Question

On February 1, 2017, a new software development firm engaged in an initial public offering in which it raised $495,000 in capital and issued 30,000 shares of $1 par value common stock.

On March 1, the firm purchased a small building to locate its operations, by paying 20% of the $300,000 purchase price and financing the balance with a note payable.

The firm accrues interest on the note at the end of each quarter at a rate of 5%, and pays interest on the first day of the next quarter.

The firm depreciates the building at the end of the reporting period using straight-line depreciation.

The estimated salvage value is 50,000 and the estimated useful life of the building is 30 years.

On March 5, the firm purchases another development company for $60,000, acquiring a new software patent valued at 100,000, accounts payable of $10,000, and compensation payable of $30,000.

On April 1, the firm sells software on account, amounting to $62,500.

The customer pays the firm $62,500 on April 30.

The firm hires a new coder at an annual salary of $160,000 on July 1, 2017.

The firm pays the coder quarterly (October 1, 2017 and January 1, 2018).

On July 1, the firm enters into an agreement to provide updates to its software on a quarterly basis and receives an advance payment of $25,000 for Q3 and Q4 of 2017.

On August 15, the company hires another new coder, who will be paid upon completion of a new software project.

On September 1, the company purchases new computer systems for the new software project at a cost of 30,000.

The company depreciates the computer at the end of the reporting period using straight-line depreciation.

The computer systems are estimated to have zero salvage value and a useful life of 5 years.

The company provides software updates pursuant to its July 1 agreement on September 30 for q3 2017.

On November 20, the company makes new sales on account in the amount of $52,500.

On December 1, customers pay $25,000 of sales on account.

The company provides software updates pursuant to its July 1 agreement on December 30 for q4, 2017.

On December 31, the company records an appropriate amount of income tax expense based on a statutory rate of 24% and taxes due on March 15, 2018.

REQUIREMENTS:

PART1:

Record (journalize) transactions and other events .

The entity will prepare annual financial statements. However, some adjusting entries will be made quarterly, and at the end of the company's reporting year.

Be sure to include all quarterly or annual adjusting entries as noted.

PART II:

Post all journal/adjusting entries to t-accounts and determine t-account balances -use the date of the journal entry as the ID for the t-account postings.

PART III:

Prepare one trial balance (post-end of year adjusting entries)

Part IV:

Prepare financial statements (balance sheet, income statement, and statement of retained earnings).

Part V:

Prepare closing entries.

Answer 1

Part I	Journal entries
Date	Account Titles	Debit	Credit
1-Feb	Cash	495,000
	Common Stock		$30,000
	Additional Paid in Capital		$465,000
1-Mar	Building	$300,000
	Cash		$60,000
	Note Payable		$240,000
5-Mar	Investment in Development company	$60,000
	Cash		$60,000
31-Mar	Interest expense	$1,000
	Interest Payable		$1,000
	(240000 x 5% x1/12)
1-Apr	Interest payable	$1,000
	Cash		$1,000
1-Apr	Accounts receivable	$62,500
	Software revenue		$62,500
30-Apr	Cash	$62,500
	Accounts receivable		$62,500
30-Jun	Interest expense	$3,000
	Interest Payable		$3,000
	(240000 x 5% x3/12)
1-Jul	Interest payable	$3,000
	Cash		$3,000
1-Jul	Cash	$25,000
	Unearned Revenue		$25,000
1-Sep	Computer	$30,000
	Cash		$30,000
30-Sep	Unearned revenue	$12,500
	Software updates revenue		$12,500
30-Sep	Interest expense	$3,000
	Interest Payable		$3,000
	(240000 x 5% x3/12)
1-Oct	Interest payable	$3,000
	Cash		$3,000
1-Oct	Salaries expense	$40,000
	Cash		$40,000
20-Nov	Accounts receivable	$52,500
	Software receivables		$52,500
1-Dec	Cash	$25,000
	Accounts receivables		$25,000
30-Dec	Unearned Revenue	$12,500
	Software updates revenue		$12,500
31-Dec	Interest expense	$3,000
	Interest Payable		$3,000
31-Dec	Depreciation expense	$8,944
	Accumulated Depreciation-Building		$6,944
	Accumulated Depreciation-Computer		$2,000
31-Dec	Salaries expense	$40,000
	Salaries Payable		$40,000

