Question

Assume cash transaction in year X1 unless otherwise noted.

1/1       An Investor acquired 100% of Crazy’s stock with an investment of $800,000 cash. Par value of stock was 20.00/share and a thousand shares were sold

1/1       Crazy borrowed $250,000 cash by issuing a 3-year note with a stated interest rate of 8% per year. To be compounded annually. The interest will be paid on January 1 of each year (starting next year); and the principal will be paid on maturity

1/1       Prepaid three years of rent for $48,000 (cash).

1/15     Purchased office equipment for $50,000 and supplies for $31,000

2/7       Received $180,000 cash for consulting, services to be performed in the future for client “X”

3/1       Started up a second line of consulting services. Sold and received $300,000 in total for the year in consulting services and paid related misc. expenses of $350,000. This summarizes all revenues and expense of business #2. All in cash.   Purchased a machine for business 2 for $40,000 cash.

7/1       Prepaid $48,000 cash for a 12-month insurance policy (starting on 7/1)

8/1       Borrowed a $300,000 in cash from bank. Stated rate of interest is 6%. Principal and interest due July, 31, year 2 ( or we can say next year)

9/12     Purchased $15,000 more of supplies on credit

9/16     Provided consulting services of $60,000 on credit to client “Y” from the main (first line) consulting service division.

10/1     Purchased $18,000 (with cash) of an investment in another company’s (Pear Inc.) stock. Purchased $25,000 in bonds of Pear (not considered trading)

10/20   Collected $5,000 from client “Y”.  

10/21   Delivered $150,000 for services delivered to Client “ZA” on account.

10/31   80% of the services for client X are performed.   

12/1     Decided to sell second line of consulting business. Found a buyer for second line of consulting services. Sold the business in exchange for $20,000 cash, the business and the machine (3/1) was sold. This resulted in a loss of $20,000.    

12/15 Paid down the payable (supplies) with a $5,000 cash payment. We received $100,000 cash from Client “ZA”.

12/31   Counted supplies and determined that $6,000 of supplies were still on hand

12/31   Total salaries paid in year equaled $45,000. Remaining salaries are to be paid on January 1, second year. The total amount of current year expense is $65,000.

12/31   Determined appropriate total depreciation is $10,000

12/31   Determined that the stock purchased on 10/1 was now worth $16,000. However, the stock was not sold. Determined the bonds were worth 12,000.

12/31   We declared and paid a dividend of $15,000 to our investor

12/31   We received cash of $3,000 in dividends from Pear Inc. We received $1,000 in interest from bonds.

Tax Rate is 21% (none of the tax is paid, but it is accrued as a liability)

1. ). Prepare Income Statement (including OCI). Prepare closing entrie

I have a prepared income statement but it doesn't let me post here, I know I made a mistake and I'm trying to find out what it is

Answer 1

Crazy’s		Income Statement
For the Years Ending [Dec 31, X1]
Revenue		X1
	consulting services 2	354,000
	consulting services 2	(70,000)
	Interest revenue	1,000
	Dividend Income	3,000
Total Revenues		288,000
Expenses
	Depreciation	10,000
	Insurance	24,000
	Interest expense	27,500
	Office supplies	40,000
	Rent	16,000
	Salaries and wages	65,000
Total Expenses		182,500
	Net Income Before Taxes	105,500
	Income tax expense	22,155
Income from Continuing Operations		83,345
Reserve & Surplus
	Net Income	83,345
	Less; Dividend Paid	15,000
Net Reserve & Surplus		68,345