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Income statement |
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Particulars |
Amount ($) |
Amount ($) |
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Consulting revenue |
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250000 |
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Less: Expenses |
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Repairing |
10000 |
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Utilities |
15000 |
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Supplies |
14000 |
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Salaries |
100000 |
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Interest |
6000 |
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Depreciation |
3000 |
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148000 |
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Earnings before income tax |
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102000 |
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Less: Income tax expense |
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24000 |
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Net income |
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78000 |
Retained Earnings, December 31, 2017: Retained Earnings, January 1, Year 2017 + Net Income - Dividends - Common Retained Earnings, December 31, 2017:
$26,000 + $78,000 - $25,000 Retained Earnings, December 31, 2017: $79,000
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Balance sheet: |
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Assets |
Amount ($) |
Amount ($) |
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Non-current assets |
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Equipment |
65000 |
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Less: accumulated depreciation |
5000 |
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Total non-current assets |
60000 |
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Current assets |
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Cash |
56000 |
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Accounts receivable |
18000 |
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Supplies |
4000 |
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Total current asset |
78000 |
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Total assets |
138000 |
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Liabilities & Equity |
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Non-current liabilities |
0 |
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Current liabilities |
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Notes payable |
55000 |
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Accounts payable |
3000 |
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Bank loan payable (4000-4000) |
0 |
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Total liabilities |
58000 |
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Equity: |
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Common shares |
1000 |
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Retained earnings |
79000 |
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Total equity |
80000 |
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Total liabilities and equity |
138000 |
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January 1: |
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Cash (Bank Account) Debit $2,000 |
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Common Shares Credit $2,000 |
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January 5: |
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Office Furniture Debit $500 |
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Accounts Payable Credit $500 |
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January 8: |
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Accounts Receivable Debit $3,000 |
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Consulting Revenue Credit $3,000 |
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(No entry required for receiving half the payment as it does not affect the accounting records at this point) |
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January 10: |
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Wages Expense Debit $200 |
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Cash (Bank Account) Credit $200 |
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January 13: |
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Cash (Bank Account) Debit $3,000 |
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Accounts Receivable Credit $3,000 |
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January 15: |
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Accounts Payable Debit $500 |
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Cash (Bank Account) Credit $500 |
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a) i) March 1, 2017: |
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Prepaid Insurance Debit $2,000 |
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Cash (Bank Account) Credit $2,000 |
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ii) December 31, 2017: |
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Insurance Expense Debit $1,667 |
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Prepaid Insurance Credit $1,667 |
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b) i) October 1, 2017: |
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Cash (Bank Account) Debit $10,000 |
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Unearned Revenue Credit $10,000 |
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ii) December 31, 2017: |
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Unearned Revenue Debit $2,500 |
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Service Revenue Credit $2,500 |
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c) December 31, 2017: |
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Salaries Expense Debit $2,286 |
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Salaries Payable Credit $2,286 |
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[($8,000 / 7) x 4] - The 4 days from December 28 to December 31 |
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d) i) February 1, 2017: |
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Car Debit $15,000 |
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Cash (Bank Account) Credit $15,000 |
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ii) December 31, 2017: |
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Depreciation Expense Debit $500 |
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Accumulated Depreciation Credit $500 |
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[$15,000 / (10 years x 12 months)] - Depreciation for 11 months |
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Close the revenue accounts: |
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Repairs Revenue Debit $55,000 |
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Income Summary Credit $55,000 |
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Close the expense accounts: |
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Wages Expense Debit $20,000 |
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Supplies Expense Debit $1,000 |
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Depreciation Expense Debit $3,000 |
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Maintenance Expense Debit $5,000 |
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Interest Expense Debit $2,000 |
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Income Summary Credit $31,000 |
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Close the dividend account: |
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Income Summary Debit $2,000 |
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Dividends Credit $2,000 |
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Close the income summary account: |
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Income Summary Debit $24,000 |
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Retained Earnings Credit $24,000 |
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To record the deposit in transit: |
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July 31, 2017 |
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Bank Account Debit $817 |
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Accounts Receivable Credit $817 |
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To record the NSF cheque from J Brown: |
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July 31, 2017 |
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Accounts Receivable Debit $300 |
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Bank Account Credit $300 |
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To record the collected note receivable: |
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July 31, 2017 |
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Bank Account Debit $408 |
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Interest Income Debit $28 |
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Notes Receivable Credit $380 |
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Interest Revenue Credit $28 |
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To record the bank fees: |
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July 31, 2017 |
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Bank Service Charges Debit $18 |
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Bank Account Credit $18 |
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To correct the bookkeeper's error: |
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July 31, 2017 |
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Accounts Payable Debit $9 |
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Bank Account Credit $9 |
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To correct the bookkeeper's error in recording the payment on account: |
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July 31, 2017 |
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Accounts Payable Debit $9 |
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Bank Account Credit $9 |
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Calculate the estimated uncollectible amount for each category:
0-30 days: $10,000 x 1% = $100
31-60 days: $4,000 x 5% = $200
61-90 days: $2,000 x 10% = $200
Over 90 days: $1,000 x 25% = $250
Sum up the estimated uncollectible amounts: $100 + $200 + $200 + $250 = $750
Calculation of the current balance in the Allowance for Doubtful Accounts account:
The current balance is $400.
