Question

Company “Drive Safe” is a seat belt manufacturer which was established on Jan 01 2014. As of Dec 31 2014, it had the following items on its balance sheet: Cash (?), Accounts Receivable $4,800, Inventory $6,600, Land $16,000, Accounts Payable $2,700, Other Long Term Liabilities $7,000, Common Stock $6,000, Retained Earnings $20,700. During 2015 the company had the following transactions: 1. Feb 1 - Purchased 5 new test dummies for $1,500 each. The dummies have a total salvage value of $2,300. The dummies have a useful life of 3 years and the company expects they be used in 200 experiments. During 2015 the company used the dummies 40 times. The company uses the "activity / units of production" method in order to depreciate the machine. 2. Mar 21 - Pays $1,400 out of its Account Payables. 3. Mar 30 - Collected the beginning balance of accounts receivable. 4. Apr 1 - Took a $64,000 loan from the bank that is due back within 4 years. The company paid the bank an amount of $1,000 interest on the end of the year for the period from April 30 2015. 5. May 15 - The Company had a team building day in Jerusalem, the day costs $2,100. 6. Aug 22 - The Company started negotiations with the manufacturer of luxury cars. The company asking price is a $250 per seat belt. The manufacturer of the luxury cars is expected to purchase 2,000 units each calendar year for the next 5 years. 7. Oct 13 - Receives $1,200 from a customer for seat belts worth $400 that will be delivered to the customer on Jan 13 of the next year. 8. Nov 1 - The Company decided to launch a marketing campaign that will last 3 months, the campaign costs $15,000 which were paid immediately. 9. Dec 2 - Sold $5,300 worth of inventory for $22,000, half on credit. 10. Dec 29 - Declares a dividend in the amount of $7,000 which was paid in cash on that same day. 11. Dec 31 - Agrees with the tax authorities on a tax payment of $550 for 2015. The payment will be made within 90 days. Unless mentioned otherwise, assume the transaction is in cash. Assume the company is using the perpetual inventory system and no other transactions happened during the year. Required: Journalize the transactions (including adjusting journal entries for year-end), and prepare the Balance Sheet and Income Statement for year ended 31st December 2015.

No handwritten work please

Answer 1

Opening Cash balance = Opening balance total of all liabilities minus opening balance total of AR, Inventory and Land. = ($2700 + $ 7000 + $6000 + $ 20700) minus ($ 4800 + $ 6600 + $ 16000) = $ 9,000

Please find attached Adjusting journal entries, Adjusted Trial Balance, Income Statement and Balance Sheet for year ending Dec 31, 2015:

Ref А Date Dr/Cr 01-Feb Dr 21-Mar Dr C 30-Mar Dr Account Title Debit Credit Explanation Property, Plant and Equipment $ 7,500.00 5 units @ $ 1500 EA Capital Account $ 7,500.00 (To record purchase of 5 new test dummies) Accounts Payable $ 1,400.00 Cash $ 1,400.00 (To record payment of AP) Cash $ 4,800.00 Accounts Receivable $ 4,800.00 (To record collection from AR) Cash $ 64,000.00 Long Term Note Payable $ 64,000.00 (To record 4 yr loan availed from bank) Entertainment Expense $ 2,100.00 Cash $ 2,100.00 (To record team building day cost) No Entry applicable; as price is negotiated and agreed. Still neither cash transfer occurred nor service rendered D 01-Apr Dr 15-May Dr 22-Aug 13-OctDr $ 1,200.00 $ 1,200.00 Cash Unearned Revenue (To record cash received from customer in advance) NO COGS Entry applicable as inventory transfer not yet initiated H 13-Oct Dr 01-Nov Dr $ 15,000.00 $ 15,000.00 02-Dec Dr $ 22,000.00 $ 11,000.00 $ 11,000.00 Cr $ 5,300.00 02-Dec Dr Cr $ 5,300.00 29-Dec Dr $ 7,000.00 $ 7,000.00 M 29-Dec Dr $ 7,000.00 Prepaid Expense Cash (To record cash paid for marketing campaign) Sales Revenue Cash Accounts Receivable (To record sales made partially on credit) Cost of goods sold Inventory (To record cost of goods sold related to sales) Dividend Expense Dividend Payable (To record dividend payable) Dividend Payable Cash (To record payment of dividend) Income Tax Expense Taxes Payable (To record tax due to pay for year 2015) Depreciation Expense Accumulated Depreciation - Property,Plant and Equipment (To record depreciation expense of test dummies) Interest Expense Cash (To record payment of Interest to bank) Sales promotional expense Prepaid Expense (To record marketing expense meant for Nov & Dec) $ 7,000.00 31-Dec Dr $ 550.00 $ 550.00 0 31-Dec Dr $ 1,500.00 ($ 7500/ 200 times expected) * 40 times used Cr $ 1,500.00 р $ 1,000.00 31-Dec Dr Cr $ 1,000.00 31-Dec Dr $ 10,000.00 $ 15000 / 3 months * 2 months $ 10,000.00