Part II	T-accounts
Cash					Common Stock
1-Feb	$495,000	1-Mar	$60,000				1-Feb	$30,000
1-Apr	$62,500	5-Mar	$60,000
1-Jul	$25,000	1-Apr	$1,000
1-Dec	$25,000	1-Jul	$3,000
		1-Sep	$30,000
		1-Oct	$3,000
		1-Oct	$40,000
	$410,500
Additional paid in capital					Notes payable
		1-Feb	$465,000				1-Mar	$240,000
Building					Investment in Development company
1-Mar	$300,000				5-Mar	$60,000
Interest expense					Interest Payable
31-Mar	$1,000				1-Apr	$1,000	31-Mar	$1,000
30-Jun	$3,000				1-Jul	$3,000	30-Jun	$3,000
30-Sep	$3,000				1-Oct	$3,000	30-Sep	$3,000
31-Dec	$3,000						31-Dec	$3,000
Accounts Receivable					Software revenue
1-Apr	$62,500	30-Apr	$62,500				1-Apr	$62,500
20-Nov	$52,500	1-Dec	$25,000				20-Nov	$52,500
Unearned Revenue					Computer
30-Sep	$12,500	1-Jul	$25,000		1-Sep	$30,000
30-Dec	$12,500
Software update revenue					Salaries expense
		30-Sep	$12,500		1-Oct	$40,000
		30-Dec	$12,500		$43,465	$40,000
Salaries payable					Depreciation expense
		31-Dec	$40,000		31-Dec	$8,944
Accumulated Depreciation-Building					Accumulated Depreciation-Computer
		31-Dec	$6,944				31-Dec	$2,000

Part III	Trial Balance
	Account Titles	Debit	Credit
	Cash	$410,500
	Accounts Receivable	$27,500
	Investment in Development company	$60,000
	Building	$300,000
	Accumulated Depreciation-Building		$6,944
	Computer	$30,000
	Accumulated Depreciation-Computer		$2,000
	Common Stock		$30,000
	Additional Paid in Capital		$465,000
	Notes payable		$240,000
	Interest payable		$3,000
	Salaries Payable		$40,000
	Income tax payable		$9,853
	Software revenue		$115,000
	Software update revenue		$25,000
	Salaries expense	$80,000
	Interest expense	$10,000
	Income tax expense	$9,853
	Depreciation expense	$8,944
	Total	$936,797	$936,797
Part IV	Income Statement
	Account Titles	Amount
	Revenue:
	Software revenue	$115,000
	Software Update revenue	$25,000
	Total	$140,000
	Operating Expenses:
	Salaries expense	$80,000
	Depreciation expense	$8,944
	Total Operating expenses	$88,944
	Operating Profit	$51,056
	Non-operating expenses:
	Interest expense	$10,000
	Profit Before tax	$41,056
	Tax @ 24%	$9,853
	Net Profit	$31,203
	Statement of Retained Earnings
	Retained Earnings, 1/1	$0
	Add: Net Profit	$31,203
	Retained Earnings, 12/31	$31,203
	Balance Sheet
	ASSETS	Amount
	Current Assets:
	Cash	$410,500
	Accounts Receivable	$27,500
	Investment in Development company	$60,000
	Total Current Assets		$498,000
	Fixed Assets:
	Building	$300,000
	Accumulated Depreciation-Building	($6,944)	$293,056
	Computer	$30,000
	Accumulated Depreciation-Computer	($2,000)	$28,000
	Total Fixed Assets		$321,056
	Total Assets		$819,056
	LIABILITIES
	Current Liabilities:
	Interest payable	$3,000
	Salaries Payable	$40,000
	Income tax payable	$9,853
	Total Current Liabilities		$52,853
	Long term liabilities:
	Notes payable		$240,000
	Stockholder's Equity
	Common Stock	$30,000
	APIC	$465,000
	Retained Earnings	$31,203
	Total Stockholder's Equity		$526,203
	Total Liabilities and Stockholder's equity		$819,056
Part V	Closing Entries
	Software Revenue	$115,000
	Software Update revenue	$25,000
	Income Summary		$140,000
	Income Summary	$108,797
	Salaries expense		$80,000
	Depreciation expense		$8,944
	Interest expense		$10,000
	Income tax expense		$9,853
	Income Summary	$31,203
	Retained Earnings		$31,203