2. At the end of the year net profits amount to $15,000, with a previous surplus balance of $50,000. Preferred stock amounts to $100,000, of which $20,000 is treasury stock; common amounts to $150,000, of which $50,000 has not been issued. The directors declare an 8% dividend on the preferred, and a 10% on the common, and appropriate $5,000 to a sinking fund reserve. Later the above dividends are paid. Make the entries needed to bring the above onto the books.

3. A corporation authorizes a $250,000 bond issue, of which $150,000 are traded for a plant, and $50,000 are sold on the open market at 102. The bonds bear 6% interest, payable semiannually. Show how you would handle the above transactions. Show your treatment at the time of the first interest payment, assuming the bonds to mature in 25 years.

Instructions

Problem 1 refers to the Cotten, Wooster & Co. problem.

Problems 2 and 3 do not relate to Cotten, Wooster & Co.

XIII

Summarized transactions for June were:

• Purchases:
• American Dry Goods Co., 2/10, n/60, $16,145.75.
• Associated Dry Goods Co., 2/10, n/60, $15,927.80.
• Claflins, Inc., 2/10, 1/30, n/60, $17,894.60.
• Wico Mills, Inc., 2/10, 1/30, n/60, $4,792.45.
• U. S. Dry Goods Co., 3/10, 2/15, n/60, $15,867.42.
• Miller & Rhoades, Inc., 2/10, 1/30, n/60, $16,279.80.
• Newcomb Endicott Co., 2/15, n/60, $15,318.40.
• Wm. Taylor, Son & Co., 3/5, 2/10, n/30, $5,728.
• Marshall Field & Co., 3/10, 2/15, n/60, $6,716.90.
• Cash purchases $1,813.40.
• Sales:
• Arnold Sheriff & Co., 2/10, 1/15, n/30, $8,465.90.
• Baird Dry Goods Co., 2/10, 1/15, n/30, $7,964.60.
• Burrows Dry Goods Co., 2/10, n/30, $6,279.45.
• Bostonian Dry Goods Co., 2/10, 1/15, n/30, $9,763.80.
• Childs & Son, 2/10, 1/15, n/30, $7,942.45.
• Eagle Dress Goods Co., 2/10, n/30, $8,246.70.
• Emporium Dry Goods Co., 2/10, n/30, $7,847.65.
• Falk & Taylor, 2/10, 1/15, n/30, $8,972.70.
• Hudson Dry Goods Co., 2/10, 1/15, n/30, $7,432.80.
• Macmillian & Co., 2/10, n/30, $6,972.50.
• Marquis Dress Goods Co., 2/10, n/30, $8,414.
• Metropolitan Dry Goods Co., 2/10, n/30, $3,985.
• Melrose Dry Goods Co., 2/10, 1/15, n/30, $8,945.
• New York Silk Co., 2/10, 1/15, n/30, $7,987.50.
• Southern Dry Goods Co., 2/10, n/30, $9,475.65.
• Cash sales $1,472.60.
• Journal:
• Out-freight for May was $157.90.
• Returned goods received from Daniel & Co., $1,875;
• and Thompson Hudson Co., $935.
• Received from Rogers & Son, Charles L. Sutton & Co.’s 90-day
• 6% note for $5,000, dated May 5, with 40 days’ interest
• accrued, in payment of their April bill, the balance of
• the payment in cash.
• Returned $967.50 of merchandise to Miller & Rhoades, Inc.;
• and $614.75 to Wico Mills, Inc.
• Cash over of May was partly accounted for by failure to book
• sale of old crates and supplies for $35.
• The note of the Silk & Dress Goods Exchange, extended to and
• due June 23, was not paid, as the firm was still in difficulties.
• A mortgage for $25,000 was given to complete the purchase
• of the building. (See “Cash Disbursements.”)
• Cash Receipts:
• Arnold Sheriff & Co., June bill $8,465.90 less 2%
• Atlas Dry Goods Co., balance of April bill $3,890.70.
• Century Dress Goods, balance of April bill $1,802.90.
• Daniel & Co., on account $5,000.
• Henry Miller, on account $2,500.
• National Dress Goods Co., balance March bill $238.90.
• Public Bargain Store, on account $500
• Rogers & Son, balance April bill $2,793.57.
• Thompson Hudson & Co., balance May bill $8,007.75 less 2%.
• Bostonian Dry Goods Co., June bill $9,763.80 less 2%.
• Southern Dry Goods Co., June bill $9,475.65 less 2%.
• Macmillian & Co., June bill $6,972.50 less 2%.
• Cash Disbursements:
• Salesmen’s salaries $5,340.
• Salesmen’s traveling expenses $2,917.94.
• Delivery expenses $978.42.
• Shipping supplies $523.80.
• Advertising for July $3,000, less $250 for prepayment.
• Freight and haulage $569.70.
• Rent for July $1,250.
• Insurance on auto trucks $250.
• Lighting and heating $92.70.
• Office salaries $2,465.
• Office supplies $369.74.
• Office expenses $1,254.60.
• General expenses $1,219.62.
• Cotten withdrew June 15 $400; Wooster $500.
• Bentley, Gray & Co., May bill $9,764.90 less 2%.
• Wm. Taylor, Son & Co., June bill $5,728 less 2%.
• Semiannual dues to the Merchants’ Association $50.
• Purchased a lot and building for $35,000, paying
• $10,000 in cash and the balance remaining on mortgage.

