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Perpetual Inventory Method   
  
Problem: 
    
Rockford Corporation is a wholesale pl
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Perpetual Inventory Method   
  
Problem: 
    
Rockford Corporation is a wholesale plumbing supply distributor. The
corporation was organized in 1981, under the laws of the State of Illinois, with an authorized capitalization of 10,000
shares of no-par common stock with a stated value of $30 per share. The common stock is sold over the counter in the local
area. You have been hired as of Wednesday, December 26, 2012, to replace the controller, who has resigned. As controller, you
are responsible for the corporation's accounting records, preparation of the financial statements, safeguarding the corporate
assets, and providing management with financial information to set prices and to monitor and control operations. You have an
assistant who keeps the payroll records, the plant asset ledger, and the perpetual inventory. There is an inventory
subsidiary ledger that is posted to daily for purchases and sales. This ledger is not included in this practice set. The
corporation secretary maintains the stockholder records, and the receptionist/secretary acts as the petty
cashier. Rockford Corporation closes its books annually on December 31 but prepares financial statements quarterly.
Adjusting entries are posted to the general ledger only at year-end; at the end of the first, second, and third quarter the
adjustments are entered only on a ten-column work sheet, not in the general ledger. Therefore, the adjusting entries to be
recorded on December 31 are annual adjustments that you must journalize and then post to the general ledger accounts before
preparing the financial statements. Rockford Corporation maintains a perpetual inventory system and takes a physical count
each year to adjust the inventory carrying amount. Purchases are recorded at the gross amount (discounts taken are recognized
at the date of payment) of the supplier's invoice, and the terms vary with each supplier. Sales on account are subject to
terms of 2/10, n/30. Discounts are taken and granted only when the terms are met. The cost of all inventory sold in December
was 80% of the sales price. The corporation uses the following journals and ledgers: JOURNALS A sales journal (S)葉o
record sales of merchandise on account. A purchases journal (P)葉o record purchases of merchandise on account. A cash
receipts journal (CR)葉o record all cash receipts. A cash disbursements journal (CD)葉o record all cash payments. A
general journal (J)葉o record all transactions that cannot be recorded in the other journals. LEDGERS A general
ledger. An accounts receivable subsidiary ledger. An accounts payable subsidiary ledger. In recording sales
transactions, each sale should be posted on the day of the sale directly to the customer's account in the subsidiary ledger,
using the invoice number as the posting reference number in the subsidiary account. Also, cash receipts from customers should
be posted to the subsidiary ledger on the day they are received. The purchase order number should be used as the posting
reference number in the subsidiary ledger for purchases on account from suppliers. Purchases from suppliers and payments to
them should be posted daily. All other individual posting may be made weekly or at the month-end. Account numbers should be
used as posting reference numbers in the journals. Officers and office personnel are salaried employees and are paid
monthly on the last day of each month. The delivery truck drivers and warehouse employees are hourly wage employees and are
paid biweekly. Each biweekly pay period ends Friday. On the following Monday your assistant, who maintains the payroll
records, provides you with a payroll summary from which you prepare general journal entries to record the biweekly payroll
and the employer's taxes on the payroll. The biweekly employees' paychecks are distributed on the following day (Tuesday).
