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Bridgeport Corp.'s balance sheet at December 31, 2016, is presented below BRIDGEPORT CORP. ...

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Bridgeport Corp.'s balance sheet at December 31, 2016, is presented below

BRIDGEPORT CORP.

Balance Sheet

December 31, 2016

Cash $33,700 Accounts payable $13,100
Inventory 30,850 Interest payable 2,415
Prepaid insurance 5,700 Bonds payable 48,300
Equipment 38,100 Common stock 25,100
Retained earnings $19,435
$108,350 $108,350

During 2017, the following transactions occurred. Bridgeport uses a perpetual inventory system

1. Bridgeport paid $2,415 interest on the bonds on January 1, 2017.

2. Bridgeport purchased $244,700 of inventory on account.

3. Bridgeport sold for $484,000 cash inventory which cost $270,000. Bridgeport also collected $29,040 in sales taxes.

4. Bridgeport paid $223,000 on accounts payable.

5. Bridgeport paid $2,415 interest on the bonds on July 1, 2017.

6. The prepaid insurance ($5,700) expired on July 31.

7. On August 1, Bridgeport paid $10,440 for insurance coverage from August 1, 2017, through July 31, 2018.

8. Bridgeport paid $16,000 in sales taxes to the state.

9. Paid other operating expenses, $89,000.

10. Redeemed the bonds on December 31, 2017, by paying $46,500 plus $2,415 interest.

11. Issued $88,000 of 8% bonds on December 31, 2017, at 103. The bonds pay interest every June 30 and December 31.

Adjustment data:

12. Recorded the insurance expired from item 7.

13. The equipment was acquired on December 31, 2016, and will be depreciated on a straight-line basis over 5 years with a $3,100 salvage value.

14. The income tax rate is 30%.

1. Prepare journal entries for the transactions listed above and adjusting entries.

2. Prepare an adjusted trial balance at December 31, 2017.

3. Prepare an income statement for the year ending December 31, 2017.

4. Prepare a retained earnings statement for the year ending December 31, 2017.

5. Prepare a classified balance sheet as of December 31, 2017.

Bonds Payable

It is classified as a liability and usually considered as long term debt. One party involve in the issuance of bonds payable is the issuer who usually makes the formal agreement. Usually, it it booked at book value and results in either a premium or discount when sold to investors.

Answer and Explanation:

1. Journal Entries

1.

Interest Payable 2,415
Cash 2,415
To pay for the interest expense.


2.

Inventory 244,700
Accounts Payable 244,700
To record the purchase of inventories on account.


3.

Cash 484,000
Sales 484,000
To record the sale of inventory


Cost of Goods Sold 270,000
Inventory 270,000
To record the cost of inventory sold


Cash 29,040
Output Tax 29,040
To record the sales taxes collected.


4.

Accounts Payable 223,000
Cash 223,000
To record the payment of accounts payable


5.

Interest Expense 2,415
Cash 2,415
To record the payment of interest accrued on the bonds payable.


6.

Insurance Expense 5,700
Prepaid Insurance 5,700
To record the expired portion of the prepaid insurance.


7.

Prepaid Insurance 10,440
Cash 10,440
To record the payment of insurance


8.

Output Tax 16,000
Cash 16,000
To record the payment of sales taxes


9.

Operating Expenses 89,000
Cash 89,000
To record the payment of operating expenses


10.

Bonds Payable 48,300
Interest Expense 2,415
Cash 46,500
Loss on Redemption of Bonds 4,215


11.

Cash 90,640
Bonds Payable 88,000
Premium on Bonds Payable 2,640
to record the bonds issued at 103.


12.

Insurance Expense 4,350
Prepaid Insurance 4,350
To record the expired portion of the prepaid insurance


13.

Depreciation Expense 7,000
Accumulated Depreciation 7,000
To record the depreciation of equipment.


14.

Income Tax Expense (103,120 x 30%) 30,936
Income Tax Payable 30,936
To record the income tax for the year ended.


2. Adjusted Trial Balance

Account Debit Credit
Cash 247,610
Inventory 5,550
Prepaid Insurance 6,090
Equipment 38,100
Accumulated Depreciation 7,000
Accounts Payable 34,800
Interest Payable 0
Bonds Payable 88,000
Common Stock 25,100
Retained Earnings 19,435
Sales 484,000
Cost of Goods Sold 270,000
Output Tax 13,040
Interest Expense 4,830
Insurance Expense 10,050
Operating Expense 89,000
Gain/Loss on Redemption of Bonds 4,215
Premium on Bonds Payable 2,640
Depreciation Expense 7,000
Income Tax Expense 30,936
Income Tax Payable 30,936
Total 709,166 709,166


3. Income Statement

Sales 484,000
Less Cost of Goods Sold -270,000
Gross Margin 214,000
Less: Expenses
Interest Expense -4,830
Insurance Expense -10,050
Operating Expense -89,000
Depreciation Expense -7,000
Earnings Before Taxes 103,120
Income Tax Expense -30,936
Net Income 72,184


4. Statement of Retained Earnings

Beginning Retained Earnings 19,435
Net Income 72,184
Gain/Loss on Redemption of Bonds 4,215
Ending Retained Earnings 95,834


5. Balance Sheet

Assets
Current Assets
Cash 247,610
Inventory 5,550
Prepaid Insurance 6,090
Total Current Assets 259,250
Non-Current Assets
Equipment 38,100
Accumulated Depreciation -7,000
Total Non-current Assets 31,100
Total Assets 290,350
Liabilities and Equity
Current Liabilities
Accounts Payable 34,800
Income Tax Payable 30,936
Total Current Liabilities 65,736
Non-current Liabilities
Bonds Payable 88,000
Premium on Bonds Payable 2,640
Total Non-current Liabilities 90,640
Total Liabilities 156,376
Equity
Common Stock 25,100
Retained Earnings 95,834
Output Tax 13,040
Total Equity 133,974
Total Liabilities and Equity 290,350

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