On February 1, 2017, a new software development firm engaged in an initial publi

Question

On February 1, 2017, a new software development firm engaged in an initial public offering in which it raised $495,000 in capital and issued 30,000 shares of $1 par value common stock. On March 1, the firm purchased a small building to locate its operations, by paying 20% of the $300,000 purchase price and financing the balance with a note payable. The firm accrues interest on the note at the end of each quarter at a rate of 5%, and pays interest on the first day of the next quarter. The firm depreciates the building at the end of the reporting period using straight-line depreciation. The estimated salvage value is 50,000 and the estimated useful life of the building is 30 years. On March 5, the firm purchases another development company for $60,000, acquiring a new software patent valued at 100,000, accounts payable of $10,000, and compensation payable of $30,000. On April 1, the firm sells software on account, amounting to $62,500. The customer pays the firm $62,500 on April 30. The firm hires a new coder at an annual salary of $160,000 on July 1, 2017.    The firm pays the coder quarterly (October 1, 2017 and January 1, 2018). On July 1, the firm enters into an agreement to provide updates to its software on a quarterly basis and receives an advance payment of $25,000 for Q3 and Q4 of 2017. On August 15, the company hires another new coder, who will be paid upon completion of a new software project. On September 1, the company purchases new computer systems for the new software project at a cost of 30,000. The company depreciates the computer at the end of the reporting period using straight-line depreciation. The computer systems are estimated to have zero salvage value and a useful life of 5 years. The company provides software updates pursuant to its July 1 agreement on September 30 for q3 2017. On November 20, the company makes new sales on account in the amount of $52,500. On December 1, customers pay $25,000 of sales on account. The company provides software updates pursuant to its July 1 agreement on December 30 for q4, 2017. On December 31, the company records an appropriate amount of income tax expense based on a statutory rate of 24% and taxes due on March 15, 2018. REQUIREMENTS: PART1: Record (journalize) transactions and other events .   The entity will prepare annual financial statements. However, some adjusting entries will be made quarterly, and at the end of the company's reporting year. Be sure to include all quarterly or annual adjusting entries as noted. PART II: Post all journal/adjusting entries to t-accounts and determine t-account balances -use the date of the journal entry as the ID for the t-account postings. PART III: Prepare one trial balance (post-end of year adjusting entries) Part IV: Prepare financial statements (balance sheet, income statement, and statement of retained earnings). Part V: Prepare closing entries. On February 1, 2017, a new software development firm engaged in an initial public offering in which it raised $495,000 in capital and issued 30,000 shares of $1 par value common stock. On March 1, the firm purchased a small building to locate its operations, by paying 20% of the $300,000 purchase price and financing the balance with a note payable. The firm accrues interest on the note at the end of each quarter at a rate of 5%, and pays interest on the first day of the next quarter. The firm depreciates the building at the end of the reporting period using straight-line depreciation. The estimated salvage value is 50,000 and the estimated useful life of the building is 30 years. On March 5, the firm purchases another development company for $60,000, acquiring a new software patent valued at 100,000, accounts payable of $10,000, and compensation payable of $30,000. On April 1, the firm sells software on account, amounting to $62,500. The customer pays the firm $62,500 on April 30. The firm hires a new coder at an annual salary of $160,000 on July 1, 2017.    The firm pays the coder quarterly (October 1, 2017 and January 1, 2018). On July 1, the firm enters into an agreement to provide updates to its software on a quarterly basis and receives an advance payment of $25,000 for Q3 and Q4 of 2017. On August 15, the company hires another new coder, who will be paid upon completion of a new software project. On September 1, the company purchases new computer systems for the new software project at a cost of 30,000. The company depreciates the computer at the end of the reporting period using straight-line depreciation. The computer systems are estimated to have zero salvage value and a useful life of 5 years. The company provides software updates pursuant to its July 1 agreement on September 30 for q3 2017. On November 20, the company makes new sales on account in the amount of $52,500. On December 1, customers pay $25,000 of sales on account. The company provides software updates pursuant to its July 1 agreement on December 30 for q4, 2017. On December 31, the company records an appropriate amount of income tax expense based on a statutory rate of 24% and taxes due on March 15, 2018. REQUIREMENTS: PART1: Record (journalize) transactions and other events .   The entity will prepare annual financial statements. However, some adjusting entries will be made quarterly, and at the end of the company's reporting year. Be sure to include all quarterly or annual adjusting entries as noted. PART II: Post all journal/adjusting entries to t-accounts and determine t-account balances -use the date of the journal entry as the ID for the t-account postings. PART III: Prepare one trial balance (post-end of year adjusting entries) Part IV: Prepare financial statements (balance sheet, income statement, and statement of retained earnings). Part V: Prepare closing entries. S heet2 Sheet3

