Question

Use the following financial statements and additional information.

SANCHEZ INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	101,300			$	48,900
Accounts receivable, net		68,000				53,000
Inventory		69,000				96,000
Prepaid expenses		5,700				7,100
Total current assets		244,000				205,000
Equipment		179,000				166,000
Accum. depreciation—Equipment		(45,000	)			(15,000	)
Total assets	$	378,000			$	356,000
Liabilities and Equity
Accounts payable	$	33,000			$	40,000
Wages payable		7,000				17,000
Income taxes payable		3,600				4,000
Total current liabilities		43,600				61,000
Notes payable (long term)		43,000				85,000
Total liabilities		86,600				146,000
Equity
Common stock, $5 par value		250,000				180,000
Retained earnings		41,400				30,000
Total liabilities and equity	$	378,000			$	356,000

SANCHEZ INC. Income Statement For Year Ended June 30, 2017
Sales				$	940,000
Cost of goods sold					575,000
Gross profit					365,000
Operating expenses
Depreciation expense	$	77,000
Other expenses		93,000
Total operating expenses					170,000
					195,000
Other gains (losses)
Gain on sale of equipment					5,200
Income before taxes					200,200
Income taxes expense					61,280
Net income				$	138,920

Additional Information

a.   A $43,000 note payable is retired at its $43,000 carrying (book) value in exchange for cash.

b.   The only changes affecting retained earnings are net income and cash dividends paid.

c.   New equipment is acquired for $75,000 cash.

d.   Received cash for the sale of equipment that had cost $62,000, yielding a $5,200 gain.

e.   Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.

f.     All purchases and sales of inventory are on credit.

Make a Journal entry worksheet

1. Reconstruct the journal entry for cash receipts from customers, incorporating the change in the related balance sheet account(s), if any.

2. Reconstruct the journal entry for cash payments for inventory, incorporating the change in the related balance sheet account(s), if any.

3. Reconstruct the journal entry for depreciation expense, incorporating the change in the related balance sheet account(s), if any.

4. Reconstruct the journal entry for cash paid for operating expenses, incorporating the change in the related balance sheet account(s), if any.

5. Reconstruct the journal entry for the sale of equipment at a gain, incorporating the change in the related balance sheet account(s), if any.

6. Reconstruct the journal entry for income taxes expense, incorporating the change in the related balance sheet account(s), if any.

7. Reconstruct the entry to record the retirement of the $43,000 note payable at its $43,000 carrying (book) value in exchange for cash.

8. Reconstruct the entry for the purchase of new equipment.

9. Reconstruct the entry for the issuance of common stock.

10. Close all revenue and gain accounts to income summary.

11. Close all expense accounts to income summary.

12. Close Income Summary to Retained Earnings.

13. Reconstruct the journal entry for cash dividends paid.

Answer 1

1. Cash receipt from customers
Account Title	Debit	Credit
Cash	925000
Accounts Receivable		925000
(Cash received from the sale)
Accounts receivable, July 1, 2016	53000
Sales during the year	940000
Total	993000
Accounts receivable, June 30, 2017	-68000
Cash receipts from customers	925000

2. Cash payments for inventory Account Title Debit Credit Accounts Payable 555000 Cash 555000 (Cash paid for inventory) Inventory, June 30, 2017 69000 Cost of goods sold 575000 Total 644000 Inventory, July 1, 2016 -96000 Purchase of inventory during the year 548000 Accounts Payable, July 1, 2016 40000 Total 588000 Accounts Payable, June 30, 2017 -33000 Cash paid for inventory during the year 555000

3. Depreciation Expense for the year
Account Title	Debit	Credit
Depreciation Expense	77000
Accumulated Depreciation		77000

4. Cash paid for operating expenses
Account Title	Debit	Credit
Operating Expenses	110000
Cash		110000
Accounts Payable, July 1, 2016		40000
Wages Payable , July 1, 2016		17000
Other expenses for the year		93000
Total		150000
Minus:
Accounts Payable, June 30, 2017	33000
Wages Payable , June 30, 2017	7000
		40000
Cash paid for operating expenses		110000

5. Entry for sale of equipment at a gain
Account Title	Debit	Credit
Cash	20200
Accumulated Depreciation (Sale)	47000
Gain on sale of equipment		5200
Equipment (Sale)		62000
Cost of equipment sold
Equipment, July1, 2016	166000
Plus : Purchases during the year	75000
Total	241000
Minus: Equipment, June 30, 2017	179000
Value of equipment sold	62000
Depreciation on equipment sold
Acumulated Depreciation , July 1, 2016	15000
Depreciation expense for the year	77000
Total	92000
Minus : Accumulated Depreciation , June30, 2017	45000
Depreciation on the equipment sold	47000
Net value of the equipment sold (62,000 - 47,000)	15000
Gain on sale of equipment	5200
Cash received on sale of equipment	20200

6. Cash paid for income taxes
Account Title	Debit	Credit
Income Tax payable	61680
Cash		61680
Income Taxes Payable, June 30, 2016	4000
Income tax expense for the year	61280
Total	65280
Income Taxes Payable, July 31, 2017	-3600
Cash paid for income tax	61680

7. Retirement of note payable
Account Title	Debit	Credit
Note Payable	42000
Cash		42000
As per the balance sheet, the retirement is $42,000 (85,000 - 43,000)

8. Purchase of equipment
Account Title	Debit	Credit
Equipment	75000
Cash		75000

9. Issue of 14,000 shares of common Stock of $5 par value
Account Title	Debit	Credit
Cash	70000
Common stock		70000

10. Closing revenue and gain accounts to income summary
Account Title	Debit	Credit
Sales	940000
Gain on sale of equipment	5200
Income Summary		945200
11. Closing expense acounts to income summary
Account Title	Debit	Credit
Income Summary	806280
Cost of goods sold		575000
Depreciation Expense		77000
Operating expenses		93000
Income tax expense		61280
12. closing income summary to retianed earnings
Account Title	Debit	Credit
Income Summary	138920
Retained Earnings		138920
13. Cash dividends paid
Account Title	Debit	Credit
Retained Earnings	127520
Cash		127520
Retained earnings , July 1, 2016	30000
Net income for the year	138920
Total	168920
Retained Earnings , June 30, 2017	41400
Cash dividends paid	127520