Question

1. Assuming in its first year of operations in 2018, that ABC issued 100,000 shares of 3.00 par stock to an investor for $800,000.

On January 2, ABC issued bonds with a face of 200,000, stated rate of 9%, term 5 years and received cash of either $195,000 or $205,000. Market Rate is 10%. Interest is paid every January 1

On March 1, ABC financed machinery. The cost of the machinery was $100,000. ABC financed this through a long-term note that charges interest of 8%. The interest is payable each January 1 starting next year. The $100,000 is to be paid back on January 1 of the 5^th year.   

ABC acquired an investment in stock of another company for $50,000. The investment did not change in value at 12/31.

ABC purchased inventory on credit throughout the year. The inventory purchases were on 1/20/18 - 20,000 units at $1.00/unit; on 6/1 10,000 at $2.00/unit; and finally, on 9/1 they purchased 20,000 units at $3.00/unit.   ABC uses LIFO periodic method (on an annual basis) for accounting for inventory.

On 9/1 ABC sold 15,000 units at a total price of $160/unit on credit.

On 12/1 ABC sold 20,000 units at a total price of $140/unit on credit

ABC received $1,500,000 of cash for credit sales and wrote off $40,000 as bad debts at year-end.   Assuming that ABC uses the aging method and that the aging method determined that 80% of its ending balance of AR is current with a 2% likely uncollectible rate; and that 20% of the ending balance is noncurrent with a likely 20% uncollectible rate

ABC purchased $250,000 worth of supplies on credit. By year-end only 20% of supplies remained.

ABC received $800,000 of cash in advance for delivery of 5,000 units of inventory. This inventory will be delivered January of next year.

ABC had depreciation expense related to the machinery of $5,000. Paid cash for rent (expense) of $20,000. Total salary expense was $1,200,000; of which 1,000,000 was paid in cash and ABC owed the remainder at year-end. ABC paid down ½ of it’s A/P with cash. ABC incorporates the Lower of Cost or Market in determining ending inventory. Assume that the lower of cost or market value of the inventory suggested a value of $12,000.

Accrue income tax at a rate of 21%. ABC received $1,000 in dividends but paid $23,000 in dividends to its owners.

Please prepare all Journal Entries (including closing entries);

Answer 1

Debit 200 000 Gredit 2 (2 Sodo San Bank ALC Dr. x d To Bonds To Discount (Being Bond issued Sooo - 160 ooo i march Machinery Ali Dr. t 160000 To Long Term Note 8% . (Being machinery financed) Investment I March (Stock) ALC vor 50.000 To Bank Ale (Being investment made SO,000

20 Jan 200oO Stock ALC (20,000X $1 20.000 To Greditor AC Being stock prochased) Stock Alc c20000882) 20,000 To credider A/ 1 20000 Being stock purchased [ June Sept Stock ACC (20,000x$3) - 20000 To credits ACC (Being stock purchased) classmate

• Isept 2400,000 Debtor A/C pr. To Sale AIC (Being sale made) 5000 X 160 24.00000 Dec Debtorfle Dr 2800000 To Sale Alc C Being sale made) c20000 x 140) 28000oo. - 3 DEC BankAK Dr 150oooo Bad dext Alpro yoooo To Dektor 1540000 - CBeing amount received and bad dettson - adjusted - 3 Dec Supplies Al Dr 250.000 to Bank Creditor A/C con 250,000 - CBeing supplies purchased - 31 Dec Profit & Loss Al Dr 200.000 To supplies AIC 2,00.000 (80% supplies Consumed 250,000 X80% classmate

31 Dec 80p ooo 31 dec Bank Al Dr 8ooooo. To Debtor Advance (Being advance received now Profit & Loss Alc Dr. 5,000 To Depreciation Alco (Being depreciation charged PPPPPP2 sooo 31 Dec CDr. 20,000 Rent Alcoa To Bank Ale Being sent paid no Bi Dec P 31 Dec salary Expense or Roo, ooo To BankAK 000000 To salary Payable 200 000 (Being salasy expensed creditors A/C or 155,000 To Bank Alc - 155,000 .CBeing Y2 creditors paid) . J c60,000+ 2.50.000 X 4 Inventory 05 I 20000 x = 20000 20000 2 = 40,000 20,000 X3 = 60000 O 15000X 3 5ooox 1500082 I closing $ . 5 000 x 2 = 10 000 20poox 1 = 20,000 classmate Book Value: 30,000

11171 . Cost = 30,000 Market value = 12.000 Thus, valuation of stock Uber at $12.000 31 Dec $ 1000 L $1000 -- Dividend Concome Al Dr To profit & loss Alc Being Dividend Received) prefit & Loss ALC D& To Disidend Alca Being Dividend paid) 31 Dec $23,000 $23000