Explanation / Answer

Part I Journal entries Date Account Titles Debit Credit 1-Feb Cash             495,000 Common Stock $30,000 Additional Paid in Capital $465,000 1-Mar Building $300,000 Cash $60,000 Note Payable $240,000 5-Mar Investment in Development company $60,000 Cash $60,000 31-Mar Interest expense $1,000 Interest Payable $1,000 (240000 x 5% x1/12) 1-Apr Interest payable $1,000 Cash $1,000 1-Apr Accounts receivable $62,500 Software revenue $62,500 30-Apr Cash $62,500 Accounts receivable $62,500 30-Jun Interest expense $3,000 Interest Payable $3,000 (240000 x 5% x3/12) 1-Jul Interest payable $3,000 Cash $3,000 1-Jul Cash $25,000 Unearned Revenue $25,000 1-Sep Computer $30,000 Cash $30,000 30-Sep Unearned revenue $12,500 Software updates revenue $12,500 30-Sep Interest expense $3,000 Interest Payable $3,000 (240000 x 5% x3/12) 1-Oct Interest payable $3,000 Cash $3,000 1-Oct Salaries expense $40,000 Cash $40,000 20-Nov Accounts receivable $52,500 Software receivables $52,500 1-Dec Cash $25,000 Accounts receivables $25,000 30-Dec Unearned Revenue $12,500 Software updates revenue $12,500 31-Dec Interest expense $3,000 Interest Payable $3,000 31-Dec Depreciation expense $8,944 Accumulated Depreciation-Building $6,944 Accumulated Depreciation-Computer $2,000 31-Dec Salaries expense $40,000 Salaries Payable $40,000 Part II T-accounts Cash Common Stock 1-Feb $495,000 1-Mar $60,000 1-Feb $30,000 1-Apr $62,500 5-Mar $60,000 1-Jul $25,000 1-Apr $1,000 1-Dec $25,000 1-Jul $3,000 1-Sep $30,000 1-Oct $3,000 1-Oct $40,000 $410,500 Additional paid in capital Notes payable 1-Feb $465,000 1-Mar $240,000 Building Investment in Development company 1-Mar $300,000 5-Mar $60,000 Interest expense Interest Payable 31-Mar $1,000 1-Apr $1,000 31-Mar $1,000 30-Jun $3,000 1-Jul $3,000 30-Jun $3,000 30-Sep $3,000 1-Oct $3,000 30-Sep $3,000 31-Dec $3,000 31-Dec $3,000 Accounts Receivable Software revenue 1-Apr $62,500 30-Apr $62,500 1-Apr $62,500 20-Nov $52,500 1-Dec $25,000 20-Nov $52,500 Unearned Revenue Computer 30-Sep $12,500 1-Jul $25,000 1-Sep $30,000 30-Dec $12,500 Software update revenue Salaries expense 30-Sep $12,500 1-Oct $40,000 30-Dec $12,500 $43,465 $40,000 Salaries payable Depreciation expense 31-Dec $40,000 31-Dec $8,944 Accumulated Depreciation-Building Accumulated Depreciation-Computer 31-Dec $6,944 31-Dec $2,000 Part III Trial Balance Account Titles Debit Credit Cash $410,500 Accounts Receivable $27,500 Investment in Development company $60,000 Building $300,000 Accumulated Depreciation-Building $6,944 Computer $30,000 Accumulated Depreciation-Computer $2,000 Common Stock $30,000 Additional Paid in Capital $465,000 Notes payable $240,000 Interest payable $3,000 Salaries Payable $40,000 Income tax payable $9,853 Software revenue $115,000 Software update revenue $25,000 Salaries expense $80,000 Interest expense $10,000 Income tax expense $9,853 Depreciation expense $8,944 Total $936,797 $936,797 Part IV Income Statement Account Titles Amount Revenue: Software revenue $115,000 Software Update revenue $25,000 Total $140,000 Operating Expenses: Salaries expense $80,000 Depreciation expense $8,944 Total Operating expenses $88,944 Operating Profit $51,056 Non-operating expenses: Interest expense $10,000 Profit Before tax $41,056 Tax @ 24% $9,853 Net Profit $31,203 Statement of Retained Earnings Retained Earnings, 1/1 $0 Add: Net Profit $31,203 Retained Earnings, 12/31 $31,203 Balance Sheet ASSETS Amount Current Assets: Cash $410,500 Accounts Receivable $27,500 Investment in Development company $60,000 Total Current Assets $498,000 Fixed Assets: Building $300,000 Accumulated Depreciation-Building ($6,944) $293,056 Computer $30,000 Accumulated Depreciation-Computer ($2,000) $28,000 Total Fixed Assets $321,056 Total Assets $819,056 LIABILITIES Current Liabilities: Interest payable $3,000 Salaries Payable $40,000 Income tax payable $9,853 Total Current Liabilities $52,853 Long term liabilities: Notes payable $240,000 Stockholder's Equity Common Stock $30,000 APIC $465,000 Retained Earnings $31,203 Total Stockholder's Equity $526,203 Total Liabilities and Stockholder's equity $819,056 Part V Closing Entries Software Revenue $115,000 Software Update revenue $25,000 Income Summary $140,000 Income Summary $108,797 Salaries expense $80,000 Depreciation expense $8,944 Interest expense $10,000 Income tax expense $9,853 Income Summary $31,203 Retained Earnings $31,203

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