Question

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below.

   

Account Title	Debits		Credits
Cash	45,650
Accounts receivable	58,000
Supplies	1,850
Inventory	77,000
Note receivable	29,400
Interest receivable	0
Prepaid rent	2,700
Prepaid insurance	0
Office equipment	94,000
Accumulated depreciation—office equipment			35,250
Accounts payable			37,000
Salaries and wages payable			0
Note payable			71,400
Interest payable			0
Deferred revenue			0
Common stock			60,000
Retained earnings			23,000
Sales revenue			233,000
Interest revenue			0
Cost of goods sold	104,850
Salaries and wages expense	20,100
Rent expense	14,850
Depreciation expense	0
Interest expense	0
Supplies expense	1,350
Insurance expense	6,200
Advertising expense	3,700
Totals	459,650		459,650

Information necessary to prepare the year-end adjusting entries appears below.

Depreciation on the office equipment for the year is $11,750.

Employee salaries and wages are paid twice a month, on the 22nd for salaries and wages earned from the 1st through the 15th, and on the 7th of the following month for salaries and wages earned from the 16th through the end of the month. Salaries and wages earned from December 16 through December 31, 2018, were $1,650.

On October 1, 2018, Pastina borrowed $71,400 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.

On March 1, 2018, the company lent a supplier $29,400 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2019.

On April 1, 2018, the company paid an insurance company $6,200 for a two-year fire insurance policy. The entire $6,200 was debited to insurance expense.

$980 of supplies remained on hand at December 31, 2018.

A customer paid Pastina $1,920 in December for 1,600 pounds of spaghetti to be delivered in January 2019. Pastina credited sales revenue.

On December 1, 2018, $2,700 rent was paid to the owner of the building. The payment represented rent for December 2018 and January 2019, at $1,350 per month.

For requirement 4, Assume that no common stock was issued during the year and that $3,600 in cash dividends were paid to shareholders during the year.

4. Prepare the income statement, statement of shareholders' equity and classified balance sheet for the year ended December 31, 2018.

Answer 1

Income statement for the period ended December 31 2018
sales   [233000-1920]		231080
Cost of goods sold		(104,850)
Gross margin		126230
less:Operating expense
Salaries and wages expense   [20100+1650]	21750
Rent expense   [14850+1350]	16200
Depreciation expense	11750
Supplies expense   [1350+870]	2220
Insurance expense	2325
Advertising expense	3700
Total operating expense		(57945)
Operating Income		68285
other Income /(expense)
Interest revenue	1960
INterest expense	(2142)	(182)
Net Income		68103

**1920 sales revenue is a unearned revenue since delievery will be made in 2019

**Interest payable on note oct 1 :Interest = 71400*.12*3/12=2142               [1oct - 31 dec]

Interest receivable on march 1 :Interest= 29400*.08*10/12=1960                    [1mar -31dec]

**supplies used = 1850 unadjusted -980 ending inventory = 870

**Insurance expired for the period = [6200*1/2 ] =3100 per year * 9/12 =2325                [1april -31 dec ]

2).

Statement of stockholders equity for the period ended 31 dec 2018
Paid in capital
common stock	60000
Total paid in capital	60000
Retained earning [23000+68103 Net Income - 3600dividend ]	87503
Total stockholders equity	147503

Balance sheet As on December 31 2018
Asset
current asset
Cash   [45650-3600]	42050
Accounts receivable	58000
supplies	980
Inventory	77000
Note receivable (short term)	29400
Interest receivable	1960
Prepaid rent	1350
Prepaid Insurance [6200-2325 insurance expired for period ]	3875
Total current asset		214615
Office equipment	94000
Accumulated depreciation -office equipment [35250+11750]	(47000)	47000
Total asset		261615
Liabilities and stockholders equity
Accounts payable	37000
salaries and wage expense	1650
Interest payable	2142
deferred revenue	1920
Total current liabilities		42712
Long term debt
Note payable		71400
Total liabilities		114112
stockholders equity		147503
Total liabilities and stockholders equity		261615