Question

Morgan Company’s balance sheet at December 31, 2019, is presented below.

MORGAN COMPANY Balance Sheet December 31, 2019
Cash		$30,000		Accounts Payable		$12,250
Inventory		30,500		Interest Payable		300
Prepaid Insurance		6,084		Notes Payable		60,000
Equipment		38,520		Owner’s Capital		32,554
		$105,104				$105,104

During January 2020, the following transactions occurred. (Morgan Company uses the perpetual inventory system.)

1.		Morgan paid $300 interest on the note payable on January 1, 2020. The note is due December 31, 2021.
2.		Morgan purchased $240,000 of inventory on account.
3.		Morgan sold for $489,000 cash, inventory which cost $263,000. Morgan also collected $31,785 in sales taxes.
4.		Morgan paid $236,000 in accounts payable.
5.		Morgan paid $16,500 in sales taxes to the state.
6.		Paid other operating expenses of $20,500.
7.		On January 31, 2020, the payroll for the month consists of salaries and wages of $58,000. All salaries and wages are subject to 7.65% FICA taxes. A total of $8,700 federal income taxes are withheld. The salaries and wages are paid on February 1.

Adjustment data:

8.		Interest expense of $300 has been incurred on the notes payable.
9.		The insurance for the year 2020 was prepaid on December 31, 2019.
10.		The equipment was acquired on December 31, 2019, and will be depreciated on a straight-line basis over 5 years with a $3,060 salvage value.
11.		Employer’s payroll taxes include 7.65% FICA taxes, a 5.4% state unemployment tax, and an 0.8% federal unemployment tax.

Can you please help me find these answers. Thank you!!

A)Prepare journal entries for the transactions listed above and the adjusting entries.

B)Prepare an adjusted trial balance at January 31, 2020.

C)Prepare an income statement.

D)Prepare an owner’s equity statement for the month ending January 31, 2020.

E)Prepare a classified balance sheet as of January 31, 2020

Answer 1

A) Journal entries.

		Debit $	Credit$
Jan 1	Interest payable on Note	300
	To cash		300
	( Interest payable on Note for Dec.2019 is paid on 1Jan 2020)
	Inventory	240000
	To Account payble		240000
	( Inventory purcahsed by morgan on account)
	Cash	520785
	To Inventory		263000
	To profit on sale of inventory		226000
	To sales tax		31785
	Accounts payable	236000
	To cash		236000
	Sales taxes	16500
	To cash		16500
	Operating expenses	20500
	To cash		20500
	Salaries and wages	58000
	To federal income tax payable		4437
	To salaries and wages payable		53563
	( being salaries and wages for Jan 2020 is payable on 31st Jan ) paid on 1st feb.
	Interest on note	300
	To interest payable on note		300
	( Interest on note for Jan2020 not paid)
	Insurance expenses	507
	To prepaid insurance		507
	(prepaid insurance for 2020 is 6084 in dec.2019, being reversal of prepaid insurance for the month jan 2020. 6084/12 =507
	Depreciation on equipment	591
	To Equipment		591
	( Equipment acquired on 31st Dec2019 for $ 38520 having salvage value $3060 for 5 years. Depreciation as per SLM =(38520-3060)/5=7092 for year. Monthly Dep=591. Assumed that no depreciation provided in Dec.2019