1. Preparation of financial statements Using the Adjusted Trial Balance shown be
ID: 2554356 • Letter: 1
Question
1. Preparation of financial statements
Using the Adjusted Trial Balance shown below, prepare the company’s:
(a) Income Statement
(b) Statement of Retained Earnings
(c) Balance Sheet
by completing the tables provided on the following pages.
All Star Repair Shop
Adjusted Trial Balance
Dec. 31, 2016
Debit
Credit
Cash
$ 25,000
Supplies
2,000
Accounts Receivable
70,000
Equipment
30,000
Accumulated Depreciation on Equipment
$ 10,000
Accounts Payable
20,000
Notes Payable
5,000
Income Taxes Payable
20,000
Capital Stock
30,000
Retained Earnings (as of Jan 1, 2016)
5,000
Dividends
15,000
Repair Service Sales Revenue
125,000
Wages Expense
35,000
Rent Expense
10,000
Supplies Expense
4,000
Utilities Expense
3,000
Depreciation Expense
1,000
Income Tax Expense
20,000
______
215,000
215,000
#2 Below is a series of accounts for the Whitman Company, numbered for identification. Following the accounts is a series of transactions. For each transaction, indicate the account(s) that should be debited and credited in the required journal entry(s) by entering the appropriate account number(s) to the right of each transaction.
Acct. #
Account Title
1
Accounts receivable
2
Accounts payable
3
Sales Revenue
4
Inventory
5
Cash
6
Cost of Goods Sold
7
Notes Receivable
8
Income taxes payable
9
Interest Revenue
10
Interest Receivable
11
Allowance for Doubtful Accounts
12
Bad Debt Expense
Transactions
Debit
Credit
Example:
On March 1, 2016, Whitman Co. paid its suppliers $20,000 that it owed for merchandise it bought on credit in the previous month.
2
5
A. On March 30, 2016, Whitman Co. sells $50,000 of merchandise to customers on credit. The merchandise originally cost Whitman $30,000.
B. On March 31, 2016 the appropriate bad debt expense was recorded using 2% of credit sales as an estimate.
C. On April 1, 2016 Whitman determined that $500 of its first quarter credit sales were uncollectible and was written off.
D. On Oct. 1, 2015, Whitman provided one of its customers with a $10,000, 1 year, 12% loan. Interest is paid twice on March 31, 2016 and at maturity on Sept. 30, 2016. What journal entry did Whitman make on Oct. 1, 2015?
E. On Sept. 30, 2016 what journal entries will Whitman make regarding the loan?
Hints: Transactions B, C, D each have only one debit and one credit.
Transaction A had 2 debits and 2 credits.
Transaction E has one debit and three credits.
3
On Jan 1, Bike Mart had a beginning inventory of 20 bicycles which it purchased for $350 each.
During January, the company purchases four more bicycles for $400 each. None were sold in January.
On February 15, the company purchases five more bicycles for $450 each.
Between February 16 and 28, Bike Mart sells 10 of these bicycles.
a.) Calculate Bike Mart’s Ending Inventory Balance (in dollars) at the end of February and Cost of Goods Sold through February using the FIFO Method. (show all work.)
b.) Calculate Bike Mart’s Ending Inventory Balance (in dollars) at the end of February and Cost of Goods Sold through February using the Weighted Average Method. (show all work.)
c.) At the end of February, will Bike Mart’s Net Income (profits) on its Income Statement be higher if it uses the FIFO or Weighted Average Inventory Method? Why?
All Star Repair Shop
Adjusted Trial Balance
Dec. 31, 2016
Debit
Credit
Cash
$ 25,000
Supplies
2,000
Accounts Receivable
70,000
Equipment
30,000
Accumulated Depreciation on Equipment
$ 10,000
Accounts Payable
20,000
Notes Payable
5,000
Income Taxes Payable
20,000
Capital Stock
30,000
Retained Earnings (as of Jan 1, 2016)
5,000
Dividends
15,000
Repair Service Sales Revenue
125,000
Wages Expense
35,000
Rent Expense
10,000
Supplies Expense
4,000
Utilities Expense
3,000
Depreciation Expense
1,000
Income Tax Expense
20,000
______
215,000
215,000
Explanation / Answer
STATEMENT OF INCOME Amount $ Repair Service sales revenue 125,000 Less: Operating expense Wages expense 35,000 Rent expense 10,000 Supplies expense 4,000 Utilities expense 3,000 Depreciation expense 1,000 53,000 Net Income Before tax 72,000 Less: Income Tax expense 20,000 Net Income Earned 52,000 STATEMENT OF RETAINED EARNINGS Amount $ Beginning Balance 5,000 Less: Dividend 15,000 Add: Net income earned 52,000 Ending Capital 42,000 BALANCE SHEET Amount $ ASSETS: Current Assets: Cash 25,000 Accounts Receivable 70000 Supplies 2000 97000 Fixed Assets: Equipment 30,000 Less: Accumulated Dep 10,000 20,000 TOTAL ASSETS 117,000 LIABILITIES: Current Liabilities: Accounts payable 20000 Note payable 5,000 Income tax payable 20,000 Total liabilities 45,000 Stockholder's equity: Common Stock 30000 Retained earnings 42000 Stockholder's equity: 72,000 TOTAL LIABILITIES & EQUITY 117,000
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