The January 1, 2012, balances appear in the general ledger accounts as well as the November 30, 2012, balances, for those
accounts whose balances have changed. All transactions affecting the noncurrent accounts from January 1, 2012, through
November 30, 2012, with explanations, appear in these accounts to facilitate the preparation of the statement of cash
flows. Subsidiary ledger account balances as of November 30, 2012, are as follows (the balances appear in the appropriate
subsidiary ledger accounts): Accounts Receivable Boecker Builders $62,920 The Potts Company 50,300 Swanson
Brothers Construction 24,050 Trudy's Plumbing 15,100 Coconino Contractors, Inc. 27,800 Rankin Plumbing Corp. 74,350
Beverly's Building Products 14,000 Bilder Construction Company 45,200 Iwanaga Plumbing and Heating 3,700 Total
accounts receivable $317,420 Accounts Payable Phoenix Plastics $17,450 Edward's Plumbing Supplies,
Inc. 20,050 Oxenford Copperworks 26,400 Smith Pipe Company 38,100 Ron & Rod's Plumbing Products 14,850 Khatan
Steel Corp. 10,000 Total accounts payable $126,850 The transactions through December 21 have already been
recorded by the former controller. You are to begin your work by entering the transaction of December 26 for the payment of
cash to repurchase stock. December 1 Received a check in the amount of $23,569 from Swanson Brothers Construction in
full payment of invoice No. 1120 dated November 26 in the amount of $24,050. 1 Sold sewer and drainage pipe to Beverly's
Building Products on account, invoice No. 1201 for $13,150. 2 Purchased copper tubing and fittings from Edward's Plumbing
Supplies Inc. on account, purchase order No. 315 for $24,320, terms n/60. 2 Issued check No. 1580 for $26,400 to Oxenford
Copperworks in settlement of the balance owed on purchase order No. 280. 3 A court notice indicates that Iwanaga Plumbing
and Heating is bankrupt and payment of its account improbable; the president orders the account to be written off as a bad
debt (invoice No. 780). 3 Sold bathroom fixtures to Bilder Construction Company on account, invoice No.1202 for $44,900.
6 Received a check in the amount of $49,294 from The Potts Company in full payment of invoice No. 1128 dated November 27
for $50,300. 6 Sold plumbing supplies and plastic pipe to Coconino Contractors, Inc. on account, invoice No. 1203 for
$10,300. 6 Issued check No. 1581 for $810 to Standard Oil Co. in payment of gas, oil, and truck repair from Tierney's
Standard Service. 7 Issued check No. 1582 for $9,900 to Khatan Steel Corp. in full settlement of purchase order No. 312
for $10,000. 7 Issued check No. 1583 for $10,486 to Phoenix Plastics in full payment of Phoenix's invoice dated November
28 in the amount of $10,700, for purchase order No. 313, terms 2/10, n/30. 7 Received a check in the amount of $72,863
from Rankin Plumbing Corp. in full payment of invoice No. 1129 dated November 28 for $74,350. 10 Sold cast pipe to
Trudy's Plumbing on account, invoice No. 1204 for $26,300. 10 Received a check in the amount of $27,800 from Coconino
Contractors, Inc. in full payment of invoice No. 1091 dated October 20. 10 Purchased bathroom fixtures from Phoenix
Plastics, on account, purchase order No. 316 for $52,700 terms 1/10, n/30. 10 Received a check in the amount of $29,000
from Boecker Builders in partial payment of balance outstanding covering invoice Nos. 1050 and 1071. 11 The payroll
summary for the biweekly pay period ended Friday, December 7 contained the following information: Delivery and warehouse
wages.............................. $4,860 FICA taxes withheld ................................................ 350
Federal income taxes withheld .............................. 900 State income taxes withheld
.................................. 190 Net pay.............................................................. $3,420
Employer's payroll taxes: FICA tax ............................................................ $350 Federal
unemployment tax.............................. - State unemployment tax .................................. -
Issued check No. 1584 for the amount of the net pay and deposited it in the payroll bank account. Individual payroll checks
were then prepared for distribution to the biweekly employees on Tuesday, December 11. 11 Issued check No. 1585 for $600
to Scooter Gordon for lettering and sign painting on some delivery trucks. 11 Issued check No. 1586 for $6,750 to Phoenix
Plastics, in payment of Phoenix's invoice dated November 12 in the amount of $6,750, our purchase order No. 299. 12
Issued check No. 1587 for $37,719 to Smith Pipe Company in full payment of their invoice dated November 28, terms 1/15, n/60,
our purchase order No. 314. 12 Received a check in the amount of $15,100 from Trudy's Plumbing in full settlement of
invoice No. 1106 dated November 7. 12 Sold pipe, fixtures, and accessories to Trudy's Plumbing on account, invoice No.
1205 for $28,850. 13 Sold plumbing supplies and copper tubing to The Potts Company on account, invoice No. 1206 for
$31,450 13 Received a check in the amount of $33,920 from Boecker Builders in full payment of invoice No. 1071. 13
Cash sales to date totaled $12,292. 14 Received a check in the amount of $25,774 from Trudy's Plumbing in payment of
invoice No. 1204. 14 Sold plumbing fixtures and supplies to Boecker Builders, on account, invoice No. 1207 for $21,730.
