Question

ABC Incorporated started its business on Jan 1st 2012, issuing 100,000 shares for $2 each. Par value of each share was $0.10. The following is the relevant information for the year ending 2012.

On Jan 1st, 2012, the company purchased a two-year fire insurance policy for $10,000 and paid it with cash.

In 2012, the company purchased office supplies worth $20,000 cash. All these supplies are used up in 2012.

Purchased equipment for $50,000 using a short-term loan on Apr 1st 2012.The depreciation on equipment for the year 2012 was $5,000

The company invested $20,000 in a note receivable and usually receives the 10% interest on its notes receivable annually on June 1st.

Purchased inventory on credit, $70,000.

On March 20th, 2012, the company sold toys for $90,000. The company received 50% cash and the rest remained on account. The cost of these toys sold was $50,000

On June 30th, 2012, the company made a payment of $20,000 on its short term loan.

On November 1st, 2012, the company rented out a portion of its premises to a tenant for rent of $1,000 per month. By December 31st, 2012, only one month’s rent had been recovered, which was paid on November 1st, 2012

Issued 10,000 additional shares at $10 each. Par value of each share is $0.10.

On February 15th, 2012 the company received an advance of $70,000 for some technical services it provided to some companies. By the year end, the company had provided only 80% of the services it had contracted to provide.

The company’s franchisees usually pay a 10% (as a % of their sales) royalty fee to the company. During the year 2012, the franchisees sold toys worth $100,000. The fees will be paid in 2013.

The company loaned $30,000 to franchisees on November 1st 2012 at 6 percent interest per year with interest to be paid on March 31st and September 30th every year.

By December 31st, 2012, the company had accrued outstanding wages worth $40,000 and outstanding utilities bills worth $30,000.

Declared dividends for $10,000 for 2012. Will be paid in 2013. Required:

Create the worksheet entries for the year 2012 based on the information provided. Create an income statement, statement of stockholders’ equity and balance sheet. Trial balance is optional.

Answer 1

Income Statement:

Sales Revenue		90000
Service Revenue		56000
Rent Revenue		2000
Interest Revenue		2300
Royalty		10000
Cost of Goods Sold		50000
Gross Margin			110300
Less: Expense
Depreciation Expense	5000
Insurance Expense 10000/2	5000
Salaries Expense	40000
Supplies Expense	20000
Utilities Expense	30000		100000
Net Income			10300

Equity Statement:

Common Stock		11000
Addioonal Paid Up Capital		289000
Beginning Retained Earning	0
add: net Income	10300
less: Dividend	10000	300
Total Equity		300300

Balance Sheet:

Cash		317000
Accounts Receivable		55000
Equipment	50000
Less: Accu Dep	-5000	45000
Inventory		20000
Loan Receivable		30000
Note Receivable		20000
Prepaid Insurance		5000
Rent Receivable		1000
Interest Receivable		1300
Total Assets		494300
Accounts Payable		70000
Short Term Loan		30000
Salary Payable		40000
Dividend Payable		10000
Utility Paybale		30000
Unearned Revenue		14000
Total Liabilities		194000
Common Stock		11000
Addioonal Paid Up Capital		289000
Retained Earning	10300-10000	300
(net Income-Dividend)
Total Equity		300300
Total Liabilities and Equity		494300

Working Journal entries:

Event	Account	Debit	Credit	Remarks
1	Cash	200000		Asset	100000*2
1	Additional paid capital, excess in par		190000	Equity	100000*(2-0.1)
1	Common Stock		10000	Equity	100000*0.1
2a	Prepaid Insurance	10000		Asset
2a	Cash		10000	Asset
2b	Insurance Expense 10000/2	5000		Expense
2b	Prepaid Insurance		5000	Asset
3a	Office Supplies	20000		Asset
3a	Cash		20000	Asset
3b	Supplies Expense	20000		Expense
3b	Office Supplies		20000	Asset
4a	Equipment	50000		Asset
4a	Short Term Loan		50000	Liabilities
4b	Depreciation Expense	5000		Expense
4b	Accumulated Dep		5000	Asset
5a	Note Receivable	20000		Asset
5a	Cash		20000	Asset
5b	Cash	1000		Asset	20000*10%/2
5b	Interest Receivable	1000		Asset
5b	Interest Revenue		2000	Revenue	20000*10%
6	Inventory	70000		Asset
6	Accounts Payable		70000	Liabilties
7a	Accounts Receivable	45000
7a	Cash	45000
7a	Sale		90000
7b	Cost of goods sold	50000
7b	Inventory		50000
8	Short Term Loan	20000
8	Cash		20000
9	Cash	1000
9	Rent Receivable	1000
9	Rent Revenue		2000		1000*2
10	Cash	100000			10000*10
10	Additional paid capital, excess in par		99000
10	Common Stock		1000		10000*0.1
11	Cash	70000
11	Service Revenue 80%		56000
11	Unearned Revenue 20%		14000
12	Accounts Receivable	10000
12	Royalty Fee Revenue		10000
13a	Loan Receivable	30000
13a	Cash		30000
13b	Interest Receivable 30000*6%*2/12	300
13b	Interest Revenue		300
14a	Salaries Expense	40000
14a	Salary Payable		40000
14b	Utilities Expense	30000
14b	Utility Payable		30000
15	Dividend	10000
15	Dividend Payable		10000