Question

ASTRO Inc.

Statement of Financial Position

December 31, 2018

            Assets                                                              Liabilities

Cash                                      $259,000           Notes Payable 8%             $60,000

Inventory                                $6,000           Accounts Payable              $40,000

Prepaid Insurance                $3,000                      Total                                  $100,000

Supplies                                  $4,000           Common Stock $5 par   $140,000

Land                                       $6,000           Excess of par                      $60,000

Building        $480,000                                  Retained earnings           $418,000

Acc. Depr. ( $40,000)       $440,000                       Total                                    $618,000

Total Assets                         $718,000           Total Liabilities & Equity            $718,000

You are asked to prepare, in good financial form, a set of financial statements for Saratoga Inc. for the quarter ending 3/31/2019.

Jan. 1 – ASTRO purchased equipment for $70,000 and signed a note for the entire cost. The interest rate on the note is 6%. This loan requires monthly payments of $2,000. Monthly payments include interest and principle. Useful life is 5 years.

Jan. 1 – ASTRO purchased on this date for $100,000. Useful life for this machine is 10 years. ASTRO elected to sign a note for the full amount of the purchase price. The note has a 10% rate of interest. Payment on the note will be yearly and the first payment is due December 31, 2019.

Jan. 10 – Purchased $80,000 of inventory.   The company paid in full on this date.

Jan. 15 – Issued 200,000 shares of common stock of ASTRO Inc. for $12 per share. All cash received on this date.

Jan. 20 – ASTRO purchased $50,000 of inventory on account.

Jan. 27 – Sales to a customer amounted to $590,000. Received $18,000 in cash on this date.

Feb. 1 – ASTRO made a $2,000 monthly note payment in cash. This note was created on January 1, 2019.

Feb. 15 – Salary and wage expense were paid in the amount of $26,000.

Feb. 27 – The $2,000 monthly note payment was made. This note was entered into Jan. 1, 2019.

Feb. 27 – Received payment in full for the sales generated on Jan. 27, 2019.

Mar. 15 – ASTRO paid $9,000 for advertising.

Mar. 18 – Dividends declared to shareholders for record owners on March 31, 2019 - to be paid on April 1, 2019. The amount of the dividend is $1 per share.

Mar. 31 – Salary and wages paid in the amount of $5,000.

Mar. 31 – Supply Inventory was $1,000.

Mar. 31 - Sales to customer amounted to $35,000 and no discounts were given. Cash was received for the full price.

Mar. 31 - Inventory [merchandise] at March 31, 2019 was $10,000.

Mar. 31 - ASTRO paid wages of $23,000 this date

Mar. 31 - Assume the tax rate is 15% for ASTRO Inc.

Mar. 31 – ASSUME that the prepaid insurance of $3,000 listed on the balance sheet dated December 31, 2018 is the cost of the insurance policy from January 1, 2019 to December 31, 2019.

Building has a useful life of 20 years.