Instructions

Charge the Silk & Dress Goods Exchange note to their account.

Additional data on the mortgage transaction are given under “Cash Disbursements.” In the general journal entry make explanation of the entire transaction, including the cash portion, which will of course be entered formally only in the cash book. In the cash book entry, by way of explanation, give cross-reference to the general journal explanation.

XIV

Summarize the subsidiary journals.

Post completely.

Take a trial balance of the general ledger as of June 30.

Prove the totals of the subsidiary accounts against their respective controlling accounts.

XV

Prepare a work sheet, as of June 30, 19—, for the six months, taking account of the following adjustments and inventories. Follow carefully the form shown in Chapter XXVII.

• Accrued Expenses:
• Salesmen’s salaries $485.
• Shipping clerks’ and chauffeurs’ wages $265.
• Unpaid garage bills $182.50.
• Freight bills $55.60.
• Office salaries $287.50.
• Lighting expense estimate $25.
• Watchman’s and cleaners’ wages $106.
• Taxes $300.
• Prepaid Expenses:
• Advertising $3,000.
• Rent $1,250.
• Insurance $790.
• Merchants’ Association dues $50.
• Interest on note payable to the order of the
• Associated Dry Goods Co. $57.21.
• Interest on the note due the Merchants’ National Bank $12.50.
• Accrued Income:
• Interest on Liberty bonds $47.50.
• Interest on the note of Charles L. Sutton & Co. $46.67.
• Word has been received from the attorneys that the note of
• the Silk & Dress Goods Exchange, which had been extended
• and not paid when presented, will be met in full with
• accrued interest of $42.84.
• Out-freight for June, $169.70.
• Charge depreciation as follows: 10% per annum on office and store
• furniture and fixtures; 20% per annum on delivery equipment.
• Create a reserve for bad debts equal to ½ % of gross sales.
• Inventories were: merchandise $102,560;
• office supplies $257.80; shipping supplies $387.60.
• Charge and credit the partners with interest as per the
• partnership agreement.

Instructions

Do not close the books of the firm nor draw up the formal statements.

Be content for this assignment with the making of the work sheet.

Close the work sheet as usual by the transfer of the net profit from the Profit and Loss columns to the credit column of the balance sheet.

Immediately following and on the same page with the work sheet, provide for showing the distribution of profits and interest and salary adjustments. The following illustration will indicate how this may be done.

The item “Net Profit as above” is taken from the work sheet. The Profit and Loss columns, in conjunction with the detailed distributions shown in the “Partners’ Personal” columns, contain all the data needed for the appropriation section of the profit and loss statement and also for distributing the net profit shown by the Profit and Loss account. By entering the drawings in the “Partners’ Personal” columns, those columns are made to develop the amount of undrawn profits of each partner. They thus contain the same information which the respective personal accounts will contain after the ledger is closed. The work sheet, with this appended analysis of profits and partners’ personal accounts, thus contains all of the information needed both for drawing up the formal statements and for adjusting and closing the books.

XVI

Draw up a pro forma balance sheet and a statement of profit and loss for the six months for Cotten, Wooster & Company. In drawing up the balance sheet, head it as follows:

Show the total of all customers’ accounts as “Accounts Receivable (See Schedule A-1).” Attach to the balance sheet a list or schedule of all customers’ accounts to support the title “Accounts Receivable (See Schedule A-1),” carried in the balance sheet. Give to it as a formal heading:

The data for the schedule come from the customers ledger list or trial balance for June 30.

