Question

Accounting Cycle Review 11-01 a,b, c1-c3

Morgan Company’s balance sheet at December 31, 2019, is presented below.

MORGAN COMPANY Balance Sheet December 31, 2019
Cash		$30,000		Accounts Payable		$12,250
Inventory		30,500		Interest Payable		300
Prepaid Insurance		6,084		Notes Payable		60,000
Equipment		38,520		Owner’s Capital		32,554
		$105,104				$105,104

During January 2020, the following transactions occurred. (Morgan Company uses the perpetual inventory system.)

1.		Morgan paid $300 interest on the note payable on January 1, 2020. The note is due December 31, 2021.
2.		Morgan purchased $240,000 of inventory on account.
3.		Morgan sold for $489,000 cash, inventory which cost $263,000. Morgan also collected $31,785 in sales taxes.
4.		Morgan paid $236,000 in accounts payable.
5.		Morgan paid $16,500 in sales taxes to the state.
6.		Paid other operating expenses of $20,500.
7.		On January 31, 2020, the payroll for the month consists of salaries and wages of $58,000. All salaries and wages are subject to 7.65% FICA taxes. A total of $8,700 federal income taxes are withheld. The salaries and wages are paid on February 1.

Adjustment data:

8.		Interest expense of $300 has been incurred on the notes payable.
9.		The insurance for the year 2020 was prepaid on December 31, 2019.
10.		The equipment was acquired on December 31, 2019, and will be depreciated on a straight-line basis over 5 years with a $3,060 salvage value.
11.		Employer’s payroll taxes include 7.65% FICA taxes, a 5.4% state unemployment tax, and an 0.8% federal unemployment tax.

A)Prepare journal entries for the transactions listed above and the adjusting entries.

B)Prepare an adjusted trial balance at January 31, 2020.

C)Prepare an income statement.

D)Prepare an owner’s equity statement for the month ending January 31, 2020.

E)Prepare a classified balance sheet as of January 31, 2020

Answer 1

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Morgan Company
Answer a
Event	Account	Debit $	Credit $
1	Interest Payable	300.00
	Cash		300.00
2	Inventory	240,000.00
	Accounts Payable		240,000.00
3	Cash	520,785.00
	Sales		489,000.00
	Sales tax Payable		31,785.00
3	Cost of goods sold	263,000.00
	Inventory		263,000.00
4	Accounts Payable	236,000.00
	Cash		236,000.00
5	Sales tax Payable	16,500.00
	Cash		16,500.00
6	Other operating expenses	20,500.00
	Cash		20,500.00
7	Salaries Expense	58,000.00
	Salaries & Wages Payable		49,300.00
	FICA- taxes Payable		8,700.00
Adjusting entry
8	Interest Expense	300.00
	Interest Payable		300.00
9	Insurance Expense	507.00
	Prepaid Insurance		507.00
10	Depreciation Expense	591.00
	Accumulated Depreciation- Equipment		591.00
11	Payroll tax expose	8,033.00
	FICA- taxes Payable		4,437.00
	State - taxes Payable		3,132.00
	Federal- taxes Payable		464.00

Answer b
Adjusted Trial Balance	Unadjusted		Adjustments		Adjusted
Account Titles	Debit	Credit	Debit	Credit	Debit	Credit
Cash	550,785.00	273,300.00			277,485.00
Inventory	270,500.00	263,000.00			7,500.00
Prepaid Insurance	6,084.00			507.00	5,577.00
Equipment	38,520.00				38,520.00
Accumulated Depreciation- Equipment				591.00		591.00
Accounts Payable	236,000.00	252,250.00				16,250.00
Interest Payable	300.00	300.00		300.00		300.00
Notes Payable		60,000.00				60,000.00
Salaries & Wages Payable		49,300.00				49,300.00
FICA- taxes Payable		8,700.00		4,437.00		13,137.00
State - taxes Payable				3,132.00		3,132.00
Federal- taxes Payable				464.00		464.00
Sales tax Payable		15,285.00				15,285.00
Owner's Capital		32,554.00				32,554.00
Sales		489,000.00				489,000.00
Cost of goods sold	263,000.00				263,000.00
Operating expense	20,500.00				20,500.00
Salaries Expense	58,000.00				58,000.00
Payroll tax Expense			8,033.00		8,033.00
Interest Expense			300.00		300.00
Insurance Expense			507.00		507.00
Depreciation Expense			591.00		591.00
Total	1,443,689.00	1,443,689.00	9,431.00	9,431.00	680,013.00	680,013.00

Answer c
Income Statement	Amount $
Sales	489,000.00
Less:
Cost of goods sold	263,000.00
Gross Profit	226,000.00
Less: Operating Expense
Operating expense	20,500.00
Salaries Expense	58,000.00
Payroll tax Expense	8,033.00
Interest Expense	300.00
Insurance Expense	507.00
Depreciation Expense	591.00
Total Operating Expense	87,931.00
Net Income	138,069.00
Answer d
Statement of Owner's Capital	Amount $
Owner's Capital	32,554.00
Add: Net Income	138,069.00
Statement of Owner's Capital	170,623.00
Answer e
Balance Sheet
Assets	Amount $
Cash	277,485.00
Inventory	7,500.00
Prepaid Insurance	5,577.00
Total Current Assets	290,562.00
Equipment	38,520.00
Accumulated Depreciation- Equipment	(591.00)
Total Assets	328,491.00
Total Liabilities & Owner's Capital
Liabilities
Accounts Payable	16,250.00
Interest Payable	300.00
Salaries & Wages Payable	49,300.00
FICA- taxes Payable	13,137.00
State - taxes Payable	3,132.00
Federal- taxes Payable	464.00
Sales tax Payable	15,285.00
Current Liabilities	97,868.00
Long Term- Liabilities
Note payable	60,000.00
Total Long Term- Liabilities	60,000.00
Total Liabilities	157,868.00
Owner's Capital
Owner's Capital	170,623.00
Total Owner's Capital	170,623.00
Total Liabilities & Owner's Capital	328,491.00