Question

Expert Q&A Done On July 2, 2019, you decided to start up a new business - Smart Reader Inc., an off- campus bookstore where students can buy textbooks and supplies at reduced prices. The following are summary transactions for the period July 2, 2019 to October 31, 2019, the company's year end. 1. You and several other shareholders invested $20,000 in return for shares in the company 2. A suitable location is found and rent is $1,000 per month. The lease agreement is for one year (1.c., ends on June 30, 2020). The entire rent for one year is due upon signing of the lease on July 2, 2019 3. A 6-month bank loan in the amount of $20,000 was obtained on August 1, 2019. The annual interest rate is 9% 4. Furniture and fixtures are purchased at a cost of $15,000. These are purchased for cash 5. Books and supplies of $50,000 was purchased on account. 6. An insurance policy was purchased for $1.200 cash. The policy takes effect on July 2. 2019 and expires on June 30, 2020 7. An additional S120.000 of inventory was purchased on account & Sales for the period ended October 31, 2019 were: Cash sales - $190,000 Sales on account - $6,000 Cost of goods sold related to the sales amounts to $130,000. 9. A total of $4,000 of the sales made on account were collected. 10. Additional cash disbursements for the year were as follows: Wages and salaries $36,000 Advertising 2,000 Miscellaneous expense 1,500 Dividends to shareholders 10,000 Payments on account re:purchases of 120,000 inventory $169,500 The following adjustments at year end must be made: II. The furniture and fixtures are expected to last a total of 10 years with no residual value. The straight-line method is used. 12. The adjustment for insurance expense 13. The interest payable on the bank loan. Credit to "Accrued Liabilities". 14. Invoices received but not yet paid amount to $700 for miscellaneous expenses. Credit Accrued Liabilities 15. Employees are owed a total of 5600 for wages and salaries. Credit to "Accrued Liabilities 16. The adjustment for rent expense. 17. The expected income tax rate is 30%. Credit to "Accrued Liabilities" Required: Prepare the following statements with proper headings Multi-step income statement Statement of Changes in Equity Statement of Financial Position

Answer 1

SmartReader Inc. Journal Enteries Trans. Particulars 1 Cash Common Stock (Common stock issued) Debit in $ Credit in $ 20000 20000 2 12000 Prepaid Rent Cash (1 year rent paid) 12000 3 20000 Cash Bank Loan (Loan issued) 20000 4 Furniture & Fixtures 15000 Cash 15000 (Furnitures purchased) 5 50000 Inventory Accounts Payable (Inventory on account) 50000 6 1200 Prepaid Insurance Cash (1 year insurance purchased) 1200 7 120000 Inventory Accounts Payable (Inventory on account) 120000 190000 6000 Cash Accounts Receivable Sales (Sales recorded) 196000 130000 Cost of goods sold Inventory (To record cost of goods sold) 130000 9 4000 Cash Accounts Receivable (Cash from debtors) 4000 10 Wages and Salaries Expense Advertising Expense Miscellaneous Expense Dividends Accounts Payable 36000 2000 1500 10000 120000 Cash 169500 (Payments recorded)

Adjusting Enteries Trans. Particulars Debit in $ Credit in $ 11 Depreciation Expense 500 Accum. Depre. - Furn.& Fixt. 500 (To record depreciation)( 15000 /( 10 x 12 ) ) x 4 12 400 Insurance Expense Prepaid Insurance (Insurance expired) 400 13 450 Interest Expense Accrued Liabilities (Interest accrued) 20000 x 9% x 3/12 450 14 700 Miscellaneous Expense Accrued Liabilities (Expense accrued) 700 15 600 Wages and Salaries Expense Accrued Liabilities (Expense accrued) 600 16 4000 Rent Expense Prepaid Rent (Rent expired) 4000 17 5955 Income tax expense Accrued Liabilities (Expense accrued) 5955

Worksheet For the period ending 31.10.2019 8000 Particulars Cash Accounts Receivable Inventory Prepaid Rent Prepaid Insurance Furniture & Fixtures Accum. Depre. - Furn.& Fixt. Accounts Payable Accrued Liabilities Bank Loan Common Stock Dividends Sales Cost of goods sold Wages and Salaries Expense Advertising Expense Miscellaneous Expense Depreciation Expense Insurance Expense Interest Expense Miscellaneous Expense Rent Expense Income tax expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 36300 36300 2000 2000 40000 40000 12000 4000 1200 400 800 15000 15000 500 500 50000 50000 7705 7705 20000 20000 20000 20000 10000 10000 196000 196000 130000 130000 36000 600 36600 2000 2000 1500 1500 500 500 400 400 450 450 700 700 4000 4000 5955 5955 286000 286000 12605 12605 294205 294205 Statement of Income For the period ending 31.10.2019 Sales 196000 - 130000 66000 Cost of goods sold Gross Margin Operating Expenses: Wages and Salaries Expense Advertising Expense Miscellaneous Expense Depreciation Expense Insurance Expense Miscellaneous Expense Rent Expense Operating Income Non Operating Items: Interest Expense 36600 2000 1500 500 400 700 4000 45700 20300 -450 19850 -5955 13895 Income tax expense @ 30% Net Income Statement of Changes in Equity For the period ending 31.10.2019 Beginning Balance Add: Capital Invested Add: Net Income Less:Dividends Common Retained Stock Earnings 0 0 20000 13895 -10000 20000 3895 Total 0 20000 13895 -10000 23895

Amounts in $ Amounts in $ Balance sheet As at 31.10.2019 Assets Current Assets Cash Accounts Receivable Inventory Prepaid Rent Prepaid Insurance Amounts in $ Amounts in $ Liabilities Current Liabilities 36300 Accounts Payable 2000 Accrued Liabilities 40000 8000 Non Current Liabilities 800 87100 Bank Loan 50000 7705 57705 20000 15000 Non Current Assets Furniture & Fixtures Accum. Depre. - Furn.& Fixt. Total Assets Shareholders Equity Common Stock 14500 Retained Earnings 101600 Total Liabilities & Equity 20000 3895 -500 23895 101600