Question

The following trial balance was prepared for Tile, Etc., Inc. on December 31, 2017, after the closing entries were posted:

Account Title
Cash	$	160,000
Accounts receivable		135,000
Allowance for doubtful accounts	$	23,000
Inventory		445,000
Accounts payable		105,000
Common stock		500,000
Retained earnings		112,000

Tile, Etc. had the following transactions in 2018:

1. Purchased merchandise on account for $630,000.
2. Sold merchandise that cost $470,000 for $990,000 on account.
3. Sold for $295,000 cash merchandise that had cost $180,000.
4. Sold merchandise for $240,000 to credit card customers. The merchandise had cost $116,000. The credit card company charges a 4 percent fee.
5. Collected $720,000 cash from accounts receivable.
6. Paid $660,000 cash on accounts payable.
7. Paid $155,000 cash for selling and administrative expenses.
8. Collected cash for the full amount due from the credit card company (see item 4).
9. Loaned $60,000 to J. Parks. The note had an 8 percent interest rate and a one-year term to maturity.
10. Wrote off $8,500 of accounts as uncollectible.
11. Made the following adjusting entries:
    (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.
    (b) Recorded seven months of accrued interest on the note at December 31, 2018 (see item 9).

Required

1. Organize the transaction data in accounts under an accounting equation.
2. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, horizontal statements model and a statement of cash flows for 2018.

Answer 1

1) Assets Liabilities Shareholders' Equity No. Cash + Accounts Receivable Allowance for Doubt. + Note/Interest + Inventory Income Statement Sale / Cost of Interest - Goods Sold Revenue / Expenses Accounts Payable + Common Stock + Retained Earnings + Receivable + + + $112,000 $0 $0 $0 SO + + + $135,000 $0 $135,000 $990,000 $1,125,000 $105,000 $630,000 $735,000 $O $735,000 + + $0 + + + + + + . + $o + $0 + $445,000 $630,000 $1,075,000 $470,000 $605,000 $ 180,000 $425,000 $116,000 $309,000 $0 $309,000 + $112,000 $520,000 $632,000 $115,000 $747,000 $114,400 $861,400 $990,000 $990,000 $295,000 $1,285,000 $240,000 $1,525,000 $470,000 $470,000 $180,000 $650,000 $125,600 $775,600 + $735,000 + + + $0 + + $1,125,000 $230,400 $1,355,400 $720,000 $635,400 - - - + + $500,000 $0 $500,000 $0 $500,000 $0 $500,000 $0 $500,000 $0 $500,000 SO $500,000 $0 $500,000 $0 $500,000 + + + + Bal. $160,000 1) $0 Bal. $160,000 2) $0 Bal. $160,000 3) $295,000 Bal. $455,000 4) $0 Bal. $455,000 5) $720,000 Bal. $1,175,000 6) $660,000 Bal. $515,000 7) $ 155,000 Bal. $360,000 8) $230,400 Bal. $590,400 9) $60,000 Bal. $530,400 $0 $0 + + + + + + + + + + + + + + + + + + + + So $0 $23,000 $0 $23,000 $0 $23,000 $0 $23,000 $0 $23,000 $0 $23,000 SO $23,000 $0 $23,000 $0 $23,000 $0 $23,000 $8,500 + + + + + + + + + + + + + + + + + + + + + + + $861,400 $1,525,000 - $0 So $735,000 $0 $735,000 -$660,000 $75,000 $0 $75,000 SO + + + $0 $635,400 + + + $o $309,000 $0 $309,000 + + + + $861,400 $ 155,000 $706,400 $775,600 $0 $775,600 $155,000 $930,600 $0 $930,600 + + + - . $0 $0 + + + So $1,525,000 $0 $1,525,000 $0 $1,525,000 $0 $1,525,000 $0 + $75,000 + + $635,400 $230,400 $405,000 $0 $405,000 $8,500 $706,400 $309,000 $0 $309,000 $0 $0 SO + - $0 + + $60,000 $60,000 + $706,400 + + $75,000 $0 $930,600 $0 $500,000 $0 10 $0 SO . + + +

Bal. + $75,000 + + Adj1 + + = $0 + + $530,400 $0 $530,400 $0 $530,400 + + + + + $396,500 $0 $396,500 $0 $396,500 Bal. Adj2 Bal. $14,500 $9,900 $24,400 $0 $24,400 + + + + + $309,000 $0 $309,000 $0 $309,000 $60,000 SO $60,000 $2,800 $62,800 + + $500,000 $0 $500,000 $0 $500,000 $1,525,000 $0 $1,525,000 $2,800 $1,527,800 $706,400 $9,900 $696,500 $2,800 $699,300 - - - - - $75,000 $0 $75,000 + $930,600 $9,900 $940,500 $0 $940,500 + + + + + + + + NOTE: For Transaction-3: Accounts Receivable = $240,000 x 96% = $230,400; Expense = $116,000 + ($240,000 x 4%) = $125,600; For Adjustment-1: Bad debt is estimated at 1% of sales on account = $990,000 (Item 2) x 1% = $9,900; For Adjustment-2: Interest on note is accrued for 7 months --> $60,000 (Item 9) x 8% *(7/12) = $2,800. $75,000 Tile, Etc. Income Statement For the Year Ended December 31, 2018 Sales $1,525,000 Cost of Goods Sold $775,600 Gross Profit $749,400 Operating Expenses: Selling & Admin. Exp. $155,000 Bad Debt Expense $9,900 Total Operating Expenses $164,900 Operating Profit $584,500 Interest Revenue $2,800 Net Income (or Net Loss) $587,300 Assets Cash Accounts Receivable Allowance for Doubt. Inventory Note Recievable Interest Recievable Total Assets Tile, Etc. Balance Sheet December 31, 2018 Liabilities $530,400 Accounts Payable $396,500 -$24,400 Shareholders' Equity: $309,000 Common $500,000 $60,000 RetainedEarnings $699,300 $2,800 Shareholders' Equity $1,274,300 Total Liabilities and Shareholders' Equity [Ref: Statement of Retained Earnings] $1,199,300 $1,274,300

Tile, Etc. Statement of Retained Earnings For the Year Ended December 31, 2018 Retained Earnings - Beginning Balance $112,000 Add: Net Income $587,300 [Ref: Income Statement] Less: Dividends $0 Net decrease in retained earnings $587,300 Retained Earnings - Ending Balance $699,300 [Re: