Question

Ayayai Corp.’s balance sheet at December 31, 2021, is presented below.

AYAYAI CORP. Balance Sheet December 31, 2021
Cash		$68,880			Accounts payable		$71,680
Accounts receivable		127,400			Common stock ($10 par)		224,000
Allowance for doubtful accounts		(4,200	)		Retained earnings		356,720
Supplies		12,320
Land		112,000
Buildings		397,600
Accumulated depreciation—buildings		(61,600	)
		$652,400					$652,400

During 2022, the following transactions occurred.

1.		On January 1, Ayayai issued 3,360 shares of $40 par, 7% preferred stock for $137,760.
2.		On January 1, Ayayai also issued 2,520 shares of the $10 par value common stock for $58,800.
3.		Ayayai performed services for $896,000 on account.
4.		On April 1, 2022, Ayayai collected fees of $100,800 in advance for services to be performed from April 1, 2022, to March 31, 2023.
5.		Ayayai collected $772,800 from customers on account.
6.		Ayayai bought $98,280 of supplies on account.
7.		Ayayai paid $90,160 on accounts payable.
8.		Ayayai reacquired 1,120 shares of its common stock on June 1 for $28 per share.
9.		Paid other operating expenses of $526,960.
10.		On December 31, 2022, Ayayai declared the annual preferred stock dividend and a $1.20 per share dividend on the outstanding common stock, all payable on January 15, 2023.
11.		An account receivable of $4,760 which originated in 2022 is written off as uncollectible.

Adjustment data:

1.		A count of supplies indicates that $16,520 of supplies remain unused at year-end.
2.		Recorded revenue from item 4 above.
3.		The allowance for doubtful accounts should have a balance of $9,800 at year end.
4.		Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $28,000.
5.		The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Comprehensive Accounting Cycle

Answer 1

Sr. No.	Date	Account titles and explanation	Debit	Credit
1	Jan-01	Cash	137760
		7% Preferred stock (3360*4)		134400
		Share premium		3360
		(Being issue of 7% preferred stock of par $ 40)
2	Jan-01	Cash	58800
		Common stock (2520*10)		25200
		Share premium		33600
		(Being issue of 7% preferred stock of par $ 10)
3		Accounts Receivable	896000
		Revenue		896000
		(Being services provided on account)
4	Apr-01	Cash	100800
		Unearned revenue		100800
		(Being fees received in advance recognised as unearned revenues)
5		Cash	772800
		Accounts Receivable		772800
		(Being collected from customers on account)
6		Supplies	98280
		Accounts Payable		98280
		(Being bought supplies on account)
7		Accounts Payable	90160
		Cash		90160
		(Being paid on accounts payable)
8		Common stock (1120*10 par value)	11200
		Share Premium (1120*18 premium)	20160
		Stockholders Account		31360
		(Being acquisition of own common stock)
9		Stockholders Account	31360
		Cash		31360
		(Being payment to stockholder for acquisition of commonstock)
10		Operating expenses	526960
		Cash		526960
		(Being payment of other operating expenses)
11		Preferred Stock Dividend	9408
		Common stock dividend {1.2 per share*(22400+2520)}	29904
		Preferred stock dividend payable		9408
		Common stock dividend payable		29904
		(Being dividend declared on stocks)
12		Bad debts	4760
		Accounts Receivable		4760
		(Being written off as uncollectible)
		Adjustment Entries :
1		Cost of Sales (Working 1)	94080
		Inventory		94080
		(Being recorded cost of sales for the current year)
2		Unearned revenue (100800/12month*9months)	75600
		Revenue		75600
		(Being fees received recognised as revenue for 9 months falling in the current year)
3		Doubtful accounts expense (9800 closing - 4200 opening balance)	5600
		Allowance for doubtful accounts		5600
		(Being provision for doubtful accounts made and increased the balance to 9800)
4		Depreciation expense (cost 397600- salvage 28000)/30 years life	12320
		Accumulated Depreciation- Building		12320
		(Being depreciation on Building provided)
5		Tax expense (Working 2)	98364
		Tax Payable		98364
		(Being tax expense provided for the year 2022)
6		Retained Earnings	39312
		Preferred Stock Dividend		9408
		Common stock dividend		29904
		(Being dividend utilised from retained earnings)

Balance Sheet as on 31 December 2022
Assets		Liabilities
Cash	490560	Accounts Payable	79800
Accounts Receivable	245840	Common Stock ($10 par)	238000
Allowance for doubtful accounts	-9800	7% Preferred stock	134400
Supplies	16520	Share Premium	16800
Land	112000	Retained Earnings	546924
Buildings	397600	Preferred stock dividend payable	9408
Accum Depreciation- Building	-73920	Common stock dividend payable	29904
		Tax Payable	98364
		Unearned revenue	25200
Total	1178800	Total	1178800

W1 :
Cost of Sales
Opening supplies	12320	A
Purchases	98280	B
Closing supplies stock	16520	C
Cost of Sales	94080	(A+B-C)

W2 :
Income Statement
Revenue	971600
Cost of Sales	94080
Gross Profit	877520
Operating expenses	549640
Net Profit before tax	327880
Tax expense	98364
Net Profit after tax	229516

Balance Sheet Items working :

Cash= 68880+137760+58800+100800+772800-90160-31360-526960 = 490560

Accounts Receivable =127400+896000-772800-4760 = 245840

Acc Depreciation- Building = 61600+12320=73920

Accounts Payable =71680+98280-90160= 79800

Common Stock ($10 par) =224000+25200-11200=238000 Share Premium = 3360+33600-20160=16800

Retained Earnings= 356720+229516-39312=546924 Unearned revenue = 100800-75600=25200