Question

Group Project – Year 1

Could you do a balance sheet and income statement for below?

The following list summarizes the transactions that took place during a start up’s first year of operations. Using the information below, prepare a list of the appropriate journal entries, including any necessary adjusting entries, and create a Balance Sheet and Income Statement. Once you have created the financial statements, provide the appropriate closing entries. The startup uses straight line when depreciating long‐term assets and a perpetual inventory system.

Transactions and information for the year:

1. Jan 1st, issued 500 shares of common stock ($0.50 par value) for $5000.

2. Feb 1st, paid $2500 to purchase land.

3. Feb 28th, issued 100 shares of preferred stock ($100 par value) for $20,000.

4. June 30th, paid $75,000 for a building (estimated useful life of 40 years; salvage

   value = $5,000) by signing a 5 year Note Payable, promising to pay 5% interest at

   the end of each of those 5 years (i.e. on June 30th of each year).

5. July 1st, purchased 400 units of inventory at $15 each. $1,000 was paid in cash, the

   rest was on account.

6. July 30th, sold 120 units of inventory for $63 each on account.

7. Aug 2nd, incurred $450 of wages expense.

8. Aug 5th, collected $2500 of accounts receivable.

9. Aug 31st, paid $200 of wages payable.

10. Sept 4th, paid $1600 of accounts payable.

11. Dec 31st, incurred and paid $2,000 of utilities expense.

12. Dec 31st, Purchased a patent for $20,000. The patent has a 20‐year useful life and no

    residual value.

13. Estimated tax rate is 35%.

Answer 1

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	Income Statement:
	Sale		$        7,560
	Less: Cost of goods sold		$      -1,800
	Gross Margin		$        5,760
	Less: Operating Expense
	Utilities Expense	$    2,000
	Wages Expense	$        450
	Depreciation Expense ($75,000-$5,000)/40*6/12	$        750
	Total Operating Expense		$      -3,200
	Operating Income		$        2,560
	Less: Interest Expense ($75,000*5%*6/12)		$      -1,875
	Income before tax		$           685
	Less: Income Tax 35%		$          -240
	Net Income		$           445
	Balance Sheet:
	Cash		$           200
	Accounts Receivable		$        5,060
	Inventory		$        4,200
	Total Current Assets		$        9,460
	Land		$        2,500
	Building	$ 75,000
	Less: Accumulated Depreciation	$      -750	$     74,250
	Patent		$     20,000
	Total Assets		$   106,210
	Liabilities and Equity:
	Current Liabilities:
	Accounts Payable		$        3,400
	Wages Payable		$           250
	Interest Payable		$        1,875
	Income Tax Payable		$           240
	Total Current Liabilities		$        5,765
	Note Payable		$     75,000
	Total Liabilities		$     80,765
	Stockholder's Equity:
	Common Stock	$        250
	Preferred Stock	$ 10,000
	Paid in capital, in excess of par-Common	$    4,750
	Paid in capital, in excess of par-Preferred	$ 10,000
	Retained Earning	$        445
	Total Stockholder's Equity		$     25,445
	Total Liabilities and Stockholder's Equity		$   106,210