Recording Transactions (Including Adjusting and Closing Entries), Preparing Fina
ID: 2579624 • Letter: R
Question
Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis
Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:
Account Titles
Debit
Credit
Cash
5,000
Accounts receivable
4,000
Supplies
2,000
Small tools
6,000
Equipment
Accumulated depreciation (on equipment)
Other assets (not detailed to simplify)
9,000
Accounts payable
7,000
Notes payable
Wages payable
Interest payable
Income taxes payable
Unearned revenue
Common stock (60,000 shares, $0.10 par value)
6,000
Additional paid-in capital
9,000
Retained earnings
4,000
Service revenue
Depreciation expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
Totals
26,000
26,000
Transactions during 2017 follow:
A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.
B.Purchased equipment for $18,000 cash on July 1, 2017.
C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.
D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.
E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.
F.Purchased additional small tools, $3,000 cash.
G.Collected accounts receivable, $8,000.
H.Paid accounts payable, $11,000.
I..Purchased $10,000 of supplies on account.
J.Received a $3,000 deposit on work to start January 15, 2018.
K.Declared and paid a cash dividend, $10,000.
Data for adjusting entries:
L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).
M.Depreciation for 2017, $2,000.
N.Interest accrued on notes payable (to be computed).
O.Wages earned since the December 24 payroll but not yet paid, $3,000.
P.Income tax expense was $4,000, payable in 2018.
Required:
1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
3.Journalize and post the adjusting entries (l) through (p).
4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholders’ equity, and balance sheet.
5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.
6.Journalize and post the closing entry.
7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:
a,Current ratio
b,Total asset turnover
c,Net profit margin
Account Titles
Debit
Credit
Cash
5,000
Accounts receivable
4,000
Supplies
2,000
Small tools
6,000
Equipment
Accumulated depreciation (on equipment)
Other assets (not detailed to simplify)
9,000
Accounts payable
7,000
Notes payable
Wages payable
Interest payable
Income taxes payable
Unearned revenue
Common stock (60,000 shares, $0.10 par value)
6,000
Additional paid-in capital
9,000
Retained earnings
4,000
Service revenue
Depreciation expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
Totals
26,000
26,000
Explanation / Answer
Answer 1, 2 & 3 Cash Accounts Receivable Supplies Beg. Bal. 5,000 18,000 B Beg. Bal. 4,000 8,000 G. Beg. Bal. 2,000 8,000 L A 20,000 28,000 E D 14,000 I. 10,000 C 5,000 3,000 F D 56,000 11,000 H. G. 8,000 10,000 K. J. 3,000 End. Bal. 27,000 End. Bal. 10,000 End. Bal. 4,000 Small Tools Equipment Accumulated Dep. - Equip. Beg. Bal. 6,000 1,000 L Beg. Bal. - Beg. Bal. - F 3,000 B 18,000 2,000 M End. Bal. 8,000 End. Bal. 18,000 End. Bal. 2,000 Other Assets Accounts Payable Notes Payable Beg. Bal. 9,000 Beg. Bal. 7,000 Beg. Bal. - H. 11,000 7,000 E 20,000 B 10,000 I. End. Bal. 9,000 End. Bal. 13,000 End. Bal. 20,000 Wages Payable Interest Payable Income Tax Payable Beg. Bal. - Beg. Bal. - Beg. Bal. - 3,000 O 1,000 N. 4,000 P End. Bal. 3,000 End. Bal. 1,000 End. Bal. 4,000 Unearned Revenue Common Stock Additional Paid in Capital Beg. Bal. - Beg. Bal. 6,000 Beg. Bal. 9,000 3,000 J. 1,000 C 4,000 C End. Bal. 3,000 End. Bal. 7,000 End. Bal. 13,000 Retained Earnings Service Revenue Depreciation Expense Beg. Bal. 4,000 Beg. Bal. - Beg. Bal. - K. 10,000 70,000 D M 