17 The Potts Company returned defective copper tubing that it purchased on December 10. A credit memo in the amount of
$4,680 is issued relative to invoice No. 1206. The copper tubing had a cost of $3,550. 17 The defective copper tubing is
returned to Edward's Plumbing Supplies, Inc. along with a debit memo in the amount of $3,550 in reduction of purchase order
No. 315. 17 Issued check No. 1588 for $399 in payment of November telephone bill to Northern Illinois Communications.
18 Issued check No. 1589 in the amount of $11,360 in payment of federal withholding taxes, $9,573, and FICA taxes, $1,787,
payable on November salaries and wages; the check is remitted to the Winnebago County Bank as the depository. 18 Issued
check No. 1590 for $52,173 to Phoenix Plastics, Inc. in payment of purchase order No. 316. 19 The president informs you
that Bilder Construction Company agrees to convert the $45,200 overdue account receivable (invoice No. 1120) to a 14% note
due six months from today. 19 Purchased plumbing materials from Smith Pipe Company on account, purchase order No. 317 for
$45,800 terms 1/15, n/60. 19 Sold drain tile, plastic pipe, and copper tubing to A & B Hardware on account, invoice No.
1208 for $7,920. 20 Sold fixtures and materials to Coconino Contractors, Inc. on account, invoice No. 1209 for $42,780.
20 An invoice in the amount of $1,021 was received from S. White Trucking Company for freight on purchase order No. 317
and paid by issuing check No. 1591. 20 Received a check in the amount of $28,273 from Trudy's Plumbing in payment of
invoice No. 1205. 21 Purchased office supplies from the Pen & Pad, issuing check No. 1592 in the amount of $1,360. (Note:
Debit asset account). 21 Purchased a new Faith computer for $6,100 from Business Basics, Inc., purchase order No. 318,
paying $600 down through Check No. 1593 with the balance due in thirty days (n/30). The computer has an estimated life of
five years with a salvage value of $1,300. Use subsidiary account No. 16. Journalize the entire entry in the cash
disbursements journal. 21 Purchased bathroom and kitchen fixtures from Phoenix Plastics, on account, purchase order No.
319 for $48,330, terms 1/10, n/30. 21 Received a bill from DeKalb Transport for $2,300 for freight costs incurred during
the last 30 days, terms n/30. 24 The payroll summary for the biweekly pay period ended Friday, December 21, contained the
following information: Delivery and warehouse wages.............................. $5,770 FICA taxes withheld
................................................ 415 Federal income taxes withheld .............................. 1,067
State income taxes withheld .................................. 225 Net
pay.............................................................. $4,063 Employer's payroll taxes: FICA tax
............................................................ $ 415 Federal unemployment tax..............................
- State unemployment tax .................................. - Issued check No. 1594 for the amount of the net pay
and deposited it in the payroll bank account. Individual payroll checks were then prepared for distribution to the biweekly
employees on Monday, December 24. NOTE: Transactions up to this point have been recorded. At this point you became
controller and are responsible for recording all further transactions. 26 The board of directors voted to purchase 1,000
shares of its own stock from stockholder Dionne Schivone at $83 per share and issued check No. 1595 in payment. Stock
repurchases are recorded at cost. Rockford is purchasing these shares because Ms. Schivone had been a valuable employee.
26 The board of directors declared a $2.30 per-share cash dividend payable on January 14 to stockholders of record on
December 26 (after purchase of stock). 26 The president informs you that Beverly's Building Products agrees to convert
the $14,000 overdue accounts receivable (invoice No. 1119) balance to a 12% note due six months from today. 27 A
half-acre parcel of land adjacent to the building is acquired in exchange for 600 shares of unissued common stock. The land
has a fair value of $54,000 and will be used immediately as an outside storage lot and parking lot. 27 An invoice in the
amount of $2,650 is received from Wayne McManus, lawyer, for legal services involved in the acquisition of the adjacent
parcel of land; check No. 1596 is issued in payment. 27 Sold pipe and plumbing materials to Boecker Builders on account,
invoice No. 1210 for $45,040. 28 Issued check No. 1597 in the amount of $500 to the Northern Star for advertisement run
in the home building supplement of December 13. 28 Issued check No. 1598 in the amount of $925 to Standard Oil Co. in
payment of gas, oil, and truck repairs from Standard Oil Co. (use Freight-out). 28 Purchased copper and cast iron pipe
from Oxenford Copperworks on account, purchase order No. 320 for $58,940, terms 1/10, n/30. 28 Check No. 1599 for $15,000
is issued to the bond sinking fund trustee, Chicago Trust Co., for deposit in the sinking fund. (Use Other Assets). 28
Sold plumbing supplies to Swanson Brothers Construction on account, invoice No. 1211 for $24,650. 31 Received a check for
$21,730 from Boecker Builders in payment of invoice No. 1207. 31 Issued check No. 1600 for $43,362 to Smith Pipe Company
in payment of purchase order No. 317. 31 The custodian of the petty cash fund submits the following receipts for
reimbursement and reports a cash-on-hand count of $8. Postage stamps used ..............................................
