Question

Transactions:

1) Throughout the year, the company purchased parts and supplies inventory totaling $75,000. Of the $75,000, $10,000 was cash paid at the time of purchase, and the remaining $65,000 was purchased on account.

2) Total sales of the year were $330,000. Of course, $110,000 were sales on account, $60,000 were cash sales, and $160,000 were credit card sales. The credit card company charged Alice's a 2% fee for each sale.

3) The original cost of the parts and supplies inventory used was $69,000.

4) Rent for the facility in which the company operated remained at $1,000 throughout the year. The company had paid for the first two months’ rent during December of the prior year. It paid for the remaining 10 months ‘rent during the current year.

5) The cost of insurance for the year was $1,200, paid in cash.

6) The company included $5,000 in employees’ paychecks in January for work done in the prior year.

7) Alice decided to write off three accounts during the year because those customers were not likely to pay the combined $4,000 they owed to Alice’s.

8) During the year, employees, including Alice, earned $200,000 in salaries and wages, of which $194,000 was included in the paychecks to the employees during the year, and the remaining $6,000 would be included in their January paychecks the following year.

9) Remaining operating expenses totaled $10,000, all paid in cash.

10) On April 15, the company paid its prior years’ taxes of $2,258.

11) On October 1, the company made an interest payment of $3,000 to the local bank. The payment was related to the $25,000 loan to the company had obtained the prior October 1 that carried at 12% interest rate, with interest being payable annually on October 1.

12) In December, the company paid the rent for the following January in advance.

13) The total amount that customer’s owed Alice’s at the end of the year, after the three accounts had been written off, totaled $20,000.

14) Alice’s still owed suppliers $10,000 at the end of the second year for the inventory it had purchased.

15) In addition to his salary, the company paid a $10,000 dividend to Alice.

16) The company’s tax rate was 15%. Alice planned to wait until April 15 of his company’s third year to pay the income tax bill for its second year of operations.

17) The company still had the truck and equipment it had purchased at the beginning of its first year of operation. At the time, it had paid $30,000 for the truck and $20,000 for the equipment. It was assumed that the truck would have a useful life of five years, and the equipment would have a useful life of four years. Neither the truck, nor the equipment was expected to have any salvage value.

Required:

1) Prepare all journal entries required for Alice’s second year of operations.

2) Post the information’s to T-accounts.

3) Prepare an income statement that summarizes the results of operations for the second year.

4) Prepare a balance sheet as of December 31.

5) Prepare a statement of cash flow for the second year.

Alice’s Electronics services, Inc.: The second year

Assets:

Cash $9000

Accounts receivables 22,000

Parts and supplies inventory 8,500

Prepaid rent 2000

Investment in XYZ, Inc. 55,000

PP&E 37,500

Total Assets $134,000

Liabilities

Accounts Payable $ 8,200

Wages Payable 5,000

Interest Payable 750

Loan Payable 25,000

Taxes Payable 2,258

Stockholder’s Equity

Capital Stock 80,000

Retained earnings 12,792

Total Liabilities and Stockholder’s Equity $134,000

Answer 1

						Amount($)
1	Journal Entries
	Particulars
	Inventory a/c	Dr		75000
	To Cash				10000
	ToA/c Payable				65000
	Cash a/c	Dr		60000
	A/c Receivables	Dr		110000
	Credit card receits	Dr		160000
	To sales				330000
	Commission to credit card co. a/c	Dr		3200
	To Cash/bank				3200
	Cost of goods sold a/c	Dr		69000
	To Purchases				8500
	To Inventory				60500
	Rent a/c	Dr		10000
	To Cash/bank				10000
	Insurance exp a/c	Dr		1200
	To Cash/bank				1200
	Salaries a/c	Dr		5000
	To Cash/bank				5000
	Bad debts written off a/c	Dr		4000
	To A/c Receivable				4000
	Salaries & Wages a/c	Dr		194000
	To Cash/bank				194000
	A/c Payable a/c			55000
	To Cash				55000
	Out Standing Expenses a/c	Dr		6000
	To Salaries Payable				6000
	Operating Expenses			10000
	To Cash/bank				10000
	Interest Expense a/c	Dr		3000
	To Cash/bank				3000
	Depreciation   a/c	Dr	(30000/5)	6000
	To Truck				6000
	Depreciation a/c	Dr	(20000/4)	5000
	To Equipment				5000
2	T- Accounts
			Cash/Bank a/c
	To Balance b/d	9000		By Inventory	10000
	To Sales	60000		By Rent	10000
	To A/c Receivable	108000		By Insurance	1200
				By Operating expenses	10000
				By Taxes	2258
				By Interest Expenses	3000
				By Dividend	10000
				By Rent Advance	1000
				A/c Payable	55000
				By Balance c/d	74542
		177000			177000
			Accounts Receivable a/c
	To Balance b/d	22000		By Bad Debts written off	4000
	To Sales	110000		By cash	108000
				By Balance c/d	20000
		132000			132000
			Inventory a/c
	To Balance b/d	8500	By Cost of Goods sold		69000
	To Cash	10000	By Balance c/d		14500	65000
	To A/s Payables	65000
		83500			83500
3	Income Statement
	Sales				330000
	Less:
	Purchases			75000
	Commission o Credit Card Sales		(160000*2%)	3200
	Rent			120000
	Insurance			1200
	Salaries & Wages			200000
	Bad debts Written off			4000
	Operating Expenses			10000
	Interest Expenditure			3000
	Dividend			10000
				426400
	Net Loss				-96400
4	Balance Sheet
	Assets
	Inventory		14500
	Accounts Receivable		20000
	Cash		74542
	Prepaid Expenditure		1000
	Investment in XYZ Inc		55000
	Truck	(30000-12000)	18000
	Equipment	(20000-10000)	10000
	Liabilities
	Loan Payable		25000
	Accounts Payable		10000
	Wages Payable		6000
	Interest Payable	(25000*12%*2/12)	500
	Stock Holders Equity
	Capital Stock		80000
	Retained Earnings		-83618