Attach schedules also for the other groups of items appearing in the balance sheet, viz.: Deferred Charges to Operation under which include in addition to the other items listed, the office supplies and packing materials still on hand; Accrued Income; Accounts Payable; and Accrued Expenses.

The use of schedules relieves the balance sheet of much detail and renders it more intelligible; it also makes the detail available if desired.

Set up the net worth section as follows:

The data for this schedule are secured from the “Profits Distribution” section of the work sheet.

In drawing up the profit and loss statement refer to the forms already shown. See Chapters XXVI and XXVII. The Miscellaneous Sales item should be added to the Net Sales short-extended and their total should be full-extended, from which should be deducted Cost of Goods Sold as usual.

After the item, “Net Profit for the period,” set up the appropriation section, showing the shares of each of the partners, somewhat as follows:

Excepting for the Accounts Receivable and Accounts Payable schedules, the detailed data for balance sheet and profit and loss statements come from the work sheet drawn up for Assignment XV. Set up the formal statements on letter size (8½ × 11) paper. Typewrite them if possible.

XVII

Using the “Adjustment” columns of the work sheet as a guide, make the adjusting entries in the general journal.

Using the profit and loss statement (including the appropriation section) as a guide, set up the closing entries in the general journal. Use the “Profits Distribution” section of the work sheet as the source of the transfer of the balances of the partners’ personal accounts to the loan accounts.

Post the adjusting and closing entries.

Rule the ledger accounts.

Take a post-closing trial balance of the general ledger.

XVIII

This set comprises a general journal; a sales journal, a sales returns and allowances journal, a purchase journal, a purchase returns and allowances journal, and the cash journals, for convenience bound together in one book; a note journal to be used as a posting medium for notes receivable and notes payable; and a general ledger, a purchase ledger, and a sales ledger, bound together in one book. Of the subsidiary journal blank, page 1 is for the sales journal, page 2 the sales returns, page 3 the purchase journal, page 4 the purchase returns, and pages 6-9 the cash journals. Of the ledger blank, pages 1-15 comprise the general ledger, pages 16-19 the sales ledger, and pages 20-22 the purchase ledger. The general journal will be used as previously, i.e., for the record of all items not otherwise specially provided for. The sales journal provides for analysis of the sales, the first column being the total or general column; the others, Dept. A, Dept. B, and Out-Freight, respectively. The sales returns and allowances journal makes provision for the same analysis as the sales journal except that there is no Out-Freight column, that not being used; the purchase journal columns are respectively, Total, Dept. A, Dept. B, and In-Freight, with the same column headings for the purchase returns and allowances journal, except as to In-Freight. The cash book columns will be, on the debit, General, Accounts Receivable, Sales Discount, and Harding National Bank; and on the credit, General, Accounts Payable, Purchase Discount, and Harding National Bank. The note journal will be analyzed, summarized, and posted just as the other subsidiary journals.

The deposit account carried with the Coolidge National Bank is an inactive one. For this reason no extra column is provided for it in the cash book.

Daily posting of items affecting customers’ and creditors’ accounts should be made, carefully observing the terms of credit.

The general journal is provided with six money columns, three of which are to be devoted to charges and the other three to credits. The debit columns are to be headed, Accounts Payable, Accounts Receivable, and General, respectively. The credit columns will be headed similarly but in the reverse order, having the General column close to the ledger folio column. All amounts to be posted to accounts in the general ledger should be recorded in the General column, and those affecting a controlling account in its respective column. The latter amounts should be posted to the subsidiary account immediately, but will not be posted to the controlling account until the general journal is summarized at the end of the month. Record will be made of transactions for the last month of the fiscal year, the previous eleven months being summarized in the trial balance given to start with.

The Business Equipment Corporation was organized and incorporated under the laws of the state of New York. Its fiscal year closes on December 31. A trial balance from the general ledger on November 30, 19—, shows as follows:

Instructions

Open all the above accounts in your general ledger, at the places indicated, and enter under date of December 1 the balances given in the trial balance. The number in front of the account title indicates the page on which to enter the accounts. Give each one-fourth of a page, except on page 2, where give Accounts Receivable two additional lines by shortening the space for Investments.

