Question: Becky Olson established her corporation, Olson
Becky Olson established her corporation, Olson Sports, Inc., several years ago in Boulder, Colorado, to sell hiking and ski equipment in her store and online. The annual reporting period for the company ends December 31. Becky prepared the adjusted trial balance below at the end of 2023. However, her CPA audited the trial balance information she presented and found several items that need to be updated before financial statements can be prepared. These items are listed below Becky’s trial balance. All amounts in the trial balance and in the listed items to be updated are in thousands of dollars.
a. On the last day of the year, failed to record the $100 sale of hiking merchandise to a customer who paid with his Visa credit card. Visa charges Olson Sports a 3 percent fee.
b. On December 31, failed to write off a $3 bad debt.
c. Failed to record bad debt expense for the year. After the write-off in (b), based on an aging of the accounts receivable, Olson Sports calculated that $21 will likely be uncollectible.
d. The auditor noted that the inventory is listed on the trial balance at current cost using the first-in, firstout method. However, it should be measured using the last-in, first-out method. Beginning inventory was 15 units at $10 per unit, the April 10 purchase was 40 units at $11 per unit, the July 2 purchase was 52 units at $13 per unit, and the October 4 purchase was 28 units at $16 per unit. The count of inventory on hand at the end of the year was 35 units.
e. Failed to record $10 in new store fixtures (equipment) that arrived at Olson Sports’s shipping dock during the last week of the year, with payment due to the manufacturer within 30 days. Olson Sports paid $1 cash for delivery and $3 to install the new fixtures.
f. On December 31, failed to record the sale of old computers (equipment) with a cost of $20 and a net book value of $8 for $3 cash. When they were sold, no depreciation had been recorded for the year. Olson Sports depreciates computer equipment using the straight-line method with a residual value of $4 over a four-year useful life. (Hint: Prepare two entries.)
g. Failed to amortize the accounting software that Olson Sports purchased at the beginning of the year. It is estimated to have a three-year useful life with no residual value. The company does not use a contra-account.
h. Failed to record the annual depreciation for the building and furniture (equipment):
• The building is depreciated using the straight-line method with a residual value of $9 over a 20-year useful life.
• Furniture costing $120 is depreciated using the double-declining-balance method with a residual value of $20 over a 10-year useful life. The accumulated depreciation of the furniture at the beginning of the year was $60.
i. Failed to record income tax expense for the year. Including the effects of the above entries, record Olson Sports’s income tax expense at an effective rate of 24 percent. Round your answer to the nearest dollar.
Required:
1. Prepare journal entries to record the transactions and adjustments listed in (a) through (i).
2. If you are completing this problem manually, create T-accounts, using the trial balance information as beginning balances, and then post the entries from requirement 1 to the T-accounts. Then prepare a revised adjusted trial balance. (If you are completing this problem in Connect, this requirement will be completed automatically for you using your responses to requirement 1.)
3. Prepare Olson Sports’s annual income statement (multiple-step format with income from operations subtotal), statement of stockholders’ equity, and classified balance sheet.
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