Question

On February 1, 2017, a new software development firm engaged in an initial public offering in which it raised $495,000 in capital and issued 30,000 shares of $1 par value common stock.

On March 1, the firm purchased a small building to locate its operations, by paying 20% of the $300,000 purchase price and financing the balance with a note payable. The firm accrues interest on the note at the end of each quarter at a rate of 5%, and pays interest on the first day of the next quarter. The firm depreciates the building at the end of the reporting period using straight-line depreciation. The estimated salvage value is 50,000 and the estimated useful life of the building is 30 years.

On March 5, the firm purchases another development company for $60,000, acquiring a new software patent valued at 100,000, accounts payable of $10,000, and compensation payable of $30,000.

On April 1, the firm sells software on account, amounting to $62,500. The customer pays the firm $62,500 on April 30.

The firm hires a new coder at an annual salary of $160,000 on July 1, 2017. The firm pays the coder quarterly (October 1, 2017 and January 1, 2018).

On July 1, the firm enters into an agreement to provide updates to its software on a quarterly basis and receives an advance payment of $25,000 for Q3 and Q4 of 2017.

On August 15, the company hires another new coder, who will be paid upon completion of a new software project.

On September 1, the company purchases new computer systems for the new software project at a cost of 30,000. The company depreciates the computer at the end of the reporting period using straight-line depreciation. The computer systems are estimated to have zero salvage value and a useful life of 5 years. The company provides software updates pursuant to its July 1 agreement on September 30 for q3 2017.

On November 20, the company makes new sales on account in the amount of $52,500.

On December 1, customers pay $25,000 of sales on account. The company provides software updates pursuant to its July 1 agreement on December 30 for q4, 2017.

On December 31, the company records an appropriate amount of income tax expense based on a statutory rate of 24% and taxes due on March 15, 2018.

REQUIREMENTS:

PART1: Record (journalize) transactions and other events . The entity will prepare annual financial statements. However, some adjusting entries will be made quarterly, and at the end of the company's reporting year. Be sure to include all quarterly or annual adjusting entries as noted.

PART II: Post all journal/adjusting entries to t-accounts and determine t-account balances -use the date of the journal entry as the ID for the t-account postings.

PART III: Prepare one trial balance (post-end of year adjusting entries)

Part IV: Prepare financial statements (balance sheet, income statement, and statement of retained earnings).

Part V: Prepare closing entries.

