Question

Assume that the statements in which these items appear are current and complete, except for the

Rockwell Wholesalers, Inc. has just completed its fourth year of business in 20X1. A set of financial statements was prepared by the principal stockholder's eldest child, a college student who is beginning the third week of an accounting course. Following is a list (in no systematic order) of the items appearing in the student's balance sheet, income statement, and the retained earnings column of the statement of stockholders' equity: Accounts receivable Note receivable Merchandise inventory Cash Paid-in capital Building Accumulated depreciation, building Land Sales Salary expense $183,100 Advertising expense 36,000 cost of goods sold 201,900 Unearned rent revenue 99,300 Insurance expense 620,000 Unexpired insurance 300,000 Accounts payable Interest expense 20,000 Telephone expense 169,200 Notes payable Note 936,800 Net income 124,300 Miscellaneous expense 164,000 Maintenance expense $ 97,300 590,000 4,800 3,500 2,300 52,500 500 20,000 2,500 58,626 3,400 4,800 Retained earnings, December 31, 20X0

following matters not taken into consideration by the student:

a. Salaries of $8,500 have been earned by employees for the last half of December 20X1.

Payment by the company will be made on the next payday, January 2, 20X2.

b. Interest at 6% per annum on the Note Receivable has accrued for 2 months and is expected to

be collected by the company when the Note is due on January 31, 20X2

c. Part of the building owned by the company was rented to a tenant on November 1, 20X1, for

6 months, payable in advance. This rent was collected in cash and is represented by the item

labeled Unearned Rent Revenue.

d. Depreciation on the building for 20X1 is $6,250.

e. Cash dividends of $60,000 were declared in December 20X1, payable in January 20X2.

f. Income tax at 40% applies to 20X1, all of which is to be paid in the early part of 20X2.

Required

Prepare the following corrected financial statements, showing appropriate support for the dollar

amounts you compute:

1. Multiple-step income statement for the year ended December 31, 20X1

2. The retained earnings column of the statement of stockholders’ equity for the year ended

December 31, 20X1

3. Classified balance sheet at December 31, 20X1

Answer 1

1)

	Income Statement
	Revenues			Workings	Amount	Amount
	Sales Revenue				$ 936,800.00
	Rent Revenue			($ 4800 x 2/6)	$      1,600.00
	Total Revenue					$ 938,400.00
Less:	Cost of Goods sold					$(590,000.00)
	Gross Margin					$ 348,400.00
	Operating Expenses
	Depreciation Expense				$     (6,250.00)
	Salary Expense			($ 124300 + $ 8500)	$(132,800.00)
	Advertising Expense				$   (97,300.00)
	Insurance Expense				$     (3,500.00)
	Telephone Expense				$   (20,000.00)
	Miscellaneous Expense				$     (3,400.00)
	Maintenance Expense				$     (4,800.00)	$(268,050.00)
	Operating Income					$    80,350.00
	Non- Operating Items
	Interest Expense				$        (500.00)
	Interest Revenue			($ 36000 x 6% x 2/12)	$          360.00	$        (140.00)
	Income before income tax					$    80,210.00
	Income Tax			($ 80210 x 40%)		$   (32,084.00)
	Net Income					$    48,126.00

2)

	Retained Earnings
	Beginning Balance		$ 164,000.00
Add:	Net Income		$   48,126.00
Less:	Dividend		$ (60,000.00)
	Ending Balance		$ 152,126.00

3)	Balance Sheet
	Assets
	Current Assets
	Cash			$   99,300.00
	Accounts Receivable			$ 183,100.00
	Inventory			$ 201,900.00
	Notes Receivable			$   36,000.00
	Interest Receivable			$         360.00
	Unexpired Insurance			$     2,300.00
	Total Current Assets				$ 522,960.00
	Non- Current Assets
	Building			$ 300,000.00
	Accumulated Dep			$ (26,250.00)	$ 273,750.00
	Land				$ 169,200.00
	Total Assets				$ 965,910.00
	Liabilities and Equity
	Liabilities
	Accounts Payable			$   52,500.00
	Unearned Rent Revenue			$     3,200.00
	Dividend Payable			$   60,000.00
	Notes Payable			$     2,500.00
	Income Tax Payable			$   32,084.00
	Salaries Payable			$     8,500.00
					$ 158,784.00
	Stockholder's Equity
	Paid-In Capital			$ 620,000.00
	Retained Earnings			$ 152,126.00
					$ 772,126.00
	Total Liabilities and Equity				$ 930,910.00
	Difference				$   35,000.00

There's a difference of $ 35000 in the balance sheet. This is because the balances provided in the question is also having a difference of the same amount. I've made a trial balance for your reference taking the balances from the given information

Particulars		Debit	Credit
Accounts Receivable		$     183,100.00
Notes Receivable		$       36,000.00
Inventory		$     201,900.00
Cash		$       99,300.00
Paid-In Capital			$     620,000.00
Building		$     300,000.00
Accumulated Dep			$       20,000.00
Land		$     169,200.00
Sales			$     936,800.00
Salary Expense		$     124,300.00
Retained Earnings			$     164,000.00
Advertising Expense		$       97,300.00
Cost of Goods sold		$     590,000.00
Unearned Rent Revenue			$         4,800.00
Insurance Expense		$         3,500.00
Unexpired Insurance		$         2,300.00
Accounts Payable			$       52,500.00
Interest Expense		$            500.00
Telephone Expense		$       20,000.00
Notes Payable			$         2,500.00
Miscellaneous Expense		$         3,400.00
Maintenance Expense		$         4,800.00
Total		$ 1,835,600.00	$ 1,800,600.00	$ 35,000.00	(Difference)