In the sales ledger (which is controlled by the Accounts Receivable account on the general ledger), beginning on page 16, open the following accounts, four to a page, and enter the balances as of December 1:

In the purchase ledger (which is controlled by the Accounts Payable account on the general ledger), beginning with page 20, open the following accounts, four to a page, and enter the balances as of December 1:

The two accounts, “Sundry Customers” and “Sundry Creditors,” are used to secure volume of transactions without involving too great detail. They should be treated in all respects as personal accounts.

In the notes receivable journal, enter the following notes:

No. 84, made by Clark & Smith in our favor, for merchandise, dated September 18, 19—, for three months at 6%, amount $1,987.50.

No. 87, made by Hall, Walter & Co., in our favor, for goods purchased, dated October 5, at 6% for two months, amount $2,500.

No. 88, draft drawn by the company on Willis, Dickson, Inc., dated October 28, at 60 days, amount $2,750.

No. 91, made by Franklin Moffit Co., in our favor, for merchandise, dated November 15, at 6% for 30 days, amount $1,182.30.

Total the “Amount” column and rule it off as this amount is already in your general ledger “Notes Receivable” account.

In the notes payable journal, enter the following notes:

No. 32, made by the company in favor of the Yawman & Erbe Mfg. Co., dated October 15, for two months for $1,472.50 at 6%.

No. 31, made by the company in favor of the Harding National Bank for discount, dated October 20, at 6% for 60 days, amount $5,000.

Enter these in the notes payable journal and treat as with notes receivable above.

Your books, general and subsidiary, will now show the condition as at the beginning of business December 1.

XIX

Make record in the various books of original entry of the following transactions for December, figures at left margin indicating day of month. Where needed, directions appear at the close of each assignment.

Instructions

December 5. Record the interest received from Notes Receivable in the Interest and Bank Expense account.

December 10. Be sure to enter the note received from the president to the correct account.

December 13. For stock withdrawn for use of business, make entry in the general journal.

December 15. Transfer through the general journal the claim of the Automatic Pencil Sharpener Co. to their account in the sales ledger, taking into consideration the sales discount to be allowed and the purchase discount to be taken. Remember to record these amounts in the proper columns. The balance of the latter account will be offset by the credit from the cash receipts journal.

XX

Instructions

December 16. Record the purchase made from the Yonkers Carpet Works in the proper column of the general journal. Charge Sales General Expense.

December 19. Credit the income received for the use of the motor truck to Sales General Expense.

December 23. Refer to page 411 of the text as to the handling of the balance of the firm’s claim against the bankrupt customer.

December 24. Cash sales will be recorded in the sales journal and included in the debit to Accounts Receivable account at time of summary. To offset this inflated debit, at the time cash sales are recorded also in the cash book the amount will be entered there in the Accounts Receivable column—not the General Ledger—and will thus be included in the credit to the Accounts Receivable account.

December 27. Record the Willis, Dickson, Inc. undercharge in the sales journal.

The entry of cash purchases is similar to that of cash sales.

XXI

The statement from the bank as of December 31 showed the following:

Items not entered on the Business Equipment Corporation books:

• Interest credited,  $24.79
• Collection charges,  2.36

A check from a sundry customer for $100, deposited on December 30, was returned by the bank as uncollectible. The company had not yet been informed of this.

Balance by bank was $14,848.73.

Reconcile the bank statement with the cash book balance shown previous to the entry in the cash book of any items from the bank statement, and determine the true cash balance.

Summarize all books of original entry. Posting of these summary entries and any other unposted items will be deferred to the next assignment.

Instructions

December 30. Refer to pages 416-418 of the text as to the proper record to be made of the sale of the old showroom fixtures. Credit the gain on this sale to the Sales General Expense.

December 31. The amount of check for $25 is included in the amount received from sundry customers.

In summarizing the general journal, first foot all the columns and underline the totals. On the following lines write the summary entry which will appear as follows:

Since the items making up the “General Ledger” totals have already been posted, these totals will be checked and will not be posted.

In summarizing the sales journal, the cash sales need not be segregated from the credit sales in the summary entry, inasmuch as the inclusion of such receipts in the total to be posted to Accounts Receivable from the cash receipts journal will eliminate the inflation of the claims against customers shown by the controlling account.

The purchase journal will be summarized in the same way as the sales journal.

The items shown on the bank statement but not yet entered in the cash book are to be entered there before summarizing the cash book. See page 562 for instructions as to its summary.