Unadjusted TB Adjusting Entry Journal Entry Ref Adjusted TB Account Dr. Tcr. Dr. Cr. Dr. Cr. Bank account 9,000.00 81,000.00 56,000.00 11,000.00 Accounts Receivable Inventory 4,800.00 6,600.00 Debit - C,D,G, 34,000.00 Credit - A,B,E,I,M,P Debit:) 4,800.00 Credit: C 5,300.00 K Debit: 10,000.00 Credit: Q 11,000.00 1,300.00 15,000.00 16,000.00 5,000.00 16,000.00 7,500.00 7,500.00 TA 1,500.000 Prepaid Expense Land Property, Plant and Equipment Accumulated Depreciation - Property, Plant and Equipment Accounts Payable Unearned Revenue Taxes Payable Long Term Note Payable Other Long Term Liabilities 2,700.00 1,400.00 1,200.00 550.00 N 64,000.00 D 1,500.00 1,300.00 1,200.00 550.00 64,000.00 7,000.00 7,000.00 Debit: M 7,000.00 Credit: 7,000.00 6,000.00 20,700.00 6,000.00 20,700.00 22,000.00 22,000.00 Dividend Payable Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Entertainment Expense Sales Promotional Expense Depreciation Expense Interest Expense Dividend Expense Income Tax Expense 5,300.00 2,100.00 10,000.00 1,500.00 1,000.00 7,000.00 550.00 5,300.00 2,100.00 10,000.00 1,500.00 1,000.00 7,000.00 550.00 36,400.00 36,400.00 1,50,350.00 1,50,350.00 1,24,250.00 1,24,250.00

Income Statement Ref Amount Description Sales Total Sales Amount 22,000.00 22,000.00 5,300.00 5,300.00 16,700.00 Less: Cost of Goods Sold (COGS) Total COGS Gross Profit (total sales minus COGS) C=A-B Less: Operating Expense Entertainment Expense Sales Promotional Expense Depreciation Expense Total Operating Expense Operating Profit (Gross profit minus Operating Expenses) E=C-D Add: Non-operating Income 2,100.00 10,000.00 1,500.00 13,600.00 3,100.00 3,100.00 Less: Non-operating Expense Interest Expense Net Income before tax Less: Income Taxes Net Income after tax G H= E+F-G 1,000.00 2,100.00 550.00 1,550.00 H-1

Classifed Balance sheet Assets Amount ($) Amount ($) Current Assets Bank account Accounts Receivable Inventory Prepaid Expense 56,000.00 11,000.00 1,300.00 5,000.00 Liabilities & Equity Current Liabilities Accounts Payable Unearned Revenue Taxes Payable 1,300.00 1,200.00 550.00 Investments 64,000.00 7,000.00 Fixed Assets Land Property, Plant and Equipment Accumulated Depreciation - Property, Plant and Equipment Long Term Liabilities Long Term Note Payable Other Long Term Liabilities 16,000.00 7,500.00 Equity: (1,500.00) Common Stock Retained Earnings 6,000.00 15,250.00 Intangible & Other Assets Total Assets 95,300.00 Total Liabilities & Equity 95,300.00 Retained Earnings Schedule Description Opening Balance Add: Current Year Profit (from Income Statement) Less: Dividend Closing Balance Amount ($) 20,700.00 1,550.00 7,000.00 15,250.00