AApp1-23 Perform All Accounting Cycle Steps: Construction Resources Limited (CRL), a calendar-year firm, began operations as a retailer in January 20×5.
Information about transactions and adjustments in 20×5:
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Investors contributed $500,000 in exchange for 70,000 shares of no-par common shares.
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CRL obtained a 6%, $500,000 bank loan on 1 February. This loan is evidenced by a signed promissory note calling for interest payments every 1 February. The note is due in full on 31 January 20×9.
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A rental contract for production and office facilities was signed on 1 February, which required $12,000 immediate payment covering both the first month’s rent and a $7,000 deposit refundable in three years or upon termination of the contract, whichever occurs first. Monthly rent is $5,000. As an added incentive to pay rent in advance, CRL accepted an offer to maintain rent at $5,000 per month for the first three years if CRL paid the 2nd through the 13th (March 20×5 through February 20×6) months’ rent immediately. In all, CRL paid $72,000 for rent on 1 February. CRL intends to occupy the facilities for at least three years.
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Equipment costing $350,000 was purchased for cash in early February. It has an estimated residual value of $35,000 and a six-year useful life. CRL uses the straight-line method of depreciation. A full year of depreciation is recorded in the year of acquisition.
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CRL recognized various cash operating expenses for the year, including the following:
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Total merchandise inventory purchases for the year, on account, amounted to $4,815,000.
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All suppliers were paid for except for $90,000 outstanding at year-end.
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All sales are made on credit and totalled $5,900,000 in 20×5; $4,925,000 was collected on account during the year. CRL estimates that 0.5% of total sales will be uncollectible and has written off $12,000 of accounts. The inventory sold had a cost of $4,447,000.
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CRL declared a cash dividend of $114,000, payable in January 20×6.
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Income tax expense is $342,000. All taxes for a fiscal year are payable in April of the following year.
Perform the 10 accounting cycle steps for CRL for 20×5. Worksheets, special journals, and subsidiary ledgers are not required. Prepare journal entries in summary (for the year) form. Post to T-accounts. CRL uses the expedient recording system and records reversing entries, whenever appropriate. CRL uses a perpetual inventory system.
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