INTERMEDIATE ACCOUNTING BAY YACHT CORPORATION - GENERAL INFORMATION

The Bay Yacht Corporation is a publicly-traded corporation that was formed on January 1 2012.

The following assumptions were utilized in this problem:

1. The Corporation uses accrual basis accounting.

2. All numbers (except Earnings per Share numbers) are rounded to the nearest whole dollar.

3. Prepaid expenses and unearned revenues are initially recorded in balance sheet accounts.

4. Reversing entries are made for required accruals on the first day of the new year. Adjusting entries are only made once a year on December 31.

5. All sales are made on account, and all sales are subject to a sales tax rate of 8%.

6. Sales are recorded at the Gross Method and a 2% discount is given if the receivable is paid within 10 days.

7. The Corporation uses a perpetual inventory system to track inventory.

8. Inventory purchases are recorded using the gross method.

9. The gross profit on selling price is 60% which means cost of goods sold is 40% of the selling price.

10. The Corporation uses straight-line depreciation. The following depreciation schedule is provided to assist in this problem. Assume that the Corporation takes a full year of depreciation in the year of acquisition and no depreciation in the year of disposal. Also, salvage value is zero on all fixed assets.

11. The Corporation uses straight-line amortization on appropriate intangible assets. The following schedule is provided to assist in this problem. Assume that a full year of amortization is taken in the year of acquisition and no amortization is taken in the year of disposal.

12. Assume all payables are paid on appropriate dates.

13. Vendors offer a 2% discount on all purchases paid within 10 days.

14. Sales tax payable are remitted quarterly to the State Department of Taxation and Finance. The following schedule details the information and the remittance dates for the quarter. Note: the sales for December 2015 were $1,000,000 and the appropriate amount of sales tax was in the Sales Tax Payable account at year-end.

15. Payroll is paid bi-weekly with the pay period ending on Fridays. Electronic transfers are required to be made on the date the payroll for the following items: federal withholding, state withholding, social security, Medicare, and state unemployment tax (SUTA). The federal unemployment tax is paid once a year on January 31 for the previous year.

Note: December 31, 2015, landed on a Friday. Therefore, the payroll and related liabilities were recorded and paid to employees and the appropriate agencies as of that date. This explains the zero balances in the wages and salaries payable accounts and the related payroll liabilities.

Note: December 31, 2016, falls on a Monday.

16. Payroll tables are located in Worksheet 6 (WS6). The tables detail the number of employees and pertinent information such as rates and bases for computing payroll.

17. The Note Payable is a 14 month note which was issued on October 1, 2015, at a stated interest rate of 8%.

18. The Interest Payable account reflected the accrued interest on the Note Payable as of year-end 2015.

19. The Corporation sells extended warranty agreements. These monies go into the Unearned Revenue: Extended Warranties account until the warranty expires or until the company has to provide service for the warranty.

20. The Corporation uses the expense warranty approach, accrual basis, to accrue estimated warranty costs. These estimated amounts are recorded in the Estimated Liability under Warranties account until warranty work is completed.

21. Quarterly income tax payments are made to the appropriate agencies throughout the year. The quarter ending December 31 will require an adjusting entry to accrue the amount of income tax expense which has not been paid to date.
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22. The $40,000,000, 10%, Bond Payable was issued on June 30, 2015. The bond pays interest semi-annually on June 30 and December 31. The market rate of interest is 12%. The Corporation amortizes the Discount on the Bonds Payable using the effective-interest method. The following table provides information regarding the bond.

23. The Corporation is authorized to issue 100,000 shares of 6%, 100 par, non-cumulative, non-participating, non-convertible Preferred Stock.

24. The Corporation is authorized to issue 1,000,000 shares of $10 par value Common Stock.

25. The Corporation purchased 5,000 shares of its Common Stock and put it in its Treasury Stock account. The purchase was made in 2013 at $20 per share.

26. The Unrealized Holding Gain or Loss: Equity account was a result of the securities fair value adjustment for the Available-for-Sale Securities account for the year-end 2015. Corporate management intends to hold these securities for an indefinite period of time.

