Question & Answer: This gives a company’s starting balance sheet, and lists 18 transactions……

This gives a company’s starting balance sheet, and lists 18 transactions.

Required:

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Prepare journal entries for the 18 transactions.

Prepare a trial balance showing what the ending ledger balances would be after the 18 transactions.

Prepare an income statement for the year.

Prepare a statement of stockholders’ equity for the year

Prepare a balance sheet at the end of the year 2016.

East 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.

The company recorded depreciation on the car, using the straight line method, assuming it had a five year life, and salvage value of $6,000.

The company made the appropriate adjustment to reflect the fact the insurance policy only had nine more months left of effectiveness.

The company accrued the interest that had been built up on the long-term notes. The money had been borrowed on January 1, 2016. No payments of interest or principal were due until some time in 2017.

The company made the appropriate entry to record amortization on the patent on December 31.

On December 1, the company paid dividends of $1,000 to its shareholders.

thank you

Expert Answer

 

In the books of East Company

Journal Entries

  1. Cash                    98000

Accounts receivable 98000

2.Allowance for Doubtful Accounts 1000

Account Receivable                                    1000

3.Vehicles                                  30000

Cash                                              30000

(Car purchased)

4.Accounts Payable                19000

Cash                                                   19000

5.Inventory                             18900

Cash                                            18900

(900 units * $21/unit)

6.Prepaid Insurance               2400

Cash                                              2400

7.Rent expenses                  18,000

Cash                                                  18,000

8.Patent                               20,000

Cash                                           20,000

9Prepaid Rent                       1500

Cash                                             1500

10Inventory                           4400

Accounts Payable                          4400

(200 units * $22 /unit)

11.Cash (1000*30)                        30,000

Accounts Recievable(300*30) 9,000

Sales                                                             39000

Cost of Goods sold        26800

Inventory                                       26800

(500*20)+(800*21)

12.Bad Debt expense                1000

Allowance for doubtful accounts   1000

13.Depreciation –Equipment                           2000

Accumulated Depreciation-Equipment              2000

(9000-1000)/4=2000

14.Depreciation expense- Vehicle            4800

Accumulated Depreciation –Vehicle           4800

(30000-6000)/5=4800

15.Insurance Expense                    600

Prepaid Insurance                               600

(200*3)

16.Interest expense                  5000

Interest on Long term notes payable   5000

17.Patent Amortization expenses 1000

Patent                                                   1000

(20000/10*0.5)

18.Dividends                                      1000

Cash                                                         1000

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