On February 1, 2017, a new software development firm engaged in an initial publi
ID: 2336700 • Letter: O
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 $25,000 of sales on account. The company provides software updates pursuant to its July 1 agreement on December 30 for q4, 2017.
On December 31, the company records an appropriate amount of income tax expense based on a statutory rate of 24% and taxes due on March 15, 2018.
REQUIREMENTS:
PART1: Record (journalize) transactions and other events . The entity will prepare annual financial statements. However, some adjusting entries will be made quarterly, and at the end of the company's reporting year. Be sure to include all quarterly or annual adjusting entries as noted.
PART II: Post all journal/adjusting entries to t-accounts and determine t-account balances -use the date of the journal entry as the ID for the t-account postings.
PART III: Prepare one trial balance (post-end of year adjusting entries)
Part IV: Prepare financial statements (balance sheet, income statement, and statement of retained earnings).
Part V: Prepare closing entries.
Explanation / Answer
JOURNAL ENTRIES IN BOOKS OF NEW SOFTWARE DEVELOPMENT COMPANY
DATE
PARTICULARS
DEBIT ($)
CREDIT ($)
01/02/2017
Cash/Bank Account Dr.
To Equity Share Capital Account
To Security Premium Account
(Being issue of 30000 equity shares at par value of $1 per share and balance premium on shares)
495000
30000
465000
01/03/2018
Building Account Dr.
To Cash/ Bank Account
To Bills Payable
(Being purchase of building by paying 20% of value and balance raising accounts payable @ 5% interest p.a payable quarterly)
300000
60000
240000
05/03/2017
Software Patent Account Dr.
To Account Payable account
To Compensation Account
To Cash/Bank Account
(Being purchase of company with assets and liabilities and balance payment)
100000
10000
30000
60000
31/03/2017
Interest Account Dr.
To Interest Payable
(Being interest accurred for one month payable quarterly on $ 240000 @ 5% p.a.)
4000
4000
01/04/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
4000
4000
01/04/2017
Debtors account Dr.
To Professional Reciepts account
(Being Sale of Software on account)
62500
62500
30/04/2017
Cash/Bank Account Dr.
To Debtors Account
(Being amount received from debtors)
62500
62500
30/06/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
01/07/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
12000
12000
01/07/2017
Cash/Bank Account Dr.
To Advance account
(Being advance received for September end and December end quarter for software updation)
25000
25000
01/09/2017
Computer Account Dr.
To Cash/Bank Account
(Being purchase of new computer system for new software)
30000
30000
30/09/2017
Advance Account Dr.
To Professional receipt
(Being updation provided for September quarter adjusted against advance)
12500
12500
30/09/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
30/09/2017
Salary Account Dr.
To Salary Payable Account
(Being salary to programmer for the quarter july to September, annual salary being 160000)
40000
40000
01/10/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
12000
12000
01/10/2017
Salary payable account Dr.
To Cash/Bank Account
(Being salary paid)
40000
40000
20/11/2017
Debtors Account Dr.
To Professional Reciepts
(Being new software provided on account)
52500
52500
01/12/2017
Cash/Bank Account Dr.
To Debtors Account
(Being payment received on account)
25000
25000
31/12/2017
Advance Account Dr.
To Professional receipt
(Being updation provided for September quarter adjusted against advance)
12500
12500
31/12/2017
Salary Account Dr.
To Salary Payable Account
(Being salary to programmer for the quarter july to September, annual salary being 160000)
40000
40000
31/12/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
31/12/2017
Depreciation Account Dr.
To Building Account
To Computer Account
(Being depreciation calculated on building and computer on straight line method)
14333.33
8333.33
6000.00
31/03/2017
Taxes for the Year Dr.
