Markel Corporation”s balance sheet at December 31, 2011, is presented below.

Markel Corporation"s balance sheet at December 31, 2011, is presented below.

MARKEL CORPORATION
Balance Sheet
December 31, 2011

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 2012, the following transactions occurred.

1. Markel paid $2,500 interest on the bonds on January 1, 2012.

2. Markel purchased $241,100 of inventory on account.

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

4. Markel paid $230,000 on accounts payable.

5. Markel paid $2,500 interest on the bonds on July 1, 2012.

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

7. On August 1, Markel paid $10,200 for insurance coverage from August 1, 2012, through July 31, 2013.

8. Markel paid $17,000 sales taxes to the state.

9. Paid other operating expenses, $91,000.

10. Retired the bonds on December 31, 2012, by paying $48,000 plus $2,500 interest.

11. Issued $90,000 of 8% bonds on December 31, 2012, 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, 2011, 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.)

(a) Prepare journal entries for the transactions listed above and adjusting entries.

(b) Prepare an adjusted trial balance at December 31, 2012.

December 31, 2012, and a classified balance sheet as of December 31, 2012.