Background: Your friend runs a very simple business and asks you to prepare form
ID: 2561592 • Letter: B
Question
Background: Your friend runs a very simple business and asks you to prepare formal financial statements at the end of the year and give him a brief analysis. No journal entries were recorded during the year.
1. The following occurred in 2014.
Jan 1: $200,000 of stock is issued.
Jan 2: $18,000 paid for Jan-Jun building lease.
Jan 10: $17,000 of supplies are purchased for cash.
Jan 12: $10,600 of inventory purchased on account.
Jan 13 Purchased $50,000 of equipment for $20,000 cash and a $30,000 note. The equipment has
a 10 year useful life and the interest on the loan is 10%.
Dec 31a: Cash sales for the year of $500,000 and credit sales of $150,000 during the year. The inventory sold valued at $350,000.
Dec 31b: Paid $5,000 for consulting expense during the year.
Dec 31c: Paid $10,000 for advertising expense during the year
Dec 31d: Paid $150,000 for salaries expense during the year
Dec 31e: Paid $11,000 for utilities expense.
Dec 31f: $1,200 of supplies are leftover at the end of the year.
Dec 31g: During the year the company purchased an additional $400,000 of inventory on account.
Dec 31h: During the year the company paid its vendors $370,000 for inventory bought on account.
Dec 31i: Takes physical inventory at the end of the year, total value $60,000.
Dec 31j: Records depreciation expense for the year
Dec 31k: Pays interest on the loan for the year
Dec 31l: Paid $3,000 per month rent July to December and recorded Jan-Jun rent expense
Dec 31m: Records $1,000 December utility bill not yet paid
Dec 31n: Customers paid $100,000 during the year
Dec 31o: The company is in a 10% tax bracket and will pay the income taxes later.
Dec 31p: Stockholders are paid $3,000 for dividends.
3. The following information is available about 2015:
Jan 6: Paid utility from 2014.
Jan 8: Paid the income tax payable from 2014.
Dec 31a: Cash sales w$650,000, and credit sales $200,000 for the year. Inventory value $425,000
Dec 31b: Paid $5,550 for consulting expense for the year.
Dec 31c: Paid $15,000 for advertising expense.
Dec 31d: Paid $170,000 for salaries expense.
Dec 31e: Paid $14,000 for utilities expense.
Dec 31f: Customers paid us $190,000 in accounts receivable due during the year.
Dec 31g: Bought additional inventory for $400,000 on account during the year.
Dec 31h: Paid vendors $430,000 during the year for inventory bought on account.
Dec 31i: Purchased $10,000 supplies during the year.
Dec 31j: Supplies inventory was $2,000 at end of the year
Dec 31k: The company takes inventory at the end of the year, and notes value of $30,000.
Dec 31l: Pays off the loan, including interest due for the year
Dec 31m: Records depreciation expense for the year
Dec 31n: Paid $3,000 per month rent during the year
Dec 31o: Purchase bonds of XYZ company $200,000 long-term investment
Dec 31p: The company is in a 10% tax bracket and will pay the income taxes later.
Complete from Entries:
2015 - Prepare the 4 financial statements for 2015 (Income Statement, Statment of Retained Earnings, Balance Sheet, Statement of Cash Flow) w/ Balance Sheet in Classsified Format and Income Statement Multi-Step
Prepare comparative income statement with verticle and horizonal (also known as variance) analysis.
Calculate the following ratios for 2015 ONLY, AND discuss. Current Ratio, Debt Ratio, Average Collection Period, Days sales in Inventory, Asset Turnover
Explanation / Answer
Workings:
Income statement for the year Dending December 2015 Sales revenue 850000 Cost of goods sold -430000 Gross profit 420000 Expenses: Consulting expenses 5500 Advertising expenses 15000 Salaries expense 170000 Utilities expense 14000 Supplies expense 9200 Depreciation expense 5000 Interest expense 3000 Rent expense 36000 Total expenses 257700 Net income before taxes 162300 Income tax expense 16230 Net income 146070 Statement of retained earnings as at December 31, 2015 Balance as at January 1, 2015 53429 Net income for the year 146070 Dividends paid 0 Balance as at December 31, 2014 199499 Balance sheet as at December 31 , 2015 Assets Current assets Cash 94329 Acounts receivable 60000 Supplies 2000 Inventory 30000 Total Current assets 186329 Equipment 50000 Accumulated depreciation - equipment -10000 40000 Long term investments 200000 Total Assets 426329 Liabilities and equity Current liabilities Accounts payable 10600 Note payable 0 Utility payable 0 Income tax payable 16230 Total current liabilities 26830 Common stock 200000 Retained earnings 199499 Total stockholders' equity 399499 Liabilities and equity 426329 Statement of cash flow for the year ended December 31, 2015 Net income 146070 Depreciation 5000 Increase in accounts receivables -10000 Decrease in inventory 30000 Increase in supplies -800 Decrease in accounts payable -30000 Decrease in note payable -30000 Decrease in utility payable -1000 Increase in income tax payable 9960 Cash flow from operations 119230 Purchase of long term investments -200000 Cash flow from investing activities -200000 Cash flow from investment activities 0 Net Cash flow -80770 Cash balance as at January 1 , 2015 175099 Cash balance as at December 31 , 2015 94329 Supplies expense 80770 Beginning Inventory 1200 Supplies purchased 10000 Less: Ending supplies balance -2000 Supplies expense for the year 9200 Inventory Beginning Inventory 60000 Inventory purchases during the year 400000 Physical ending inventory -30000 Cost of goods sold 430000 Less: Recorded against sales -425000 Balance cost recorded (i) 5000 Depreciation expense Cost of equipment 50000 Life of the asset 10 Annual depreciation 5000 Interest expense Note payable 30000 Rate of interest 10% Interest expense 3000 Income tax expense Net income 62699 Rate of income tax 10% Income tax expense 6270Related Questions
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