CCT 601 Fall Semester, 2013 Mid-Term Exam Problem 1

| September 28, 2018

ACCT 601
Fall Semester, 2013
Mid-Term Exam

Problem 1 – 100 Points

Earnest T. Bass,
Inc., had the following debit general ledger balances as of January 1, 2012: Cash – $173,500; Short-term Investments – $20,000; Accounts Receivable – $32,500; Prepaid Insurance – $8,000; Inventory – $55,000; Land – $75,000; Buildings -$175,000; and Equipment – $80,000.

They had the
following credit general ledger balances as of January 1, 2012: Accounts Payable – $48,500; Salaries Payable – $32,500; Property Taxes Payable – $35,000; Short-Term Notes Payable – $0; Income Taxes Payable – $25,000; Interest Payable – $20,000; Long-Term Notes Payable – $187,500; Common Stock (4,000 shares outstanding) – $80,000; and Retained Earnings – Unknown…..the server
on the computer system crashed and this was lost.

Earnest T. Bass,
Inc. sells t-shirts retail. That is,
they buy t-shirt inventory and sell them at a profit. Occasionally a customer will place a special
order and the company will embroider custom made t-shirts.

In addition, the
company has a line of credit with their bank.
Anytime their cash balance falls below zero, they borrow money in
$10,000 increments at an annual interest rate of 12%. For example, if their cash balance was -$500,
they would borrow $10,000. If their cash
balance was -$12,000, they would borrow $20,000. These short-term notes payable are paid off
in $10,000 increments, including interest, when there is adequate cash on
hand. For example, assume they have
borrowed $20,000 on their line of credit.
If they had a cash balance of $11,000, they could pay off $10,000 plus
interest. The cash balance must be zero
or positive at all times. For purpose of
interest calculations, assume a 365 day year and assume the dollars are
borrowed at the end of the business day and any repayments occur at the end of
the business day.

During the month
of January, 2012, Earnest T. Bass, Inc. had the following transactions:

On January 2nd, inventory
was purchased on credit amounting to $20,000.

On January 3rd,
the company issued an additional 1,000 shares of common stock for $15.00 per
share, all received in cash.

On January 6, 2012,
the company paid $60,000 in cash for property taxes covering the period June 1,
2011 through May 30, 2012.

On January 9th,
accounts payable totaling $48,500 was paid in cash.

On January 15th,
one-half of the inventory on hand was sold for $50,000 on credit.

On January 17th,
payments were received on accounts receivable totaling $30,000.

On January 19th,
the company paid salaries of $60,000 for December, 2011 and January, 2012.

Insurance premiums
of $24,000 were paid on January 20th, 2012.
These premiums were for a policy that provides coverage from February 1,
2012 through April 30, 2012.

The long-term
notes payable of $187,500 has an annual interest rate of 10%. Principal and interest will be paid together
on January 30, 2014.

2011 income taxes
were paid on January 31, 2012. Income
taxes for 2012 will equal 40% of net income.
If there is a net loss, no income taxes will be due.

Required:

Prepare all general journal entries
for the month of January, 2012.
Prepare a trial balance as of 1/31/12.
Prepare all closing entries for the
month of January, 2012.
Prepare a post-closing trial balance
as of 1/31/12.
Prepare the income statement, balance
sheet and statement of changes in retained earnings for the month of
January, 2012 in their proper formats.

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