Golden Wedding Dress Company designs custom wedding dresses

Golden Wedding Dress Company designs custom wedding dresses for brides to be. The person preparing the adjusting entries at year-end was unable to complete the adjustments due to illness. You have been given the following unadjusted trial balance along with some additional information for the December 31, 2017, year-end.

Other information:
1. Assume all accounts have a normal balance.
2. 80% of the balance in the Advance Sales account is for wedding dresses to be made and delivered by Golden during 2018; the remaining 20% is from sales earned during 2017.
3. Golden warranties its wedding dresses against defects and estimates its warranty liability to be 3% of adjusted net sales.
4. The 4%, 5-year note payable was issued on October 1, 2017; interest is payable annually each September 30.
5. A partial amortization schedule for the mortgage follows:

6. Uncollectible accounts are estimated to be 1% of outstanding receivables.
7. A physical count of the inventory showed a balance actually on hand of $63,400.
8. The balance in Income Tax Expense represents taxes accrued and paid for the 2017 year at the rate of $5,535 per month. Assume the income tax rate is 40%.

Required:
1. Based on the information provided, journalize the adjusting entries at December 31, 2017. (Round the final answers to 2 decimal places.)

1.Record to adjust for earned sales.

2.Record the estimated warranty liability.

3.Record the accrual of interest expense on the note payable.

4.Record the accrual of interest on mortgage payable.

5.Record to adjust for estimated uncollectible accounts.

6.Record to adjust for shrinkage.

7.Record the adjustment for income taxes owing.

2. Prepare a classified balance sheet. (Be sure to list the assets and liabilities in order of their liquidity.Round the final answers to the nearest whole dollar amount.)

Account	Unadjusted Balance
Accounts receivable	$	82,600
Accum. deprec., building		134,000
Accum. deprec., equipment		350,000
Advance sales		234,000
Allowance for doubtful accounts		600
Building		451,000
Cash		88,900
Equipment		655,000
Estimated warranty liability		5,000
Income tax expense		60,890
Land		139,000
Merchandise inventory		73,400
Mortgage payable		232,625
Sarah Golden, capital		251,965
Note payable		168,000
Other operating expenses		1,179,000
Sales		1,363,000
Sales returns and allowances		9,400

Solution

1

Advance Sales Dr

          46,800

To Sales

                 46,800

(To record adjustment for earned sales)

Adjustment amount =234000*20%

2

Warranty Expense

          37,012

To Estimated Warranty Liability

                 37,012

(To record estimated warranty liability)

Sales from Unadjusted TB

    1,363,000

Less: Sales returns

            9,400

Add: Additional sales from entry 1

          46,800

Adjusted Net Sales

    1,400,400

Warranty liability - 3% of Adjuste net sales

          42,012

Existing warranty liability

            5,000

Additional provision required

          37,012

3

Interest expense

            1,680

To Accrued Interest

                   1,680

(To accrue interest on 4%, 5-Year note payable for the three months October, November and December)

Interest expense = 168000*4%*3/12

4

Interest expense

            9,254

To Accrued Interest

                   9,254

Interest expense = 9305*363/365

5

Bad and Doubtful debts expenses A/c Dr

                226

To Allowance for doubtful debts

                       226

Accounts receivable

          82,600

Provision - 1% of A/R

                826

Existing provision

                600

Additional provision required (826-600)

                226

6

Loss due to Shrinkage

          10,000

To Merchandise Inventory

                 10,000

(To record loss due to shrinkage)

Inventory in books

          73,400

Less: Physical Inventory

          63,400

Loss

          10,000

7

Income tax expense a/c Dr

            4,401

To Income tax liability

                   4,401

(To record income tax payable)

Sales

  1,363,000

Less: Returns and allowances

            9,400

Add: Adjustment

          46,800

Net Sales

    1,400,400

Other operating expenses

    1,179,000

Warranty expense

          37,012

Interest expense

          10,934

Bad and doubtful debts expense

                226

Loss due to Shrinkage

          10,000

Total expenses

    1,237,172

Net Income

        163,228

Income tax @40%

          65,291

Income tax paid

          60,890

Income tax payable

            4,401

GOLDEN WEDDING DRESS COMPANY

Balance Sheet

31-Dec-17

Assets

Current assets:

Cash

            88,900

Merchandise Inventory

            63,400

Accounts Receivable

82600

Less: Allowance for Doubtful Accounts

826

Net Accounts Receivable

            81,774

Total current assets

           234,074

Property, plant and equipment:

Land

           139,000

Building

451000

Less: Accumulated Depreciation - Building

134000

Building

           317,000

Equipment

655000

Less: Accumulated Depreciation - Building

350000

Equipment

           305,000

Total property, plant and equipment

           761,000

Total assets

           995,074

Liabilities

Current liabilities:

Advance Sales

           187,200

Estimate Warranty Liability

            42,012

Accrued Interest

            10,934

Income tax payable

              4,401

Total current liabilities

           244,547

Non-current liabilities:

Mortgage Payable

           232,625

Note Payable

           168,000

Total Non current Liabilities

           400,625

Total liabilities

           645,172

Equity

Sarah Golden, Capital

           251,965

Net Income

            97,937

Total Equity

           349,902

Total liabilities and equity

           995,074

1	Advance Sales Dr	46,800
	To Sales		46,800
	(To record adjustment for earned sales)
	Adjustment amount =234000*20%
2	Warranty Expense	37,012
	To Estimated Warranty Liability		37,012
	(To record estimated warranty liability)
	Sales from Unadjusted TB	1,363,000
	Less: Sales returns	9,400
	Add: Additional sales from entry 1	46,800
	Adjusted Net Sales	1,400,400
	Warranty liability - 3% of Adjuste net sales	42,012
	Existing warranty liability	5,000
	Additional provision required	37,012
3	Interest expense	1,680
	To Accrued Interest		1,680
	(To accrue interest on 4%, 5-Year note payable for the three months October, November and December)
	Interest expense = 168000*4%*3/12
4	Interest expense	9,254
	To Accrued Interest		9,254
	Interest expense = 9305*363/365
5	Bad and Doubtful debts expenses A/c Dr	226
	To Allowance for doubtful debts		226
	Accounts receivable	82,600
	Provision - 1% of A/R	826
	Existing provision	600
	Additional provision required (826-600)	226
6	Loss due to Shrinkage	10,000
	To Merchandise Inventory		10,000
	(To record loss due to shrinkage)
	Inventory in books	73,400
	Less: Physical Inventory	63,400
	Loss	10,000
7	Income tax expense a/c Dr	4,401
	To Income tax liability		4,401
	(To record income tax payable)
	Sales	1,363,000
	Less: Returns and allowances	9,400
	Add: Adjustment	46,800
	Net Sales	1,400,400
	Other operating expenses	1,179,000
	Warranty expense	37,012
	Interest expense	10,934
	Bad and doubtful debts expense	226
	Loss due to Shrinkage	10,000
	Total expenses	1,237,172
	Net Income	163,228
	Income tax @40%	65,291
	Income tax paid	60,890
	Income tax payable	4,401