TREVOR CORPORATION Balance Sheet December 31, 2013 Cash $ 30,000 Accounts payable $ 13,750 Inventory 30,750 Interest payable 2,500 Prepaid insurance

TREVOR CORPORATION

Balance Sheet

December 31, 2013

Cash

$  30,000

Accounts payable

$  13,750

Inventory

30,750

Interest payable

2,500

Prepaid insurance

5,600

Bonds payable

50,000

Equipment

38,000

Common stock

25,000

$104,350

Retained earnings

13,100

$104,350

During 2014, the following transactions occurred.

1.

Trevor paid $2,500 interest on the bonds on January 1, 2014.

2.

Trevor purchased $241,100 of inventory on account.

3.

Trevor sold for $480,000 cash inventory which cost $265,000. Trevor also collected $28,800 sales taxes.

4.

Trevor paid $230,000 on accounts payable.

5.

Trevor paid $2,500 interest on the bonds on July 1, 2014.

6.

The prepaid insurance ($5,600) expired on July 31.

7.

On August 1, Trevor paid $10,200 for insurance coverage from August 1, 2014, through July 31, 2015.

8.

Trevor paid $17,000 sales taxes to the state.

9.

Paid other operating expenses, $91,000.

10.

Redeemed the bonds on December 31, 2014, by paying $48,000 plus $2,500 interest.

11.

Issued $90,000 of 8% bonds on December 31, 2014, at 103. The bonds pay interest every June 30 and December 31.

Adjustment data:

1.

Recorded the insurance expired from item 7.

2.

The equipment was acquired on December 31, 2013, and will be depreciated on a straight-line basis over 5 years with a $3,000 salvage value.

3.

The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Instructions

(You may want to set up T-accounts to determine ending balances.)

1.

Prepare journal entries for the transactions listed above and adjusting entries.

2.

Prepare an adjusted trial balance at December 31, 2014.

Totals

$687,695