Question

Company was started on January 1, 2017. The following accounts are on the Balance Sheet Accounts: Cash, Accounts Receivable, Equipment, Accumulated Depreciation, Prepaid Expenses, Supplies, Accounts Payable, Notes Payable, Interest Payable, Wages Payable, Unearned Revenue, Common Stock, Additional Paid in Capital, and Retained Earnings.

The company report results as of the fiscal year ending December 31, 2017.

Following are fiscal 2017 transactions:

a. January 1: The company sold 12,000 shares of $0.50 par common stock for $6 per share.

b. January 1: Borrowed $80,000 from the local bank. The loan carries a 6% annual interest rate. Interest and principal are due in full on January 1, 2026.

c. January 1: Purchased equipment with cash to be used in the business for $60,000. The estimated life of the equipment is 4 years, and the expected salvage value is $8,000.

d. January 1: Purchased an 18-month insurance policy for $9,000 with cash. The policy begins immediately.

e. During 2017: Paid $8,000 cash for advertising in the local paper, $6,500 of which was for 2017 papers and $1,500 of which is for 2018 papers.

f. During 2017: The firm pays each month’s rent for the building space on the first of the month (i.e., the firm pays rent on January 1 for rent in January). The monthly rent is $1,350. The firm began renting the building in January and rented it through December 31.

g. During 2017: Purchased supplies (e.g., cleaning solutions, sponges) for $40,000 on credit.

h. During 2017: Paid suppliers $25,000 in cash relating to items purchased in transaction

i. During 2017: Performed and billed customers for 9,500 car washes at $20 per car wash.

j. During 2017: Collected $125,000 in cash from customers billed in transaction

k. During 2017: The firm pays employees on the first of each month for work performed the previous month (i.e., the firm pays employees on February 1 for work performed in January). The total monthly wages are $3,100. Employees began work on January 1 and worked through December 31.

l. November: Started a membership program that allowed customers to pay in advance for 10 car washes at a discounted price of $15 per car wash. A total of 250 customers signed up for this membership program.

m. December: Voted the “Best Car Wash” by a people’s poll in the city. Due to this, the Bubble Blasters Auto Spa had a one-page article in the city’s magazine. 10 Bubbles estimates an increase of $20,000 in sales in 2018 as a result of this good press.

n. December: Bubble Blasters granted bonuses to three employees based on their exceptional performance in 2017. The bonus amount is $1,000 per employee and will be paid on January 15, 2018.

o. December 31: The firm declared and paid a dividend of $0.10 per share.

p. December 31: The cost of car wash supplies remaining at year end totaled $7,500. The market value of the supplies is $12,000.

q. December 31: Records show that 500 “member” car washes (from the prepaid membership program in part l) were provided during 2017.

Instructions: Record the transactions in the FSET. The beginning balances in all the accounts are 0 because the company began operations on January 1, 2017. In good form, prepare the balance sheet at December 31, 2017, and the income statement, the statement of stockholders’ equity, and the statement of cash flows (direct method) for the period ending December 31, 2017.

Answer 1

FSET