Question

The Balance Sheet of CPM Construction Company as of 31 December 2013 is given in Table P4.3. Assume that this company is using the POC method of income recognition. Further, assume that 65% of the projects with total bid price of $850,000 have been completed in 2014

a) Establish relevant accounts for posting. Divide them into categories as Assets, Liabilities, and Net Worth.

b) Close accounts as of 31 December 2014.

TABLE P4.3 Balance Sheet, CPM Construction Company (31 December, 2013) Assets Liabilities Accounts payable 75,000 85,000 Cash 110,000 Notes payable 50,000 Accounts receivable 300,000 Long-term loans 60,000 Buildings Less accumulated depreciation on the buildings (150,000) Total liabilities 195,000 240,000 Net worth Construction equipment Less accumulated depreciation on equipment (80,000) Capital stocks 250,000 20,000 Retained earnings 70,000 Other assets 515,000 Total net worth 320,000 Total assets Total net worth and liabilities 515,000

Answer 1

a.  Establish relevant accounts for posting. Divide them into categories as Assets, Liabilities, and Net Worth.

Trans.No.	Date	Name of the account	Debit/Credit	Nature of Account	Amount ($)
1.	1/2/X4	Construction Equipment	Debit	Assets	130,000
		Cash	Credit	Assets	15,000
		Notes payable	Credit	Liabilities	115,000
2.	2/4/X4	Cost of material	Debit	Net Worth	20,000
		Accounts payable	Credit	Liabilities	20,000
3.	3/4/X4	Accounts payable	Debit	Liabilities	20,000
		Cash	Credit	Assets	20,000
4.	3/8/X4	Accounts receivable	Debit	Assets	320,000
		Revenue from operations	Credit	Networth	320,000
5.	4/7/X4	Rental Expenses	Debit	Net Worth	60,000
		Accounts payable	Credit	Liabilities	60,000
6.	5/8/X4	Cash	Debit	Assets	290,000
		Accounts receivable	Credit	Assets	290,000
7.	6/7/X4	Accounts payable	Debit	Liabilities	60,000
		Cash	Credit	Assets	60,000
8.	7/3/X4	Labor Expense	Debit	Net Worth	70,000
		Cash	Credit	Assets	70,000
9.	8/16/X4	Cost of material	Debit	Net Worth	45,000
		Accounts payable	Credit	Liabilities	45,000
10.	9/16/X4	Accounts payable	Debit	Liabilities	45,000
		Cash	Credit	Assets	45,000
11.	10/1/X4	Accounts receivable	Debit	Assets	280,000
		Revenue from operations	Credit	Networth	280,000
12.	10/20/X4	Cash	Debit	Assets	20,000
		Accounts receivable	Credit	Assets	20,000
13.	11/15/X4	Cash	Debit	Assets	265,000
		Accounts receivable	Credit	Assets	265,000
14.	12/15/X4	Accounts payable	Debit	Liabilities	40,000
		Cash	Credit	Assets	40,000
15.	12/25/X4	Salary Expenses	Debit	Net Worth	145,000
		Cash	Credit	Assets	145,000
16.	12/30/X4	Dividends paid	Debit	Net Worth	20,000
		Cash	Credit	Assets	20,000
17.	12/30/X4	Accumulated Depreciation	Debit	Assets	30,000
		Buildings	Credit	Assets	30,000
18.	12/30/X4	Accumulated Depreciation	Debit	Assets	65,000
		Construction Equipment	Credit	Assets	65,000

Calculation of retained earnings closing balance:

Particulars		Amount ($)
Opening Balance		70,000
Adjustments:
Revenue from Operations (320,000+280,000)	600,000
Cost of material Supplied (20,000+45,000)	(65,000)
Labor Expenses	(70,000)
Salary Expenses	(145,000)
Rental Expense	(60,000)
Depreciation on Buildings	(30,000)
Depreciation on Construction equipment	(65,000)
Net Income		165,000
Total		235,000
Less: Dividend paid		20,000
Retained Earnings Closing balance		215,000

b. Close accounts as of 31st December 2014

Balance Sheet, CPM Construction Company (31St December, 2014)

Assets	Amount ($)	Liabilities	Amount ($)
Cash	275,000	Accounts payable	45,000
Accounts Receivable	95,000	Notes payable	165,000
Buildings	300,000	Long term Loans	60,000
Less: Accumulated Depreciation	180,000)	Total Liabilities	270,000
Consruction Equipment	370,000	Net Worth
Less: Accumulated Depreciation	145,000	Capital Stock	250,000
Other Assets	20,000	Retained Earnings	215,000
		Total Net Worth	465,000
Total Assets	735,000	Total Liabilities and net Worth	735,000