Question

The unadjusted trial balance of Mesa Inc., at the company's year end of December 31, follows: MESA INC. Trial Balance December 31, 2018 2. There was $750 of supplies on hand on December 31. 3. Depreciation expense for the year is $6,000 for the buildings and $4,500 for the equipment. 4. Salaries of $750 are accrued and unpaid at December 31. 5. Accrued interest expense at December 31 is $735. 6. Unearned revenue of $975 is still unearned at December 31. On the sales revenue that was earned, the cost of goods sold was $2,000. 7. Of the bank loan payable, $9,800 is payable next year. 8. Income tax of $500 is due and unpaid. 9. A physical count of inventory indicates $23,800 on hand at December 31. 10. Common shares of $3,000 were issued during the year. Instructions (a) Record the required adjusting entries, assuming the company adjusts its accounts annually. (b) Set up T accounts, enter the balances from the unadjusted trial balance, and post the adjusting entries prepared in part (a). (c) Prepare an adjusted trial balance at December 31. (d) Prepare a multiple-step income statement, statement of changes in equity, and statement of financial position for the year. Calculate profitability ratios and comment (LO 5) Debit Credit Cash $ 17,000 Accounts receivable 31,700 Inventory 28,750 Supplies 2,940 Prepaid insurance 3,000 Land 30,000 Buildings 150,000 Accumulated depreciation-buildings $ 24,000 Equipment 45,000 Accumulated depreciation-equipment 18.000 Accounts payable 33,735 Unearned revenue 4,000 Bank loan payable 147,100 Common shares 13,000 Retained earnings 31,425 Dividends declared 2,000 Sales 265,770 Sales returns and allowances 2,500 Sales discounts 3,275 Cost of goods sold 171,225 Salaries expense 30,950 Utilities expense 5,100 Interest expense 8,090 Income tax expense 5,500 $537,030 $537,030 Additional information and adjustment data: 1. The 12-month insurance policy was purchased and was effective February 1, 2018.

Answer 1

MESA Inc. Adjusting Enteries Date Particulars 31.12.2018 Insurance Expense a/c Dr. To Prepaid Insurance (Insurance expensed) 3000 x 11/12 Debit in $ Credit in $ 2750 2750 2190 31.12.2018 Supplies Expense a/c Dr. To Supplies (Supplies expensed) 2940 - 750 2190 Dr. 6000 31.12.2018 Depreciation Expense a/c To Accum. Depre - Build (To record depreciation) 6000 Dr. 4500 Depreciation Expense a/c To Accum. Depre - Equip. (To record depreciation) 4500 Dr. 750 31.12.2018 Salary expense a/c To Salary Payable (Salary accrued) 750 Dr. 735 31.12.2018 Interest Expense a/c To Interest Payable (Interest accrued) 735 Dr. 3025 31.12.2018 Unearned Revenue a/c To Sales (Sales earned) 4000 - 975 3025 Dr. 2000 Cost of goods sold a/c To Inventory (To record cost of goods sold) 2000 31.12.2018 No Journal entry Dr. 500 31.12.2018 Income Tax Expense a/c To Income tax Payable (Income Tax accrued) 500 31.12.2018 Cost of goods sold a/c Dr. To Inventory (Loss of Inventory) 28750 - 23800 4950

Debit in $ Credit in $ 17000 31700 21800 750 250 30000 150000 30000 45000 22500 33735 975 750 735 Adjusted Trial Balance For the period ending 31.12.2018 Particulars Cash Accounts Receivable Inventory Supplies Prepaid Insurance Land Building Accum. Depre - Build Equipment Accum. Depre - Equip. Accounts Payable Unearned Revenue Salary Payable Interest Payable Income tax Payable Bank Loan Payable Common Shares Retained Earnings Dividends declared Sales Sales Returns and Allowances Sales Discounts Cost of goods sold Salaries Expense Utilities Expense Supplies Expense Depreciation Expense Insurance Expense Interest Expense Income Tax Expense Totals 500 147100 13000 31425 2000 268795 2500 3275 178175 31700 5100 2190 10500 2750 8825 6000 549515 549515

Statement of Income For the period ending 31.12.2018 Sales Sales Returns and Allowances Sales Discounts Net Sales Cost of goods sold Gross Profit Salaries Expense Utilities Expense Supplies Expense Depreciation Expense Insurance Expense 268795 -2500 -3275 263020 -178175 84845 31700 5100 2190 10500 2750 52240 32605 Non Operating Items: Interest Expense -8825 23780 -6000 17780 Income Tax Expense Net Income Statement of Changes in Stockholders Equity For the period ending 31.12.2018 Common Retained Stock Earnings Beginning Balance 10000 31425 Add:Additions 3000 Net Income 17780 Less:Dividends -2000 13000 47205 Total 41425 3000 17780 -2000 60205

Balance sheet As at 31.12.2018 Assets Amounts in $ Amounts in $ Liabilities Amounts in S Amounts in $ Current Assets Current Liabilities Cash 17000 Accounts Payable 33735 Accounts Receivable 31700 Unearned Revenue 975 Inventory 21800 Salary Payable 750 Supplies 750 Interest Payable 735 Prepaid Insurance 250 71500 Income tax Payable 500 Bank Loan Payable 9800 46495 Non Current Assets Land 30000 Non Current Liabilities Building 150000 Bank Loan Payable 137300 Accum. Depre-Build' -30000 120000 Equipment 45000 Shareholders Equity Accum. Depre - Equip -22500 22500 Common Shares 13000 Retained Earnings 47205 60205 Total Assets 244000 Total Liabilities & Equity 244000 Gross Margin Ratio = Gross Profit/ Net Sales = 84845 / 263020 = 32.26% Profit Margin = Net Income / Net Sales = 17780 / 268795 = 6.61% Return on assets = 17780 / 244000 = 7.29% Return on Equity = 17780 / 60205 = 29.53%