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Journal Entries and Financial Statements

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Wize University Introduction to Financial Accounting Textbook > The Year Ended Process

Adjusting Journal Entries

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You were hired as an accountant for Turner and Hooch Inc. (hereafter, T&H) in December 2023. T&H sells high-end fruit blenders to small retail health stores across Canada. T&H is a public corporation listed on the Toronto Stock Exchange (TSX). It had 75,000 common shares outstanding on January 1, 2023. T&H’s fiscal year ends on December 31, 2023 and its tax rate is 25%. T&H’s previous accountant, who left the company on November 30, 2023, did not consistently record adjusting entries in a timely manner. T&H’s unadjusted trial balance on November 30, 2023 is shown below:



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A review of T&H’s documents reveals the following items:

  1. T&H paid $72,000 to the local newspaper on October 16, 2023. The newspaper agreed to run a single advertisement on the 3rd day of each month. The newspaper charges T&H $6,000 per advertisement.
  2. T&H’s salaries expense amounted to $7,000 each month between January 2023 and November 2023. T&H’s employees earned an additional $7,000 in December 2023 and they’re looking forward to receiving their paycheck on January 1st, 2024!
  3. T&H borrowed $200,000 from the Bank of Montreal on December 31, 2023 and signed a 5-year note for that borrowing. The note is payable in five years. Interest on the note is 9 percent per year, payable annually each December 31.
  4. T&H’s previous accountant forgot to account for office supplies in the second half of 2023. A review of the company’s receipts indicates the company paid cash of $32,876 to purchase office supplies on December 10, 2023. Further, a physical count revealed that T&H had office supplies worth $6,478 at the end of 2023.
  5. T&H purchased Warehouse Equipment on January 1, 2022. The Warehouse Equipment is depreciated on a straight-line basis at a rate of $14,000 per year. Further, T&H purchased Packaging Equipment on November 1, 2023. The annual depreciation on the Packaging Equipment is $18,000.
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  1. T&H purchased inventory on account from Omega Inc. on December 3, 2023. The invoice price was $42,000. Omega Inc. offered these terms to T&H: 4/10, n/25, FOB shipping point. A cash payment of $1,245 was made by the responsible party to settle delivery charges on December 3, 2023. T&H took possession of the inventory on the same date. T&H uses a perpetual inventory system.
  2. T&H made an electronic cash payment to Omega Inc. on December 9, 2023 for all inventory purchased on December 3, 2023. (Refer to item #6 above.)
  3. T&H sold fruit blenders on account to Charlee Corp on December 13, 2023. Charlee Corp agreed to pay $98,000 to T&H for the fruit blenders. The cost of the inventory was $55,000. T&H provided these terms to Charlee Corp: 1/7, n/40, FOB destination point. Shipping charges related to the transaction totaled $2,347 and a cash payment was made by the responsible party to settle these charges on December 13, 2023. Charlee Corp accepted physical receipt of the fruit blenders on the same date.
  4. Continued from item #8 above: Charlee Corp used a Visa card to pay for 40% of the fruit blenders on December 18, 2023. Visa charges a 3% fee for credit card services rendered.
  5. A $1.25 dividend was declared and properly recorded on November 17, 2023. The dividend was paid (in cash) to the appropriate shareholders on December 22, 2023.
  6. Management estimates 2% of accounts receivable outstanding on December 31, 2023 are uncollectible.
  7. On December 31, 2023 T&H purchased a store in a new location. T&H paid for the store by giving 15,000 common shares to the seller. The market value of the store on that date was $85,000. T&H’s shares (which were actively traded in the stock market) had a market value of 5$ per share on that date.

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Required:
A. Prepare journal entries to record the transactions that occurred in December 2023 and prepare any adjusting entries needed for the year-ended December 31, 2023. Round your calculations to the nearest dollar. For example, $236.32 would be written as $236.

B. Prepare in good form T&H’s multiple-step Statement of Earnings for the year ended December 31, 2023.

C. Prepare in good form T&H's classified Statement of Financial Position at December 31, 2023.

D. Prepare the closing entries at December 31, 2023.