For summarizing the other journals follow the explanations given in Chapter XXXI.

XXII

Post completely.

Take a trial balance of the general ledger, recording it on a double sheet of journal paper. When posting customers’ and creditors’ accounts, make sure that the corresponding controlling accounts will receive, either in totals or in items, the same amounts.

Prove your sales and purchase ledgers and record the proof with the general ledger trial balance, i.e., make a list or schedule of the accounts and show the list totals as agreeing with their respective controlling account balances in the general ledger trial balance.

XXIII

Prepare a work sheet for the year ending December 31, 19—, taking the following adjustments into consideration:

• Accrued Expenses:
• Salesmen’s salaries $385.
• General Salaries $416.90.
• Amount due on repairs to building $500.
• Mortgage interest $1,050.
• Interest on notes: Library Bureau note $12.50;
• Apex Office
• Supply Co. note $5.92;
• Dictation Devices Co. note $5.
• Accrued freight bills $824.34.
• Accrued taxes $378.
• Chauffeurs’ wages $160.60.
• Garage bills $216 ($100 for gasoline and balance for repairs).
• Automobile tire $90.
• Prepaid Expenses:
• Interest on note discounted at the Harding National Bank $44.17.
• Advertising $2,000. Insurance $2,867.90.
• Prepaid dues to Merchants’ Association $50.
• Accrued Income:
• Interest on following notes: notes receivable special $8.75;
• Hall, Walter & Co. $3.77;
• Browne Morse Co. $3.73;
• Standard Truck Co. $1.46.
• Bank interest on inactive deposit with Coolidge State Bank $24.36.
• Upon analysis, $387.86 of the freight bills was found to be
• out-freight.
• Take into account depreciation at the yearly rates of: 3%
• on buildings; 20% on delivery equipment; 10% on office
• furniture and fixtures.
• No depreciation is to be charged on the store and warehouse
• furniture and fixtures just installed.
• Create a reserve for doubtful accounts equal to 1/2% of net sales.
• Inventories showed the following on hand:
• Department A $79,897.80;
• Department B $51,764.32;
• office supplies $296.45.
• In-freight was apportioned between the departments on the
• basis of net purchases.
• Charge 90% of insurance expense to selling expenses.

In answer to our request, G. A. Roberts submitted the following information regarding his consignment:

A formal account sales will not be rendered till completion of sales of entire consignment. The quantities of unsold articles reported showed, upon pricing, a valuation of $600. Word was also received that a check for the amount due on sales as above would follow immediately after certification by the bank. It was decided to defer one-half of the above expenses reported by the consignee as applicable to the remainder of the consignment.

The Board of Directors declared the regular semiannual dividend of 4% on the preferred stock, payable January 25, and a 4% dividend on the common stock, also payable January 25.

Analysis, based on vouchers and invoices, showed the following content of the Sales General Expense account before adjustment:

Likewise, a similar analysis of the General Expense account before adjustment showed the following distribution:

Instructions

Refer to Chapter XLVIII of the text as to consignments. In this case make use of the Consignment Accounts Receivable account for recording the claim against the consignee, and be careful to charge the proper amount of expenses against the income to be taken into the earnings for this period. Handle the deferred expense items on the consignments in the Out-Freight account. Do not forget to adjust the memorandum accounts so that they will show the value of goods still out on consignment, and take the latter amount into consideration when setting up the final inventories on the books.

XXIV

Using the work sheet as a guide, draw up pro forma balance sheet and statement of profit and loss for the year ending December 31, 19—. Show the gross profit on the sales of each department. Support both the balance sheet and the profit and loss statement with properly set-up schedule.

Instructions

Balance Sheet. Where the number of accrued and deferred items is small, they may be shown on the face of the balance sheet or in attached schedules as preferred. See page 577 for form of schedules.

Profit and Loss Statement. Where the record of the period’s business has been made by departments, it is desirable that the summary for the period show departmental results, at least so far as the gross profit stage. To get rid of the detail on the face of the statement, schedules may be appended showing such items as Cost of Goods Sold, the group of Selling Expenses, the group of General Administrative Expenses, etc. Such a statement of profit and loss, supported by schedules, is called a condensed profit and loss statement. Such a statement for a departmental business is shown by the following illustration. Only Schedule B-1 is given; the other schedules are merely lists with their totals shown.