Question

Alison and Chuck Renny began operations of their furniture repair shop (Lazy Sofa Furniture, Inc.) on January 1, 2017. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (amounts are rounded to thousands of dollars to simplify).

Account Titles	Debit				Credit
Cash	$	4
Accounts Receivable		5
Supplies		1
Equipment		7
Accumulated Depreciation					$	0
Software		11
Accumulated Amortization						5
Accounts Payable						8
Notes Payable (long-term)						0
Salaries and Wages Payable						0
Interest Payable						0
Income Tax Payable						0
Deferred Revenue						0
Common Stock						10
Retained Earnings						5
Service Revenue						0
Supplies Expense		0
Depreciation Expense		0
Salaries and Wages Expense		0
Amortization Expense		0
Interest Expense		0
Income Tax Expense		0
Totals	$	28			$	28

Transactions during 2018 (summarized in thousands of dollars) follow:

1. Borrowed $14 cash on July 1, 2018, signing a six-month note payable.
2. Purchased equipment for $16 cash on July 2.
3. Issued additional shares of common stock on July 3 for $6.
4. Purchased additional equipment on August 4, $2 cash.
5. Purchased, on account, supplies on September 5 for future use, $8.
6. On December 6, recorded revenues in the amount of $56, including $7 on credit and $49 received in cash.
7. Paid salaries and wages expenses on December 7, $26.
8. Collected accounts receivable on December 8, $9.
9. Paid accounts payable on December 9, $12.
10. Received a $5 deposit on December 10 for work to start January 15, 2019.

Data for adjusting journal entries on December 31:

11. Amortization for 2018, $5.
12. Supplies of $6 were counted on December 31, 2018.
13. Depreciation for 2018, $3.
14. Accrued interest on notes payable of $1.
15. Wages earned but not yet paid, $4.
16. Income tax for 2018 was $6 and will be paid in 2019.

1. 6-a. Prepare an income statement.

2. 6-b. Prepare statement of retained earnings.

3. 6-c. Prepare a balance sheet.

(For all requirements, enter your answers in thousands of dollars.)

4. Prepare the closing journal entry. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in thousands of dollars.)

5. Post the closing entry from requirement 7 and prepare a post-closing trial balance. (Enter your answers in thousands of dollars.)

1. 9-a. How much net income did Lazy Sofa Furniture, Inc., generate during 2018? (Enter your answer in thousands of dollars.)

1. 9-b. Is the company financed primarily by liabilities or stockholders’ equity?

• Liabilities

• Stockholders' Equity

Answer 1

Lazy Sofa Furniture, Inc. (Amount in '000) Journal Enteries Date Particulars 1.3.2017 Cash a/c Dr. To Note Payable (Being Note Payable issued) Debit in $Credit in $ 14 14 2.3.2017 16 Equipment a/c Dr, To Cash (Being Equip. purchased in cash) 16 49 7 8.12.2017 Cash a/c Dr. Accounts Receivable a/c Dr. To service revenue (Being Revenue earned in cash and credit) 56 3.4.2017 6 Cash a/c Dr. To Common Stock (Being Common Stock issued for cash) 6 4.8.2017 2 Equipment a/c Dr, To Cash (Being Equip. purchased in cash) 2 26 9.12.2017 Salaries and wages expense a/c Dr. To Cash (Being salaries and wages paid in cash) 26 9 10.12.2017 Cash a/c Dr. To Accounts Receivable (Being Cash received from debtors) 9 4.7.2017 5 Cash a/c Dr. To Deferred Revenue (Advance from client) 5 12 6.11.2017 Accounts Payable a/c Dr. To Cash (Being Accounts Payable paid in cash) 12 8 5.10.2017 Supplies a/c Dr. To Accounts Payable (Being Supplies purchased on account) 8

Adjusting Enteries Date Particulars Debit in $Credit in $ 31.12.2017 Amortization on software a/c Dr. 5 To accumulated amortization (Being amortization of software charged to Software) 5 3 31.12.2017 Supplies Expense a/c Dr. To Supplies (Being Supplies expense charged to Supplies) 3 3 31.12.2017 Depreciation a/c Dr. To accumulated depreciation (Being Depreciation on equipment charged to Equip.) 3 Dr. 1 31.12.2017 Interest Expense a/c To Interest Payable (Being Interest accrued on Note Payable) 1 4 31.12.2017 Salaries and wages expense a/c Dr. To Salaries and wages payable (Being Salary Expense accrued) 4 Dr. 31.12.2017 Income tax expense a/c To Income Tax Payable (Being Income tax accrued) 6 3 Closing Enteries Date Particulars Debit in $Credit in $ 31.12.2013 Income Summary a/c Dr. 48 To Salaries and wages expense 30 To Depreciation Expense To Amortization Expense To Income tax expense To Interest Expense To Supplies Expense (Being expense accounts closed 5 6 1 3 56 31.12.2013 Service Revenue a/c Dr. To Income Summary Being Revenue accounts closed 56 8 31.12.2013 Income Summary a/c Dr. To Retained Earnings (Being Income summary closed) 8

Adjusted Trial Balance For the period ending 31.12.2017 Unadjusted Adjustment Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 31 31 31 3 3 3 3 9 3 6 6 0 0 25 25 25 3 3 3 11 11 11 5 5 10 10 4 4 4 14 14 14 4 4 Particulars Cash Accounts Receivable Supplies Land Equipment Accumulated depreciation Software Accumulated Amortization Accounts Payable Notes Payable (short term) Salaries and wages payable Interest Payable Income Tax Payable Deferred Revenue Common Stock Retained Earning Service revenue Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Totals 4 1 1 1 6 6 6 5 5 un 16 16 16 5 5 13 56 56 26 4 30 3 3 5 5 6 6 1 1 3 3 105 105 22 22 124 124 76 76 0 8 Net Income Net profit margin = Net Income / Sales = 8/56 = 14.29% Debt to Equity = Total Liabilities/Total Equity = 34/29 = 117% Since debt equity ratio is 117% the company is primarily financed by Debt Current Ratio = Current Assets / Current Liabilities = 40/34 = 1.18

56 Amounts in $ Amounts in $ 30 4 Statement of Income For the period ending 31.12.2017 Service revenue Less: Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Net Income 3 14 5 4 6 1 Balance sheet As at 31.12.2017 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash 31 Accounts Payable Accounts Receivable 3 Notes Payable (short term) Supplies 6 40 Salaries and wages payable Interest Payable Income Tax Payable Non Current Assets Deferred Revenue land 0 Equipment 25 Shareholders equity Accumulated deprecia -3 22 Common Stock Software 11 Retained Earning Accumulated Amortiza -10 1 Total Assets 63 Total Liabilities & equity 1 6 3 48 5 34 8 16 13 29 Statement of Retained Earnings For the period ending 31.12.2017 1.1.2017 Net Income 5 8 63 13