depreciation: equipment
Patent
Accounts payable
Notes payable
Income taxes payable
Unearned rent revenue
Bonds Payable
Premium on Bonds Payable
Common stock
PIC In Excess of Par-Common Stock
Retained earnings
Treasury stock
Dividends
Sales Revenue
Advertising expense
Wages expense
Office expense
Depreciation expense
Utilities expense
Insurance expense
Income taxes expense

Debit
980,333
187,000
318,200

Credit

402,700
22,500
151,151
68,000
135,000
3,550
49,500
16,500
37,500
66,290
275,000
69,300
45,000
1,100,000
212,344
100,000
15,000
56,000
50,000
840,450

6,400
69,100
25,700
20,050
27,500
67,500
69,300
2,743,434 $ 2,743,434

1 On March 1, ABC purchased a one-year liability insurance policy for $90,000.

Upon purchase, the following journal entry was made:
Dr Prepaid insurance
90,000
Cr Cash
90,000
The expired portion of insurance must be recorded as of 12/31/14.
Notice that the expired portion from March through November has been recorded already.
Make sure that the Prepaid Insurance balance after the adjusting entry is correct.

2 Depreciation expense must be recorded for the month of December.

The building was purchased with cash on February 1, 2014 for $135,000 with a remaining useful life of 30 years and a salvage value of $7,200.
The method of depreciation for the building is straight-line.
The equipment was purchased with cash on February 1, 2014 for $49,500 with a remaining useful life of 5 years and a salvage value of $1,250.
The method of depreciation for the equipment is double-declining balance.
Depreciation has been recorded for the building and equipment for months February through November.

3 On December 1, XYZ Co. agreed to rent space in ABC's building for $15,000 per month,
and XYZ paid ABC on December 1 in advance for the first three months' rent.
The entry made on December 1 was as follows:
Dr Cash
45,000
Cr Unearned rent revenue
45,000
The unearned revenue account must be adjusted to reflect the amount earned as of 12/31/14.

4 Per timecards, from the last payroll date through December 31, 2014, ABC's employees have worked a total of 250 hours.
Including payroll taxes, ABC's wage expense averages about $55 per hour. The next payroll date is January 5, 2015.
The liability for wages payable must be recorded as of 12/31/14.

5 On November 30, 2014, ABC borrowed $275,000 from American National Bank by issuing an interest-bearing note payable.
This loan is to be repaid in three months (on February 28, 2015), along with interest computed at an annual rate of 6%.
The entry made on November 30 to record the borrowing was: (for Statement of Cash Flow purposes, consider a financing item)
Dr Cash
275,000
Cr Notes payable
275,000
On February 28, 2015 ABC must pay the bank the amount borrowed plus interest.
Assume the beginning balance for Notes Payable is correct.
Interest through 12/31/14 must be accrued on the $275,000 note.

6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete
physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at
that time totaled $140,000.
Record the 2012 Cost of Goods Sold and the 12/31/14 Inventory adjustment. (This includes closing Purchases.)

7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized
that their intangible asset might be impaired on December 31, 2014. Record the impairment if any.
The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset is $25,000.

8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury
stock was $8 per share, or $56,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/14,
ABC reissued these 7,000 shares of treasury stock at $10 per share. Record the journal entry required for the reissuance of the treasury stock.

9 On 12/31/14, ABC issued 5,500 shares of $2 par value common stock at the closing market price of $9 per share. Prepare ABC's journal entry
to reflect the issuance of the stock on 12/31/14.

10 On 7/1/14, ABC sold 15% bonds having a maturity value of $1,100,000 for $1,312,344, resulting in an effective yield of 10%. The bonds are
dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of
amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14.
Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense.

11 The following information is available for ABC Corporation at 12/31/14 regarding its investments in stocks of other companies.
Securities
2,200 shares of Toyota Corporation Common Stock
1,100 shares of G.M. Corporation Common Stock

Cost
$ 110,000
$
77,000
$ 187,000
Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading.

