Comprehensive Accounting Cycle Review 9-2 (Part Level Submission) (f1) No. Date

Question

Comprehensive Accounting Cycle Review 9-2 (Part Level Submission)

(f1)

No.

Date

Account Titles and Explanation

Debit

Credit

1.

3/31/2017

2.

3/31/2017

3.

3/31/2017

4.

3/31/2017

5.

3/31/2017

6.

3/31/2017

7.

3/31/2017

Comprehensive Accounting Cycle Review 9-2 (Part Level Submission)

Indigo Corporation prepares quarterly financial statements. The post-closing trial balance at December 31, 2016, is presented below.
INDIGO CORPORATION
Post-Closing Trial Balance
December 31, 2016 Debit Credit Cash $22,100 Accounts Receivable 22,000 Allowance for Doubtful Accounts $1,200 Equipment 21,000 Accumulated Depreciation—Equipment 12,000 Buildings 106,000 Accumulated Depreciation—Buildings 12,000 Land 20,000 Accounts Payable 12,240 Common Stock 90,000 Retained Earnings 63,660 $191,100 $191,100
During the first quarter of 2017, the following transactions occurred:
1. On February 1, Indigo collected fees of $8,400 in advance. The company will perform $700 of services each month from February 1, 2017, to January 31, 2018. 2. On February 1, Indigo purchased computer equipment for $11,850 plus sales taxes of $750. $3,950 cash was paid with the rest on account. Check #455 was used. 3. On March 1, Indigo acquired a patent with a 10-year life for $12,600 cash. Check #456 was used. 4. On March 28, Indigo recorded the quarter’s sales in a single entry. During this period, Indigo had total sales of $180,000 (not including the sales referred to in item 1 above). All of the sales were on account. 5. On March 29, Indigo collected $173,000 from customers on account. 6. On March 29, Indigo paid $16,240 on accounts payable. Check #457 was used. 7. On March 29, Indigo paid other operating expenses of $95,500. Check #458 was used. 8. On March 31, Indigo wrote off a receivable of $300 for a customer who declared bankruptcy. 9. On March 31, Indigo sold for $2,130 equipment that originally cost $14,000. It had an estimated life of 5 years and salvage of $1,000. Accumulated depreciation as of December 31, 2016, was $10,400 using the straight line method. (Hint: Record depreciation on the equipment sold, then record the sale.)
Bank reconciliation data and adjustment data:
1. The company reconciles its bank statement every quarter. Information from the December 31, 2016, bank reconciliation is:
Deposit in transit: 12/30/2016 $4,500 Outstanding checks #440 3,500 #452 300 #453 800 #454 5,870
The bank statement received for the quarter ended March 31, 2017, is as follows:
Beginning balance per bank $28,070 Deposits: 1/2/2017, $4,500; 2/2/2017, $8,400; 3/30/2017, $173,000 185,900 Checks: #452, $300; #453, $800; #457, $16,240; #458, $95,500 (112,840) Debit memo: Bank service charge (record as operating expense) (100) Ending bank balance $101,030 2. Record revenue earned from item 1 above. 3. $24,000 of accounts receivable at March 31, 2017, are not past due yet. The bad debt percentage for these is 4%. The balance of accounts receivable are past due. The bad debt percentage for these is 22%. Record bad debt expense. (Hint: You will need to compute the balance in accounts receivable before calculating this.) 4. Depreciation is recorded on the equipment still owned at March 31, 2017. The new equipment purchased in February is being depreciated on a straight-line basis over 5 years and salvage value was estimated at $1,500. The old equipment still owned is being depreciated over a 10-year life using straight-line with no salvage value. 5. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $13,000. 6. Amortization is recorded on the patent. 7. The income tax rate is 30%. This amount will be paid when the tax return is due in April. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Explanation / Answer

In the books of Indigo Corporation :

Income Statement

For the quarter ended March 31, 2017

Adjustment # Date Account Titles Debit Credit $ $ 1. 3 /31/ 2017 Operating Expense 100 Cash 100 2. 3 / 31/ 2017 Unearned Fees ( 8,400 / 12 x 2) 1,400 Fees Earned 1,400 3. 3 / 31 / 2017 Bad Debt Expense 1,094 Allowance for Doubtful Accounts 1,094 4. 3 / 31 / 2017 Depreciation Expense 545 Accumulated Depreciation : Equipment 545 5. 3 / 31/ 2017 Depreciation Expense 775 Accumulated Depreciation : Buildings 775 6. 3 / 31 / 2017 Amortization Expense 105 Patents 105 7. 3 / 31/ 2017 Income Tax Expense 24,543 Income Taxes Payable 24,543

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