27. All dividends are taken directly out of the Retained Earnings account when declared.

BAY YACHT CORPORATION - JANUARY 1 - NOVEMBER 30, 2016, INFORMATION

The journal contains summary journal entries which occurred from January 1 - November 30, 2016. These entries have been posted to the appropriate general ledger accounts. Hint, it would be helpful to review these entries before working on the journal entries for December 2016. The Journal can be found in Worksheet 2 (WS2), and the General Ledger Accounts can be found in Worksheet 3 (WS3). Moreover, payroll information can be found in Worksheet 6 (WS6).

BAY YACHT CORPORATION - DECEMBER 2016 INFORMATION

Record the following transactions in the Journal located in Worksheet 2 (WS2) - a special section has been set up for December 2016 journal entries.

1. On December 1, 2016, the Corporation reissued 2,000 shares of its Treasury Stock for $30 per share.

2. The Note Payable that was issued on October 1, 2015, reaches it maturity on December 1, 2016. Record the payment of the note and the related interest. Hint, interest had been accrued on the note at December 31, 2015. WS 1 - 3

3. The Corporation declared a cash dividend on December 1, 2016, to stockholders of record on December 15, 2016. The cash dividend will be paid on December 31, 2016. The total cash dividend declared was $820,000. Determine the amount which will be owed to the preferred stockholders and the common stockholders. Note: the dividend is deducted directly from the Retained Earnings account.

4. The utility bill for November was received and paid on December 5, 2016. The total bill was $3,500 with $2,000 for Administrative and $1,500 for Sales.

5. The Corporation sold a yacht for $2,000,000 plus sales tax on account on December 6, 2016. The cost of the yacht was 40% of the selling price (not including sales tax). Remember, the Corporation uses a perpetual inventory system.

6. On December 12, 2016, the Corporation received payment of $3,153,600 of account. This payment was made within the discount period, and the check was for the correct amount after deducting the discount.

7. The Corporation received notification that one of its Account Receivable customers has filed for bankruptcy, so they wrote off $5,000 on the account on December 13, 2016.

8. The Corporation purchased $6,603,000 of inventory on account on December 13, 2016.

9. Several items were returned for warranty work on December 14, 2016. The Corporation used $24,000 of inventory to complete the repairs, and they refunded $6,000 to dissatisfied customers.

10. The Corporation was having a very good year and decided to invest in $15,000,000 of new sales equipment. They paid cash for the equipment on December 14, 2016. Note: the equipment has already been added to the above Depreciation Schedule.

11. On December 14, 2016, the Corporation accrued and paid its bi-weekly payroll. See Worksheet 6 (WS6) for the payroll information. All of the payroll numbers have been computed to prepare the journal entries to record the gross payroll and related payroll tax. Refer to General Information: Item 15 (above) for additional information. There will be five journal entries to record and pay the payroll and related items.

12. On December 16, 2016, the Corporation sold $400,000 of Equipment: Sales for $150,000. The equipment was 80% depreciated. The reduction in equipment has already been put on the above Depreciation Schedule. Record the journal entry to record the sale and remove the equipment from the books.

13. The Corporation paid its quarterly sales tax on December 20, 2016. Refer to Sales Tax Payable account in the General Ledger to see the amount owed for September, October, and November of 2016. The amount should not include monies collected for sales tax in December.

14. On December 28, 2016, the Corporation accrued and paid its bi-weekly payroll. See Worksheet 6 (WS6) for the payroll information. All of the payroll numbers have been computed to prepare the journal entries to record the gross payroll and related payroll tax. Refer to General Information: Item 15 (above) for additional information.

There will be five journal entries to record and pay the payroll and related items.

15. The Corporation paid the December 31, 2016, bond interest payment. See the above Amortization Schedule to assist you in preparing this entry. Note: General Information - Item 22 contains the information regarding the Bond Payable.

16. The Corporation paid the cash dividend on December 31, 2016, which had been declared on December 1, 2016.

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17. The Corporation transferred $200,000 of Cash from its checking account to its savings account on December 31, 2016.

