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Recording Transactions (Including Adjusting and Closing Entries), Preparing Fina

ID: 2579624 • Letter: R

Question

Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis

Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:

Account Titles

Debit

Credit

Cash

5,000

Accounts receivable

4,000

Supplies

2,000

Small tools

6,000

Equipment

Accumulated depreciation (on equipment)

Other assets (not detailed to simplify)

9,000

Accounts payable

7,000

Notes payable

Wages payable

Interest payable

Income taxes payable

Unearned revenue

Common stock (60,000 shares, $0.10 par value)

6,000

Additional paid-in capital

9,000

Retained earnings

4,000

Service revenue

Depreciation expense

Wages expense

Interest expense

Income tax expense

Remaining expenses (not detailed to simplify)

Totals

26,000

26,000

Transactions during 2017 follow:

A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.

B.Purchased equipment for $18,000 cash on July 1, 2017.

C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.

D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.

E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.

F.Purchased additional small tools, $3,000 cash.

G.Collected accounts receivable, $8,000.

H.Paid accounts payable, $11,000.

I..Purchased $10,000 of supplies on account.

J.Received a $3,000 deposit on work to start January 15, 2018.

K.Declared and paid a cash dividend, $10,000.

Data for adjusting entries:

L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).

M.Depreciation for 2017, $2,000.

N.Interest accrued on notes payable (to be computed).

O.Wages earned since the December 24 payroll but not yet paid, $3,000.

P.Income tax expense was $4,000, payable in 2018.

Required:

1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.

2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.

3.Journalize and post the adjusting entries (l) through (p).

4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholders’ equity, and balance sheet.

5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.

6.Journalize and post the closing entry.

7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:

a,Current ratio

b,Total asset turnover

c,Net profit margin

Account Titles

Debit

Credit

Cash

5,000

Accounts receivable

4,000

Supplies

2,000

Small tools

6,000

Equipment

Accumulated depreciation (on equipment)

Other assets (not detailed to simplify)

9,000

Accounts payable

7,000

Notes payable

Wages payable

Interest payable

Income taxes payable

Unearned revenue

Common stock (60,000 shares, $0.10 par value)

6,000

Additional paid-in capital

9,000

Retained earnings

4,000

Service revenue

Depreciation expense

Wages expense

Interest expense

Income tax expense

Remaining expenses (not detailed to simplify)

