Question

Pat plans to begin his consulting business on 1 Jan 2023. He is provided with the projected data for the first 2 years. He expects to pay a 30% income tax after each year.

Construct the balance statement for the year 2024.

Transactions

01-January-2023	Open business bank account with transfer of personal funds	450000
01-January-2023	EFT for rental of office space. Immediate occupancy. 60 months at $4500 per month.	270000
01-January-2023	Office equipment purchased for cash to get discount from the retail price of $67,000.	60000
01-January-2023	Office equipment to be replaced in 5 years. Expect to get $6,000 for old equipment.	6000
03-January-2023	Bank loan approved and credited to account. Payable in 2026	300000
30-March-2023	Credit sales. EFT payment to be received in 90 days.	51500
06-April-2023	Employee timesheets submitted for work performed. Payment (EFT) to be made in 7 days.	7800
24-April-2023	Cash sales.	25500
01-May-2023	Purchased supplies on credit from Office Works.	33000
15-December-2023	Credit sales. EFT payment to be received in 90 days.	44000
28-December-2023	Employee timesheets submitted for work performed. Payment (EFT) to be made in 7 days.	8580
31-December-2023	Recorded estimate for electricity expense. Bill not yet received.	6500
31-December-2023	Count of supplies revealed showed amount on hand at year-end of …	9900
03-April-2024	Credit sales. EFT payment to be received in 90 days.	30000
09-April-2024	Employee timesheets submitted for work performed. Payment (EFT) to be made in 7 days.	5600
14-April-2024	Cash sales.	53000
03-May-2024	Purchased supplies on credit from Office Works.	36000
05-May-2024	Used excess cash to make partial repayment on bank loan.	49000
20-December-2024	Credit sales. EFT payment to be received in 90 days.	36000
25-December-2024	Employee timesheets submitted for work performed. Payment (EFT) to be made in 7 days.	6160
31-December-2024	Recorded estimate for electricity expense. Bill not yet received.	7150
31-December-2024	Count of supplies revealed showed amount on hand at year-end of …	10800

cost of supplies is the supplies spent on credit

Answer 1

Balance sheet

Income statement

Statement of Retained earnings

Notes

1.Cash

2.Prepaid Rent

EFT made on 1st Jan 2023 for Rent pertaining to 60 months is to be accounted as Prepaid expense and are to be amortized each year based on the period for which it was used. Amortization for the year 2023 and 2024 is 54,000 i.e 270,000 / 60 months x 12 months

3.Accounts receivable

Accounts receivable will show a balance of 44,000 and 36,000 for 2023 and 2024 respectively, since the credit sales made on December of 2023 and 2024 is not collected as at year end (i.e. 31st December 2023 and 31st December 2024)

4.Office supplies

5.Office equipment

Office equipment purchased is to be accounted at cost net off discount, hence only 60,000 will be shown in the books of accounts.This office supplies have a resale value of 6,000 and are to be replaced after 5 years.Hence it can be construed the useful life to be 5 years

Depreciation on office equipment for a year = Cost - resale value / Useful life => 60,000 - 6,000 / 5 years =>10,800

Accumulated depreciation year 1 = 10,800 year 2 = 21,600

6.Accounts payable

It has been assumed that the balance of accounts payable will be paid at the beginning of next year.Hence the balance of 33,000 for year 2023 would have been paid on 1st Jan 2024

7.Salary expense payable, Electricity expense payable

For entry as on 28-Dec-23, Since salaries will be paid in cash after 31st December 2023, they are to accounted as payable. Similar is the case for entry on 25-Dec-24.

For entry on 31-Dec-23 even though the electricity bill is not received, estimated expenses are to be accounted as payable following the matching concept.SImilar is the case for entry on 31-Dec-24.

8.Provision for Income tax

It has been assumed that tax computed at 30% of the income will be paid at the beginning of next year.

9.Bank Loan

They are to be classified as non current since not to be settled in the next 12 month period.

Data used for Financial statement preparation