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Basic Accounting Cycle: Journal Entries and Adjusting Entries

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Mulder Corporation's balance sheet at December 31, 2006 is presented below.

Mulder Corporation
Balance sheet
December 31, 2006
Cash $13,100 Accounts payable $8,750
Accounts receivable 19,780 Common Stock 20,000
Allowance for doubtful accounts (1000) Retained earnings 12,530
Merchandise inventory 9,400 $41,280

During January 2007, the following transactions occurred. Mulder uses the perpetual inventory method.
Jan. 1 Mulder accepted a 4-month, 12% note from Alien Company in payment of Alien's $1000 account.
3 Mulder wrote off as uncollectible the accounts of Ex Corporation ($450) and Files Company ($230).
8 Mulder purchased $17,200 of inventory on account.
11 Mulder sold for $25,000 on account inventory that cost $15,000
15 Mulder sold inventory that cost $600 to Ben Borke for $1000. Borke charged this amount on his Visa First Bank card. The service fee charged Mulder by First Bank is 3%.
17 Mulder collected $21,900 from customers on account.
21 Mulder paid $16,300 on accounts payable.
24 Mulder received payment in full ($230) from Files Company on the account written off on January 3.
27 Mulder Purchased advertising supplies for $1,400 cash.
31 Mulder paid other operating expenses, $4218.

Adjustment data:
1. Interest is recorded for the month on the note from January 1.
2. Bad debts are expected to be 6% of the January 31, 2007, accounts receivable.
3. Account of advertising supplies on January 31, 2007, reveals that $560 remains unused.
4. The income tax rate is 30% (Hint: Prepare the income statement up to "Income before taxes" and multiply by 30% to compute the amount.)
(You may want to set up T accounts to determine ending balancing.)
a) Prepare journal entries for the transactions listed above and adjusting entries.
b) Prepare an adjusted trial balance at January 31, 2007.
c) Prepare an income statement and a retained earnings statement for the month ending January 31, 2007, and a classified balance sheet as of January 31, 2007.

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Solution Summary

This solution answers various questions regarding journal entries and adjusting entries.