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Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)

5. Prepare a classified balance sheet as of January 31, Year 1.

[The following information applies to the questions displayed below.]
  
On January 1, Year 1, the general ledger of a company includes the following account balances:
  

Accounts	Debit				Credit
Cash	$	59,100
Accounts Receivable		25,800
Allowance for Uncollectible Accounts					$	2,600
Inventory		36,700
Notes Receivable (5%, due in 2 years)		16,800
Land		159,000
Accounts Payable						15,200
Common Stock						224,000
Retained Earnings						55,600
Totals	$	297,400			$	297,400

  
During January Year 1, the following transactions occur:
  

January		1		Purchase equipment for $19,900. The company estimates a residual value of $1,900 and a five-year service life.
January		4		Pay cash on accounts payable, $9,900.
January		8		Purchase additional inventory on account, $86,900.
January		15		Receive cash on accounts receivable, $22,400.
January		19		Pay cash for salaries, $30,200.
January		28		Pay cash for January utilities, $16,900.
January		30		Sales for January total $224,000. All of these sales are on account. The cost of the units sold is $117,000.

Information for adjusting entries:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method.
2. The company estimates future uncollectible accounts. The company determines $3,400 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest revenue on notes receivable for January.
4. Unpaid salaries at the end of January are $33,000.
5. Accrued income taxes at the end of January are $9,400.

rev: 11_22_2018_QC_CS-148298, 06_13_2019_QC_CS-170054

Exercise 7-21B Part 5

5. Prepare a classified balance sheet as of January 31, Year 1.

Answer 1

Solution: According to the Question, we need to prepare classified Balance sheet of the company:

BALANCE SHEET As of January 31, Year 1
Particulars	($)	Amount ($)	Total
1. ASSETS:
Current Assets:
Cash	$4,600
Accounts Receivable	$227,400
Less:Allowance for Uncollectible Accounts	-$8,420
Inventory	$6,600
Interest Receivable/ Accrued Interest	$70
Total Current Assets-		$230,250
Non-Current Assets:
Notes Receivable (5% due in 2 years)	$16,800
Land	$159,000
Equipment	$19,900
Less: Accumulated Depreciation	-$300
Total Non-Current Assets-		$195,400
Total Assets:			$425,650
2. LIABILITIES:
Current Liabilities:
Accounts Payable	$92,200
Salaries Payable	$33,000
Income Tax Payable	$9,400
Total Current Liabilities		$134,600
Stockholder's Equity:
Common Stock	$224,000
Retained Earnings	$55,600
(+)Net Income	$11,450
Total Stockholder's Equity-		$291,050
Total Liabilities and  Stockholder's Equity:			$425,650

Working Notes:

1. For Net Income, we need to prepare Income Statement:

INCOME STATEMENT
	($)	Amount ($)
Sales		$224,000
Less:Cost of Goods sold-		$117,000
Gross profit		$107,000
Less: Operating Expenses
Salaries Expense	$63,200
Utilities Expense	$16,900
Depreciation-eqp.	$300
Bad Debts	$5,820
Total Operating Expenses-		$86,220
Operating Income		$20,780
Interest Income		$70
Net Income Before Taxes		$20,850
Income Tax		$9,400
Net Income-		$11,450

2.Calculation of Depreciation on Equipment= Cost-Residual Value/ Useful Life

={$19,900-$1,900/5}/12= $300

3.Calculation of Interest Receivable= {$16,800*5%}/12= $70