Question

Harper Maize Air Conditioner Company presented the following unadjusted trail for the financial year ended December 31st, 2016. Harper Maize Air Conditioner Company Trial Balance as at December 31, 2016 A/C Name DR $ CR $ Cash 240,000 Accounts Receivable 360,000 Merchandise Inventory 295,000 Store Supplies 120,000 Prepaid Electricity Expense 65,000 Building and Equipment 800,000 Accumulated Depreciation –Building and Equipment 237,000 Accounts Payable 310,000 Interest Expense Payable Traveling Expense Payable Unearned Sales Revenue 102,000 Note Payable-Long Term 210,000 Harper Maize, Capital 1,000,000 Harper Maize, Withdrawal 105,000 Sales Revenue Earned 1,416,600 Sales Discount 15,000 Sales Returns and Allowances 24,500 Cost of Goods Sold 645,000 Salaries Expense 245,000 Telephone Expense 25,000 Depreciation Expense – Building and Equipment Electricity Expense 155,400 Store Supplies Expense Insurance Expense 85,000 Bad Debt Expense 35,300 Travelling Expense 45,000 Interest Expense 15,400 ________ Total 3,275,600 3,275,600 The following additional information was made available at December 31, 2016 a) Unearned sales revenue, still not earned at December 31, 2016 amounted $22,000. b) The prepaid electricity includes $15,000 which expired during the year. c) The Building and Equipment has an estimated life of ten (10) years and is being depreciated on the straight-line method of depreciation, down to a residual value of $10,000. d) Store supplies consumed during the year amounted to $45,200. e) Interest expenses not paid as at December 31, 2016 amounted to $4,500 f) Accrued travelling expense amounted to $2,300 at December 31, 2016. g) A physical count of inventory at December 31, 2016, reveals $315,000 worth of inventory on hand. Required: 1. Prepare the necessary adjusting entries on December 31, 2016 2. Prepare the company’s multiple-step income statement for the year ended December 31, 2016. 3. Prepare the company’s statement of owner’s equity for the year ended December 31, 2016 4

Answer 1

1 Following are the adjusting journal entries on December 31, 2016 :-

Serial no.	Accounts title	debit	credit
a.	Unearned sales revenue Sales revenue (To unearned sales revenue earned during the year)	80000	80000
b.	Electricity exp. To prepaid electricity exp (To electricity exp for the year)	65000	65000
c .	Depreciation expense-building & equipment Accumulated depriciation-building & equipment (To depreciation on building for the year recorded as (800000-10000)/10	79000	79000
d.	Store supplies exp Store supplies (To stores consumed for the year)	45200	45200
e .	Interest exp Interest expense payable (To interest exp for the year payable)	4500	4500
f .	Travelling exp Accumulated travelling exp (To accumulated travelling exp for the year )	2300	2300
g.	Merchandise inventory Cost of goods sold (To merchandise inventory)	20000	20000

2 Following is the multi income statement for the year :-

Particulars		Amount
Net sales (1416600+80000-15000-24500)		1457100
(-) cost of goods sold (645000-20000)		625000
Gross profit		832100
(-) operating expenses
Selling expenses :
Sales exp.	245000
Administrative exp
Telephone exp	25000
Depriciation - building & equipment	79000
Electricity exp (155400+65000)	220400
Insurance exp	85000
Store supplies exp	45200
Bad debt exp	35300
Travelling exp (45000+2300)	47300
Total operating exp		782200
Operating income		49900
Non operating exp :
Interest exp (15400+4500)		19900
Net income		30000

3 Company's statement of owner's enquiry for this year ended Dec 31, 2016

Particulars	amount
Beginning capital balance	1000000
+ Income earned during the year	30000
- owner's drawing during the year	(105000)
Owner's ending capital balance	$925000