Reference no: EM131730058
Question - The following balances were extracted from the accounting records of Chips Inc. as of December 31, 2016. Prepare the balance sheet and income statement after taking the adjustments listed below A-I into consideration.
100,000 Ordinary Shares $100,000
10 % Preference Shares $50,000
12 % Debenture (Long Term Debt) $50,000
Premises $130,000
Motor Vehicles (Gross Cost $48,000) $36,000
Purchases $219,700
Administration Expenses $73,200
Distribution Costs $102,600
Sales $476,900
Trade Receivables $39,250
Trade Payables $23,600
Inventory at January 1 2016 $21,250
Bank Balance (Asset) $70,420
Investments (At Cost) $45,800
Reserves $48,220
Debenture Interest $3,000
Preference Dividend $2,500
Ordinary Dividend $5,000
Prepare the balance sheet and income statement after taking the following adjustments into consideration.
(A) The closing inventory December 31 2016 was valued at $19,300.
(B) Preference and ordinary dividends were paid halfway through the year, as well as debenture interest, but an accrual should be made for the balance of the debenture interested for year. The company proposes a final dividend of $8,000 of ordinary shares.
(C) The audit fee has been agreed at $5,000.
(D) Insurance (included in administrative expenses) has been paid in advance and $950 relates to 2017.
(E) Accrued expenses of $480 for telephone services (included in administration expenses) and $620 for light and heat (included in distribution costs) have not yet been taken into account.
(F) The trade receivables balance includes $1200 of bad debts, which should be written off.
(G) Depreciation of 25 percent on a straight-line basis should be charged on the motor vehicles (which are vans used in distribution activities).
(H) The market value (fair value) of the investments at December 31 2016 amounts to $44,100.
(I) It is estimated that the income tax charge for 2016 will be $20,000.