Question

33 Module 2 Homework Problem 2-1 Your friend Andy decides to open a business selling cars. He starts with $600,000 of his own money, in exchange for 5,000 shares of stock on January 1, 2019. To help fund the business you loan Andy $100,000 that Andy will pay interest on annually at 10% and he will pay you back in 5 years. During the year he bought 20 cars for $10,000 each. He sold 15 of these for $30,000 each. He also paid wages of 15,000, rent of 10,000, interest on the loan, and advertising of 2,000. Andy also had to put down a security deposit for this 10-year lease of 1,000. On June 1, 2019, Andy also decides to invest a piece of land into his business valued at $40,000 in exchange for 400 shares of stock. At the end of the year Andy owes his employees 1,000 in wages. He paid a dividend to his investors of $2,000. The tax rate is 30%. Andy pays half of 2019 taxes this year and the other half in 2020. Create transactions descriptions, t-accounts and a Balance Sheet, Income Statement and Statement of Owners' Equity.

Answer 1

Transaction Descriptions
No.	Account	Debit ($)	Credit ($)
1	Cash	600000
	Share Capital		600000
2	Cash	100000
	10% Loan from friend		100000
3	Purchase	200000
	Cash		200000
4	Cash	450000
	Sales		450000
5	Wages	15000
	Rent	10000
	Interest on Loan	10000
	Advertising	2000
	Cash		37000
6	Security Deposit	1000
	Cash		1000
7	Land	40000
	Share Capital		40000
8	Wages	1000
	Wages Payable		1000
9	Dividend	2000
	Cash		2000
10	Income Tax
	Cash
	Tax Payable

Income Statement
Particulars	$	$
Revenue from sales		4,50,000
Expenses:
Purchases	200000
Wages	16000
Rent	10000
Interest on Loan	10000
Advertisement	2000
Total Expenses		238000
Income before Tax		2,12,000
-Tax @ 30%		-63600
Net Income		1,48,400
-Dividend		-2000
Retained Earnings		1,46,400

Balance Sheet
Assets	$	$
Non Current Assets:
Land	40,000	40,000
Current Assets:
Security Deposit	1,000
Cash	8,78,200	8,79,200
Total Assets		9,19,200
Equity & Liabilities
Equity:
Share Capital	6,40,000
Retained Earnings	1,46,400
Total Equity		7,86,400
Non Current Liabilities:
10% Loan from friend	1,00,000	1,00,000
Current Liabilities:
Wages Payable	1,000
Tax Payable	31,800	32,800
Total Equity & Liabilities		9,19,200

Statement of owners' Equity
Particulars	$	$
Share Capital	6,40,000	6,40,000
Retained Earnings:
Net Income	1,48,400
-Dividends paid	-2000	1,46,400
Total Owners' Equity		7,86,400