The management of Chicago Company requests your assistance in preparing its fina
ID: 2333688 • Letter: T
Question
The management of Chicago Company requests your assistance in preparing its financial statements for year 18. Chicago Company is a merchandiser in its 10th year of operations. Data pertaining to year 18 is provided below along with the balance sheet as of December 31t year 17 (1) The company's insurance apency advises that a four-year insurance policy has six moaths to run as of December 31, Year 18. The policy cost $12,000 when the com- pany paid the four-year premium during Year 15 (2) During Year 18, the company's board of directors declared $6,000 of dividends, of which the firm paid $3,000 in cash to shareholders during Year 18 and will pay the remainder during Year 19. Early in Year 18, the company also paid dividends of $1,800 cash that the board of directors had declared during Year 17 (3) On April 1, Year 18, the company received from Appleton Co. $10,900 cash, which included principal of $10,000 and intefest, in full settlement of Appleton's nine- month note dated July 1, Year 17. According to the terms of the note, Appleton paid all interest at maturity on April 1, Year 18 (4) The amount owed by the company to merchandise suppliers on December 31, Year 18, was $20,000 less than the amount owed on December 31, Year 17. During Year 18, the company paid $115,000 to merchandise suppliers. The cost of merchandise inventory on December 31, Year 18, based on a physical count, was $18,000 larger than the balance in the Merchandise Inventory account on the December 31, Year 17, balance sheet. On December 8, Year 18, the company exchanged shares of its common stock for merchandise inventory costing $11,000. The company's policy is to purchase all merchandise on account. (5) The company purchased delivery trucks on March 1, Year 18, for $60,000. To finance the acquisition, it gave the seller a S60.000 four-year note that bears interest at 10% per year. The company must pay ihterest on the note each six months, beginning r 1, Year 18. The company made the required payment on this date. The delivery trucks have an expected useful life of 10 years and an estimated salvage value Septembe of $6,000. The company uses the straight-line depreciation method. salvage value (6) The company's computer system has a siz-year total expected life and zero expected (7) The company makes all sales on account and recognizes revenue at the time of ship- ment to customers During Year 18, the company received S210,000 cash from its cus- tomers The company's accountant reconstructed the Accounts Receivable subsidiary ledger, the detailed record of the amount owed to the company by each customer.t showed that customers owed the company $51,000 on December 31, Year 18. A close examination revealed that $1,400 of the cash received from customers during Year 18 applies to merchandise that the company will not ship until Year 19. Also, $600 of the cash received from customers during Year 17 applies to merchandise not shipped to customers until Year 18 (8) The company paid $85,000 in cash to employees during Year 18. Of this amount, $6,500 relates to services that employees performed during Year 17, and $4,000 relates to services that employees will perform during Year 19. Employees performed the remainder of the services during Year 18. On December 31, Year 18, the company owes employees $1,300 for services performed during the last several days of Year 18. (9) The company paid $27,000 in cash for property and income taxes during Year 18. Or $3,000 relates this amount, $10,000 relates to income taxes applicable to Year 17, and December 31, Year 18. to property taxes applicable to Year 19. The company owes $4,000 in income taxes on (10) The company entered into a contract with a management consulting firm for consult- nt of $12,000 cash on January 1, Year 19, and the company ing services. The total contract price is $48,000. The contract requires the company intends to do so. The consulting firm had performed 10% of the estimated total con to pay the first sulting services under the contract by December 31, Year 18.Explanation / Answer
T - accounts:
Cash:
Accounts Receivable:
Advance from Customers:
Notes Receivable:
Interest Receivable:
Interest Revenue:
Merchandise Inventories:
Prepaid Insurance:
Accumulated Depreciation : Computer System
Computer System:
Delivery Trucks:
Accumulated Depreciation : Delivery Trucks:
Accounts Payable:
Notes Payable:
Interest Expense :
Interest Payable:
Chicago Company Income Statement For the year ended December 31,2018 $ $ Sales Revenue 227,200 Cost of Goods Sold 88,000 Gross Profit 139,200 Less: Operating Expenses Salaries Expense 75,800 Insurance Expense 3,000 Property Tax Expense 14,000 Consulting Fees Expense 4,800 Depreciation Expense : Computer System 13,000 Depreciation Expense : Delivery Trucks 4,500 Interest Expense 5,000 Total Operating Expenses 120,100 Income from Operations 19,100 Other Income Interest Revenue 300 Taxable Income 19,400 Income Tax Expense 4,000 Net Income 15,400Related Questions
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