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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Interim Reporting Schultz Company prepares interim financial statements at the end of each quarter. The income statement presented at the end of the first quarter of 2019 is as follows:

Chapter 5, Problem 18P, Interim Reporting Schultz Company prepares interim financial statements at the end of each quarter.

Additional information:

  1. 1. The company uses a perpetual inventory system.
  2. 2. The company uses control accounts for selling and administrative expenses.
  3. 3. The company records and. posts its adjusting entries to its accounts only at year-end.
  4. 4. Uncollectible accounts average 0.5% of net sales.
  5. 5. The $4,000 note receivable was received on March 1, 2019. The 6-month note carries an annual interest rate of 12%, the interest to be collected at the maturity date.
  6. 6. The balance in the Prepaid Insurance account represents payment made on January 1, 2019, for a 1-year comprehensive insurance policy.
  7. 7. The Property and Equipment account consists of land, $5,000; buildings, $55,000; and equipment, $20,000. The buildings are being depreciated over a 25-year life; the equipment over an 8-year life. Straight-line depreciation is used; residual value is disregarded. No acquisitions have been made in 2019. The depreciation on the buildings is treated as an administrative expense; depreciation on the equipment as a selling expense.
  8. 8. On February 1, 2019, the company rented some floor space to another company, receiving 1 year’s rent of $1,800 in advance.
  9. 9. The bonds pay interest semiannually on January 1 and July 1. Straight-line amortization of the discount is recorded at the end of each year.
  10. 10. The company estimates that its pretax income for the second half of 2019 will total $11,550. All items in income are subject to the same income tax rate schedule. The income tax rate schedule is 15% on the first $20,000 of taxable income and 30% on the excess. There is no difference between the company’s pretax financial income and taxable income, and no tax credits are available. The company rounds its estimated effective income tax rate to the nearest tenth of a percent. Income taxes will be paid during the first quarter of 2020.
  11. 11. On June 29, 2019, the company had declared and recorded (directly in Retained Earnings) a semiannual dividend of $0.40 per share, payable on August 3, 2019.
  12. 12. The 8,000 shares of common stock have been outstanding the entire 6 months of 2019.

Required:

  1. 1. Prepare a 10-column worksheet to develop the Schultz financial statements for the first 6 months of 2019. (Refer to Chapter 3 for a worksheet illustration, if necessary.)
  2. 2. Prepare the income statement for (a) the first 6 months of 2019 and (b) the second quarter of 2019.
  3. 3. Prepare a retained earnings statement for the first 6 months of 2019.
  4. 4. Prepare the June 30, 2019, balance sheet.

1.

To determine

Prepare the worksheet to develop Company S’s financial statements for the first 6 months of 2019.

Explanation

Worksheet: A worksheet is a tool that is used while preparing a financial statement. It is a type of form, having multiple columns and it is used in the adjustment process.

Prepare the worksheet to develop Company S’s financial statements for the first 6 months of 2019:

Table (1)

Working notes:

a. Calculate the amount of bad debt expense:

Bad debt expense = Net sales amount×Average uncollectible accounts=$90,000×.5%=$450

b. Calculate the amount of interest revenue:

Interest revenue = (Note receivable amount×12%×Period from March 1 to June 30)=$4,000×12%×412=$160

c. Calculate the amount of insurance expense:

Insurance expense = (Amount of prepaid insurance×Payment for 6 months)=($960×612)=$480

d. Calculate the amount of depreciation expense:

Depreciation expense on Building =[(Building amountEstimated life)×612months]=[($55,00025)×612months]=$1,100

Depreciation expense on Building =[(Equipment amountEstimated life)×612months]=[($20,0008years)×612months]=$1,250

Depreciation expense=($1,100+$1,250)=$2,250

e

2 (a)

To determine

Prepare the income statement for the first 6 months of 2019.

2 (b)

To determine

Prepare the income statement for the second quarter of 2019.

3.

To determine

Prepare the statement of retained earnings for the first 6 months.

4.

To determine

Prepare the balance sheet as on June 30, 2019 of Company S.

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