Question

The following list summarizes the transactions that took place during a start up’s secondyear of operations. Using the information below(and assuming FIFO for inventory), prepare a list of the appropriate journal entries, including any necessary adjusting entries, and create a set of financial statements(i.e., balance sheet, income statement, and statement of cash flows).Once you have created the financial statements, provide the appropriate closing entries.Recall that there were 150 units of inventory,which had been purchased at $10 per unit, left at the end of Year One. Also calculate what the LIFO adjustment would bein Year Two.Transactions and information for the year:

a.

Ordered and received 200 units of inventory

purchased on account

for $11 each

b.

Delivered 150 units of inventoryto customer who ordered on account for $16 each

c.

At the start of the year, purchased a small R&D business

for $85 consisting of the following

items (fair value in parentheses):

•

Land

($20)

•

Patents

($50)

w/ 10 years of useful life remaining

d.

Spent $25 on research and development.

e.

Ordered and received 100 units of inventory purchased on account for $13 each

f.

A customer placed an order on account for

250 units at $17 each

.

220 units were delivered.

g.

Incurred $800 of wages expense

h.

Collected $5000 of accounts receivable

i.

Paid $700 of wages payable

j.

Paid $4000 of accounts payable

k.

Paid $200 of taxes payable

l.

Spent $50 at end of year to repair PPE

($15)

and to improve PPE ($35).

Revised useful life is 5

more years.

Since the improvements occurred at the end of Year Two, the revised depreciation

scheme will only apply to Year Three.

m.

Estimated tax rate is 35%

Answer 1

Answer: Jounal Entries:

Date	Account Title	Debit	Credit
a	Inventory (200 units @ 11 each)	2200
	Accounts Payable		2200
	(To record purchase of goods)
b	Accounts Receivables	2400
	Sales (150 units @ $16 each)		2400
	(To record sale of goods)
	Cost of Goods Sold	1500
	Inventory (150 units @10 each)		1500
	(To record sale of goods)
c	Land	20
	Patents	50
	Goodwill	15
	Accounts Payable		85
	(To record the purchase of R&D business)
d	Reseach & Development	25
	Accounts Payable		25
	(To record the R&D expenses)
e	Inventory (100 units @ $13 each)	1300
	Accounts Payable		1300
	(To record purchase of goods)
f	Accounts Receivable	3740
	Sales (220 units @ $17 each)		3740
	Cost of Goods Sold	2460
	Inventory (200 units @ $11 each + 20 units @ 13 each)		2460
	(To record sale of goods)
g	Wages	800
	Wages Payable		800
	(To record wage expense)
h	Bank	5000
	Accounts Receivable		5000
	(To record payment from debtors)
i	Wages Payable	700
	Bank		700
	(To record payment of wages)
j	Accounts Payable	4000
	Bank		4000
	(To record payment ot creditors)
k	Tax Payable	200
	Bank		200
	(To record payment of tax liability)
l	Repair	15
	PPE	35
	Accounts Payable		50
	(To record the expenses on PPE)
	Depreciation	5
	Patents (50/10)		5
	(To record depreciation on patents