Calculation of the adjustment required:
Desired Balance = Current Balance + Adjustment Desired Balance = $400 + Adjustment
To make the desired balance equal to the estimated uncollectible amount the equation is: $750 = $400 + Adjustment
Thus, the adjustment = $750 - $400 Adjustment = $350
Accounts receivable, net would be disclosed on the balance sheet would be:
Accounts receivable less adjusted allowance for doubtful debt
(17,000 – 750) = 16,250
The most likely cause of the allowance for doubtful accounts being in a debit balance is that the company has previously written off more bad debts than it had provided for in the allowance. This means that the actual amount of uncollectible accounts exceeded the estimated amount recorded in the allowance for doubtful accounts.
Bad debt account Debit $300
Accounts receivable (Marco Inc.) Credit $300
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Beginning Inventory: |
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Date: August 1 |
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Units: 40 |
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Cost/Price: $25.00 |
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Total Cost: 40 x $25.00 = $1,000 |
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Purchase: |
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Date: August 4 |
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Units: 20 |
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Cost/Price: $28.00 |
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Total Cost: 20 x $28.00 = $560 |
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Sale: |
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Date: August 15 |
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Units: 50 |
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Cost/Price: $60.00 |
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Total Cost: 50 x $60.00 = $3,000 |
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Purchase: |
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Date: August 21 |
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Units: 20 |
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Cost/Price: $29.00 |
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Total Cost: 20 x $29.00 = $580 |
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Purchase: |
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Date: August 26 |
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Units: 70 |
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Cost/Price: $30.00 |
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Total Cost: 70 x $30.00 = $2,100 |
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Sale: |
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Date: August 31 |
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Units: 40 |
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Cost/Price: $60.00 |
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Total Cost: 40 x $60.00 = $2,400 |
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To calculate the weighted average cost per unit: |
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Total Cost of Inventory = Total Cost of Beginning Inventory + Total Cost of Purchases |
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Total Cost of Inventory = $1,000 + $560 + $3,000 + $580 + $2,100 |
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Total Cost of Inventory = $7,240 |
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Total Units of Inventory = Units in Beginning Inventory + Units Purchased |
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Total Units of Inventory = 40 + 20 + 20 + 70 |
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Total Units of Inventory = 150 |
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Weighted Average Cost per Unit = Total Cost of Inventory / Total Units of Inventory |
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Weighted Average Cost per Unit = $7,240 / 150 |
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Weighted Average Cost per Unit = $48.27 |
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Inventory Record (using the weighted average method): |
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Date Units Cost per Unit Total Cost |
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August 1 40 $25.00 $1,000 |
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August 4 20 $28.00 $560 |
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August 15 (50) $48.27 $(2,413.50) |
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August 21 20 $29.00 $580 |
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August 26 70 $30.00 $2,100 |
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August 31 (40) $48.27 $(1,930.80) |
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Inventory Debit 40 units x $48.27 = $1,930.80
Cost of Goods Sold Credit 40 units x $48.27 = $1,930.80
Record the revenue generated from the sale:
Accounts Receivable Debit 40 units x $60.00 = $2,400
Sales Revenue Credit 40 units x $60.00 = $2,400
Calculation of straight-line depreciation rate: Straight-line depreciation rate = 1 / Useful life Straight-line depreciation rate = 1 / 5 years Straight-line depreciation rate = 0.20 or 20%
Calculation of double-declining balance depreciation rate: Double-declining balance depreciation rate = Straight-line depreciation rate x 2 Double-declining balance depreciation rate = 0.20 x 2 Double-declining balance depreciation rate = 0.40 or 40%
