ACG 20210 Recently, Jayani, Brian, and Grant graduated from University of Florid

Question

ACG 20210 Recently, Jayani, Brian, and Grant graduated from University of Florida with Masters degrees in Business and Accounting. Instead of working for a large company, they decided to open their own custom tee shirt business in Orlando, Florida Jayani, Grant, and Brian incorporated their business on January 1, 2010, under the name JB&G; Tees here after referred to as "JB&G;". JB&G; Tees used $30,000 of their savings to start their business, each receiving 1,000 shares of $10 par common stock. A ten year, $200,000, S% note payable was issued on January 1, 2010. The note requires principal payments of $20,000 plus interest due each year beginning December 31, 2010. The company made interest payments as scheduled. January 3 purchased T-shirts for $99,000 on account. Credit terms were 3/15, n/30. Paid a $3.970 freigh January 12 paid supplier in full for goods purchased on January 3. On February 1, 2010, the company bought computers and other high-tech office equipment, accounting for the purchase as -computer equipment, for $35,000 cash. JB&G;'s estimates that the computer equipment has a five-year life with an estimated $5,000 salvage value. JB&G;'s uses the straight-line depreciation method. On April 1,2010, the company signed a two-year rental agreement for office space at $900 per month ($10,800 yearly), and prepaid the rent for the first 10 months. During 2010, the company purchased $5,500 in office supplies on account, accounting for the purchase as Supplies. Sold merchandise inventory (costing $100,000) and billed clients for $500,000 and collected $400,000. Sales merchandise (purchased on credit) returned for $10,000 (costing $2,000). The company incurred $32,000 in advertising costs. The company owes S12,000 of that amount to the advertising agency as of December 31, 2010. The company incurred $30,000 in miscellaneous administrative cost and $10,000 is still unpaid as of December 31, 2010. The company owed and paid federal income taxes of $21,000 on December 31, 2010. JB&G; paid salaries of $50,000 per partner and employee wages of $50,000. (ignore payroll taxes and other payroll-related expenses). Supplies costing $1,500 were on hand at December 31, 2010. At July 31, 2010, JB&G; determined that one accounts receivable for $450 will be uncollectible and the remaining accounts receivable will be collected in 2011. The percent-of-sales method is used to estimate uncollectible receivables. Based on industry experience, LC's bad debts expense is normally .5%. Page 1 of 2

