Comprehensive problem
Laidig Industries has prepared the following unadjusted trial balance as of December 31, 2012:
|
Debit |
Credit |
|
|
Cash |
$1 10,000 |
|
|
Accounts receivable |
340,000 |
|
|
Allowance for doubtful accounts |
$50,000 |
|
|
Inventory (balance 1/1/12) |
467,000 |
|
|
Prepaid insurance |
60,000 |
|
|
Fixed assets |
850,000 |
|
|
Accumulated depreciation |
287,000 |
|
|
Accounts payable |
200,000 |
|
|
Dividends payable |
45,000 |
|
|
Bonds payable |
500,000 |
|
|
Common stock |
100,000 |
|
|
Retained earnings |
673,000 |
|
|
Sales |
1,256,000 |
|
|
Gain on sale of land |
76,000 |
|
|
Extraordinary loss |
35,000 |
|
|
Income effect due to flange in accounting principle |
60,000 |
|
|
Purchases |
750,000 |
|
|
Administrative expenses |
100,000 |
|
|
Selling expenses |
255,000 |
|
|
Interest expense |
25,000 |
|
|
Dividends |
135,000 |
ADDITIONAL INFORMATION:
- A physical count of inventory on December 31, 2012, indicated that the company had $480,000 of inventory on hand.
- An aging of accounts receivable indicates that $75,000 is uncollectible.
- The company uses straight-line depreciation. The assets have a ten-year life and zero salvage value.
- The company used a third of the remaining insurance policy during 2012.
- The company pays interest for its bond payable on December 31 of every year. The coupon rate and the effective rate are both 10 percent per year.
- The company”s tax rate is 35 percent. All income tax charges are recorded at the end of the year.
- 200,000 shares of common stock were outstanding during 2012.
REQUIRED:
Prepare the following:
a. The necessary adjusting and closing entries on December 31, 2012.
b. An income statement including recommended earnings-per-share disclosures.
c. A reconciliation of retained earnings.
d. In terms of the objectives of financial accounting, discuss the usefulness of the various measures of income included on the statement.