Problem I - ABC Company finally decides to sell its buggy whip manufacturing division in 2006. Its operating loss for 2006 for the division is $120,000 and at December 31 2006 believes that it will have to sell the division at a loss of $100,000. However, it does not enter into an agreement to sell until March of 2007, after the 2006 financial statements are released. The final sales agreement causes ABC Company to sell the division at a loss of $80,000. The operating loss for the buggy whip division prior to disposal in 2007 is $50,000. ABC has a 40% tax rate.
Show in good form how ABC would report these events for the disposal in their 2007 comparative income statement (i.e. for both 2006 & 2007). (Ignore EPS disclosures)
Problem II - Adjusting Entries
The following account balances were taken from the trial balance of the Sno-Top Ski Resort on December 31, 2010. For the month ended December 31, 2010, make the necessary adjusting entries using the account balances along with the added information supplied below. (Assume normal DR or CR balances.)
Prepaid Insurance $4,080
Office Supplies 700
Storage Revenues 6,000
Salaries Expense 203,900
Ski lifts 325,000
Accumulated Depr. - lifts 73,000
Note payable (12%, due in 7 months) 450,000
1. Monthly insurance expense amounts to $4000.
2. One-third of the storage revenue fees collected was for ski storage during the next year.
3. Employees have earned $5000 for working in December but will not be paid until January.
4. A physical inventory determined that $150 of the office supplies were still on hand.
5. Depreciation on the ski lifts for the month amounts to $8,000.
6. At month-end they did not pay the monthly interest owed on their note payable.
Problem III - The adjusted trial balance for Chai Tea Company at December 31, 2010 is presented below:
Debit Credit
Cash 10,500
Accounts receivable 130,000
Allowance for uncollectible accounts 10,000
Prepaid rent 5,000
Inventory 25,000
Equipment 300,000
Accumulated depreciation-equipment 125,000
Accounts payable 20,000
Notes payable - due in three months 30,000
Salaries payable 4,000
Interest payable 1,000
Common stock 200,000
Retained earnings 50,000
Dividends 20,000
Sales revenue 400,000
Costs of goods sold 180,000
Salaries expense 120,000
Rent expense 15,000
Depreciation expense 30,000
Interest expense 2,000
Bad debt expense 2,500 _______
Totals $840,000 $840,000
Required: Prepare the closing entries for Chai Tea Company for the year 2010.