18. The Corporation determined $140,000 of the Unearned Revenue: Extended Warranties has been earned as of December 31, 2016. Due to immateriality, the amount is recorded in the Sales account.

19. The Corporation issued $20,000,000, 10%, 10-year debenture bonds on December 31, 2016, when the market (effective) rate of interest was 8%. The bonds will pay interest semi-annually on June 30 and December 31. The monies will be used to expand the business.

BAY YACHT CORPORATION - YEAR-END DECEMBER 2016 ADJUSTING ENTRIES INFORMATION

Hint: Journalize and post all of December transactions to update the accounts before working on the adjusting entries. This will ensure that the accounts have been updated before starting the adjusting entries. Also, prepare the trial balance on the worksheet, to ensure debits equal credits, before doing the adjusting entries.

Record the following adjusting entries in the Journal located in Worksheet 2 (WS2) - a special section has been set up for adjusting entries. Date all adjusting entries December 31, 2016.

1. The Corporation estimates bad debts expense to be .1% (.001) of net sales.

2. A $4,000 utility bill was received for December. Of the total, $2,200 was for Administrative and $1,800 was for Sales. Record this liability in the Accounts Payable account.

3. Accrue one day of payroll including the gross pay and the related items. See Worksheet 6 (WS6) for the payroll information. All of the payroll numbers have been computed to prepare the journal entries to record the gross payroll and related payroll tax. Refer to General Information: Item 15 (above) for additional information. There will be two journal entries to record the accrued payroll and related items.

4. The Corporation used up one-half of the amounts in the Prepaid Insurance: Sales and Prepaid Insurance:

Administrative accounts.

5. The Corporation determined the estimated liability for warranties to be 1% (.01) of net sales for the year.

6. Record the depreciation expense for administrative and sales fixed assets. Refer to the above Depreciation Schedule.

7. Record the amortization expense for the intangible assets where appropriate. Refer to the above Amortization Schedule.

8. The Corporation took physical inventories for Office Supplies: Administrative and Supplies: Sales. They determined that the ending inventory for Office Supplies: Administrative was $2,860 and $4,870 for Supplies: Sales. Record the amount of supplies used up for the year.

9. The fair market value for the Available-for-Sale Securities increased by $10,000 for the year.

10. The Corporation determined it would need to accrue another $2,250,000 for income tax expense for the year.

WS 1 - 5 BAY YACHT CORPORATION - DECEMBER 31, 2016, FINANCIAL STATEMENTS INFORMATION

Prepare the following financial statements for Bay Yacht Corporation for the year-ended December 31, 2016, in Worksheet 7 (WS7). The working papers for the financial statements are formatted. Utilize examples from the textbook and in-class notes to prepare the financial statements in a professional manner. Worksheet 5 (WS5) contains additional information to be used in preparing the financial statements.

1. Multiple-step Income Statement (including the appropriate Earnings per Share numbers). Note: the Payroll Tax Expense can be included under Administrative Expenses based on materiality.

2. Comprehensive Income Statement

3. Statement of Retained Earnings

4. Classified Balance Sheet (including the required disclosures). Show the carrying value of each bond separately.

BAY YACHT CORPORATION - YEAR-END DECEMBER 2016 CLOSING ENTRIES INFORMATION

Hint: Journalize and post all adjusting entries to update the accounts before working on the closing entries. This will ensure the accounts have been updated before starting the closing entries. Also, prepare the adjusted trial balance and complete the worksheet to ensure the net income on the worksheet matches the net income on the Income Statement and the amount being closed to the Retained Earnings account.

Record the closing entries in the Journal located in Worksheet 2 (WS2) - a special section has been set up for the closing entries. In fact, all of the temporary accounts have been set up as closing entries. Fill in the ending balances from the General Ledger accounts to complete the closing process. Remember to post closing entries to the General Ledger accounts which will close all temporary accounts and update the Retained Earnings account. Accounts will zero balances can be left blank for the dollar amount and the posting reference. Do not delete unused accounts.

Attachment:- yatch Corporation.xlsx