Answer 1

JOURNAL ENTRIES IN BOOKS OF NEW SOFTWARE DEVELOPMENT COMPANY

DATE	PARTICULARS	DEBIT ($)	CREDIT ($)
01/02/2017	Cash/Bank Account                                   Dr.      To Equity Share Capital Account      To Security Premium Account (Being issue of 30000 equity shares at par value of $1 per share and balance premium on shares)	495000	30000 465000
01/03/2018	Building Account                                       Dr.     To Cash/ Bank Account     To Bills Payable (Being purchase of building by paying 20% of value and balance raising accounts payable @ 5% interest p.a payable quarterly)	300000	60000 240000
05/03/2017	Software Patent Account                        Dr.     To Account Payable account     To Compensation Account     To Cash/Bank Account (Being purchase of company with assets and liabilities and balance payment)	100000	10000 30000 60000
31/03/2017	Interest Account                                       Dr.    To Interest Payable (Being interest accurred for one month payable quarterly on $ 240000 @ 5% p.a.)	4000	4000
01/04/2017	Interest Payable Account                       Dr.    To Cash/Bank Account (Being interest payable at quarter end paid)	4000	4000
01/04/2017	Debtors account                                      Dr.    To Professional Reciepts account (Being Sale of Software on account)	62500	62500
30/04/2017	Cash/Bank Account                                Dr.      To Debtors Account (Being amount received from debtors)	62500	62500
30/06/2017	Interest Account                                    Dr.     To Interest Payable account (Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)	12000	12000
01/07/2017	Interest Payable Account                       Dr.    To Cash/Bank Account (Being interest payable at quarter end paid)	12000	12000
01/07/2017	Cash/Bank Account                                 Dr.     To Advance account (Being advance received for September end and December end quarter for software updation)	25000	25000
01/09/2017	Computer Account                                  Dr.     To Cash/Bank Account (Being purchase of new computer system for new software)	30000	30000
30/09/2017	Advance Account                                     Dr.     To Professional receipt (Being updation provided for September quarter adjusted against advance)	12500	12500
30/09/2017	Interest Account                                    Dr.     To Interest Payable account (Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)	12000	12000
30/09/2017	Salary Account                                          Dr.    To Salary Payable Account (Being salary to programmer for the quarter july to September, annual salary being 160000)	40000	40000
01/10/2017	Interest Payable Account                       Dr.    To Cash/Bank Account (Being interest payable at quarter end paid)	12000	12000
01/10/2017	Salary payable account                          Dr.     To Cash/Bank Account (Being salary paid)	40000	40000
20/11/2017	Debtors Account                                     Dr.    To Professional Reciepts (Being new software provided on account)	52500	52500
01/12/2017	Cash/Bank Account                                Dr.    To Debtors Account (Being payment received on account)	25000	25000
31/12/2017	Advance Account                                     Dr.     To Professional receipt (Being updation provided for September quarter adjusted against advance)	12500	12500
31/12/2017	Salary Account                                          Dr.    To Salary Payable Account (Being salary to programmer for the quarter july to September, annual salary being 160000)	40000	40000
31/12/2017	Interest Account                                    Dr.     To Interest Payable account (Being interest accurred for Quarter payable quarterly on $ 240000 @ 5% p.a.)	12000	12000
31/12/2017	Depreciation Account                          Dr.    To Building Account     To Computer Account (Being depreciation calculated on building and computer on straight line method)	14333.33	8333.33 6000.00
31/03/2017	Taxes for the Year                                  Dr. To provision for Taxation	1359.84	1359.84

TRAIL BALANCE AS ON 31/12/2017

PARICULARS	DEBIT	CREDIT
SHARE CAPITAL		30000
SECURITY PREMIUM		465000
BILLS PAYABL		250000
SOFTWARE PATENT	100000
COMPENSATION PAYABLE		30000
DEBTORS	27500
INTEREST	40000
INTEREST PAYABLE		12000
COMPUTER	24000
SALARY	80000
SALARY PAYABL		40000
PROFESSIONA RECEIPT		140000
DEPRECIATION	14333.33
BUILDING	291666.7
CASH/BANK	389500
TAXES FOR YEAR	1359.84
PROVISION FOR TAX		1359.84
TOTAL	968359.8	968359.8
INCOME AND EXPENDITURE ACCOUNT
PARTICULARS	AMOUNT	AMOUNT
PROFESSIONAL RECEIPTS		140000
LESS EXPENDITURE
INTERST	40000
SALARY	80000	120000
OPERATING INCOME BEFORE
DEPRECIATION		20000
LESS DEPRECIATION		14333.33
NET PROFIT		5666.67
LESS TAXES FOR YEAR		1359.84
SURPLUS AFTER TAX		4306.83
BALANCE SHEET AS AT 31/03/2017
SOURCES
SHAREHOLDERS FUND
EQUITY CAPITAL		30000
RESERVES AND SURPLUS
SECURITY PREMIUM	465000
SURPLUS	4306.83	469306.8
BILLS PAYABLE		250000
PROVISION
SALARY PAYABLE	40000
INTEREST PAYABLE	12000
COMPENSATION PAYABLE	30000
PROVISION FOR TAX	1359.84	83359.84
		832666.7
USES
FIXED ASSETS
GROSS VALUE
COMPUTER	30000
BUILDING	300000
SOFTWARE PATENT	100000
	430000
LESS ACCUMULATED DEP	14333.33	415666.7
CURRENT ASSETS
CASH/BANK	389500
DEBTORS	27500	417000
		832666.7