Question

! Required information C4-6 Recording/Posting Transactions and Adjustments, and Preparing Trial Balances and Financial Statements-Requires Calculating Depreciation and Interest (Chapters 2, 3, and 4) [LO 2-3, LO 3-3, LO 4- 2, LO 4-4) Fast Deliveries, Inc. (FDI), was organized in December last year and had limited activity last year. The resulting balance sheet at the beginning of the current year is provided below: FAST DELIVERIES, INC. Balance Sheet at January Liabilities: $11,000 Accounts Payable Accounts Receivable 820 Stockholders' Equity: Supplies 460 Common Stock 11,150 Retained Earnings Total Assets $12,280 Total Liabilities and Stockholders' Equity $12,280 Assets! Cash $ 400 730 Two employees have been hired, at a monthly salary of $2,900 each. The following transactions occurred during January of the current year. Ch. 2 2 2 January 1 2 3 NNNN 4 5 6 $3,600 is paid for 12 months' insurance starting January 1. (Record as an asset.) $3,600 is paid for 12 months of rent beginning January 1. (Record as an asset.) FDI borrows $33,600 cash from First State Bank at 68 annual interest; this note is payable in two years. A delivery van is purchased using cash. Including tax, the total cost was $24,000. Stockholders contribute $8,000 of additional cash to FDI for its common stock. Additional supplies conting $1,500 are purchased on account and received. $800 of accounts receivable arising from last year's December sales are collected. $500 of accounts payable from December of last year are paid. Performed services for customers on account. Sent invoices totaling $11,200. $7,100 of services are performed for customers who paid immediately in cash. $2,900 of salaries are paid for the first half of the month. TDI receives $3,600 cash from a customer for an advance order for services to be provided later in January and in February. $4,100 is collected from customers on account (see January 9 transaction). 2 3 3 8 9 10 16 20 3 25

Answer 1

Part - a) Income statement

$ 20,460 Fast Deliveries Inc Income statement for January Particulars $ Revenue Less- Expenses Insurance expense 300 Rent expense 300 Interest expense 168 Salaries expense 5,800 Utilities expense 1,000 Depreciation expense 500 Supplies expense 1,670 9,738 Net Income 10,722

Part - b) Statement of Retained earnings

Fast Deliveries Inc Statement of retained earnings Particulars $ Opening balance 730 Add-Net income 10,722 Closing balance 11,452

Part - c) Balance sheet

Fast Deliveries Inc Balance sheet as at 30th January Current Assets Cash 33,600 Accounts receivable 7,120 Supplies 290 Prepaid Insurance 3,300 Prepaid Rent 3,300 47,610 Property. Plant and Equipment Delivery van Less - Acoumulated depreciation 24,000 500 23,500 71, 110 Total Assets Current liabilities Accounts payable Interest payable Income received in advance 1,400 168 1.440 Utilities bill payable Salaries payable 1,000 2,900 6,908 Non Current Liabilities Loan from First state bank 33,600 Shareholder's Equity Common stock Retained earnings 19,150 11,452 30,602 Total Liabilities and Shareholder's Equity 71,110

Notes -

1.Insurance expense pertaining to January is 3,600/12 => $300; Rent expense pertaining to January is 3,600/12 => $300

2.Interest payable for January on First state Bank's loan = 33,600 x 6% / 12 months => $168

3.Depreciation on van for January = 24,000 / 4years / 12 months => 500 [Formula for annual depreciation = (Cost - Salvage value) / Useful life]. In this case Salvage value is 'Nil'. It has been assumed that the tax portion has also been capitalized.

4.Supplies expense for January = Opening supplies (460) + Purchases during the month (1,500) - Closing supplies (290) =>$1,670

5.Revenue earned during a period should be accounted in that period itself, hence the 60% of income received in advance should be accounted as revenue (3,600 x 60% = $2,160)

6.Expenses pertaining to a period should be accounted in that period itself, hence the utility expense pertaining to January should be accounted as payable, Similarly for Salaries the payable would be 1,450 per employee x 2 employees => $2,900

7.It has been assumed that the stockholders have purchased stock at par value

8. Breakup of some accounts

11,000 Revenue breakup Credit sales Cash sales Cash sales (Income received in advance) Total 11,200 7,100 2,160 20,460 Cash Opening balance Add-Receipts Loan from First state bank Stockholder contribution Receipt of Accounts receivable Cash sales Cash received for advance order Receipt of Accounts receivable 33,600 8,000 800 7,100 3,600 4,100 57,200 Accounts receivable Opening balance Less - Collection of outstanding Add - Credit sales during January Less - Collection of outstanding of January Closing balance 820 800 11,200 4,100 7,120 Less - Payments Insurance Rent Purchase of van Payment of Accounts payable Salaries paid Accounts payable Opening balance Add-Credit purchase during January Less - payament Closing balance 3,600 3,600 24,000 500 2,900 34,600 400 1,500 500 1,400 Closing balance 33,600

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