Question

3. On March 1, 2019 - An investor purchased 100 shares of stock (100%) from ABC Co. for $1,500,000 cash. The par value of the stock was $1/share. ABC Company purchased equipment for $90,000; paying $40,000 and financing through a long-term note) the remaining portion. The note charges 12% (APR) interest ABC had the following transactions after 3/1/2019: Sold and delivered services for $820,000. $460,000 cash was received immediately and the remaining amounts will be received in 2020. ABC was given in cash $60,000 for future services. The services are to be provided to the client in 2020. ABC paid $50,000 for advertising. The advertising was already displayed and incurred. ABC paid $100,000 for supplies. Cash was paid for both. Paid salaries in total of $200,000 for work already done. ABC received a $20,000 bill for utilities it had used in 2019. The bill will be paid in 2020, that needs to be recorded for the equipment (related to above) is $9,000. The new person counted supplies and determined that only $20,000 of supplies remained at year-end. ABC declared and paid a dividend of $20,000. The tax rate is 20% but the tax will not be paid until 2020. Prepare JEs, a balance sheet and Income Statement in good form for the year-ended 2019 for ABC Co. Round all non-round values to the nearest dollar.

Answer 1

Income Statement:-

Particulars	Amount $	Particulars	Amount $
To interest on long term long @ 12%	5000
To Outstanding Utilities	20000	By sales	820000
To Advertisement	50000	By Closing Stock	20000
To Supplies Purchases	100000
To Salaries	200000
To Depreciation on Equipment	9000
To Dividend	20000
To Net Profit	436000
To Net Profit b/d

Extract of the Balance Sheet

Liabilities	Amount $	Assets	Amount $
Dividend	20000	Cash	1605000
Net Profit	436000	Equipment 90000 less:-Depreciation (9000)	81000
Income Received In advance	60000	Bills Receivable	360000
		Supplies	20000
Outstanding Expenses	20000	Miss Income and Assets	112200
Long Term Loan 50000 Add:-5000	55000
Outstanding tax	87200
Capital	1500000

Journal Entries:-

Date	Particulars	F	Debit $	Credit $
March 1 2019	Cash a/c		1500000
	To Capital A/c			1500000
	(Being Shares Sold on cash)
March 1 2019	Equipment A/c		90000
	To Cash A/c To Long Term Note			40000 50000
	(Being Equipment purchased with cash and on loan)
	Cash A/c Bills Receivable		460000 360000
	To Sales and Services			820000
	(Being sales done on cash and credit)
	Cash A/c		60000
	To Income Received in advance			60000
	(Being cash received in advance for future services)
	Advertisement A/c Supplies A/c Salaries		50000 100000 200000
	To Cash A/c			350000
	(Being cash Paid for advertisement, supplies, and salaries)
	Outstanding Utilities A/c		20000
	To Bills Payable			20000
	(Being payment of utilities is due)

Date	Particulars	F	Debit $	Credit $
	Depreciation on Equipment A/c		9000
	To Equipment A/c			9000
	Being Depreciation paid on equipment)
	Dividend A/c		20000
	To Cash			20000
	(Being dividends paid in cash)