$38 United Parcel (freight-out) .................................... 23 C.O.D. postage (freight costs)
.................................... 51 Christmas office decorations .................................. 30 Check
No. 1601 is issued and cashed to reimburse the fund. 31 Sold an electric truck-lift to Leila Stierman Co. for $2,500
cash. The original cost was $7,900 with salvage value of $900, a life of 10 years, and accumulated depreciation recorded
through 12/31/11 of $4,550. The straight-line method is used. (Note: the company follows the practice of recording a half
year's depreciation in the year of acquisition and a half year in the year of disposal.) First, bring the depreciation
expense up to date in the general journal. Then journalize the entire entry for the sale in the general journal. 31 Sold
bathroom fixtures and plumbing supplies to Trudy's Plumbing on account, invoice No. 1212 for $55,770. 31 Because for some
time the petty cash fund has been smaller than required for monthly expenditures, the fund is increased by $75 by cashing
check No. 1602 and placing the money in the petty cash fund. 31 The payroll summary for the monthly paid employees is
submitted so that December checks can be distributed before the year-end; the details are as follows: Office and
administrative salaries.......................... $40,900 Federal income taxes withheld ..............................
7,696 State income taxes withheld .................................. 1,517 FICA taxes withheld
................................................ 2,120 Net
pay.............................................................. $29,567 Issued check No. 1603 for the amount of
the net pay and deposited it in the payroll bank account. Individual payroll checks were prepared for distribution to all
monthly employees by the end of the day. Employer's payroll taxes: FICA tax (all office and administrative)..........
$2,120 Federal unemployment tax.............................. - State unemployment tax
.................................. - 31 Cash sales since December 13 total $27,980. Adjusting entries The annual
provision for doubtful accounts receivable is recorded by providing a charge to Bad Debt Expense in an amount equal to 2% of
net sales. An inventory count of the office supplies revealed $830 of supplies on hand at year-end. The insurance premium
outstanding on January 1, 2012, covers the period January 1 through August 31, 2012. The insurance premium of $7,800 recorded
in August covers the period of September 1, 2012 through August 31, 2013. Rockford estimates that 75% of the premiums are
attributable to general activities and 25% to selling activities. (Use Miscellaneous Expense). The payroll summary for the
employees who are paid biweekly shows the following information at December 31, 2012: Delivery and Warehouse Wages
............................ $5,600 FICA Taxes Payable ................................................ 390 Federal
Withholding Taxes .................................... 1,036 State Withholding
Taxes.......................................... 218 Net pay..............................................................
