Question

As the accountant for Wheatley International, it is your job to prepare the company’s income statement and balance sheet. Use the accounts listed below to construct the statements. Assume that the tax rate is 25%.

I recommend that you should first go through each account and determine if it is a balance sheet account (i.e., asset, liability, or owners' equity) or income statement account (i.e., revenue, costs of goods sold, expense, or net income). Hint: ending inventory goes on both the balance sheet and income statement; on the income statement, both beginning and ending inventory are used to calculate cost of goods sold.

Account	Dollar Value
Accounts Receivable	$120,600
Land	$1,500,000
Notes Receivable	$61,200
Insurance Expenses	$54,000
Accounts Payable	$45,000
Interest Expenses	$24,600
Common Stock	$1,896,000
Accumulated Depreciation	$400,000
Net Sales	$1,053,000
Ending Inventory	$126,600
Notes Payable (Long-term)	$210,000
Beginning Inventory	$154,800
Retained Earnings	$1,459,800
Advertising Expense	$90,000
Cash	$72,000
Salaries Expense	$180,000
Short-Term Notes Payable	$15,600
Merchandise Purchased (for inventory)	$316,800
Buildings	$1,050,000
Rent Expense	$13,800
Utilities Expense	$8,400
Equipment & Vehicles	$1,066,000
Goodwill	$90,000
Bonds Payable	$60,000

This is a tough assignment. The important thing is to understand is if accounts are balance sheet accounts (i.e., assets, liabilities, or owners' equity) or income statement accounts (i.e., revenue, cost of goods sold, expense, or net income). Additionally, it's important to understand the fundamental accounting equation (A = L + OE).

Answer 1

INCOME STATEMENT
Net sales		$     10,53,000
Cost of goods sold
Beginning inventory	$       1,54,800
Purchases	$       3,16,800
Cost of goods available for sale	$       4,71,600
Ending inventory	$       1,26,600
Cost of goods sold		$       3,45,000
Gross profit		$       7,08,000
Operating expenses:
Insurance expenses	$           54,000
Advertising expense	$           90,000
Salaries expense	$       1,80,000
Rent expense	$           13,800
Utilities expense	$             8,400
Total operating expenses		$       3,46,200
Net operating income		$       3,61,800
Interest expense		$           24,600
Income before taxes		$       3,37,200
Tax at 25%		$           84,300
Net income		$       2,52,900
BALANCE SHEET
Assets
Current Assets:
Cash	$           72,000
Accounts Receivable	$       1,20,600
Notes receivable	$           61,200
Inventory	$       1,26,600
Total current assets		$       3,80,400
Property, plant and equipment:
Equipment and vehicles	$     10,66,000
Buildings	$     10,50,000
Land	$     15,00,000
Gross PPE	$     36,16,000
Accumulated depreciation	$       4,00,000
Net property, plant and equipment	$     32,16,000
Intangible assets:
Goodwill	$           90,000
Total non current assets		$     33,06,000
Total assets		$     36,86,400
Total liabilities and Shareholders' Equity
Current liabilities:
Accounts Payable	$           45,000
ST Notes payable	$           15,600
Total current liabilities		$           60,600
Notes payable-Long term	$       2,10,000
Bonds payable	$           60,000
Total non current liabilities		$       2,70,000
Total liabilities		$       3,30,600
Stockholders'equity:
Common stock	$     18,96,000
Retained earnings	$     14,59,800
Total stockholders' equity		$     33,55,800
Total liabilities and stockholders' equity		$     36,86,400
Note:
It appears that the retained earnings account is the ending balance.