Xyz Company Trial Balance December 31, 2015 Account Debit Cr

Xyz Companytrial Balancedecember 31 2015account Debit Cred

Xyz Company trial balance as of December 31, 2015, lists various accounts with their debit and credit balances. The task requires preparing correcting entries, adjusting entries, a trial balance, a classified balance sheet, and closing entries. Additional information involves details about notes receivable and payable, depreciation, inventory valuation, salaries, and receivables collection, with specific instructions for each part of the task.

This comprehensive assignment tests accounting skills related to adjusting and correcting entries, financial statement preparation, depreciation calculations, inventory methods, journal entries, and understanding of financial accounting principles such as accrual basis, closing procedures, and classification of assets and liabilities.

Paper For Above instruction

Accounting Adjustments, Financial Statements, and Inventory Methods

The December 31, 2015, trial balance of XYZ Company provides a snapshot of its financial position, revealing various asset, liability, equity, revenue, and expense accounts. To ensure accurate reflection of the company's financial position and performance for the period, a series of adjustments, correcting entries, and financial statement preparations are necessary—particularly given that correcting and adjusting entries have not yet been recorded at year-end. Furthermore, additional information about receivables, depreciation, inventory levels, and accrued expenses informs subsequent calculations and financial analyses.

Part A: Correcting Entries

One notable correction pertains to the misrecorded sales on December 30, where $1,500 cash sales were incorrectly debited to Accounts Receivable instead of Sales Revenue. The correcting entry involves debiting Sales Revenue and crediting Accounts Receivable for $1,500, reversing the incorrect entry.

Part B: Adjusting Entries

Adjustments are necessary for accurate financial reporting:

• Notes Receivable Interest: Recognize interest income earned on the 3-month, 6% note accepted on November 1, 2015. The interest for two months (November and December) is $30,000 x 6% x 2/12 = $300, which should be accrued.
• Long-Term Notes Payable Interest: Accrue interest payable on the 5-year, 5% note signed on July 1, 2015. Six months' interest ($75,000 x 5% x 6/12 = $1,875) should be recorded.
• Building Depreciation: Depreciate the building at 3% annually, resulting in $150,000 x 3% = $4,500 expense. Given no salvage value, the book value decreases accordingly.
• Equipment Depreciation: Depreciate equipment at 15% yearly, resulting in $50,000 x 15% = $7,500 expense.
• Sales Revenue Error: Correct the overstatement of sales by reversing the $1,500 recording error, debiting Sales Revenue and crediting Accounts Receivable for the amount.
• Merchandise Inventory: Adjust inventory to physical count of $51,500 from the book balance, reflecting the variance.
• Salaries Payable: Accrue salaries for last half of December ($5,500), recognizing total salaries expense and proper liabilities.
• Allowance for Doubtful Accounts: Calculate 5% of Accounts Receivable ($53,500), resulting in an estimated uncollectible of $2,675, adjusting Allowance for Doubtful Accounts accordingly.

Part C: Adjusted Trial Balance

By incorporating all adjustments, prepare the trial balance ensuring debits equal credits. The adjusted balances reflect corrected accounts for depreciation, accrued interest, corrected sales, inventory valuation, and allowances.

Part D: Classified Balance Sheet

The classified balance sheet sorts assets and liabilities into current and long-term categories: assets include cash, receivables (net of allowances), inventory, land, buildings, equipment (net of accumulated depreciation), and goodwill. Liabilities encompass accounts payable, accrued interest, salaries payable, and long-term notes payable. Stockholders' equity comprises common stock (at par), retained earnings, which are adjusted for net income and dividends, considering the closing entries.

Part E: Closing Entries

The closing process consolidates revenue and expense accounts into retained earnings. Revenues are debited, expenses credited to Income Summary, which is then closed to Retained Earnings. Dividends account is debited and closed directly to Retained Earnings, reflecting distributions to shareholders.

Additional Analyses and Calculations

Question 2: Inventory Valuation Using Different Methods

The inventory data for January indicates beginning inventory of 150 units at $7.00 each, and subsequent purchases at varying costs. During the period, 4,600 units are sold.

Calculations include:

• Cost of Goods Available for Sale: Beginning Inventory + Purchases = (150 x $7) + (additional units at specified costs).
• Sales Revenue: 100 units x $10 = $1,000, but actual sales totals depend on detailed sales data.
• Ending Inventory and COGS under LIFO, FIFO, and Weighted Average methods:

For FIFO, ending inventory reflects the latest purchases; for LIFO, the oldest units remain in inventory; for weighted average, an average cost per unit is computed, capitalizing on the total cost divided by total units available.

Question 3: Journal Entries for Notes and Transactions

Such entries include accepting notes receivable, notes payable, loan issuance, accruing interest, and receipt of payments. Each involves debit and credit accounts conforming to standard accounting principles, recognizing interest income, notes receivable, notes payable, and cash inflows, with interest recognition based on time periods and interest rates.

Question 4: Depreciation Calculations for Truck

Using straight-line depreciation: (Cost - Salvage Value) / Useful Life = ($65,000 - $10,000) / 5 years = $11,000 annually.

Using double-declining balance: Depreciation expense decreases over time, but initially loads higher. Yearly depreciation: 2 / 5 x Book Value at beginning of year.

