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Comprehensive Question (50 pts.) Bitter Lake, Inc. is a corporation that sells beach recreation items, including surfboards, boogie boards, and related apparel. They sell to specialty retail stores as well as directly to customers. The following is their balance sheet for the 2012 year-end Bitter Lake, Inc.: Balance Sheet for the year ended December 31,2012 ASSETS Current Assets: Cash Shorn-term investments Accounts receiv able Inventory Prepaid advertis ing 23851 Total curent asscts PP&E (net) Long-tem investnents Total assets LIA BILITIES AND SHAREHOLDERS BQUITY Current Liabilitics Wages payabk Accounts payable Loan payable- current portion Total cument labilities Loan payable Total labilities Sharcholderscquty Common stock Addsional paid-in capial Retained carnings Total sharcholders equity Total labilities and sharchoders equity Bitter Lake, Inc. had the following transactions (and no others) during 2013: 1. They paid all wages owed to employees for work performed in 2012. 2. They paid $512 for purchases made on account in 2012 3. They received $7,671 cash related to sales recognized prior to 2013. 4. They purchased, on account, $17,944 of surf shorts and sunglasses to sell. 5. They made sales to local retail stores for $22,594;$6,617 was on account and the 3 6. 7. 8. remainder was for cash. The cost of the sales was $12,734 They made sales directly to customers for $22,271, all for cash. The cost of the sales was $9,888 Employees earned $6,217 for work during 2013; $457 is payable in January, 2014 and the rest was paid in cash. They incurred and paid selling and administrative expenses of $4,390 On January 15,2013, they issued 200 shares of $2 par common stock; the total cash received was $85 per share. 9. 10. They declare a dividend of $1.40 per share on June 30, 2013. It is paid on August 15 2013. Note: All common stock issued prior to 2013 has a par value of $2 per share.
11. They signed a contract to run boogie board clinics in February, 2014. They were paid S5,600 when the contract was signed (on December 9, 2013), and will receive S11,200 after the clinics are complete. place on December 31, 2013. and $1,530 was interest. 12. They purchased new manufacturing equipment for $15,000 cash. This transaction took 13. They made a loan payment of $3,030 on December 31, 2013. S1,500 was loan principal, Assume the above were the only transactions made during 2013. You have the following additional information: The company agrees to sponsor the Fort Ebey Salmon, a local surf team. The agreement started with a single payment on July 1, 2011, and covers three years of sponsorship. They classified the expenditure as Prepaid advertising (this is the only prepaid expense they have recorded) The PP&E not purchased in 2013 was purchased on January 1,2010. Depreciation is calculated on a straight-line basis (equal cost each year) with estimated economic useful life of 26 years and zero residual value (the purchase cost is allocated in full after 26 years) a. b. c. An inventory count on December 31, 2013 yields an ending balance of $18,708. The d. The next loan payment is due on December 31, 2014. It will include $1,440 in interest e. The tax rate on pretax income is 30%. Taxes are payable the following year (note: Bitter company determines the missing inventory must have been stolen. for 2014 and $1,500 in loan principal. Lake, Inc. did not incur any taxes in 2012) Required: i. Record journal entries for all transactions and adjustments for 2013. Please clearly label all entries with relevant transaction numbers/letters. (40 pts.) i. Fill in the table on page 12, showing the impact of specific transactions on net income and cash. (10 pts.)
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