Totals

26,000

26,000

Explanation / Answer

Answer 1, 2 & 3 Cash Accounts Receivable Supplies Beg. Bal.            5,000          18,000 B Beg. Bal.         4,000            8,000 G. Beg. Bal.            2,000          8,000 L A          20,000          28,000 E D       14,000 I.          10,000 C            5,000            3,000 F D          56,000          11,000 H. G.            8,000          10,000 K. J.            3,000 End. Bal.          27,000 End. Bal.       10,000 End. Bal.            4,000 Small Tools Equipment Accumulated Dep. - Equip. Beg. Bal.            6,000            1,000 L Beg. Bal.                -   Beg. Bal.                 -   F            3,000 B       18,000          2,000 M End. Bal.            8,000 End. Bal.       18,000 End. Bal.          2,000 Other Assets Accounts Payable Notes Payable Beg. Bal.            9,000 Beg. Bal.            7,000 Beg. Bal.                 -   H.       11,000            7,000 E       20,000 B          10,000 I. End. Bal.            9,000 End. Bal.          13,000 End. Bal.       20,000 Wages Payable Interest Payable Income Tax Payable Beg. Bal.                   -   Beg. Bal.                   -   Beg. Bal.                 -              3,000 O            1,000 N.          4,000 P End. Bal.            3,000 End. Bal.            1,000 End. Bal.          4,000 Unearned Revenue Common Stock Additional Paid in Capital Beg. Bal.                   -   Beg. Bal.            6,000 Beg. Bal.          9,000            3,000 J.            1,000 C          4,000 C End. Bal.            3,000 End. Bal.            7,000 End. Bal.       13,000 Retained Earnings Service Revenue Depreciation Expense Beg. Bal.            4,000 Beg. Bal.                   -   Beg. Bal.                   -   K.          10,000          70,000 D M            2,000 End. Bal.          (6,000) End. Bal.          70,000 End. Bal.            2,000 Wages Expense Interest Expense Income Tax Expense Beg. Bal.                   -   Beg. Bal.                -   Beg. Bal.                   -   O            3,000 N.         1,000 P            4,000 End. Bal.            3,000 End. Bal.         1,000 End. Bal.            4,000 Remaining Expense Beg. Bal.                   -   E          35,000 L            9,000 End. Bal.          44,000 Answer 2 & 3. Journal Entry S. No. Particulars Dr. Amt. Cr. Amt. A Cash                                                   Dr.          20,000    To Notes Payable          20,000 (Record the Cash Borrowed) B Equipment                                       Dr.          18,000 To Cash          18,000 (record the equipment purchased) C Cash                                                    Dr.            5,000    To Common Stock            1,000    To Additional Paid in Capital            4,000 (Record the issue of Common Stock) D Cash                                                   Dr.          56,000 Accounts Receivable                  Dr.          14,000 To Service revenue          70,000 (record the service revenue) E Remaining Expenses                 Dr.          35,000    To Cash          28,000    To Accounts Payable            7,000 (Record the remaing Expenses) F Small Tools                                   Dr.            3,000    To Cash            3,000 (Record the purchase of small tools) G. Cash                                                   Dr.            8,000    To Accounts Receivable            8,000 (Record the accounts Receivable Collected) H. Accounts Payable                         Dr.          11,000    To Cash          11,000 (Record the accounts payable paid) I. Supplies                                            Dr.          10,000    To Accounts Payable          10,000 (Record the purchase of supplies) J. Cash                                                   Dr.            3,000    To Unearned Revenue            3,000 (Record the amount received as advance) K. Retained Earnings                       Dr.          10,000    To Cash          10,000 (Record the dividend paid) Adjusting Entries L Remaining Expenses                 Dr.            9,000 To Supplies            8,000 To Small Tools            1,000 (record the Supplies Expenses & Small Tools Used) M Depreciation Expenses             Dr.            2,000    To Accumulated Dep. - Equip.            2,000 (Record the depreciation expenses) N. Interest Expenses                        Dr.            1,000    To Interest Payable            1,000 (Record the Interest dur on Note) O Wages Expenses                         Dr.            3,000    To Wages Payable            3,000 (Record the wages due) P Income Tax Expenses                Dr.            4,000    To Income Tax Payable            4,000 Answer 4. Trial Balance as of Dec 31 Particulars Dr. Amt. Cr. Amt. Cash                27,000 Accounts Receivable                10,000 Supplies                   4,000 Small Tools                   8,000 Equipment                18,000 Accumulated Dep. - Equip.                         2,000 Other Assets                   9,000 Accounts Payable                       13,000 Notes Payable                       20,000 Wages Payable                         3,000 Interest Payable                         1,000 Income Tax Payable                         4,000 Unearned Revenue                         3,000 Common Stock                         7,000 Additional Paid in Capital                       13,000 Retained Earnings                       (6,000) Service Revenue                       70,000 Depreciation Expense                   2,000 Wages Expense                   3,000 Interest Expense                   1,000 Income Tax Expense                   4,000 Remaining Expense                44,000 Total              130,000                    130,000                                -   Income Statement For the Year Ended Dec 31, 2017 Revenues Service Revenue                       70,000 Less: Expenses Depreciation Expense                   2,000 Wages Expense                   3,000 Remaining Expense                44,000                       49,000 Net Operating Income (Loss)                       21,000 Interest Income                         1,000 Net Income before Tax                       20,000 Income Tax Expense                         4,000 Net Income                       16,000 No. of Common Stock                       70,000 EPS                           0.23 Statement of Stockholders' Equity For the Year Ended Dec 31, 2017 Common Stock Additional Paid in Capital Retained Earnings Total Beginning Balance                   6,000                         9,000                 4,000             19,000 Issue of Common Stock                   1,000                         4,000                        -                 5,000 Net Income                          -                                  -                 16,000             16,000 Payment of Dividends            (10,000)          (10,000) Ending Balance                   7,000                       13,000               10,000             30,000 Balance Sheet For the Year Ended Dec 31, 2017 Assets Current Assets Cash 27000 Accounts Receivable 10000 Supplies 4000                       41,000 Small Tools Property, Plant & Equipment Equipment                18,000 Accumulated Dep. - Equip.                   2,000                       16,000 Other Assets                   9,000 Small Tools                   8,000                       17,000 Total Assets                       74,000 Liabilities & Sharholders' Equity Liabilities Current Liabilities Accounts Payable                13,000 Notes Payable                20,000 Wages Payable                   3,000 Interest Payable                   1,000 Income Tax Payable                   4,000 Unearned Revenue                   3,000                       44,000 Total Liabilities                       44,000 Total Shareholders' Equity                       30,000 Total Liabilities & Shareholders' Equity                       74,000

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