Question

10 Homework 1 Problem 1' Everyone in the class invested $50.00 each in Brayden's Bodacious Biff's. For your investment, you each got 1 share of common stock. Assume there are 100 of you. During 2020, BBB, Inc. borrowed $100,000 to be repaid in five years with interest of 10% be paid yearly, bought a piece of land for future expansion of the business for $32,000, $2,000 down and the rest to be paid next year. Also during the year, the company purchased 10,000 Biffs for $8 each and sold 9,000 for $20 each. The company also paid a security deposit of $6,000 on the building it is renting, rent of $12,000, salaries of $24,000, and the interest on the loan of $10,000. Taxes for 2020 were 30% and these will be paid in 2021. How did you do? Prepare an Income Statement and a Balance Sheet. Comment on the results Read pages 12-18 and read the article "What It Takes to Be Great". Remember this article is fair game for all tests and quizzes.

Answer 1

Step 1: Identify the effect of each transaction in income statement and balance sheet.

step 2: calculate the closing balances of each account title

step 3: separate the income statement items and balance sheet items

step 4: Prepare an income statement by placing incomes top and expenses bottom

step 5: carryforword the income to the balance sheet and complete the balance sheet.

Income statement Particulars Amount Amount Sales 1,80,000 Less: Expenses Cost of Goods sold=9000*8 72000 Rent Expense 12000 Salaries Expense 24000 Interest Expense 10000 Total Expenses 118000 Net Income before tax 62,000 Less: Tax @30%*62,000 18600 Net Income 43,400 Balance sheet Assets Cash Inventory Security Deposit Land Total Assets 151000 5000+100000-2000-80000+180000-6000-12000-24000-10000 8000 1000*8 6000 32000 197000 18600 62000*30% 130000 100000+30000 Liabilities and Equity Liabilities Tax payable Note Payable Equity Common stock Retained earnings Total liabilities and Equity 5000 43,400 Income statement 197000 Comment on results The transactions of the Biff's company shows there is a profit of 43,400 after tax. The products are sold at a high margin i.e, purchased 8 each and sold 20 each.

Transaction Income statement effect Credit Debit Investment as common stock Borrowed 1,00,000 with interest Land purchased on account with 2000 payment Balance sheet effect Debit side Credit side Cash comes in Common stock 5000 100*50=5000 Cash comes in Note Payable 1,00,000 100000 Land Note Payable 32,000 30000 Cash goes out 2000 Cash goes out 80,000 Cash comes in 1,80,000 Purchased 10,000 biffs @8 each Inventory 10,000*8=80,000 Sold 9000 biffs @ 20 each Sales 9000* 20=180,000 Balance inventory 9,000 Sold 1000 @ 8 is the balance Security deposit for building of 6,000 Rent Expense Inventory 1,000*8=8000 Security Deposit 6000 Cash goes out 6000 Cash goes out 12,000 Cash goes out 24,000 Cash goes out 10,000 Tax payable Rent Expense 12000 Salaries Expense 24000 Interest Expense 100001 Income tax expense 18,600 Salaries Expense Interest on loan Tax on income 18,600 The above table shows the effect of each transaction in the income statement and balance sheet.