1. Before the business begins, you will take $5,000 cash from your savings accou
ID: 2487438 • Letter: 1
Question
1. Before the business begins, you will take $5,000 cash from your savings account to invest in the business. You will protect yourself by organizing as a corporation, with yourself as the only stockholder.
2. Before the business begins, it will buy a computer, printer, and software package that together cost $5,800. Your parents have agreed to lend the business $5,800 cash so that the business can pay for the equipment and software. The business plans to repay your parents on January 31, 2016. Your parents do not expect any interest.
3. Starting January 1, 2015, the business will charge $50 per hour for design work and bill clients as each job is completed. You expect that by December 31, 2015, the end of the fiscal year, 60% of clients will have paid the business in cash. You expect that the rest will pay by January 31, 2016.
4. The business will hire an assistant to help with general office work. The assistant will earn $20 per hour and will work exactly the same hours that you work. The assistant will be paid for each month's work on the fifth day of the month following the month when the work is done. For the sake of simplicity, treat the assistant as an independent contractor rather than an employee. This means that you do not have to worry about withholding or matching payroll taxes. Assume that hours worked in December, 2015 are expected to total 10% (round to nearest whole hour) of the total hours for the year.
5. On March 1, the business will pay cash of $2,400 for a one-year liability insurance policy.
6. Since this is a new business, you think that it is important to advertise. The business will buy $300 of newspaper advertising each month. All payments for advertising costs will be made in the following month. (For example, January advertising expense will be paid for in February).
7. The business will purchase office supplies for cash of $2,800 in January, 2015
8. A dividend of $1,000 will be declared and paid before year end.
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
Cash
Accounts Payable
Common Stock
Sales
5000
15462
2400
3300
2400
1000
300
5000
25770
Wages Expense
17180
Accounts Receivable
Wages Payable
Retained Earnings
10000
1718
Insurance Expense
2000
Advertising Expense
Office Supplies
Notes Payable
Dividends
3600
2800
1000
5800
1000
Supplies Expense
1000
Prepaid Insurance
2400
2000
Depreciation
Expense
1450
Equipment
5800
Accumulated
Depreciation
Record the expected adjusting entries in the T-Accounts for the following:
A1) It is expected that the equipment and software purchased in 2) will be used for four years, after which time they will be worthless. The business uses the straight-line method of depreciation.
A2) Record the insurance that has been used up during the year.
A3) It is expected that office supplies will be used up at the rate at the rate of $2.00 per hour worked, with the remaining amount still on hand at year-end.
Cash
Accounts Payable
Common Stock
Sales
5000
15462
2400
3300
2400
1000
300
5000
25770
Wages Expense
17180
Accounts Receivable
Wages Payable
Retained Earnings
10000
1718
Insurance Expense
2000
Advertising Expense
Office Supplies
Notes Payable
Dividends
3600
2800
1000
5800
1000
Supplies Expense
1000
Prepaid Insurance
2400
2000
Depreciation
Expense
1450
Equipment
5800
Accumulated
Depreciation
Explanation / Answer
1.) Break Even Point = Fixed Cost / Rate Per Hour
= 7,0500/50
= 141 hours
2) Margin of Safety (Hours) = Fixed Cost + Operating Income / Rate per hour
= 7050 + 509.20 / Rate per hour
= 7559.20 / 50
= 151 (approx.)
3)
Percentage increase in total Contribution = 9071.04-7559.20 / 7559.20
= 20%
4. Operating Leverage = Sales / Contribution Margin
= 25,770 / 7559.20
= 3.41
5. Percentage Increase in Operating Income = 2,021.04 - 509.20 / 509.20
= 296.90%
Statement of Income for the year ended December 2011 Particulars $ $ Revenue ( A ) 25,770.00 Variable Cost Wages Expenses 17,180.00 Supplies Expenses 1,030.80 Total Variable Expenses ( B ) 18,210.80 Contribution Margin ( A ) - ( B ) = ( C ) 7,559.20 Fixed Cost Computer 1,450.00 Insurance Policy 2,000.00 Advertising 3,600.00 Total Fixed Expenses ( D ) 7,050.00 Operating Income ( C ) - ( D ) = ( E ) 509.20Related Questions
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