Question

ABC Inc. is a restaurant that serves sandwiches and made the following transactions:

1. ABC Inc. Issues $55,000 worth of common stock to investors and receives cash

2. ABC Inc. uses cash to buy a $10,000 restaurant space to prepare food (consider this as property).

3. ABC Inc. uses cash to buy $20,000 worth of machines (or equipment) for preparing sandwiches.

4. ABC Inc. receives $15,000 of materials (or supplies) from a supplier for making sandwiches

   (chicken, bread, etc.) and says that it will pay within 6 months.

5. ABC Inc. hires 3 people to make the sandwiches who it pays $1,500 each

6. ABC Inc. uses only $12,000 of the $15,000 in materials to make the sandwiches (Hint:

   supplies/materials get converted to Inventory here)

7. ABC Inc. sells all the sandwiches in inventory for $30,000. Out of the $30,000$15,000 in

   Cash and $15,000 will be paid after 2 months.

8. ABC Inc. receives $15,000 in materials from a supplier who it pays in cash.

9. ABC Inc. finds out from a research study that its brand value is $10,000.

10. ABC Inc. acquires Clearwater Inc. for $30,000 by cash. Clearwater Inc. is a restaurant that had

    land worth $15,000 and had no other assets but had a very good brand name. People liked and

    trusted the name of Clearwater Inc.

11. ABC Inc. uses $10,000 of the materials to make sandwiches.

12. ABC Inc. sells 80% of the sandwiches in its inventory for $25,000 to a customer. She paid

    $20,000 in cash and will pay the remaining $5,000 within 1 month. (note that 80% means that 80%

    of the dollar amount of inventory is sold)

13. ABC Inc. records depreciation expense of $7,000 on equipment from (c) and $3,000 on the property from (b) but does not record depreciation on LAND.

14. ABC Inc. pays $6,000 to its staff for administration and accounting expenses (consider them as wages).

Please do the journal entries, Balance Sheet, Income statement, and Cash flow statement.

And also calculate the:

1.Return on Equity

2.Current ration

3.Debt-to-Equity Ratio

4.Quality of Income

Answer 1

Journal
Particulars	Debit	Credit
Cash A/c	55000
To Share Capital A/c		55000
Property A/c	10000
To Cash A/c		10000
Equipment A/c	20000
To Cash A/c		20000
Material A/c	15000
To Creditors A/c		15000
Salary A/c	4500
To Cash A/c (1500*3)		4500
Inventory A/c	12000
To Material A/c		12000
Cost of Goods Sold A/c	12000
To Inventory A/c		12000
Cash A/c	15000
Debtors A/c	15000
To Sale A/c		30000
Material A/c	15000
To Cash A/c		15000
Land A/c	15000
Goodwill A/c	15000
To Clear Water A/c		30000
Clear Water A/c	30000
To Cash A/c		30000
Inventory A/c	15000
To Material A/c		15000
Cost of Goods Sold A/c	12000
To Inventory A/c(15000*80%)		12000
Cash A/c	20000
Debtors A/c	5000
To Sale A/c		25000
Depreciation A/c	10000
To Equipment A/c		7000
To Property A/c		3000
Wages A/c	6000
To Cash A/c		6000
Journal
Particulars	Debit	Credit
Cash A/c	55000
To Share Capital A/c		55000
Property A/c	10000
To Cash A/c		10000
Equipment A/c	20000
To Cash A/c		20000
Material A/c	15000
To Creditors A/c		15000
Salary A/c	4500
To Cash A/c (1500*3)		4500
Inventory A/c	12000
To Material A/c		12000
Cost of Goods Sold A/c	12000
To Inventory A/c		12000
Cash A/c	15000
Debtors A/c	15000
To Sale A/c		30000
Material A/c	15000
To Cash A/c		15000
Land A/c	15000
Goodwill A/c	15000
To Clear Water A/c		30000
Clear Water A/c	30000
To Cash A/c		30000
Inventory A/c	15000
To Material A/c		15000
Cost of Goods Sold A/c	12000
To Inventory A/c(15000*80%)		12000
Cash A/c	20000
Debtors A/c	5000
To Sale A/c		25000
Depreciation A/c	10000
To Equipment A/c		7000
To Property A/c		3000
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