Question

Bobcat Betty's Fudge Sandwich Business Year 2020. It was January 1, 2020 and Bobcat Betty had $20,000 and decided she wanted to become rich.

Problem 4-218 Bobcat Betty's Fudge Sandwich Business Year 2020. It was January 1, 2020 and Bobcat Betty had $20,000 and decided she wanted to become rich. She decided to operate as a corporation so she filed the necessary papers with the State, put the money in the bank under the company name and issued 200 shares of common stock to herself. On January 1 she paid $3,600 to rent a cart for one year. During the year she bought 24,000 fudge sandwiches for $1.00 each. She paid $20,000 cash for the sandwiches and owed $4,000 at the end of the year. She sold 20,000 sandwiches at $2.00 each. In addition she paid salaries of $8,500 and parking fees of $1,400. At the end of the year, in addition to what she owed for sandwiches, she owed $400 in parking fees. To secure her parking spot, Bobcat Betty had put down a $1,000 security deposit at the beginning of the year. Bobcat Betty's kept some of her cash in an interest-bearing account and the bank paid her $200 in interest income during the year. Bobcat Betty issued an additional 60 shares of common stock on March 1st for $6,000. The tax rate is 40% and taxes are to be paid on March 15th of the following year. Record all transactions, post to T accounts and prepare financial statements.

Answer 1

Prepare journal entries as follows:

Trn.	Account Titles	Debit	Credit
1	Cash	$20,000
	Common stock (200 × $100)		$20,000
2	Car Rental Expense	$3,600
	Cash		$3,600
3	Inventory (24,000 × $1)	$24,000
	Cash		$20,000
	Accounts payable		$4,000
4	Cash (20,000 × $2)	$40,000
	Sales		$40,000
5	COGS	$2,000
	Inventory		$20,000
6	Salaries expense	$8,500
	Cash		$8,500
7	Parking Expense	$1,400
	Cash		$1,400
8	Parking Expense	$400
	Parking payable		$400
9	Security Deposit	$1,000
	Cash		$1,000
10	Cash	$200
	Interest Revenue		$200
11	Cash	$6,000
	Common stock (60 shares × $100)		$6,000
12	Tax expense	$2,520
	Tax payable (See income statement)		$2,520

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Prepare T-accounts as follows:

Cash
1	$20,000	2	$3,600
4	$40,000	3	$20,000
10	$200	6	$8,500
11	$6,000	7	$1,400
		9	$1,000
End. Bal.	$31,700
Inventory
3	$24,000	5	$20,000
End. Bal.	$4,000
Security Deposit
9	$1,000
End. Bal.	$1,000
COGS
5	$20,000
End. Bal.	$20,000
Salaries Expense
6	$8,500
End. Bal.	$8,500
Car Rental Expense
2	$3,600
End. Bal.	$3,600
Parking Fees
7	$1,400
8	$400
End. Bal.	$1,800
Tax Expense
12	$2,520
End. Bal.	$2,520
Tax payable
		12	$2,520
		End. Bal.	$2,520
Accounts payable
		3	$4,000
		End. Bal.	$4,000
Parking Payable
		8	$400
		End. Bal.	$400
Common stock
		1	$20,000
		11	$6,000
		End. Bal.	$26,000
Sales
		4	$40,000
		End. Bal.	$40,000
Interest revenue
		10	$200
		End. Bal.	$200

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Prepare Income statement as follows:

Income statement
Sales		$40,000
COGS		($20,000)
Gross Profit		$20,000
Less: operating Expense
Salaries expense	$8,500
Car Rental Expense	$3,600
Parking expense	$1,800	$13,900
Add: Interest revenue		$200
Profit before tax		$6,300
Tax expense ($6300 × 40%)		($2,520)
Net Income		$3,780

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Statement of retained earnings
Beginning bal.		-
Add: Net Income		$3,780
Ending bal.		$3,780

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Trial Balance
	Debit	Credit
Cash	$31,700
Inventory	$4,000
Security deposit	$1,000
Accounts payable		$4,000
Parking payable		$400
Common stock		$26,000
Tax payable		$2,520
Sales		$40,000
Interest revenue		$200
Salaries expense	$8,500
Car rental expense	$3,600
Parking fees	$1,800
Tax expense	$2,520
COGS	$20,000
	$73,120	$73,120

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Balance Sheet
Assets:
Cash	$31,700
Inventory	$4,000
Security deposit	$1,000
Total Assets		$36,700
Accounts payable	$4,000
Parking payable	$400
Tax payable	$2,520
Total Current liabilities		$6,920
Stockholders' Equity:
Common stock	$26,000
Retained Earnings	$3,780
Total Stockholders' Equity		$29,780
Total liabilities & SE		$36,700