Based on miles driven, depreciation expense per mile is calculated as (Cost - Salvage) / Total miles estimate, to allocate depreciation proportionally based on usage.

Question 5: Payroll and Employer Taxes

Calculations involve gross salaries, employee withholdings (FICA, state and federal taxes), and employer payroll taxes (FUTA, SUTA). The journal entries record accrued liabilities and tax expenses, ensuring compliance with payroll accounting standards.

Question 6: Bad Debts and Accounts Receivable

Using percent of sales method (0.5%) and percent of receivables method (5%), the company estimates bad debt expense based on net credit sales and ending receivable balances. Adjusting entries involve debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts.

Question 7: Bank Service Charges

The bank service charges are credited to the Bank Service Charge Expense account upon reconciliation, reflecting bank fees deducted from the company's account.

Question 8: Allowance for Doubtful Accounts Adjustment

The expected uncollectible accounts (5% of $200,000 receivables) is $10,000. Adjusting entry involves debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts to reach the desired balance.

Question 9: Discounted Notes

The proceeds from issuing a non-interest-bearing note discounted at 10% can be calculated using present value formulas, resulting in a cash inflow less than face value, which accounts for discounting.

Question 10: Depreciation with Double-Declining Balance

Applying the double-declining method: (2 / useful life) x Book value at beginning of year. After the first year, the depreciation expense decreases proportionally, considering the accumulated depreciation.

Question 11: Capital vs. Revenue Expenditures

Expensing a capital expenditure immediately results in an overstatement of current expenses and an understatement of net income. Correct classification influences accurate profit measurement and asset valuation.

Question 12: Prepaid Insurance

Six months of a $12,000 insurance policy equates to $6,000 in prepaid expenses remaining at mid-year, which should be recorded in the prepaid insurance account until amortized.

Question 13: Advantages of Corporate Organization

Notably, government regulation is a disadvantage, not an advantage, of the corporate form. Other advantages include limited liability, continuous existence, and ease of transfer of ownership.

Question 14: Treasury Stock on Balance Sheet

Treasury stock appears as a deduction from total stockholders' equity under treasury stock account, reflecting the company's repurchased shares.

Question 15: Effect of Stockholders' Investment

When stockholders invest cash, both assets (cash) and stockholders' equity increase, reflecting the infusion of resources into the company.

Question 16: Retained Earnings Balance

The ending balance of retained earnings appears on the statement of retained earnings and the balance sheet, summarizing net income less dividends declared.

Question 17: Journal Entry for Dividends

The declaration of cash dividends involves debiting Dividends and crediting Cash upon payment; however, initial declaration records a debit to Dividends and a credit to Dividends Payable until payment.

Question 18: Adjusting Entry for Accrued Wages

Accrued wages of $3,000 require a debit to Wages Expense and a credit to Wages Payable, recognizing expenses incurred but not yet paid.

Question 19: Accrual Basis of Accounting

Under the accrual basis, revenues are recognized when earned, and expenses are recognized when incurred, regardless of cash flows, providing a more accurate view of financial performance.

Question 20: Basis for Adjusting Entries

Adjusting entries are guided by the matching principle, aligning expenses with revenues in the period they are incurred, ensuring accurate financial statements.

Question 21: Closing Process

The accounts for revenues and expenses are closed to Income Summary, which is subsequently closed to Retained Earnings. The Dividends account is directly closed to Retained Earnings, ensuring proper reset for new accounting periods.

Question 22: Classified Balance Sheet

The classified balance sheet arranges assets and liabilities into current and long-term categories, facilitating financial analysis. For example, current assets include cash and receivables, while long-term assets include property and equipment.

Question 23: Underlying Assumptions of Accounting

The fundamental assumptions include business entity, going concern, and monetary unit, but not the matching principle or periodicity, which are underlying principles, not assumptions.

Question 24: Cost of Goods Sold Calculation

Using beginning inventory, purchases, and ending inventory, COGS = (Beginning Inventory + Purchases) - Ending Inventory. For this case: ($60,000 + $240,000) - $72,000 = $228,000.

Question 25: Major Sections of Income Statement

A typical classified income statement includes operating revenues, cost of goods sold, operating expenses, and non-operating items. 'Current assets' is a balance sheet classification, not an income statement section.

Question 26: Purchase Discount Calculation

On $12,000 of merchandise, with a 2% discount for early payment, the discount on $10,000 net of returns is: $10,000 x 2% = $200, resulting in a payment of $9,800.

Question 27 & 28: Inventory Cost under Periodic Weighted-Average

Calculating weighted-average cost per unit: Total cost divided by total units available. Then, COGS and ending inventory are derived accordingly. Exact computations depend on detailed data.

Question 29: Highest Net Income During Rising Prices

FIFO generally yields higher net income during periods of rising prices because it assigns older, lower-cost items to COGS, resulting in higher gross profit compared to LIFO.

Question 30: Bank Reconciliation

Adjustments for deposits in transit, outstanding checks, bank fees, and NSF checks are made to reconcile bank statement balances with ledger balances. The correct adjusted cash balance reflects all these adjustments.

Question 31: Deposits in Transit

Deposits in transit should be added to the balance per bank statement during reconciliation as they have been recorded by the company but not yet processed by the bank.

References

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