Question

Below are the account balances of Ramirez Inc. on January 1, 2019. Ramirez Inc.'s fiscal year ends on December 31. The accounts have normal debit and credit balances. Cash Additional paid-in capital Short-term note payable Accounts payable Other current assets Common stock ($1 par value) $3,750 2,825 510 190 500 240 Short-term investments Long-term note payable Property, plant and equipment Other current liabilities Accounts receivable Retained earnings Inventory $630 720 1,050 179 200 1,946 480 In addition, the following events occurred during 2019: a. Sold $610 of goods on account. Cost of goods sold is $340. b. Purchased a machine for $710. Paid $150 in cash and signed a long-term note for the rest. c. Prepaid $115 for an insurance policy for 2018. Prepaid insurance is recorded in other current assets". d. Paid $180 in cash to employees as wages for work performed in 2018. e. Purchase $135 of inventory from supplier. Paid $45 in cash and owed the rest on account. f. Cleaning supplies are presented as part of “other current assets”. The beginning balance of cleaning supplies in 2019 was $74. During the year the company purchased additional supplies for $85 in cash. A physical count of the supplies at the end of 2019 showed supplies at the amount of $110. g. A customer paid one-half of the accounts receivable balance in March of 2019. h. Ramirez Inc. paid off long-term notes payable at the amount of $665. The associated interest expense incurred and paid during 2019 was $82. i. Sold $520 of short-term investments for $605 in cash. j. Issued 100 shares for $620 in cash. k. Declared a $23 dividend in 2019. The dividend was paid in 2020. Dividend payable is part of “Other current liabilities”.

1. Prepare T-accounts for all the accounts listed above and enter the beginning balances. You will first need to determine for each account if it has a debit or credit balance. Set aside space for additional T-accounts for income statement accounts.

2. Record each of the transactions in the appropriate T-accounts. You will need to make new T- accounts for income statement accounts. The beginning balance for the income statement accounts is zero.

3. Prepare an income statement for 2019.

Answer 1

Cash Date Item Debit Credit Credit 150 180 45 85 Balance Debit 3,750 3,600 3,420 3,375 3,290 3,390 3,308 2,643 3,248 3,233 3,753 01-Jan-19 Balance b/d Machine Wages Purchase Cleaning supplies Accounts Receivable Interest on notes payable Long term Notes payable Short Term Investment Common Stock Additional paid in capital Common Stock 100 82 665 605 100 520 Date Item Debit Credit Balance Debit 01-Jan-19 Balance b/d cash Additional paid in capital Credit 240 340 100 Date Item Debit Credit Balance Debit 01-Jan-19 Balance b/d cash Credit 2,825 3,345 520 Short Term Note payable Date Item Debit Credit Balance Debit Credit 510 01-Jan-19 Balance b/d Accounts payable Date Item Debit Credit Balance Debit 01-Jan-19 Balance b/d Purchase Credit 190 180 90 Other Current Asset Date Item Debit Credit Balance Debit 500 Credit 01-Jan-19 Balance b/d Insurance 115 385

Short Term Investment Date Item Debit Credit Credit Balance Debit 630 110 01-Jan-19 Balance b/d cash 520 Accounts Receivable Date Item Debit Credit Credit 01-Jan-19 Balance b/d Sales Cash Balance Debit 200 810 710 610 100 Long Term Note payable Date Item Debit Credit Balance Debit 01-Jan-19 Balance b/d Mahine Cash Credit 720 1,280 615 560 665 Property Plant and Equipment Date Item Debit Credit Balance Debit 1,050 Credit 01-Jan-19 Balance b/d Other Current Liabilities Date Item Debit Credit Balance Debit 01-Jan-19 Balance b/d Dividend Credit 179 202 23 Retained earnings Date Item Debit Credit Balance Debit Credit 1,946 01-Jan-19 Balance b/d Inventory Date Item Debit Credit Balance Debit Credit 01-Jan-19 480 340 140 Balance b/d Cost of goods sold Accounts payable Cash 90 45 Sales Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Accounts receivable 610

Cost of goods sold Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Cost of goods sold 340 340 Machine Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Cash Long term Notes Payable 150 150 710 560 Wages Balance Date Item Debit Credit Debit Credit 01-Jan-19 Balance b/d Cash 180 180 Cleaning Supplies Date Item Debit Credit Balance Debit Credit 01-Jan-19 74 Balance b/d Cash Cleaning Supllies Expnese 85 159 110 49 Cleaning Supplies expense Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Cleaning Supplies 49 49 Interest on Notes Payable Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d cash 82 82 Profit on sale of Short term Investment Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d cash 85 85 Dividend account Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Other Current liabilities 23 23

Insurance Expense Date Item Debit Credit Balance Debit Credit 01-Jan-19 Balance b/d Other Current Asset 115 115

Income Statement for the year ended December 31, 2019
Description	Amount
Sales	610
Less Cost of Goods Sold	340
	270
Other income
Income from sale of Investment	85
Gross Profit	355
Operational expenses
Wages	180
Insurance	115
Cleaning expense	49
Interest Expense	82
Operating profit	(71)
Less: Dividend	23
Net Profit/Loss	(94)