2,000 End. Bal. (6,000) End. Bal. 70,000 End. Bal. 2,000 Wages Expense Interest Expense Income Tax Expense Beg. Bal. - Beg. Bal. - Beg. Bal. - O 3,000 N. 1,000 P 4,000 End. Bal. 3,000 End. Bal. 1,000 End. Bal. 4,000 Remaining Expense Beg. Bal. - E 35,000 L 9,000 End. Bal. 44,000 Answer 2 & 3. Journal Entry S. No. Particulars Dr. Amt. Cr. Amt. A Cash Dr. 20,000 To Notes Payable 20,000 (Record the Cash Borrowed) B Equipment Dr. 18,000 To Cash 18,000 (record the equipment purchased) C Cash Dr. 5,000 To Common Stock 1,000 To Additional Paid in Capital 4,000 (Record the issue of Common Stock) D Cash Dr. 56,000 Accounts Receivable Dr. 14,000 To Service revenue 70,000 (record the service revenue) E Remaining Expenses Dr. 35,000 To Cash 28,000 To Accounts Payable 7,000 (Record the remaing Expenses) F Small Tools Dr. 3,000 To Cash 3,000 (Record the purchase of small tools) G. Cash Dr. 8,000 To Accounts Receivable 8,000 (Record the accounts Receivable Collected) H. Accounts Payable Dr. 11,000 To Cash 11,000 (Record the accounts payable paid) I. Supplies Dr. 10,000 To Accounts Payable 10,000 (Record the purchase of supplies) J. Cash Dr. 3,000 To Unearned Revenue 3,000 (Record the amount received as advance) K. Retained Earnings Dr. 10,000 To Cash 10,000 (Record the dividend paid) Adjusting Entries L Remaining Expenses Dr. 9,000 To Supplies 8,000 To Small Tools 1,000 (record the Supplies Expenses & Small Tools Used) M Depreciation Expenses Dr. 2,000 To Accumulated Dep. - Equip. 2,000 (Record the depreciation expenses) N. Interest Expenses Dr. 1,000 To Interest Payable 1,000 (Record the Interest dur on Note) O Wages Expenses Dr. 3,000 To Wages Payable 3,000 (Record the wages due) P Income Tax Expenses Dr. 4,000 To Income Tax Payable 4,000 Answer 4. Trial Balance as of Dec 31 Particulars Dr. Amt. Cr. Amt. Cash 27,000 Accounts Receivable 10,000 Supplies 4,000 Small Tools 8,000 Equipment 18,000 Accumulated Dep. - Equip. 2,000 Other Assets 9,000 Accounts Payable 13,000 Notes Payable 20,000 Wages Payable 3,000 Interest Payable 1,000 Income Tax Payable 4,000 Unearned Revenue 3,000 Common Stock 7,000 Additional Paid in Capital 13,000 Retained Earnings (6,000) Service Revenue 70,000 Depreciation Expense 2,000 Wages Expense 3,000 Interest Expense 1,000 Income Tax Expense 4,000 Remaining Expense 44,000 Total 130,000 130,000 - Income Statement For the Year Ended Dec 31, 2017 Revenues Service Revenue 70,000 Less: Expenses Depreciation Expense 2,000 Wages Expense 3,000 Remaining Expense 44,000 49,000 Net Operating Income (Loss) 21,000 Interest Income 1,000 Net Income before Tax 20,000 Income Tax Expense 4,000 Net Income 16,000 No. of Common Stock 70,000 EPS 0.23 Statement of Stockholders' Equity For the Year Ended Dec 31, 2017 Common Stock Additional Paid in Capital Retained Earnings Total Beginning Balance 6,000 9,000 4,000 19,000 Issue of Common Stock 1,000 4,000 - 5,000 Net Income - - 16,000 16,000 Payment of Dividends (10,000) (10,000) Ending Balance 7,000 13,000 10,000 30,000 Balance Sheet For the Year Ended Dec 31, 2017 Assets Current Assets Cash 27000 Accounts Receivable 10000 Supplies 4000 41,000 Small Tools Property, Plant & Equipment Equipment 18,000 Accumulated Dep. - Equip. 2,000 16,000 Other Assets 9,000 Small Tools 8,000 17,000 Total Assets 74,000 Liabilities & Sharholders' Equity Liabilities Current Liabilities Accounts Payable 13,000 Notes Payable 20,000 Wages Payable 3,000 Interest Payable 1,000 Income Tax Payable 4,000 Unearned Revenue 3,000 44,000 Total Liabilities 44,000 Total Shareholders' Equity 30,000 Total Liabilities & Shareholders' Equity 74,000
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