12/31/17 Balance Sheet Cash $17,000 Accounts Receivable $12,000 Prepaid Insuranc
ID: 2341683 • Letter: 1
Question
12/31/17 Balance Sheet
Cash $17,000
Accounts Receivable $12,000
Prepaid Insurance $5,000
Inventory $15,000
Total $49,000
Equipment $100,000
Accumulated Depreciation $(20,000)
Total $80,000
Total Assets $129,000
Accounts Payable $9,000
Income Taxes Payable $3,000
Total Liabilities $12,000
Common Stock $100,000
Retained Earnings $17,000
Total Equity $117,000
Total Liabilities & Equity $129,000
Additional Information:
Sales for 2018 are expected to be $200,000.
Accounts Receivable turnover is expected to be 12 times - 30 days of sales in accounts receivable out of a 360 day year (1/12 of annual sales). This would be used to get ending accounts receivable on the 2018 balance sheet – day’s sales in accounts receivable is ending accounts receivable divided by average sales (sales for 2018 divided by 360 days). We can “back into” ending accounts receivables once we have estimated sales. Note that the turnover ratio changes so the turnover ratio at the end of 2017 may have been different than that expected at the end of 2018.
Gross Margin ratio is expected to be 40 percent.
Inventory Turnover is expected to be 12 times - 30 days of cost of sales in ending inventory out of a 360 day year (based upon cost of goods sold and ending 2018 inventory). This would be used to get inventory on the 2018 balance sheet. See accounts receivable above for similar computations.
The cost of ending inventory is expected to be paid next month – ending accounts payable will be same as ending inventory. Or, to state in another way, accounts payable turnover is same as the inventory turnover. The assumption is that only inventory purchases flow through accounts payable – the assumption actually used by most manufacturing/merchandising companies when prepared the statement of cash flows.
Equipment was purchased on 1/1/18 for $20,000. Equipment has a five year life, no salvage value, and is depreciated using the straight-line method. The old equipment is being depreciated on the same basis.
Salaries are expected to be $2,000 per month. It is expected that one-half month will be owed on 12/31/18 because of when payday falls.
$30,000 in cash was borrowed on 12/31/18 by issuing a Note Payable.
Insurance costing $18,000 was purchased on 6/1/18 (the same time in which the policy purchased in 2017 expired - the new policy was for 12 months).
The tax rate is 30 percent. Income taxes for the current year are payable during the first two months of the next year.
Dividends of $2,000 were paid during 2018.
I've started the income statement, just want to make sure I'm on the right track to keep on going.
I need an income statement, statement of retained earnings, balance sheet(12/31/17 & 12/31/18) and statement of cash flow (direct method)
Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Income Statement: Sales 200000 Less: Cost of Goods Sold (100%-40%) 120000 Gross Margin 40% 80000 Less: Operating Expense Depeciation Epense Old 20000 New 20000/5 4000 Salaries Expense 2000*12 24000 Insurance Expense Old Policy 5000 New Policy 18000/12*7 10500 Income Before Tax 16500 Less: Taxation 30% 4950 Net Income 11550 Statement of Retained Earning: Beginning Balance 17000 Add: Net Income 11550 Less: Dividend 2000 Ending Balance 26550 Balance Sheet: Beginning Working Ending Cash 17000 Working Below 62333 Accounts Receivable 12000 200000/12 16667 Prepaid Insurance 5000 18000*5/12 7500 Inventory 15000 120000/12 10000 Total 49000 96500 Equipment 100000 100000+20000 120000 Acc Depreciation -20000 20000+4000+20000 -44000 Total 80000 76000 Total Assets 129000 172500 0 Accounts Payable 9000 Same as inventory 10000 Note Payable 0 30000 Salaries Payable 0 2000/2 1000 Income Tax Payable 3000 From Income Stat 4950 Total Liabilities 12000 45950 Common Stock 100000 100000 Retained Earning 17000 From Ret Earning 26550 Total Equity 117000 126550 Total Equity and Liabilities 129000 172500 Working-1 Beginning Cash 17000 Collection from Customers 195333 12000+200000-16667 Note Payable Borrowing 30000 Payment for Insurance -18000 Payment of Payables -114000 (9000+115000Purchases-10000) Equipment Pur -20000 Income Tax Payment -3000 Salaries Payment -23000 24000-1000 Dividend Payment -2000 Ending Cash 62333 COGS 120000 Less:Beginning 15000 add: Ending 10000 Purchase 115000 Statement of Cash Flow: Cash flow from operating activities: Cash received from Customers 195333 Cash paid for merchandise -114000 Cash paid for Salaries -23000 Cash Paid for Income Tax -3000 Cash paid for Insurance -18000 Net Cash provided by Operating Activities 37333 Cash flow from investing activities: Purchase of Equipment -20000 Net Cash used by Investing Activities -20000 Cash flow from Financing activities: Borrowing 30000 Dividend Paid -2000 Net Cash used by Financing Activities 28000 Net Increase or (Decrease) in Cash 45333 Add: Beginning Balance 17000 Ending Balance 62333
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