To provision for Taxation
1359.84
1359.84
TRAIL BALANCE AS ON 31/12/2017
PARICULARS
DEBIT
CREDIT
SHARE CAPITAL
30000
SECURITY PREMIUM
465000
BILLS PAYABL
250000
SOFTWARE PATENT
100000
COMPENSATION PAYABLE
30000
DEBTORS
27500
INTEREST
40000
INTEREST PAYABLE
12000
COMPUTER
24000
SALARY
80000
SALARY PAYABL
40000
PROFESSIONA RECEIPT
140000
DEPRECIATION
14333.33
BUILDING
291666.7
CASH/BANK
389500
TAXES FOR YEAR
1359.84
PROVISION FOR TAX
1359.84
TOTAL
968359.8
968359.8
INCOME AND EXPENDITURE ACCOUNT
PARTICULARS
AMOUNT
AMOUNT
PROFESSIONAL RECEIPTS
140000
LESS EXPENDITURE
INTERST
40000
SALARY
80000
120000
OPERATING INCOME BEFORE
DEPRECIATION
20000
LESS DEPRECIATION
14333.33
NET PROFIT
5666.67
LESS TAXES FOR YEAR
1359.84
SURPLUS AFTER TAX
4306.83
BALANCE SHEET AS AT 31/03/2017
SOURCES
SHAREHOLDERS FUND
EQUITY CAPITAL
30000
RESERVES AND SURPLUS
SECURITY PREMIUM
465000
SURPLUS
4306.83
469306.8
BILLS PAYABLE
250000
PROVISION
SALARY PAYABLE
40000
INTEREST PAYABLE
12000
COMPENSATION PAYABLE
30000
PROVISION FOR TAX
1359.84
83359.84
832666.7
USES
FIXED ASSETS
GROSS VALUE
COMPUTER
30000
BUILDING
300000
SOFTWARE PATENT
100000
430000
LESS ACCUMULATED DEP
14333.33
415666.7
CURRENT ASSETS
CASH/BANK
389500
DEBTORS
27500
417000
832666.7
DATE
PARTICULARS
DEBIT ($)
CREDIT ($)
01/02/2017
Cash/Bank Account Dr.
To Equity Share Capital Account
To Security Premium Account
(Being issue of 30000 equity shares at par value of $1 per share and balance premium on shares)
495000
30000
465000
01/03/2018
Building Account Dr.
To Cash/ Bank Account
To Bills Payable
(Being purchase of building by paying 20% of value and balance raising accounts payable @ 5% interest p.a payable quarterly)
300000
60000
240000
05/03/2017
Software Patent Account Dr.
To Account Payable account
To Compensation Account
To Cash/Bank Account
(Being purchase of company with assets and liabilities and balance payment)
100000
10000
30000
60000
31/03/2017
Interest Account Dr.
To Interest Payable
(Being interest accurred for one month payable quarterly on $ 240000 @ 5% p.a.)
4000
4000
01/04/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
4000
4000
01/04/2017
Debtors account Dr.
To Professional Reciepts account
(Being Sale of Software on account)
62500
62500
30/04/2017
Cash/Bank Account Dr.
To Debtors Account
(Being amount received from debtors)
62500
62500
30/06/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
01/07/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
12000
12000
01/07/2017
Cash/Bank Account Dr.
To Advance account
(Being advance received for September end and December end quarter for software updation)
25000
25000
01/09/2017
Computer Account Dr.
To Cash/Bank Account
(Being purchase of new computer system for new software)
30000
30000
30/09/2017
Advance Account Dr.
To Professional receipt
(Being updation provided for September quarter adjusted against advance)
12500
12500
30/09/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
30/09/2017
Salary Account Dr.
To Salary Payable Account
(Being salary to programmer for the quarter july to September, annual salary being 160000)
40000
40000
01/10/2017
Interest Payable Account Dr.
To Cash/Bank Account
(Being interest payable at quarter end paid)
12000
12000
01/10/2017
Salary payable account Dr.
To Cash/Bank Account
(Being salary paid)
40000
40000
20/11/2017
Debtors Account Dr.
To Professional Reciepts
(Being new software provided on account)
52500
52500
01/12/2017
Cash/Bank Account Dr.
To Debtors Account
(Being payment received on account)
25000
25000
31/12/2017
Advance Account Dr.
To Professional receipt
(Being updation provided for September quarter adjusted against advance)
12500
12500
31/12/2017
Salary Account Dr.
To Salary Payable Account
(Being salary to programmer for the quarter july to September, annual salary being 160000)
40000
40000
31/12/2017
Interest Account Dr.
To Interest Payable account
(Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)
12000
12000
31/12/2017
Depreciation Account Dr.
To Building Account
To Computer Account
(Being depreciation calculated on building and computer on straight line method)
14333.33
8333.33
6000.00
31/03/2017
Taxes for the Year Dr.
To provision for Taxation
1359.84
1359.84
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