Fair Value
$ 121,000
$ 88,000
$ 209,000

12 On 1/1/14, ABC Corporation purchased, as a held-to-maturity investment, $170,000 of the 8%, 5-year bonds of Intuit Corporation for $151,151,
which provides an 11% return. Prepare ABC's 12/31/14 journal entry to reflect the receipt of annual interest and discount amortization.
Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used.

13 ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used,
prepare the entry to record bad debt expense.

14 On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make
annual payments of $9,477 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000
unguaranteed residual value. The delivery vehicle reverts back to the lessor at the end of the lease term. ABC Corporation uses the straight-line method
of depreciation for the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet
been made concerning this lease arrangement. After determining the type of lease arrangement (capital or operating), prepare the necessary multiple-part journal
entry for 2014 for ABC Corporation. (Hints: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for
this lease transaction. Also, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.)

15 ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension
plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014.
Pension asset/liability (January 1)
$0
Actual return on plan assets
$30,000
Expected return on plan assets
$15,000
Contributions (funding) in 2014
$35,000
Fair value of plan assets (December 31)
$65,000
Settlement rate
10%
Projected benefit obligation (January 1)
$0
Service cost
$50,000
Benefits paid in 2014
$0
*For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature.
16 On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer. ABC stock had a fair value (closing market price) of
$9 per share on December 31, 2014. Additional information is as follows:
a. The service period related to the restricted stock is 2 years.
b. Vesting occurs if the CFO stays with the company for a two-year period.
c. The par value of the common stock is $2 per share.
Make the appropriate accounting entry as of the grant date, 12/31/14.
Do this step after preparing the Income Statement except for the Income taxes line: (You need to calculate Income Before Income Taxes in order to calcualte total Income Tax Expense)
17 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.
However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full
on the return's March 15, 2015 due date.
ABC's income tax rate is 35%. The entire year's income tax expense was estimated at the beginning of 2014 to be $75,600,
so January through November income tax expense recognized amounts to $69,300 (11/12 months).
Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents
tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.
Based on the income before income taxes figure from the income statement, record December's income tax expense
so that the entire year's total tax expense is correct.

Adjusting Journal Entries

12/31/14
JE #

Account Titles
1

10

11

12

13

14

15

16

17

Debits

Credits

Beginning balances (bb) on these T-accounts are the 12/31/14 unadjusted balances.
Hint: If there is no beginning balance (bb), it is a new account.

bb

Cash
980,333

bb

Accounts receivable
318,200

bb

Fair value adjustment (Trading)

-

980,333

bb

bb

318,200

Short term investments

187,000

Inventory
-

bb

Purchases
402,700

bb

402,700

Allowance for doubtful accounts

- bb

bb

Prepaid insurance
22,500

bb

22,500

LT (Debt) investments (HTM)

151,151

Land
68,000

68,000

Bonds Payable

Premium on Bonds Payable

212,344 bb

1,100,000 bb

1,100,000
187,000

bb

Building
135,000

Accumulated depreciation: building

3,550 bb

135,000

bb

3,550

Notes payable

Equipment
49,500

49,500

Income taxes payable

275,000 bb

151,151

bb

16,500

Unearned rent revenue

69,300 bb

212,344

Accumulated depreciation:
equipment
16,500 bb

Accounts payable
66,290 bb

37,500

Common stock
45,000 bb

Patent
37,500

66,290

Retained earnings
100,000 bb

- bb

bb

Dividends
50,000

PIC In Excess of Par-Common Stock

15,000 bb

275,000
69,300

Sales Revenue
840,450 bb

bb

Advertising expense
6,400

bb

Income taxes expense

69,300

840,450

bb

Insurance expense
67,500

67,500

6,400

45,000

bb

Wages expense
69,100

69,100

69,300

NOTE: When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting
journal entries are also posted on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. Suggestion: As an alternative, after you've
finished posting your adjusting journal entries to the accounts in the "12-31-14 T Accounts" tab, make a duplicate of this worksheet to use for posting your
closing entries and then just relabel the tab as "Post-Close T-Accounts." Just be sure to delete the original "Post-Close T-Accounts" tab already in the
workbook before you do this since you can't have two worksheets with the same name.

