Question

Problem 2 + Balance Sheet You have decided to start a business selling widgets. You form a corporation, Widgets, Inc. You paid $10 per share for 1,000 shares of stock on January 1, 2020. Next the company borrowed $30,000 from your Aunt Suzie. For the $30,000 borrowed from your aunt, the company agrees tr pay back that amount on December 31, 2026 and to pay interest at 10% at the end of each year. On January 1, 2020, the company bought 6 widgets for $3,000 each. During the year, it sold 4 widgets for $8,000 each. The company also paid a security deposit of $1,000, advertising expense of $2,000, and 12 months of rent, $12,000. Widgets, Inc. bought a delivery van on December 31st that cost $20,000, putting $5,000 down on the van and agreeing to pay the balance next year. On December 31 the company paid the first year's interest to Aunt Suzie of $3,000. the tax rate is 30% of income before taxes and the taxes will be paid in 2021. Prepare T accounts, an income statement, statement of owners' equity and a balance sheet.

Answer 1

Working notes as follows:

Prepare the journal entry to simply the transaction:

Account Titles and Explanation Date Debit Credit Jan. 01, 2020 Cash $10,000 S10,000 Common stock (1,000 shares x $10) Jan. 01, 2020 Cash $30,000 Loan from Aunt suzie $30,000 Jan. 01, 2020 Inventory-Widgets (6 x $3,000) $18,000 Cash S18,000 Jan. 01, 2020 Cash S32,000 Sale revenue (4 x $8,000) $32,000 Jan. 01, 2020 COGS S12,000 Inventory-Widgets (4 x $3,000) $12,000 Jan. 01, 2020 Security deposit Advertising expense Rent expense $1,000 $2,000 $12,000 Cash $15,000

Dec. 31, 2020 Delivery Van $20,000 Cash Accounts payable $5,000 $15,000 Dec. 31, 2020 Interest expense $3,000 Cash $3,000 Dec. 31, 2020 Income tax expense $900 Income tax payable $900

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Prepare T-Accounts as follows:

Cash
Jan. 01, 2020	$10,000	Jan. 01, 2020	$18,000
	$30,000		$15,000
	$32,000	Dec. 31, 2020	$5,000
		Dec. 31, 2020	$3,000
End. Balance	$31,000
Loan from Aunt Suzie
		Jan. 01, 2020	$30,000
		End. Balance	$30,000
Inventory-Widgets
Jan. 01, 2020	$18,000	Jan. 01, 2020	$12,000
End. Balance	$6,000
Sales Revenue
		Jan. 01, 2020	$32,000
		End. Balance	$32,000
COGS
Jan. 01, 2020	$12,000
End. Balance	$12,000
Security Deposit
Jan. 01, 2020	$1,000
End. Balance	$1,000
Advertising Expense
Jan. 01, 2020	$2,000
End. Balance	$2,000
Rent Expense
Jan. 01, 2020	$12,000
End. Balance	$12,000
Delivery Van
Dec. 31, 2020	$20,000
End. Balance	$20,000
Accounts payable
		Dec.. 31, 2020	$15,000
		End. Balance	$15,000
Interest Expense
Dec. 31, 2020	$3,000
End. Balance	$3,000
Income tax payable
		Dec.. 31, 2020	$900
		End. Balance	$900
Income tax expense
Dec. 31, 2020	$900
End. Balance	$900

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Prepare Income statement as follows:

Widgets, Inc.
Income Statement
Sales revenue		$32,000
Less: COGS		($12,000)
Gross profit		$20,000
Less: Operating expense
Rent Expense	($12,000)
Advertising Expense	($2,000)	($14,000)
Operating Income before interest and tax		$6,000
Less Interest expense		($3,000)
Net Income before tax		$3,000
Tax on income ($3000 × 30%)		($900)
Net Income		$2,100

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Prepare Statement of owner's equity as follows:

Widgets, Inc.
Statement of Owner's equity
Beginning balance	-
Add: Net Income	$2,100
Ending balance	$2,100

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Prepare Balance sheet as follows:

Widgets, Inc.
Balance Sheet
Assets:
Cash	$31,000
Inventory	$6,000
Security deposit	$1,000
Total Current Assets		$38,000
Delivery van		$20,000
Total Assets		$58,000
Liabilities:
Accounts payable	$15,000
Income tax payable	$900
Total Current liabilities		$15,900
Loan from Aunt Suzie		$30,000
Stockholders' equity
Common stock		$10,000
Owner's equity		$2,100
Total Liabilities & Stockholder's Equity		$58,000