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Required:
1.Prepare journal entries for the 18 transactions.
2.Prepare a trial balance showing what the ending ledger balances would be after the 18 transactions.
3.Prepare an income statement for the year.
4.Prepare a statement of stockholders’ equity for the year
5.Prepare a balance sheet at the end of the year 2016.
Best Company
January 1, 2016,
Balance Sheet
Cash 20,000
Accounts receivable 110,000
Less: Allowance for doubtful accounts (10,000)
Inventory (500 units @ $20 each) 10,000
Equipment 9,000
Less: Accumulated depreciation ( 2,000)
—————–
Total assets 137,000
Accounts payable 20,000
Long-term notes payable (5% interest, due in 2019) 100,000
Capital stock 10,000
Retained earnings 7,000
——————-
137,000
Transactions or events:
The company collected 98,000 of the accounts receivable in cash.
The company wrote off one $1,000 accounts receivable from J. Jones
On Jan. 1, the company bought a car for $30,000.
The company paid 19,000 of its accounts payable in cash.
The company bought 900 units of inventory for $21 each in cash.
The company bought a 1 year insurance policy for $2400 on October 1.
The company paid rent for the months January through December of $18,000
On July 1, the company bought rights to a patent for $20,000. The patent has ten more years of useful life.
On Dec 31, the company paid rent for Jan. 2017 for $1,500.
On Dec. 1, the company bought another 200 units of inventory for $22 on account.
On Dec. 15, the company sold 1,300 units for $30 each. 1000 were sold for cash, and 300 on account.[The company accounts for its inventory on the FIFO basis, so the first items bought are assumed to be the first ones sold.]
The company decided to record bad debt expense of $1,000.
The company recorded depreciation on the equipment. The equipment is one year old. It had a cost of $9,000, salvage value of $1,000, and an expected useful life of 4 years.
Expert Answer
1. Journal entries
| No. | Account Titles and Explanation | Debit | Credit |
| 1 | Cash | 98000 | |
| Accounts receivable | 98000 | ||
| 2 | Allowance for doubtful accounts | 1000 | |
| Accounts receivable – J. Jones | 1000 | ||
| 3 | Equipment (Car) | 30000 | |
| Accounts payable | 30000 | ||
| 4 | Accounts payable | 19000 | |
| Cash | 19000 | ||
| 5 | Inventory (900 x $21) | 18900 | |
| Cash | 18900 | ||
| 6 | Prepaid insurance | 2400 | |
| Cash | 2400 | ||
| 7 | Prepaid rent | 18000 | |
| Cash | 18000 | ||
| 8 | Patent | 20000 | |
| Cash | 20000 | ||
| 9 | Prepaid rent | 1500 | |
| Cash | 1500 | ||
| 10 | Inventory (200 x $22) | 4400 | |
| Accounts payable | 4400 | ||
| 11 | Cost of goods sold [(500 x $20)+(800 x $21)] | 26800 | |
| Inventory | 26800 | ||
| 12 | Cash (1000 x $30) | 30000 | |
| Accounts receivable (300 x $30) | 9000 | ||
| Sales revenue (1300 x $30) | 39000 | ||
| 13 | Bad debt expense | 1000 | |
| Allowance for doubtful accounts | 1000 | ||
| 14 | Depreciation expense [(9000 – 1000)/4] | 2000 | |
| Accumulated depreciation | 2000 | ||
| 15 | Rent expense | 18000 | |
| Prepaid rent | 18000 | ||
| 16 | Insurance expense (2400 x 3/12) | 600 | |
| Prepaid insurance | 600 | ||
| 17 | Amortization expense (20000/10 years x 6/12) | 1000 | |
| Accumulated amortization | 1000 | ||
| 18 | Interest expense ($100000 x 5%) | 5000 | |
| Interest payable | 5000 |
2.
| Best Company | ||
| Trial Balance | ||
| December 31, 2016 | ||
| Account Title | Debit | Credit |
| Cash | 68200 | |
| Accounts Receivable | 20000 | |
| Prepaid rent | 1500 | |
| Prepaid insurance | 1800 | |
| Inventory | 6500 | |
| Equipment | 39000 | |
| Patent | 20000 | |
| Allowance for doubtful accounts | 10000 | |
| Accumulated depreciation | 4000 | |
| Accumulated amortization | 1000 | |
| Accounts Payable | 35400 | |
| Interest payable | 5000 | |
| Long-term notes payable | 100000 | |
| Capital Stock | 10000 | |
| Retained Earnings | 7000 | |
| Sales revenue | 39000 | |
| Cost of goods sold | 26800 | |
| Rent Expense | 18000 | |
| Insurance expense | 600 | |
| Bad debt expense | 1000 | |
| Depreciation expense | 2000 | |
| Amortization expense | 1000 | |
| Interest expense | 5000 | |
| Totals | 211400 | 211400 |
3.
| Best Company | ||
| Income Statement | ||
| For the Year Ended December 31, 2016 | ||
| Sales revenue | 39000 | |
| Cost of goods sold | 26800 | |
| Gross profit | 12200 | |
| Operating expenses: | ||
| Rent Expense | 18000 | |
| Insurance expense | 600 | |
| Bad debt expense | 1000 | |
| Depreciation expense | 2000 | |
| Amortization expense | 1000 | |
| Interest expense | 5000 | |
| Total expenses | 27600 | |
| Net loss | -15400 | |
4.
| Best Company | ||
| Statement of Stockholders’ Equity | ||
| December 31, 2016 | ||
| Capital Stock | 10000 | |
| Retained earnings | 7000 | |
| Less: Net loss for the year | -15400 | -8400 |
| 1600 | ||
5.
| Best Company | ||
| Balance Sheet | ||
| December 31, 2016 | ||
| Assets | ||
| Cash | 68200 | |
| Accounts Receivable | 20000 | |
| Allowance for doubtful accounts | -10000 | 10000 |
| Prepaid rent | 1500 | |
| Prepaid insurance | 1800 | |
| Inventory | 6500 | |
| Equipment | 39000 | |
| Accumulated depreciation | -4000 | 35000 |
| Patent | 19000 | |
| Total Assets | 142000 | |
| Liabilities and Stockholders’ Equity | ||
| Accounts Payable | 35400 | |
| Interest payable | 5000 | |
| Long-term notes payable | 100000 | |
| Capital Stock | 10000 | |
| Retained Earnings | -8400 | |
| Total Liabilities and Stockholders’ Equity | 142000 | |