Explanation / Answer

Journal entries Date Account Titles Debit Credit 1-Jan Cash 30000 Jayani Capital 10000 Grant Capital 10000 Brian Capital 10000 Cash 200000 10 Yr-5% Note Payable 200000 3-Jan Merchandise Inventory 99000 Accounts payable 99000 (Terms 3/15,n/30) Merchandise Inventory 3970 Cash 3970 (Freght-in) 12-Jan Accounts payable 99000 Cash(99000*(1-3%) 96030 Merchandise Inventory(3%*99000) 2970 (Discounts availed) 1-Feb Computer equipment 35000 Cash 35000 1-Apr Rent expense(900*9) 8100 Prepaid rent(900*1) 900 Cash(900*10) 9000 31-Dec Supplies 5500 Accounts payable 5500 COGS 100000 Merchandise Inventory 100000 Cash 400000 Accounts receivables 100000 Sales 500000 Sales returns 10000 Accounts receivables 10000 Merchandise Inventory 2000 COGS 2000 Advertising expense 32000 Cash(32000-12000) 20000 Accounts payable 12000 Administrative expense 30000 Cash(30000-10000) 20000 Accounts payable 10000 Income tax expense 21000 Cash 21000 Salaries & Wage expense 200000 Cash 200000 (50000*3)+50000 Supplies Expense 4000 Supplies 4000 (5500-1500) Bad debt expense 450 Accounts receivables 450 (Specific account identified) Bad debt expense 24050 Allowance for uncollectible Accounts 24050 ((500000-10000)*5%)-450 Depreciation expense 5500 Accumulated depreciation-Comp.Equip. 5500 (35000-5000)/5yrs./12 mths.*11 mths. 10 Yr-5% Note Payable 20000 Interest expense(200000*5%) 10000 Cash 30000 Cash 50000 Rent revenue 50000 (EFT collection on rent) Salaries & Wage expense 990 Cash 990 (Short-debit corrected) Accounts receivables 3010 Cash 3010 (NSF checks) Miscellaneous expense 1000 Cash 1000 (Bank Service charge) 1495470 1495470 LEDGER ACCOUNTS Net Ledger Bal. Date Account Titles Debit Credit Debit Credit 10 Yr-5% Note Payable 200000 31-Dec 10 Yr-5% Note Payable 20000 180000 3-Jan Accounts payable 99000 12-Jan Accounts payable 99000 31-Dec Accounts payable 5500 31-Dec Accounts payable 12000 31-Dec Accounts payable 10000 27500 31-Dec Accounts receivables 100000 31-Dec Accounts receivables 10000 31-Dec Accounts receivables 450 31-Dec Accounts receivables 3010 92560 31-Dec Accumulated depreciation-Comp.Equip. 5500 5500 31-Dec Administrative expense 30000 30000 31-Dec Advertising expense 32000 32000 31-Dec Allowance for uncollectible Accounts 24050 24050 31-Dec Bad debt expense 450 31-Dec Bad debt expense 24050 24500 1-Jan Brian Capital 10000 10000 1-Jan Cash 30000 Cash 200000 3-Jan Cash 3970 1-Feb Cash 35000 31-Dec Cash 400000 31-Dec Cash 21000 31-Dec Cash 200000 31-Dec Cash 30000 31-Dec Cash 50000 31-Dec Cash 990 31-Dec Cash 3010 31-Dec Cash 1000 31-Dec Cash(30000-10000) 20000 31-Dec Cash(32000-12000) 20000 Cash(900*10) 9000 12-Jan Cash(99000*(1-3%) 96030 240000 31-Dec COGS 100000 31-Dec COGS 2000 98000 1-Feb Computer equipment 35000 35000 31-Dec Depreciation expense 5500 5500 1-Jan Grant Capital 10000 10000 31-Dec Income tax expense 21000 21000 31-Dec Interest expense(200000*5%) 10000 10000 1-Jan Jayani Capital 10000 10000 3-Jan Merchandise Inventory 99000 3-Jan Merchandise Inventory 3970 31-Dec Merchandise Inventory 100000 31-Dec Merchandise Inventory 2000 12-Jan Merchandise Inventory(3%*99000) 2970 2000 31-Dec Miscellaneous expense 1000 1000 1-Apr Prepaid rent(900*1) 900 900 1-Apr Rent expense(900*9) 8100 8100 31-Dec Rent revenue 50000 50000 31-Dec Salaries & Wage expense 200000 31-Dec Salaries & Wage expense 990 200990 31-Dec Sales 500000 500000 31-Dec Sales returns 10000 10000 31-Dec Supplies 5500 31-Dec Supplies 4000 1500 31-Dec Supplies Expense 4000 4000 1495470 1495470 817050 817050 Trial Balance Account Titles Debit Credit Cash 240000 Accounts receivables 92560 Allowance for uncollectible Accounts 24050 Prepaid rent(900*1) 900 Merchandise Inventory 2000 Supplies 1500 Computer equipment 35000 Accumulated depreciation-Comp.Equip. 5500 Accounts payable 27500 10 Yr-5% Note Payable 180000 Brian Capital 10000 Grant Capital 10000 Jayani Capital 10000 Sales 500000 Sales returns 10000 Rent revenue 50000 COGS 98000 Administrative expense 30000 Advertising expense 32000 Salaries & Wage expense 200990 Depreciation expense 5500 Rent expense(900*9) 8100 Supplies Expense 4000 Miscellaneous expense 1000 Bad debt expense 24500 Interest expense(200000*5%) 10000 Income tax expense 21000 TOTAL 817050 817050 Multi-Step Income Statement for the yr. ended Dec.31.2010 Sales 500000 Less:Sales returns 10000 Net sales 490000 Less: COGs 98000 Gross Profit 392000 Less: Operating Expenses: Administrative expense 30000 Advertising expense 32000 Salaries & Wage expense 200990 Depreciation expense 5500 Rent expense(900*9) 8100 Supplies Expense 4000 Miscellaneous expense 1000 Bad debt expense 24500 306090 Operating Income 85910 Add/(Less)Non-operating items: Rent revenue 50000 Interest expense(200000*5%) -10000 40000 Income before tax 125910 Less:Income tax expense -21000 Net Income for the year 104910 Classified Balance Sheet For the year ended Dec.31, 2010 Assets Current assets Cash 240000 Accounts receivables 92560 Less:Allowance for uncollectible Accounts -24050 Prepaid rent(900*1) 900 Merchandise Inventory 2000 Supplies 1500 Total current assets 312910 Fixed assets Computer equipment 35000 Less:Acc.dep.-Comp.Equip. -5500 Net fixed assets 29500 Total assets 342410 Liabilities & Equity Liabilities Current Liabilities Accounts payable 27500 Total Current Liabilities 27500 Long-term liabilities 10 Yr-5% Note Payable 180000 Total Long-term liabilities 180000 Partner's Capital Brian Capital 10000 Grant Capital 10000 Jayani Capital 10000 Current yr. net income 104910 Total equity 134910 Total Liabilities & Equity 342410 Cash flow Statement For the Yr. ended Dec.31,2010 Operating activities: Net Income for the year 104910 Add: Non-cash adjustments: Depreciation 5500 Adjusted Net Income 110410 Changes to working capital: Less: Increase in Accounts receivables -68510 Less: Increase in prepaid rent -900 Less: Increase in Inventory -2000 Less: Increase in supplies -1500 Add: Increase in Accounts Payable 27500 Net change in wkg. Capital -45410 Cash used in Operating activities 65000 Investing Activities: Purchase of computer equipment -35000 Cash used in Investing activities -35000 Financing Activities: Issue of share capital 30000 Proceeds of Note payable 200000 Part payment of principal -20000 Cash generated in Financing activities 210000 Net cash generated 240000 Add: Beginning balance 0 Ending balance 240000 Closing Entries Sales 500000 Income Summary 490000 Sales returns 10000 Rent revenue 50000 Income Summary 50000 Income Summary 435090 COGS 98000 Administrative expense 30000 Advertising expense 32000 Salaries & Wage expense 200990 Depreciation expense 5500 Rent expense(900*9) 8100 Supplies Expense 4000 Miscellaneous expense 1000 Bad debt expense 24500 Interest expense(200000*5%) 10000 Income tax expense 21000 Income Summary 104910 Retained Earnings 104910 (490000+50000-435090) Post-Closing Trial Balance Account Titles Debit Credit Cash 240000 Accounts receivables 92560 Allowance for uncollectible Accounts 24050 Prepaid rent(900*1) 900 Merchandise Inventory 2000 Supplies 1500 Computer equipment 35000 Accumulated depreciation-Comp.Equip. 5500 Accounts payable 27500 10 Yr-5% Note Payable 180000 Brian Capital 10000 Grant Capital 10000 Jayani Capital 10000 Retained Earnings 104910 Total 371960 371960

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.