Question

Crowley Company has the following ledger accounts and adjusted balances as of December 31, 2017. All accounts have normal balances. Crowley’s income tax rate is 40%.

Accounts Payable……………………………. 28,125

Accounts Receivable………………………… 202,500

Accumulated Depreciation-Building………… 56,250

Administrative Expenses……………………. 60,750

Allowance for Doubtful Accounts………….. 22,500

Bonds Payable (Mature 2020)………………. 281,250

Building……………………………………… 416,250

Cash…………………………………………. 28,125

Common Stock……………………………… 300,000

Cost of Goods Sold…………………………. 450,000

Dividends…………………………………… 18,000

Gain on Sale of Land…………………………..21,000

Interest Revenue…………………………….. 22,500

Inventory…………………………………….. 315,000

Land…………………………………………. 258,750

Loss from Operations of Division X………… 52,500

(Division X is a component of Larson Company) Loss from Sale of Division X........................... 49,500

(Division X is a component of Larson Company) Patent………………………………………… 33,750

Paid-In Capital in Excess of Par ……………. 150,000

Prepaid Rent…………………………………. 11,250*

Retained Earnings, January 1, 2017………… 247,050

Sales Returns and Allowances……………… 10,500

Sales Revenue………………………………1,023,000

Selling Expenses……………………………. 112,500

*Three years rent paid in advance for offsite document storage. Crowley has 200,000 shares of $10 par common stock authorized and has no treasury stock. Instructions:

Use this information to prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.

Answer 1

PART 1. INCOME STATEMENT

SALES..............................................................................1023000

LESS: SALE RETURN......................................................10500

NET SALES.......................................................................1012500

LESS: COST OF GOODS SOLD.......................................450000

GROSS PROFIT................................................................562500

LESS: ADMINISTRATIVE EXPENSES..............................60750

SELLING EXPENSES........................................................112500

PROFIT FROM BUSINESS OPERATIONS.......................389250

LESS: LOSS FROM OPERATIONS OF DIVISION X.........52500

NET INCOME FROM BUSINESS OPERATIONS..............336750

ADD/LESS OTHER INCOME / LOSSES

ADD: INTEREST REVENUE..............................................22500

ADD: GAIN ON SALE OF LAND........................................21000

LESS: LOSS FROM SALE OF DIVISION X......................49500

NET INCOME BEFORE TAX............................................330750

PART 2 : RETAINED EARNING STATEMENT

OPENING BALANCE........................................................247050

ADD: NET INCOME OF CURRENT YEAR.......................330750

LESS: DIVIDEND PAID......................................................18000

LESS: INCOME TAX PAYABLE OF CURRENT YEAR

(330750* 40%)....................................................................132300

CLOSING BALANCE..........................................................427500

PART C: BALANCE SHEET AS ON DECEMBER 31, 2017

LIABILITIES

COMMON STOCK

(AUTHOROZIED - 200000 SHARES @ 10)

ISSUED (30000 SHARES @ 10).................................................300000

PAID - IN CAPITAL IN EXCESS OF PAR.....................................150000

RETAINED EARNINGS................................................................427500

INCOME TAX PAYABLE................................................................132300

ACCOUNTS PAYABLE..................................................................28125

ACCUMULATED DEPRECIATION ON BUILDING........................56250

ALLOWANCE FOR DOUBTFUL ACCOUNTS.............................. 22500

BONDS PAYABLE.........................................................................281250

TOTAL..........................................................................................1397925

ASSETS

ACCOUNTS RECEIVABLE...........................................................202500

BUILDING.....................................................................................416250

CASH............................................................................................ 28125

INVENTORY..................................................................................315000

LAND.............................................................................................258750

PATENT..........................................................................................33750

PREPAID RENT.............................................................................11250

TOTAL..........................................................................................1265625

NOTE :- THERE IS A DIFFERENCE IN BALANCE SHEET OF 132300 BECAUSE THERE IS ALSO A DIFFERENCE OF 132300 IN BALANCES GIVEN ABOVE.

THIS IS A TRIAL BALANCE OF LEDGER BALANCES GIVEN ABOVE IN QUESTION

ACCOUNT NAME	DEBIT	CREDIT
ACCOUNTS PAYABLE		28125
ACCOUNTS RECEIVABLE	202500
ACC DEP ON BUILDING		56250
ADMINISTRATIVE EXPENSES	60750
ALLOWANCE FOR DOUBTFUL DEBTS		22500
BONDS PAYABLE		281250
BUILDING	416250
CASH	28125
COMMON STOCK		300000
COST OF GOODS SOLD	450000
DIVIDEND	18000
GAIN ON SALE OF LAND		21000
INTEREST REVENUE		22500
INVENTORY	315000
LAND	258750
LOSS IN DIV X	52500
LOSS ON SALE OF DIV X	49500
PATENT	33750
PAID IN CAPITAL IN EXCESS OF PAR		150000
PREPAID RENT	11250
RETAINED EARNING ON JAN 1 2017		247050
SALE RETURN	10500
SALES		1023000
SELLING EXPENSES	112500
	2019375	2151675
DIFFERENCE		132300