Question

December 31, 2010 Acct No. Account Title Debit Credit 29, 210 100 116, 000 43,000 2,500 89,000 7,500 394, 000 60,000 35,000 16,000 4,500 500 4,000 5,000 40,000 1001 Cash 1002 Cash - Payroll Account 1003 Cash - Money Market 1005 Receivables 1006 Allowance for doubtful accounts 1010 Merchandise inventories Prepaid expenses and other current 1015 assets 1110 Property and equipment 1111 Accumulated depreciation 2001 Accounts payable 2010 Accrued payroll and employee benefits 2012 Payroll taxes payable 2015 Interest payable 2017 Current portion of long term debt 2020 Income taxes payable 2210 Long term debt 2220 Other debt 3101 Preferred stock 3110 Common stock 3111 Additional paid-in capital 3120 Retained earnings 5001 Merchandise sales 5003 Services sales 6001 Cost of Merchandise Sales 6003 Cost of services sales 7001 Salares & Wages 7003 Payroll tax expense 7005 Employee benefits 7010 Advertising 7020 Rent 7023 Utilities 7025 Depreciation 7030 Bad debt expense 7040 Interest Expense 7050 Miscellaneous expense 7900 Income tax expense 8001 Dividends 500 145,000 230,000 820, 000 182, 000 475.000 83,000 125,000 8, 400 5, 300 40,000 34, 000 4,500 30,000 5,000 1,500 2,000 38, 490 14,000

Answer 1

U $1,002,000 Cash Cash - Payroll Account Cash - Money Market Receivables Allowance for Doubtful Accounts Merchandise Inventories Prepaid Insurance & Other Current Assets Property and Equipment Accumulated Depreciation Total Assets $29,210 $100 $116,000 $43,000 $2,500 $40,500 $89,000 $7,500 $394,000 $60,000 $334,000 $616,310 $558,000 $444,000 Sunny's Companions, Inc. Income Statement Merchandise Sales $820,000 Service Sales $182,000 Total Sales Cost of Merchandise Sales $475,000 Cost of Service Sales $83,000 Total Cost of Sales Gross Profit Expenses: Salaries & Wages $125,000 Payroll Tax Expense $8,400 Employee Benefits $5,300 Advertising $40,000 Rent $34,000 Utilities $4,500 Depreciation $30,000 Bad Debt Expense $5,000 Interest Expense $1,500 Miscellaneous Expense $2,000 Income Before Income Taxes Income Tax Expense Net Income $230,000 [Ref: Income Statement] Retained Earnings, Beg. Balance Net Income $149,810 Dividends paid $14,000 Net increase in retained earnings Retained Earnings, End. Balance $135,810 $365,810 $255,700 $188,300 $38,490 $149,810

$38,490 2) D. Income Tax Expense Income Tax Payable --> It is an expense and so it is debited $38,490 --> It is a liability and so it is credited 3) FALSE --> Because there are only two sources of revenues such as Merchandise sales and Service sales. 4) FALSE --> Sunny's Companion is a merchandise company because it reported cost of merchandise sales.