Question

The Cobblepot Aviary Tools and Supplies Company (CATS Co.) begins operations on December 1, 2014. On December 31, 2014 it concludes the fiscal year. CATS uses a pe LIFO inventory system and straight line depreciation. The following transactions occurred in December Dec. 1: Financed the company startup by issuing $100,000 in common stock. Dec. 1: Financed the company by signing a note for S30,000 with a local bank. Principle and 10% interest is to be repaid in six months. Dec. 1: Purchase equipment for $40,000. The equipment has a five year useful life and $4,000 salvage value. Dec. 2: Paid an insurance company $2,400 for a one-year policy. Dec. 3: Paid $5,000 in cash for office supplies. Dec. 5: Purchased 200 Delux Bird Baths (DBB's - the company's signature product) on account from its supplier at a cost of $100 each. Dec. 12: Sold 150 DBB's on account for $200 each. Dec. 18: Paid employees $6,000 in wages for the first half of the month. The second half of the monthly wages will be paid on Jan. 3rd Dec. 20: Purchased with cash 120 DBB's from its supplier at a cost of $125 each. Dec. 22: Paid $12,000 to its supplier for the DBB's purchased on Dec. 54 Dec. 23: Sold 80 DBB's for $220 each. These were all cash sales. Dec. 24: Collected $8,000 on account from customers. Dec. 26: Declared a $2,000 dividend to its shareholders. Dividend will be paid on Jan. 1, 2015 as a New Year's gift. Dec. 28: Collected an advanced payment of $5,500 for 25 DBB's to be delivered to a customer on Jan. 15th Dec. 31: Paid $2,500 to the local utility company for December gas and electricity. Dec. 31: Purchased $15,000 of another firm's bonds. The bonds are classified as available for sale. Dec. 31: Paid $4,000 rent for the office building. Rent was for December and January Dec. 31: Inventory shows $3,500 in office supplies remaining. Bad debt expense is estimated as $400. Instructions: 1. Write the journal entries for the company's fiscal year. 2. Enter the transactions in the necessary general ledger T-accounts. 3. Create a trial and adjusted trial balance. 4. Make the necessary closing entries. 5. Prepare an income statement, balance sheet and statement of retained earnings. 6. Prepare an indirect statement of cash flows. See if you can generate a direct method statement of cash flows as well. Assume that the firm used perpetual FIFO instead of perpetual LIFO. How would this change the firm's net income? How would this change cash flows from operations?

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part 1 Part 2 Date Account Debit Credit $ 100,000 01-12-2014 Cash 01-12-2014 Common Stock (To record issue of common stock) Cash Debit 01-12-2014 $ 130,000 24-12-2014 $ 8,000 28-12-2014 $ 5,500 Sale Credit 12-12-2014 $ 30,000 23-12-2014 $ 17,600 Ending Balance $ 47,600 $ 100,000 Credit 01-12-2014 $ 02-12-2014 $ 03-12-2014 $ 18-12-2014 $ 20-12-2014 $ 22-12-2014 $ 31-12-2014 $ 40,000 2,400 5,000 6,000 15,000 12,000 21,500 $ 30,000 01-12-2014 Cash 01-12-2014 Note Payable (To record issue of note) $ 30,000 Credit Cost of Goods Sold Debit 12-12-2014 $ 15,000 23-12-2014 $ 8,750 Ending Balance $ 23,750 Ending Balance $ 41,600 $ 40,000 01-12-2014 Equipment 01-12-2014 Cash (To record purchase of equipment) $ 40,000 Accounts Receivable Debit Credit 12-12-2014 $ 30,000 24-12-2014 S 23-12-2014 $ 17,600 Ending Balance $ 39,600 8,000 Depreciation Expense Debit 31-12-2014 $ 600 Credit $ 2,400 02-12-2014 Prepaid Insurance 02-12-2014 Cash (To record poyment of insurance premium) $ 2,400 Ending Balance $ 600 Inventory $ 5,000 Dividend 03-12-2014 Office Supplies 03-12-2014 Cash (To record office supplies expense) $ 5,000 Debit 05-12-2014 $ 20-12-2014 $ Ending Balance $ Credit Credit 12-12-2014 $ 23-12-2014 $ 20,000 15,000 11,250 15,000 8,750 Debit 26-12-2014 $ 2,000 $ 20,000 Ending Balance $ 2,000 05-12-2014 Inventory 05-12-2014 Accounts Payable (To record purchases) 200 units "$100 $ 20,000 Debit 03-12-2014 $ Office Supplies Credit 5,000 31-12-2014 $ 1,500 Insurance Expense Debit 31-12-2014 $ 200 Credit $ 30,000 12-12-2014 Accounts Receivable 12-12-2014 Sale (To record sale) 150 units $200 $ 30,000 Ending Balance $ 3,500 Ending Balance $ 200 $ 15,000 12-12-2014 Cost of Goods Sold 12-12-2014 Inventory (To record cost of goods sold) 150 Units $100 Prepaid Insurance Debit Credit 02-12-2014 $ 2,400 31-12-2014 $ $ 15,000 200 Interest Expense Debit 31-12-2014 $ 250 Credit Ending Balance $ 2,200 $ 6,000 Ending Balance $ 250 18-12-2014 Wages Expense 18-12-2014 Cash (To record woge expense) $ 6,000 Prepaid Rent Credit Rent expense Debit 31-12-2014 $ 2.000 Credit Debit 31-12-2014 $ $ 15,000 2,000 20-12-2014 Inventory 20-12-2014 Cash (To record purchases) 120 units $125 $ 15,000 Ending Balance $ 2,000 Ending Balance $ 2,000 Equipment $ 12,000 Credit 22-12-2014 Accounts Payable 22-12-2014 Cash (To record payment) $ 12,000 Debit 01-12-2014 $ 40,000 Supplies Expense Debit 31-12-2014 $ 1,500 Credit Ending Balance $ 40,000 $ 17,600 Ending Balance $ 1,500 23-12-2014 Accounts Receivable 23-12-2014 Sale (To record sale) 80 units $220 $ 17,600 Accumulated Depreciation Debit Credit Utilities Expense