100,000

bb

Office expense
25,700

25,700

50,000

bb

Depreciation expense
20,050

20,050

bb

Utilities expense
27,500

27,500

15,000

bb

Treasury stock
56,000

56,000

ABC Corporation
Adjusted Trial Balance
December 31, 2014
Debit

Credit

ABC Corporation
Income Statement
For the Year Ended December 31, 2014

ABC Corporation
Statement of Retained Earnings
For the Year Ended December 31, 2014

ABC Corporation
Balance Sheet
For the Year Ended December 31, 2014

ABC Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income
Add: Bad debt expense
Deduct: Amortization of bond premium (Issued bonds)

Deduct: Amortization of HTM discount (Bond investment)

Cash flow used by operating activities

Cash flows from investing activities

Purchase of Patent
Cash flow used by investing activities

Cash flows from financing activities

Leased delivery vehicle payment-principal only
Proceeds from bank note
Issuance of common stock for cash
PIC-Treasury stock
Cash flow provided by financing activities
Net change in cash
Beginning cash balance 1/1/14
Ending cash balance 12/31/14

*Note: As indicated in the instructions, the Statement of Cash Flows has been partially populated to assist you in the
preparation of this financial statement. Remember, since the beginning cash balance is zero, the ending cash balance
should also represent the total net change in cash.

Closing Entries

12/31/14
JE #

Account Titles
1

Debits

Credits

Beginning balances (bb) on these T-accounts are the 12/31/14 unadjusted balances.
Hint: If there is no beginning balance (bb), it is a new account.

bb

Cash
980,333

bb

Accounts receivable
318,200

bb

Fair value adjustment (Trading)

-

980,333

bb

bb

318,200

Short term investments

187,000

Inventory
-

bb

Purchases
402,700

bb

402,700

Allowance for doubtful accounts

- bb

bb

Prepaid insurance
22,500

bb

22,500

LT (Debt) investments (HTM)

151,151

Land
68,000

68,000

Bonds Payable

Premium on Bonds Payable

212,344 bb

1,100,000 bb

1,100,000
187,000

bb

Building
135,000

Accumulated depreciation: building

3,550 bb

135,000

bb

3,550

Notes payable

Equipment
49,500

49,500

Income taxes payable

275,000 bb

151,151

bb

16,500

Unearned rent revenue

69,300 bb

212,344

Accumulated depreciation:
equipment
16,500 bb

Accounts payable
66,290 bb

37,500

Common stock
45,000 bb

Patent
37,500

66,290

Retained earnings
100,000 bb

- bb

bb

Dividends
50,000

PIC In Excess of Par-Common Stock

15,000 bb

275,000
69,300

Sales Revenue
840,450 bb

bb

Advertising expense
6,400

bb

Income taxes expense

69,300

840,450

bb

Insurance expense
67,500

67,500

6,400

45,000

bb

Wages expense
69,100

69,100

69,300

NOTE: When closing entries have been made, post the entries to the general ledger on the "Post-Close T-Accounts" tab. Make sure your adjusting
journal entries are also posted on your Post-Close T-Accounts. They will not automatically flow from tab-to-tab. Suggestion: As an alternative, after you've
finished posting your adjusting journal entries to the accounts in the "12-31-14 T Accounts" tab, make a duplicate of this worksheet to use for posting your
closing entries and then just relabel the tab as "Post-Close T-Accounts." Just be sure to delete the original "Post-Close T-Accounts" tab already in the
workbook before you do this since you can't have two worksheets with the same name.

100,000

bb

Office expense
25,700

25,700

50,000

bb

Depreciation expense
20,050

20,050

bb

Utilities expense
27,500

27,500

15,000

bb

Treasury stock
56,000

56,000

ABC Corporation
Post-Closing Trial Balance
December 31, 2014
Debit

Credit

TOTAL POINTS
EARNED

TOTAL SCORE (MAX 400 POINTS)

Instructor Comments: