Question

Johnsn and Hill formed a company, and 2018 was their first year of operation.

1. To establish Johnson & Hill each contributed a total of $60,000 in exchange for common stock.
2. Johnson & Hill specializes in high-end parties. The first year they conducted 94 events and revenue for the first year amounted to $480,000, of which 95% was to be paid by the date of the event and the remainder due within 30 days of the event.
3. Clients owe $16,000 at the end of the year from the services provided in December.
4. At the beginning of the year, a storage building was rented, signing a two-year lease for $15,000 per year and making a $4,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year.
5. At the beginning of the year, the company purchased a computerized stage and lighting for $120,000 expected to be useful for twelve years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder (with 10% interest-only to be paid annually until maturity). They also purchased a trailer to haul it with, for $8,000, also with an expected 15-year life. Johnson & Hill must lease a large truck to haul the trailer for each event, which costs $1,000 per day.
6. Other operating expenses, including wages, deprecation on other equipment, utilities, and rent on the storage building noted in (d) and (e) above, totaled $136,000 for the first year. Only $5000 was accrued accounts payable at the end of the year.
7. Johnsn & Hill purchased other equipment (tables & carts, ice machine, food heating trays and bags, helium tanks, music system, etc.) for $10000 with an estimated life of 10 years and no salvage value. Salaries and wages for the year total $105,867 including payroll taxes.
8. The company declared and paid a $50,000 cash dividend at the end of the first year.
9. Johnson & Hill is in the 35% corporate tax bracket.

*Be sure to include the Truck Rental: $1,000 * 94 events = $94,000*

Prepare an income statement for the first year.

Prepare a balance sheet as of the end of the first year.

Prepare a statement of retained earnings as of the end of the first year.

Prepare a statement of cash flows for the first year using the direct method in the Operating Activities section.

Complete a vertical analysis of the Income statement.

Answer 1

		JOURNAL ENTRY
	Ref	Account Title	Debit	Credit
	a	Cash	$60,000
		Common Stock		$60,000
	b	Cash	$456,000		(95%*480000)
		Accounts Receivable	$24,000
		Sales Revenue		$480,000
	c	Cash	$8,000		(24000-16000)
		Accounts receivable		$8,000
	d	Security deposit	$4,000
		Rent expense	$15,000
		Prepaid Rent	$15,000
		Cash		$34,000	(15000*2+4000)
	e	Equipment	$120,000
		Cash		$24,000	(20%*120000)
		Note Payable		$96,000
	e	Traler	$8,000
		Cash		$8,000
	e	Lease expense for truck	$94,000		(94*1000)
		Cash		$94,000
	e	Interest expense	$9,600		(10%*96000)
		Interest payable		$9,600
	e	Depreciation expense-equipment	$10,000		(120000/12)
		Depreciation expense-Trailer	$533		(8000/15)
		Accumulated depreciation		$10,533
	f	Other operating expenses	$136,000
		Cash		$131,000
		Accrued expense		$5,000
	g	Other Equipments	$10,000
		Cash		$10,000
	g	Depreciation expense	$1,000		(10000/10)
		Accumulated depreciation		$1,000
	g	Salaries and wages	$105,867
		Cash		$105,867
	i	Dividend	$50,000
		Cash		$50,000
		T-ACCOUNT -CASH ACCOUNT
Ref	Debit		Ref	Credit
a	$60,000		d	$34,000
b	$456,000		e	$24,000
c	$8,000		e	$8,000
			e	$94,000
			f	$131,000
			g	$10,000
			g	$105,867
			h	$50,000
	$524,000	Total		$456,867
	$67,133	Closing Balance
		TRIALBALANCE	Debit	Credit
		Cash	$67,133
		Common Stock		$60,000
		Accounts Receivable	$16,000
		Sales Revenue		$480,000
		Security deposit	$4,000
		Rent expense	$15,000
		Prepaid Rent	$15,000
		Equipment	$120,000
		Notes Payable		$96,000
		Trailer	$8,000
		Lease expense for truck	$94,000
		Interest expense	$9,600
		Interest payable		$9,600
		Depreciation expense-equipment	$10,000
		Depreciation expense-Trailer	$533
		Accumulated depreciation		$10,533
		Other operating expenses	$136,000
		Accrued expenses		$5,000
		Other Equipments	$10,000
		Depreciation expense	$1,000
		Accumulated depreciation		$1,000
		Salaries and wages	$105,867
		Dividend	$50,000
		TOTAL	$662,133	$662,133