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On January 1, 2018, the general ledger of Grand Finale Fireworks includes the following account balances: Accounts:

Debit Credit

Cash: $42,700

Accounts Receivable: $44,500

Supplies: $7,500

Equipment: $64,000

Accumulated Depreciation: $ 9,000

Accounts Payable: $14,600

Common Stock, $1 par value $10,000

Additional Paid-in Capital: $80,000

Retained Earnings: $45,100

Totals: $158,700 $158,700

During January 2018, the following transactions occur:

January 2: Issue an additional 2,000 shares of $1 par value common stock for $40,000.

January 9: Provide services to customers on account, $14,300. January 10 Purchase additional supplies on account, $4,900.

January 12: Repurchase 1,000 shares of treasury stock for $18 per share. January 15 Pay cash on accounts payable, $16,500.

January 21: Provide services to customers for cash, $49,100. January 22 Receive cash on accounts receivable, $16,600.

January 29: Declare a cash dividend of $0.30 per share to all shares outstanding on January 29. The dividend is payable on February 15. (Hint: Grand Finale Fireworks had 10,000 shares outstanding on January 1, 2018 and dividends are not paid on treasury stock.)

January 30: Reissue 600 shares of treasury stock for $20 per share.

January 31: Pay cash for salaries during January, $42,000.

ASSIGNMENT:

1.

Record each of the transactions listed above in the 'General Journal' assuming a FIFO perpetual inventory system.
2.

Record adjusting entries on January 31. in the 'General Journal'
a. Unpaid utilities for the month of January are $6,200.
b. Supplies at the end of January total $5,100.
c.

Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a service life of three years and a residual value of $10,000.
d. Accrued income taxes at the end of January are $2,000.
3.

Review the adjusted 'Trial Balance' as of January 31, 2018.
4.

Prepare a multiple-step income statement for the period ended January 31, 2018.
5. Prepare a classified balance sheet as of January 31, 2018.
6. Record the closing entries in the 'General Journal.

Respuesta :

anthougo

Answer:

Grand Finale Fireworks

1. General Journal (FIFO perpetual inventory system):

January 2:

Debit Cash Account $40,000

Credit Common Stock $2,000

Credit Additional Paid-in Capital $38,000

To record the issue of 2,000 shares, $1 par value for $40,000.

January 9:

Debit Accounts Receivable $14,300

Credit Service Revenue $14,300

To record services on account.

January 10:

Debit Supplies Account $4,900

Credit Accounts Payable $4,900

To record supplies bought on account.

January 12:

Debit Treasury Stock $1,000

Debit Additional Paid-in Capital $17,000

Credit Cash Account $18,000

To record 1,000 treasury stock repurchased for $18/share.

January 15:

Debit Accounts Payable $16,500

Credit Cash Account $16,500

To record payment on accounts payable.

January 21:

Debit Cash Account $49,100

Credit Service Revenue $49,100

To record services to customers for cash.

January 22:

Debit Cash Account $16,600

Credit Accounts Receivable $16,600

To record cash from accounts receivable.

January 29:

Debit Dividend Account $3,300

Credit Dividend Payable $3,300

To record dividend declared, $0.30/share.

January 30:

Debit Cash Account $12,000

Credit Treasury Stock $600

Credit Additional Paid-in Capital $11,400

To record 600 treasury stock reissued for $20 per share.

January 31:

Debit Salaries Account $42,000

Credit Cash Account $42,000

To record January salaries paid.

2. Adjusting Entries (General Journal):

January 31:

a) Debit Utilities Account $6,200

Credit Accrued Utilities $6,200

To record unpaid utilities for January.

b) Debit Cost of Services $7,300

Credit Supplies Account $7,300

Being cost of services

c) Debit Depreciation Expense $1,500

Credit Accumulated Depreciation $1,500

To depreciate equipment for January.

d) Debit Income Tax Expense  $2,000

Credit Income Tax Payable  $2,000

To accrue income taxes for January.

