Question

14)

a. Shelby Co. has common stock of $2,000 and retained earnings of $5,000 at the beginning of the year. During the year, the company earned revenues of $10,000 on account; incurred operating expenses of $6,500; collected $8,000 of accounts receivable; borrowed $20,000 from a bank; obtained $8,000 of cash from owners for stock and paid $4,500 of cash to the owners as dividends. How much is the ending balances of common stock and retained earnings ___________ and _______________ .

b. Henderson Co. purchased $800 of office supplies but only has $200 left over on 1/31/xx. What is the correct end of period adjustment journal entry?

c. LNJ Co. owns equipment costing $120,000. If the salvage value is estimated to be $4,000, the estimated useful life is estimated to be 5 years and the straight-line method is used to depreciate assets make the journal entry for the first full year of depreciation and determine the asset’s book value at the end of year two.

Answer 1

Part a)

Answers--Common stock Balance -$ 10000

                   Retained earnings Balance -$ 4000

Calculations

Common stock
Beginning Balance	$    2,000.00
Additions	$    8,000.00
Ending balance	$ 10,000.00

Retained earnings
Beginning Balance	$   5,000.00
Add: Net Income	$   3,500.00
Less: Dividends paid	$ (4,500.00)
Ending balance	$   4,000.00

Calculation of net Income
Revenues	$ 10,000.00
Operating Expenses	$    6,500.00
Net Income	$    3,500.00

Borrowing from bank will not affect common stock balance or retained earnings balance.

This does not matter how much is collected from accounts receivables , total revenue will be considered for calculation of profit.

Part b)

Adjustment entry

Date	General Journal	Debit	Credit
1/31/xx.	Supplies expense	$ 600.00
	Office Supplies		$ 600.00
	(Supplies used during the period)

Supplies of $ 200 are left, which means (800-200) $ 600 of supplies are used and should be charges to income statement.

Part c)

Working

A	Cost	$    120,000.00
B	Salvage Value	$         4,000.00
C=A - B	Depreciable base	$    116,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$      23,200.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$ 120,000.00	$   23,200.00	$ 96,800.00	$     23,200.00
2	$    96,800.00	$   23,200.00	$ 73,600.00	$     46,400.00
3	$    73,600.00	$   23,200.00	$ 50,400.00	$     69,600.00
4	$    50,400.00	$   23,200.00	$ 27,200.00	$     92,800.00
5	$    27,200.00	$   23,200.00	$    4,000.00	$ 116,000.00

Journal entry for First Year

General Journal	Debit	Credit
Depreciation expense-Equipment	$     23,200.00
Accumulated Depreciation-Equipment		$ 23,200.00

Book value of asset at the end of year two will be $ 73,600.