31-12-2014 $ 600 Credit Debit 31-12-2014 $ $ 8,750 2,500 23-12-2014 Cost of Goods Sold 23-12-2014 Inventory (To record cost of goods sold) 50 Units $100+ 30 units $125 $ 8,750 Ending Balance $ 600 Ending Balance $ 2,500 $ 8,000 24-12-2014 Cash 24-12-2014 Accounts Receivable (To record cash received) Allowance for doubtful expense Debit Credit 31-12-2014 S $ 8,000 400 Credit Wages Expense Debit 18-12-2014 $ 6,000 31-12-2014 $ 6,000 Ending Balance $ 12,000 Ending Balance $ 400 $ 2,000 26-12-2014 Dividend 26-12-2014 Dividend Payable (To record dividend declared) $ 2,000 Accounts Payable Debit Credit 22-12-2014 $ 12,000 05-12-2014 $ 20,000 $ 5,500 28-12-2014 Cash 28-12-2014 Unearned Revenue (To record revenue unearned) $ 5,500 Ending Balance $ 8,000 $ 2,500 Investment in Bonds Debit 31-12-2014 $ 15,000 31-12-2014 Utility Expense 31-12-2014 Cash (To record utility expense) Credit $ 2,500 Ending Balance $ 15,000 $ 15,000 31-12-2014 Investment in Bonds 31-12-2014 Cash (To record utility expense) $ 15,000 Debit Dividend Payable Credit 26-12-2014 $ 2,000 $ $ 2,000 2,000 Ending Balance $ 2,000 31-12-2014 Rent Expense 31-12-2014 Prepaid Rent 31-12-2014 Cash To record rent payment) $ 4,000 Debit Interest Payable Credit 31-12-2014 $ $ 1,500 250 31-12-2014 Supplies Expense 31-12-2014 Office Supplies (To record supplies expense) $5,000-$3,500 $ 1,500 Ending Balance $ 250 $ 400 31-12-2014 Bad debt expense 31-12-2014 Allowance for doubtful expense (To record bod debt expense) $ 400 Debit Note Payable Credit 01-12-2014 $ 30,000 $ 250 Ending Balance $ 30,000 31-12-2014 Interest Expense 31-12-2014 Interest Payable (To record interest expense) $30,00010% 1/12 $ 250 Debit Unearned Revenue Credit 28-12-2014 $ Ending Balance $ $ 600 31-12-2014 Depreciation Expense 31-12-2014 Accumulated Depreciation (To record depreciation expense) ($40,000-$4,000)/60 Months 5,500 5,500 $ 600 $ 200 Debit 31-12-2014 Insurance Expense 31-12-2014 Prepaid Insurance (To record insurance expense) $2,400/12 $ Wages Payable Credit 31-12-2014 $ Ending Balance $ 200 6,000 6,000 $ 6,000 31-12-2014 Wages Expense 31-12-2014 Wages Payable (To record woge expense) $ 6,000 Debit Common Stock Credit 01-12-2014 $ 100,000 Ending Balance $100,000

Unadjusted Credit Adjustments Credit Adjusted Credit Part 3 Debit Debit Debit $ $ 41,600 39,600 $ $ 41,600 39,600 $ 400 $ 400 $ $ 1,500 200 $ 11,250 5,000 2,400 2,000 15,000 40,000 11,250 3,500 2,200 2,000 15,000 40,000 $ 600 $ $ $ 8,000 30,000 5,500 Cash Accounts Receivable Allowance for doubtful expense Inventory Office Supplies Prepaid Insurance Prepaid Rent Investment in Bonds Equipment Accumulated Depreciation Accounts Payable Note Payable Unearned Revenue Wages Payable Interest Payable Dividend Payable Common Stock Dividend Sale Cost of Goods Sold Rent Expense Utility Expense Wages Expense Bad debt expense Depreciation Expense Insurance Expense Interest Expense Supplies Expense $ $ $ 600 8,000 30,000 5,500 6,000 250 2,000 100,000 6,000 250 $ $ 2,000 100,000 $ $ $ 2,000 $ 2,000 $ 47,600 $ 47,600 23,750 2,000 2,500 6,000 6,000 400 600 200 250 1,500 23,750 2,000 2,500 12,000 400 600 200 250 1,500 $ Total $ 193,100 $ 193,100 $ 8,950 $ 8,950 $ 200,350 $ 200,350 Part 4 ci $ 47,600 Sale Income Summary (To close revenue account) $ 47,600 c2 $ 43,200 $ $ $ Income Summary Cost of Goods Sold Rent Expense Utility Expense Wages Expense Bad debt expense Depreciation Expense Insurance Expense Interest Expense Supplies Expense (To close expense account) 23,750 2,000 2,500 12,000 400 600 200 250 1,500 $ c3 4,400 Income Summary Retained Earning (To close income summary) $ 4,400 c4 $ 2,000 Retained Earning Dividend (To close dividend account) $ 2,000