CREATE the following

Statement of Revenue & Expenses {Income statement}

Statement of Retained Earnings

Statement of Financial Position {Balance Sheet}

Tee accounts

All Journal Entries

Answer 1

1	Journal Entries			2	T-accounts
					Cash					Inventory
1-Jan	Equipment	$70,000			1-Jan	$259,000	10-Jan	$80,000		1-Jan	$6,000	31-Mar	$126,000
	Note payable-6%		$70,000		15-Jan	$2,400,000	1-Feb	$2,000		10-Jan	$80,000
					27-Jan	$18,000	15-Feb	26000		20-Jan	$50,000
1-Jan	Machine	$100,000			27-Feb	$572,000	27-Feb	$2,000
	Note payable-10%		$100,000		31-Mar	$35,000	15-Mar	$9,000
							31-Mar	$5,000
10-Jan	Inventory	$80,000					31-Mar	$23,000
	Cash		$80,000			$3,137,000					$10,000
15-Jan	Cash	2,400,000			Prepaid Insurance					Supplies
	Common Stock (200000 x $5 par value)		1,000,000		1-Jan	$3,000	31-Mar	$750		1-Jan	$4,000	31-Mar	$3,000
	Additional paid in capital (200000 x $7)		1,400,000
20-Jan	Inventory	$50,000
	Accounts payable		$50,000
27-Jan	Cash	$18,000
	Accounts receivable	$572,000				$2,250					$1,000
	Sales revenue		$590,000
					Land					Building
1-Feb	Note payable-6%	$1,650			1-Jan	$6,000				1-Jan	$480,000
	Interest expense (70000 x 6% x1/12)	$350
	Cash		$2,000
15-Feb	Salaries expenses	$26,000
	Cash		$26,000
27-Feb	Note payable-6%	$1,658.25				$6,000					$480,000
	Interest expense	$341.75
	Cash		$2,000		Equipment					Machine
					1-Jan	$70,000				1-Jan	$100,000
27-Feb	Cash	$572,000
	Accounts receivable		$572,000
15-Mar	Advertising expenses	$9,000
	Cash		$9,000
18-Mar	Retained Earnings	$228,000				$70,000					$100,000
	Dividend Payable		$228,000
					Notes Payable-8%					Notes Payable-6%
31-Mar	Salaries expenses	$5,000					1-Jan	$60,000		1-Feb	$1,650	1-Jan	$70,000
	Cash		$5,000							27-Feb	$1,658
										31-Mar	$1,667
31-Mar	Supplies expense	$3,000
	Supplies Inventory		$3,000
31-Mar	Cash	$35,000
	Sales Revenue		$35,000					$60,000					$65,025
31-Mar	Cost of goods sold	$126,000			Notes Payable-10%					Accounts Payable
	Inventory		$126,000				1-Jan	$100,000				1-Jan	$40,000
												20-Jan	$50,000
31-Mar	Salaries expenses	$23,000
	Cash		$23,000
	Adjustment entries
31-Mar	Insurance expense	$750
	Prepaid insurance		$750					$100,000					$90,000
31-Mar	Note payable-6%	$1,666.54			Loan and interest payable					Common Stock
	Interest expense	$333.46					31-Mar	$2,000				1-Jan	$140,000
	Loan and Interest payable		$2,000				31-Mar	$2,500				15-Jan	$1,000,000
31-Mar	Depreciation-Building (480000/20 x 3/12)	$6,000
	Depreciation-Machine (100000/10 x3/12)	$2,500
	Depreciation-Equipment (70000/5 x 3/12)	$3,500
	Accumulated Depreciation-Building		$6,000
	Accumulated Depreciation-Machine		$2,500					$4,500					$1,140,000
	Accumulated Depreciation-Equipment		$3,500
					Excess of par					Retained Earnings
31-Mar	Interest expense	$2,500					1-Jan	$60,000		18-Mar	$228,000	1-Jan	$418,000
	Interest payable		$2,500				15-Jan	$1,400,000
	(interest on note payable-10% for 3 months)
								$1,460,000					$190,000
Working note:					Sales Revenue					Accumulated Depreciation-Building
Interest in monthly installment of $2000							27-Jan	$590,000				1-Jan	$40,000
	Monthly Installment	Interest	Principal	Remaining Principal			31-Mar	$35,000				31-Mar	$6,000
Opening Balance				70000
Jan	$2,000	350	$1,650	$68,350
Feb	$2,000	341.75	$1,658.25	$66,692
March	$2,000	333.46	$1,666.54	$65,025
								$625,000					$46,000
					Accumulated Depreciation-Machine					Accumulated Depreciation-Equipment
							31-Mar	$2,500				1-Jan	$3,500
								$2,500					$3,500
					Dividend payable					Salaries Expense
							18-Mar	$228,000		15-Feb	$26,000
										31-Mar	$5,000
										31-Mar	$23,000
								$228,000			$54,000
					Advertisement					Insurance expense
					15-Mar	$9,000				31-Mar	$750
						$9,000					$750
					Interest expense					Supplies expense
					1-Feb	$350				31-Mar	$3,000
					27-Feb	$342
					31-Mar	$333
					31-Mar	$2,500
						$3,525					$3,000
					Cost of goods sold					Depreciation-Equipment
					31-Mar	$126,000				31-Mar	$3,500
						$126,000					$3,500
					Depreciation-Building					Depreciation-Machine
					31-Mar	$6,000				31-Mar	$2,500
						$6,000					$2,500
3	Income Statement
	Sales Revenue		$625,000
	Cost of Goods sold		$126,000
	Gross Profit		$499,000
	Operating expenses
	Salaries expense	$54,000
	Advertisement expense	$9,000
	Supplies Expense	$3,000
	Insurance expense	$750
	Depreciation-Building	$6,000
	Depreciation-Machine	$2,500
	Depreciation-Equipment	$3,500
	Total Operating expense		$78,750
	Income before interest and tax		$420,250
	Interest expenses		$3,525
	Income before tax		$416,725
	Tax @ 15%		$62,509
	Net income		$354,216
4	Statement of Retained Earnings
	Retained Earnings, 1/1/2019	$418,000
	Add: Net income	$354,216
	Less: Dividend Declared	$228,000
	Retained Earnings, 3/31/2019	$544,216
5	Balance Sheet
	Assets		Liabilities
	Cash	$3,137,000	Note Payable-8%	$60,000
	Inventory	$10,000	Note Payable-6%	$65,025
	Prepaid Insurance	$2,250	Note Payable-10%	$100,000
	Supplies Inventory	$1,000	Loan and interest payable	$4,500
	Land	$6,000	Accounts payable	$90,000
	Building	$480,000	Dividend Payable	$228,000
	Acc. Depr.	($46,000)	Income tax payable	$62,509
	Machine	$100,000	Total	$610,034
	Acc. Depr.	($2,500)	Common Stock	$1,140,000
	Equipment	$70,000	Excess of par	$1,460,000
	Acc. Depr.	($3,500)	Retained Earnings	$544,216
			Total	$3,144,216
	Total Assets	$3,754,250	Total liabilities and Equity	$3,754,250