$3,956 The employer’s share of the FICA tax ($390) must be accrued; no state or federal unemployment tax is
incurred during the fourth quarter because all wages and salaries earned during the last quarter exceed the maximum subject
to unemployment tax. Interest has accrued at 8% on the long-term notes payable since July 1, 2012. The next six-month
interest payment at 9% on the bonds is due on March 1, 2013. The discount on bonds payable has not been amortized for any
part of 2012; the bonds are dated March 1, 2006, and mature March 1, 2016. (Use straight-line.) The interest accrued to
12/31/12 on notes receivable is composed of the following: Platteville Plumbers, 10%, 6 months, due March 31, 2013 $1,125
Bilder Construction, 11%, 6 months, due June 14, 2013 232 Beverly’s Building, 9%, 6 months, due June 26, 2013 17
$1,374 The interest accrued at 12/31/12 on the note payable of $15,000 @ 10% is $1,500. Interest is payable on
January 2, 2013. (The note is due in 2013.) A warehouse lease payment of $9,600 was made on September 1, 2012, for rental
through February 28, 2013. (The Prepaid Rent account is for advance lease payments on the warehouse.) $530 is owed to
Northern Electric Co. and $279 is owed to City of Rockford for utility services provided during December 2012. Plant and
equipment to be depreciated are composed of the following: Assets Date Acquired Cost Estimated Usage or Life Salvage Value
Depreciation Method Building 7/1/08 $306,000 25 years $20,000 sum-of-the-years’ digits Truck No. 1 4/1/09 28,000
60,000 miles 3,100 miles driven Truck No. 2 9/1/11 33,000 60,000 miles 4,200 miles driven Lift No. 1 8/17/05 7,900 10
years 900 straight-line (Sold 12/31/12) Lift No. 2 3/29/09 4,500 10 years 500 straight-line Lift No. 3 9/16/10
5,000 10 years 500 straight-line Office All prior to 32,800 7 years 2,000 straight-line Equipment 1/1/12
Computer 12/22/12 6,100 4 years 1,300 Double-decling balance Truck No. 1 has been driven 45,000 miles prior to
1/1/12 and truck No. 2 has been driven 30,500 miles prior to 1/1/12. During 2012 truck No. 1 was driven 12,000 miles and
truck No. 2 was driven 14,000 miles. Remember that the Rockford Company takes a half-year’s depreciation in the year of
acquisition and a half-year in the year of sale. Complete the work sheet. In completing the worksheet, compute State of
Illinois corporate income taxes at 41/2% of pretax income. The state income tax is deductible on the federal tax return, and
the federal tax is not deductible on the Illinois return. Assume federal corporate income tax on income subject to federal
tax is as follows: first $50,000 @15% next 25,000 @25% remainder @34% Income between $100,000 and $335,000 is
assessed a 5% federal surtax, not to exceed $11,750. Hint: Corporations subject to federal income tax must make estimated
tax payments throughout the year. At the time of the payment, the account Income Tax Expense is debited and Cash is credited.
To determine the taxable income at year end, net the total debits and total credits from the income statement in the
worksheet. Note that the estimated income tax expense is listed as a debit and must be subtracted from total debits when
determining taxable income (federal tax is not a deductible item). Instructions: To print this page, right
click anywhere on the screen you want to print and click on Print. To display/view the beginning balances use the Reports
menu and click on the Trial Balance report. To print a report, right click anywhere on the screen and click on Print (online
version) or use the print icon (CD version). Rockford Corporation uses special journals. The Purchases Journal is used
to record all purchases of merchandise on account. The Sales Journal is used to record all sales of merchandise on
account. The Receipts Journal is used to record all cash receipts. (Except for sale of Trucks) The Payments Journal is
used to record all cash payments. The General Journal is used to record all other transactions including adjusting and
closing entries. Use the Entries menu to journalize the transactions listed in the problem using a perpetual inventory
system. Choose which journal you need to use for each transaction. Instructions for each of the journals are listed with the
general instructions. The account balances shown at the beginning of the problem have been journalized and posted. Use the
Reports menu to display/print and review your entries. If you need to make changes return to the Entries menu and select
the correct journal. Get the entry by the number of the transaction. Make your correction and Save the entry. Use the Post
menu to post the journal entries when instructed. If you need to make changes to an entry once it has been posted, use the
Entries menu to get the entry, click on the Void icon, then enter the transaction with a new entry and save and post that
entry. Use the Reports menu to access/print the Unadjusted Trial Balance. Use the Entries menu to record the Adjusting
Entries listed in the problem. Check the box next to Adjusting Entries. Use the Reports menu to display/print the entries.
Use the Post menu to post the adjusting entries. Use the Reports menu to access/print the Adjusted Trial balance, Income
Statement, Owners' Equity Statement and Balance Sheet. Manually pass the entry to close Dividends declared to Retained
earnings. Check the box next to Closing Entries. Use the Close menu to close the books. Enter a zero in the dialog box when
asked for the closing inventory amount. Click on Continue when requested. Use the Reports menu to access/print the post
closing Trial Balance. To close a page click on the X in the upper right corner of the page.
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