3. Trial Balance as at January 31, 2018

                                                   Debit                         Credit

Cash:                                         $83,900

($42,700+40,000-18,000-16,500+49,100+16,600+12,000-42,000)

Accounts Receivable:               $42,200

($44,500 + 14,300 - 16,600)

Supplies:                                    $5,100

($7,500 +4,900 - 5,100)

Salaries                                      $42,000

Utilities                                       $6,200

Accrued Utilities                                                           $6,200

Depreciation Expense              $1,500

Income Tax Expense                $2,000

Income Tax Payable                                                     $2,000

Dividend                                    $3,300

Dividend Payable                                                          $3,300

Cost of Service                         $7,300

Service Revenue ($14,300 +49,100)                          $63,400

Equipment:                               $64,000

Accumulated Depreciation:  ($9,000 + 1,500)           $10,500

Accounts Payable:                                                       $3,000

($14,600 + 4,900 - 16,500)

Common Stock, $1 par value (10,000 + 2,000)         $12,000

Treasury Stock, $1 par value         $400

Additional Paid-in Capital:                                           $112,400

($80,000 +  38,000 - 17,000 +  11,400)

Retained Earnings:                                                       $45,100

Total                                           $257,900                  $257,900

4. Multiple-step Income Statement for the period ended January 31, 2018:

Service Revenue                      $63,400

Less Cost of Service                  $7,300

Gross Profit                               $56,100

Expenses:

Salaries               $42,000

Utilities                  $6,200

Depreciation         $1,500        $49,700

Income before taxes                 $6,400

Income Taxes                            $2,000

Income after taxes                    $4,400

Retained Earnings b/f             $45,100

Dividend                                   ($3,300)

Retained Earnings c/f             $46,200

5. Classified Balance Sheet as at January 31, 2018:

Current Assets:

Cash                                                        $83,900

Accounts Receivable                             $42,200

Supplies                                                   $5,100           $131,200

Equipment                                              $64,000

Accumulated Depreciation                   ($10,500)          $53,500

Total Assets                                                                   $184,700

Current Liabilities:

Accounts Payable                                $3,000

Accrued Utilities                                  $6,200

Income Taxes Payable                        $2,000

Dividends Payable                               $3,300                $14,500

Common Stock                                  $12,000

Treasury Stock                                     ($400)

Additional Paid-in Capital                $112,400  

Retained Earnings                            $46,200               $170,200

Total Liabilities + Equity                                                $184,700

6. Closing Entries in the General Journal:

a) Debit Income Statement $42,000

Credit Salaries Account $42,000

Transfer to the income statement.

b) Debit Income Statement $6,200

Credit Utilities Account $6,200

Transfer  to the income statement.

c) Debit Income Statement $2,000

Credit Income Taxes Expense $2,000

Transfer to the income statement.

d) Debit Retained Earnings $3,300

Credit Dividends Account $3,300

Transfer to the Retained Earnings Account.

e) Debit Service Revenue $63,400

Credit Income Statement $63,400

Transfer to the income statement.

f) Debit Income Statement $7,300

Credit Cost of Service $7,300

Transfer to the income statement.

g) Debit Net Income $4,400

Credit Retained Earnings $4,400

Transfer of net income to Retained Earnings.

Explanation:

a) Adjusting entries are changes to the journal, which match up with the reporting period, in accordance with the accrual concept and the matching principle of GAAP.  The adjusting entries include Accrued Revenue and Expenses, Deferred Revenue, Prepaid Expenses, and Depreciation Expenses.

b) Closing entries are entries made to close temporary accounts to the financial statements.  They enable all the revenue and expense accounts to end with a $0 balance.

Temporary accounts record accounting activities during a specific period, e.g. a month, i.e. for defined periods.  They are not are not carried over into the future like those reported in the balance sheet as opening balances.  They are also called permanent accounts.

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