XYZ Company began operations in May, 2018 by selling common stock to owners in e

Question

 XYZ Company began operations in May, 2018 by selling common stock to owners in exchange for $90,000 cash. During 2018, ABC Company entered into the following transactions:  1.  On May 23, ABC Company purchased inventory for $50,000 cash.  2.  On June 1, ABC Company purchased a three-year insurance policy     for $23,400 cash.  3.  On July 1, ABC Company received $49,500 cash from a customer     for services to be performed over the next 18 months.  4.  On August 1, ABC Company purchased equipment for $60,000 cash.     The equipment was assigned a 10-year life and a $2,400 residual     value.  5.  On August 18, ABC Company sold one-half of the inventory that     was purchased on May 23 to a customer for $44,000 cash.  Calculate the amount of total assets that ABC Company would report in its December 31, 2018 balance sheet after all the above transactions are recorded and all necessary adjusting entries are made and posted.  

Explanation / Answer

Solution : All amounts in $

Total Assets : 1 Closing Inventory valued at cost (50% of 50000)                25,000 2 Prepaid Insurance for balance 29 months                18,850 3 Equipment                57,600 4 Cash Balance                50,100 5 Deferred Revenue Income              (33,000)              118,550 Journal Entries Date Particulars Dr Cr 1-May Cash A/c                    90,000 To Share Capital                90,000 23-May Purchases A/c                    50,000 To Cash A/c                50,000 1-Jun Prepaid Insurance                    23,400 To Cash A/c                23,400 (purchased for 36 months) 1-Jul Cash A/c                    49,500 To Deferred Revenue                49,500 1-Aug Equipment A/c                    60,000 To cash A/c                60,000 18-Aug Cash A/c                    44,000 To Sales A/c                44,000 31-Dec Closing Inventory A/c                    25,000 To Closing Stock A/c                25,000 31-Dec Insurance A/c                       4,550 To prepaid insurance                   4,550 ( expensed for 7 months ) 31-Dec Depreciation A/c                       2,400 TO Acc Dep on Equipment                   2,400 ( Depr = (60000-2400)/120*5 months) 31-Dec Deferred Revenue A/c                    16,500 Revenue A/c                16,500 ( proportionate income for 6 months out of 18)

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