Pinkerton Corporation’s trial balance at December 31, 2011, is presented below. All 2011 transactions have been recorded except for the items described after the trial balance.
| Debit | Credit | |
| Cash | $ 28,000 | |
| Accounts Receivable | 36,800 | |
| Notes Receivable | 10,000 | |
| Interest Receivable | –0– | |
| Merchandise Inventory | 36,200 | |
| Prepaid Insurance | 3,600 | |
| Land | 20,000 | |
| Building | 150,000 | |
| Equipment | 60,000 | |
| Patent | 9,000 | |
| Allowance for Doubtful Accounts | $ 500 | |
| Accumulated Depreciation—Building | 50,000 | |
| Accumulated Depreciation—Equipment | 24,000 | |
| Accounts Payable | 27,300 | |
| Salaries Payable | –0– | |
| Unearned Rent | 6,000 | |
| Notes Payable (short-term) | 11,000 | |
| Interest Payable | –0– | |
| Notes Payable (long-term) | 35,000 | |
| Common Stock | 50,000 | |
| Retained Earnings | 63,600 | |
| Dividends | 12,000 | |
| Sales | 900,000 | |
| Interest Revenue | –0– | |
| Rent Revenue | –0– | |
| Gain on Disposal | –0– | |
| Bad Debts Expense | –0– | |
| Cost of Goods Sold | 630,000 | |
| Depreciation Expense—Buildings | –0– | |
| Depreciation Expense—Equipment | –0– | |
| Insurance Expense | –0– | |
| Interest Expense | –0– | |
| Other Operating Expenses | 61,800 | |
| Amortization Expense—Patents | –0– | |
| Salaries Expense | 110,000 | |
| Total | $1,167,400 | $1,167,400 |
Unrecorded transactions
1. On May 1, 2011, Pinkerton purchased equipment for $16,000 plus sales taxes of $800 (all paid in cash).
2. On July 1, 2011, Pinkerton sold for $3,500 equipment which originally cost $5,000. Accumulated depreciation on this equipment at January 1, 2011, was $1,800; 2011 depreciation prior to the sale of equipment was $450.
3. On December 31, 2011, Pinkerton sold for $5,000 on account inventory that cost $3,500.
4. Pinkerton estimates that uncollectible accounts receivable at year-end are $4,000.
5. The note receivable is a one-year, 8% note dated April 1, 2011. No interest has been recorded.
6. The balance in prepaid insurance represents payment of a $3,600, 6-month premium on September 1, 2011.
7. The building is being depreciated using the straight-line method over 30 years. The salvage value is $30,000.
8. The equipment owned prior to this year is being depreciated using the straight-line method over 5 years. The salvage value is 10% of cost.
9. The equipment purchased on May 1, 2011, is being depreciated using the straight-line method over 5 years, with a salvage value of $1,800.
10. The patent was acquired on January 1, 2011, and has a useful life of 9 years from that date.
11. Unpaid salaries at December 31, 2011, total $2,200.
12. The unearned rent of $6,000 was received on December 1, 2011, for 3 months’ rent.
13. Both the short-term and long-term notes payable are dated January 1, 2011, and carry a 10% interest rate. All interest is payable in the next 12 months.
14. Income tax expense was $15,000. It was unpaid at December 31.
Instructions
a. Prepare journal entries for the transactions listed above.
b. Prepare an updated December 31, 2011, trial balance.
c. Prepare a 2011 income statement and a 2011 retained earnings statement.
d. Prepare a December 31, 2011, balance sheet.
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