Question

Excalibur Corporation sells video games for personal computers. The unadjusted trial balance as of December 31, 2016, appears below. December 31 is the company’s fiscal year-end. The company uses the perpetual inventory system.

Debits

Cash 88,420

Accounts receivable 27,000

Supplies 0

Prepaid rent 0

Inventory 66,000

Office equipment 83,000

Cost of goods sold 132,500

Interest expense 0

Salaries and wage expense 53,950

Rent expense 17,600

Supplies expense 2,320

Utility expense 6,100

Credits

Accumulated depreciation—office equipment 10,790

Accounts payable 35,400

Salaries and wages payable 4,800

Note payable 31,200

Common stock 120,000

Retained earnings 19,700

Sales revenue 255,000

Totals 476,890 476,890

Cash dividends paid to shareholders during the year amounted to $9,000.

Information necessary to prepare the year-end adjusting entries appears below.

1. The office equipment was purchased in 2014 and is being depreciated using the straight-line method over an eight-year useful life with no salvage value.

2. Accrued salaries and wages at year-end should be $7,200.

3. The company borrowed $31,200 on September 1, 2016. The principal is due to be repaid in 10 years. Interest is payable twice a year on each August 31 and February 28 at an annual rate of 10%.

4. The company debits supplies expense when supplies are purchased. Supplies on hand at year-end cost $580.

5. Prepaid rent at year-end should be $1,300.

Required information 1. Complete the worksheet below.

2-a. Use the information in the worksheet to prepare an income statement for 2016.

2-b. Use the information in the worksheet to prepare a statement of shareholders’ equity for 2016.

2-c. Use the information in the worksheet to prepare a balance sheet as of December 31, 2016. (Amounts to be deducted should be indicated by a minus sign.)

Required information

3. Prepare the necessary closing entries assuming that adjusting entries have been correctly posted to the accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer 1.
EXCALIBUR CORPORATION
Work Sheet
For Year Ended Dec 31, 2016.
	Trial Balance		Adjustments		Adjusted Trial Balance		Income Summary		Balance Sheet
	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Balance Sheet Accounts:
Cash	88,420.00				88,420.00				88,420.00
Accounts Receivable	27,000.00				27,000.00				27,000.00
Supplies	-		580.00		580.00				580.00
Prepaid Rent	-		1,300.00		1,300.00				1,300.00
Inventory	66,000.00				66,000.00				66,000.00
Office Equipment	83,000.00				83,000.00				83,000.00
Accumulated Dep. - Office Equip.		10,790.00		10,375.00		21,165.00				21,165.00
Accounts Payable		35,400.00				35,400.00				35,400.00
Salaries & Wages Payable		4,800.00		2,400.00		7,200.00				7,200.00
Notes Payable		31,200.00				31,200.00				31,200.00
Interest Payable		-		1,040.00		1,040.00				1,040.00
Common Stock		120,000.00				120,000.00				120,000.00
Retained Earnings		19,700.00				19,700.00				19,700.00
Sales Revenue		255,000.00				255,000.00		255,000.00
Cost of Goods Sold	132,500.00				132,500.00		132,500.00
Interest Expense	-		1,040.00		1,040.00		1,040.00
Salaries & Wages Expense	53,950.00		2,400.00		56,350.00		56,350.00
Rent Expense	17,600.00			1,300.00	16,300.00		16,300.00
Supplies Expense	2,320.00			580.00	1,740.00		1,740.00
Utility Expense	6,100.00				6,100.00		6,100.00
Depreciation Expense			10,375.00		10,375.00		10,375.00
Total	476,890.00	476,890.00	15,695.00	15,695.00	490,705.00	490,705.00	224,405.00	255,000.00	266,300.00	235,705.00
Net Income							30,595.00	-	-	30,595.00
Totals							255,000.00	255,000.00	266,300.00	266,300.00
		-		-		-
Depreciation Expense = $83,000 / 8 Years = $10,375
Interest Expense = $31,200 X 10% X 4/12 = $1,040								-		-

Answer 2a.
EXCALIBUR CORPORATION
Income Statement
For Year Ended Dec 31, 2016
Sales Revenue		255,000.00
Cost of Goods Sold		132,500.00
Gross Margin		122,500.00
Expenses
Salaries & Wages Expense	56,350.00
Rent Expense	16,300.00
Supplies Expense	1,740.00
Utility Expense	6,100.00
Depreciation Expense	10,375.00	90,865.00
Net Operating Income		31,635.00
Interest Expense		1,040.00
Net Income		30,595.00
Answer 2b.
EXCALIBUR CORPORATION
Statement of Shareholders' Equity
	Common Stock	Retained Earnings	Total
Balance at Jan 1, 2016	120,000.00	28,700.00	148,700.00
Net Income	-	30,595.00	30,595.00
Cash Dividends	-	(9,000.00)	(9,000.00)
Total	120,000.00	50,295.00	170,295.00
Answer 2c.
EXCALIBUR CORPORATION
Balance Sheet
As on Dec 31, 2016
Assets
Current Assets
Cash	88,420.00
Accounts Receivable	27,000.00
Supplies	580.00
Prepaid Rent	1,300.00
Inventory	66,000.00	183,300.00
Property, Plant & Equipment
Office Equipment	83,000.00
Accumulated Dep. - Office Equip.	(21,165.00)	61,835.00
Total Assets		245,135.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable	35,400.00
Salaries & Wages Payable	7,200.00
Interest Payable	1,040.00	43,640.00
Long Term Liabilities
Notes Payable		31,200.00
Total Liabilities		74,840.00
Total Stockholders' Equity		170,295.00
Total Liabilities & Stockholders' Equity		245,135.00

Answer 3.
Closing Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-16	Sales Revenue	255,000.00
	Income Summary		255,000.00
	(To record the close of revenue accounts)
31-Dec-16	Income Summary	91,905.00
	Interest Expense		1,040.00
	Salaries & Wages Expense		56,350.00
	Rent Expense		16,300.00
	Supplies Expense		1,740.00
	Utility Expense		6,100.00
	Depreciation Expense		10,375.00
	(To record the close of expense accounts)
31-Dec-16	Income Summary	30,595.00
	Retained Earnings		30,595.00
	(To record the net income)