Question

Year 1 Transactions for Adomain
Transaction #	Date	Event
1	January 1	Purchased a patent for $32,000 in cash
2	March 15	Paid $18,500 in cash for long-term assets
3	April 1	Prepaid $36,000 for rent for the next 12 months and recorded the transaction as an asset.
4	April 1	Issued 1000 common shares to investors for $60,000
5	April 1	Sold inventory on account for $120,000 (a). The cost of the inventory was $16,000 (b). Also, paid a sales commission on this sale of $10,000 (c).
6	April 5	Paid $13,400 in cash for costs related to research and development of new products.
7	May 1	Received $24,000 in cash in advance for services. The services will be provided over the course of 6 months beginning on Dec 1 of this year.
8	May 1	Received the cash to settle $65,000 of the receivables recorded on April 1.
9	June 30	Paid last year's income tax liability.
10	July 31	Purchased inventory for $15,000. Paid $3,000 in cash and recorded an Accounts Payable for the remaining balance.
11	July 31	Received $20,000 in cash relating to the Accounts Receivable in transaction 5.
12a	Sept 30	Purchased supplies for $7,000 in cash. The accountant accidentally recorded the supplies in the Accounts Receivable account.
12b	October 1	The accountant recorded an adjustment to correct the entry made in 12a (so that the accounts will reflect what should have been recorded ).
13	October 1	Purchased marketable securities for $6,000 in cash.
14	October 1	Borrowed $20,000 from a local bank and signed a 3-year note payable promising to pay 10% interest per year (interest is due and recorded on Dec 31).
15	Dec 1	Employee salaries earned amounted to $34,000. The company paid $4,000 on Dec 1 and the remainder will be paid on Jan 1, Year 2.
16	Dec 31	Income Tax for Year 1 is $5,500. $3,500 is paid this year and the remainder will be paid on June 30 of Year 2.
17	Dec 31	Record the appropriate adjusting entry related to transaction 3.
18	Dec 31	Record the appropriate adjusting entry related to transaction 7.
19	Dec 31	$2000 of supplies are still on hand on Dec 31. Record the appropriate adjusting entry to reflect the supplies used during the year. (Refer to transaction 12.)
20	Dec 31	Record the appropriate adjusting entry related to the note payable described in transaction 14 (assuming interest will be paid in Year 2).

Part B: The second part of this assignment is very similar to Part A. You may reference the solution to the transaction analysis spreadsheet from Part A to help you in Part B. Your assignment in Part B is to first prepare journal entries in the General Journal tab of this spreadsheet for the same transactions that you analyzed in Part A. After preparing your journal entries, post your entries to the T-accounts in the General Ledger (T-Accounts) tab. Start by inserting the beginning balances in the T-accounts from the Year 0 Balance Sheet and then post your journal entries from the General Journal. Next, calculate the ending balance in each account. Then, prepare Year 1 financial statements based on the ending balances in each T-account. Finally, go back to the General Journal and prepare closing entries. Post your closing entries to the General Ledger T-accounts. Finally, prepare a Post-Closing Trial Balance.

Answer 1

Income Statement
Revenues
Sales Revenue	$           120,000
Service Revenue	$                4,000
Expenses
Cost of Goods Sold	$             16,000
Sales Commission	$             10,000
Research & Development Costs	$             13,400
Salaries Expense	$             34,000
Supplies Expense	$                5,000
Rent Expense	$             27,000
Income from Operations	$             18,600
Interest Expense	$                   500
Income before Taxes	$             18,100
Income Tax	$                5,500
Net Income	$             12,600

Assets
Cash	$           131,300
Marketable Securities	$             12,700
Accounts Receiavble	$             55,000
Inventory	$             24,000
Prepaid Asset	$                9,000
Supplies	$                2,000
PP&E (net)	$             34,700
Intangible Assets	$             42,500
Other long term Assets	$             33,500
Total Assets	$           344,700
Liabilities & Equity
Accounts Payable	$             57,000
Notes Payable	$             48,500
Unearned Revenue	$             70,000
Income Tax Payable	$                2,000
Salaries Payable	$             30,000
Interest Payable	$                   500
Common Stock	$           105,000
Retained Earnings	$             31,700
Total Liabilities & Equity	$           344,700

Closing Entries

S.No.	Date	Account Titles	Debit	Credit
1	Dec-31	Sales Revenue	$       120,000
		Service Revenue	$            4,000
		Income Summary		$           124,000
		(To close revenue accounts)
2	Dec-31	Income Summary	$       111,400
		Cost of Goods Sold		$             16,000
		Sales Commission		$             10,000
		Research & Development Costs		$             13,400
		Salaries Expense		$             34,000
		Supplies Expense		$                5,000
		Rent Expense		$             27,000
		Interest Expense		$                   500
		Income Tax		$                5,500
		(To close expense accounts)
3	Dec-31	Income Summary	$          12,600
		Retained Earnings		$             12,600
		(To close income summary account)

Post Closing Trial

Account Titles	Debit	Credit
Cash	$       131,300
Marketable Securities	$          12,700
Accounts Receivable	$          55,000
Inventory	$          24,000
Prepaid Asset	$            9,000
Supplies	$            2,000
PP&E (net)	$          34,700
Intangible Assets	$          42,500
Other long term Assets	$          33,500
Accounts Payable		$             57,000
Notes Payable		$             48,500
Unearned Revenue		$             70,000
Income Tax Payable		$                2,000
Salaries Payable		$             30,000
Interest Payable		$                   500
Common Stock		$           105,000
Retained Earnings		$             31,700
Total	$       344,700	$           344,700