Question

The balance sheet for Bua Enterprises as of December 31, 2020 is shown below:

Bua Enterprises, Inc. Balance Sheet As of December 31, 2020
Assets:			Liabilities:
Cash	$10,000		Accounts payable	$1,000
Accounts receivable, net of $1,000 allowance	3,000		Salaries payable	2,000
Inventory	7,000		Total current liabilities	3,000
Total current assets	20,000		Notes payable, 5%, due 2025	10,000
Equipment, net of $10,000 accumulated depreciation	20,000		Total liabilities	13,000
Total assets	$40,000		Equity:
			Common stock	10,000
			Retained earnings	17,000
			Total liabilities and equity	$40,000

In January 2021, Bua had the following events/transactions take place:

January 1: Sold inventory costing $1,000 for $3,000 to customers on account.

January 2: Purchased $5,000 of inventory on account.

January 5: Paid $1,000 to suppliers of inventory for past purchases.

January 7: Paid salaries owed to employees as of December 31.

January 10: Signed an agreement with S. Young to serve as CFO beginning February 15, 2021.

January 15: Paid salaries to employees for the first two weeks of January, $2,000.

January 17: Sold inventory costing $2,000 for $5,000 to customers on account.

January 28: Paid the electricity, internet, trash, water, and sewer bills for the month of January, $500.

January 29: Collected $3,000 from customers for past sales transactions.

January 30: Paid $6,000 to the owner of Bua’s facilities for rent for January through June 2021.

Other information:

1. As of January 31, employees who collectively earn $2,000 every 2 weeks have not been paid since January 15.
2. The Note Payable was borrowed on December 31, 2020. Interest on the note is not required to be paid until 2025 but accumulates during the term of the loan.
3. Bua estimates that $1,500 of the accounts receivable will likely not be collectible.
4. Bua’s board of directors decided to declare a dividend of $1,000 on January 31, to be paid February 15.
5. On February 10 (after month end but before the financial statements were prepared), Bua entered into a significant joint venture with Owens Corporation to manufacture accounting professor action figures for sale in the Boston metropolitan area.
6. Depreciation of $500 needs to be recorded on the equipment.

1. Post transactions to the general ledger (T-accounts). [Note: don’t forget that some accounts have beginning balances (as of December 31, 2020).]
2. Provide the closing entry needed as of January 31, 2021 and post it to the general ledger.
3. Prepare a classified balance sheet as of January 31, 2021.
4. Prepare a cash flow statement following the direct approach.

Answer 1

1. Journal Entries -

Date Credit Bua Enterprises, Inc. Journal Entries Accounts Title Debit Accounts Receivable $ 3,000 Sales Revenue (Being Sales Revenue Earned) Jan 1 $ 3,000 Jan 1 Cost of Goods Sold $ 1,000 Inventory (Being Cost of Goods incurred) $ 1,000 Jan 2 Inventory $ 5,000 Accounts Payable (Being Inventory Purchased on account) $ 5,000 Jan 5 Accounts Payable $ 1,000 Cash (Being Payment made on account) $ 1,000 Jan 7 Salaries Payable $ 2,000 Cash (Being Accrued Salaries Paid) $ 2,000 Jan 10 No Entry Jan 15 $ 2,000 Salaries Expense Cash (Being Salaries Paid) $ 2.000 Jan 17 Accounts Receivable $ 5,000 Sales Revenue (Being Sales Revenue Earned) $ 5,000 Jan 17 Cost of Goods Sold $ 2,000 Inventory (Being Cost of Goods incurred) $ 2.000 Jan 28 $ 500 Utilities Expense Cash (Being Utilities Expese Paid) $ 500 Jan 29 Cash $ 3,000 Accounts Receivable (Being amount received on account) $ 3,000 Jan 30 Prepaid Rent $ 6,000 Cash (Being rent paid in advance) $ 6,000

2. Adjusting Entries -

Date Credit Bua Enterprises, Inc. Adjusting Entries Accounts Title Debit Salaries Expenses $ 2,000 Salaries Payable (Being Salaries incurred and accrued) i $ 2,000 ii 42 Interest Expenses $ Interest Payable (Being Interest on loan accrued) $ 42 iii Bad Debts $ 1,500 Allowance for doubtful Accounts (Being Estimates made for uncollectible accounts) $ 1,500 iv $1,000 Dividend Dividend Payable (Being Dividend Declared) $ 1,000 V No Entry vi Depreciation Expense $ 500 Accumulated Depreciation - Equipment (Being Depreciation Charged on the Equipment) $ 500

3. Adjusted Trial Balance -

Credit $ 2,500 Bua Enterprises, Inc. Adjusted Trial Balance As of January 31, 2021 Accounts Title Debit Cash $ 3,500 Accounts receivable $ 9,000 Allowance for doubtful Accounts Prepaid Rent $ 6,000 Inventory $ 9,000 Equipment $ 30,000 Accumulated Depreciation Accounts payable Interest Payable Salaries payable Notes payable, 5%, due 2025 Common stock Retained earnings Dividend $ 1,000 Sales Revenue Cost of Goods Sold $ 3,000 Salaries Expense $ 2,000 Utilities Expense $ 500 Interest Expenses $ 42 Bad Debts $ 1,500 Depreciation Expense $ 500 $ 10,500 $ 5,000 $ 42 $ 2,000 $ 10,000 $ 10,000 $ 17,000 $ 8,000 Total $ 66,042 $ 65,042

4. Income Statement -

Bua Enterprises, Inc. Income Statement As of January 31, 2021 Sales Revenue Cost of Goods Sold Gross Profit $ 8,000 $ 3,000 $ 5,000 Expenses: Salaries Expense Utilities Expense Interest Expenses Bad Debts Depreciation Expense Total Expenses $ 2,000 $ 500 $ 42 $ 1,500 $ 500 $ 4,542 Net Income $ 458