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Adjusting Journal Entries CWW

In February 20X4, Colton’s Western Wear (CWW) invested excess cash in shares of PLZ Corp., a publicly traded company with over 1,000,000 shares outstanding. CWW bought 2,700 shares at $11.65 per share. The shares were bought on speculation that they would increase in value, as analyst valuations for the next 12 months indicated that the shares would trade in the $31 to $36 range The closing price of the shares and the dividends per share are as follows for the quarter ends:

Closing Value on Stovk exchange Dividend per share

Feb 17 20×4 11.65 —

Mar 31 20×4 16.20 0.24

June 30 20×4 22.75 0.25

Sept 20 20×4 31.20 0.26

Dec 31 20×4 29.85 0.26

The dividends were declared by the board of PLZ on the 15th of the months noted and were payable on the first day of the following month.

2. In 20X2, CWW bought the mortgages on two properties in Edmonton. The company receives monthly payments that include principal and interest. One mortgage will be repaid in full in 14 years and the other in 18 years. CWW bought the mortgages with the intention of selling them at a profit when the financial conditions improve. However, both mortgageesare struggling financially, and the underlying value of the properties has declined. CWW had the value of the mortgages appraised as at December 31, 20X4, and the appraisal showed a total impairment of $38,500 on the mortgages. Interest and principal have been properly recorded for this investment; however, the results of the appraisal have not been recorded.

3. On July 1, 20X4, CWW bought General Company Inc. bonds for $250,000. The interest rate on the bonds is 7% per annum, which was equal to the market rate when the CWW acquired the bonds. Interest is paid on June 30 and December 31 each year. CWW intends to hold the bonds until they mature on June 30, 20X9. At year end, CWW had not yet received the semi-annual interest payment that was due on December 31, 20X4. The market value of the bonds was $254,500 on December 31, 20X4.

For items 4 and 5, see the schedule for PPE and Intangible Assets attached.

4. On January 1, 20X1, CWW bought the customer list of a retail store that was closing down for $10,000. The list was expected to have value for five years.

The company accounts for the customer list (an intangible asset) using the cost model. CWW uses the straight-line method to calculate depreciation and amortization. The half-year rule is applied in depreciating property, plant and equipment, including the amortization of intangible assets. The company takes a half-year of depreciation in the year of acquisition and a half-year of depreciation in the year of disposal.

5. In October 20X4, the company bought a new delivery vehicle. The cost was $18,500. The vehicle is expected to have a five-year life and a $2,000 residual value. On December 31, 20X4, the company sold the old delivery vehicle for $800; however, the journal entry to account for the sale of the vehicle has not been booked yet. On December 31, 20X4, the cash from the sale was deposited into CWW’s bank account.

The transaction was journalized as follows:

DR Cash 800

CR Gain on sale of equipment 800

All capital assets up to December 31, 20X3, are shown in the schedule below.

The opening trial balance can be found in the file attached with the PPE.


1. The adjusting journal entries with supporting calculations (26 marks)

While preparing the financial statements of CWW for the year ended December 31, 20X4, assume that income tax expense will remain unchanged for this scenario.

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