Year 2017:
Depreciation Expense = $25,000 x 40% Depreciation Expense = $10,000
Year 2018:
Depreciation Expense = ($25,000 - $10,000) x 40% Depreciation Expense = $15,000 x 40% Depreciation Expense = $6,000
Year 2019:
Depreciation Expense = ($25,000 - $10,000 - $6,000) x 40% Depreciation Expense = $9,000 X 40% Depreciation Expense = $3,600
Year 2020:
Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600) X 40% Depreciation Expense = $5,400 X 40% Depreciation Expense = $2,160
Year 2021:
Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600 - $2,160) x 40% Depreciation Expense = $3,240 X 40% Depreciation Expense = $1,296
Year 2022:
Depreciation Expense = ($25,000 - $10,000 - $6,000 - $3,600 - $2,160 - $1,296) x 40% Depreciation Expense = $1,944 X 40% Depreciation Expense = $777.60
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Purchase of the truck on October 1, 2017: |
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October 1, 2017 |
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Truck Debit $60,000 |
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Cash (Bank Account) Credit $60,000 |
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Depreciation expense for each year: |
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Annual Depreciation Expense = (Cost - Residual Value) / Useful Life |
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Annual Depreciation Expense = ($60,000 - $10,000) / 10 |
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Annual Depreciation Expense = $5,000 |
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For each year (2017 to 2019), record the annual depreciation expense: |
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Year 2017: |
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December 31, 2017 |
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Depreciation Expense Debit $5,000 |
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Accumulated Depreciation Credit $5,000 |
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Year 2018: |
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December 31, 2018 |
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Depreciation Expense Debit $5,000 |
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Accumulated Depreciation Credit $5,000 |
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Year 2019: |
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July 1, 2019 |
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Depreciation Expense Debit $2,500 |
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Accumulated Depreciation Credit $2,500 |
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(Recording depreciation for the first half of the year) |
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Sale of the truck on July 1, 2019: |
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July 1, 2019 |
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Cash (Bank Account) Debit $54,000 |
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Accumulated Depreciation Debit $7,500 |
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Truck Credit $60,000 |
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Gain on Sale of Truck Credit $1,500 |
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Date |
Payment |
Interest expense |
Discount amortized |
Carrying value |
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August 31, Year 7 |
65,633 |
26,400 |
39,233 |
960,767 |
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February 28, Year 8 |
67,400 |
26,321 |
41,079 |
958,058 |
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August 31, Year 8 |
67,319 |
26,167 |
41,152 |
954,218 |
b) Journal Entry for the Issuance of the Bond |
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August 31, Year 7 |
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Cash (Bond Proceeds) Debit $960,000 |
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Discount on Bonds Payable Debit $40,000 |
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Bonds Payable Credit $1,000,000 |
C) Journal Entry for the First Semi-Annual Payment |
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February 28, Year 8 |
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Interest Expense Debit $26,890 |
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Discount on Bonds Payable Debit $1,110 |
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Cash (Interest Payment) Credit $25,000 |
D) Journal Entry for the Year-End Adjustment |
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July 31, Year 8 |
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Interest Expense Debit $23,256 |
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Discount on Bonds Payable Debit $3,634 |
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Interest Payable Credit $26,890 |
E) Journal Entry for the Second Semi-Annual Payment |
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August 31, Year 8 |
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Interest Expense Debit $22,000 |
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Discount on Bonds Payable Debit $3,000 |
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Cash (Interest Payment) Credit $25,000 |
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