Question

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The following transactions apply to Park Co. for 2016:

1.	Received $30,500 cash from the issue of common stock.
2.	Purchased inventory on account for $142,000.
3.	Sold inventory for $173,500 cash. Sales tax was collected at the rate of 6 percent on the inventory sold.
4.	Borrowed $18,000 from First State Bank on March 1, 2016. The note had a 6 percent interest rate and a one-year term to maturity.
5.	Paid the accounts payable (see transaction 2).
6.	Paid the sales tax due on $152,000 of sales. Sales tax on the other $21,500 is not due until after the end of the year.
7.	Salaries for the year for the one employee amounted to $29,000. Assume the Social Security tax rate is 6.20 percent and the Medicare tax rate is 1.45 percent. Federal income tax withheld was $5,000.
8.	Paid $2,600 for warranty repairs during the year.
9.	Paid $12,000 of other operating expenses during the year.
10.	Paid a dividend of $4,900 to the shareholders.

Adjustments:

11.	The products sold in transaction 3 were warranted. Park estimated that the warranty cost would be 4 percent of sales.
12.	Record the accrued interest at December 31, 2016.
13.	Record the accrued payroll tax at December 31, 2016. Assume no payroll taxes have been paid for the year and that the unemployment tax rate is 6.20 percent (federal unemployment tax rate is 0.60 percent and the state unemployment tax rate is 5.60 percent on the first $7,000 of earnings per employee)

c.		Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for 2016. (Statement of Changes in Stockholders’ Equity and Statement of Cash Flows only: Items to be deducted must be indicated with a minus sign.)
	PARK CO. Income Statement For the Year Ended December 31, 2016 Expenses Total operating expenses

	PARK CO. Statement of Changes in Stockholders’ Equity For the Year Ended December 31, 2016 Total stockholders' equity

	PARK CO. Balance Sheet As of December 31, 2016 Assets Total assets Liabilities Total liabilities Stockholders’ Equity Total Stockholders’ equity Total liabilities and stockholders’ equity
	PARK CO. Statement of Cash Flows For the Year Ended December 31, 2016 Cash flows from operating activities: Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities: Net cash flow from financing activities Net change in cash Ending cash balance

Answer 1

c	Park Co.
	Income Statement
	Sales revenue	$173,500
	Cost of Goods Sold	$142,000
	Gross Profit	$31,500
	Operating Expenses:
	Salaries expense	$29,000
	Payroll taxes	$2,652.50
	Warranty expense	$6,940
	Other operating expenses	$12,000
	Total Operating expenses	$50,593
	Income before interest	($19,093)
	Interest expense	$900
	Net income	($19,993)
	Statement of changes in stockholder's equity
		Common Stock	Retained earnings	Total
	Issue of Common Stock	$30,500		$30,500
	Net income/(loss)		($19,993)	($19,993)
	Dividend paid		($4,900)	($4,900)
	Total Stockholder's Equity	$30,500	($24,893)	$5,608
	Balance sheet
	Assets
	Current Assets:
	Cash	$40,009
	Total current assets	$40,009
	Total Assets	$40,009
	Liabilities
	Current Liabilities:
	Sales tax payable	$1,290
	Note Payable-6%, 1 year due	$18,000
	Federal Social seciruty payable	$3,596
	Federal medicare payable	$841
	Federal income tax payable	$5,000
	Warranty liability payable	$4,340
	Interest payable	$900
	Federal unemployment tax payable	$42
	State unemployment tax payable	$392
	Total current liabilities	$34,401
	Stockholder's Equity
	Common Stock	$30,500
	Retained earning	($24,893)
	Total Stockholder's Equity	$5,608
	Total Liabilities and Stockholder's equity	$40,009
	Statement of Cash Flow
	Cash flow from Operating Activities:
	Cash collected from customers	$173,500
	Cash collected for sales tax payable	$1,290
	Cash paid for inventory	($142,000)
	Cash paid to employee	($21,782)
	Cash paid for warranty repairs	($2,600)
	Cash paid for other operating expenses	($12,000)
	Net cash flow from operating activities	($3,592)
	Cash Flow from Investing Activities
	Cash Flow from Financiang Activities
	Issue of Common Stock	$30,500
	Bank loan-Note payable	$18,000
	Dividend Paid	($4,900)
	Net cash flow from financing activities	$43,600
	Net Change in Cash	$40,009
	Beginning cash balance	$0
	Ending Cash Balance	$40,009
	Working Notes:
	Sales tax payable
	(21500 x 6%)	1290
	Payroll taxes
	FICA-(6.2%+1.45%=7.65% x 29000)	2218.50
	FUTA (7000 X 0.6%)	42.00
	suta (7000 X 5.6%)	392.00
	Total	2652.50
	Warranty liability (173500 x 4%)	6940
	warranty repairs paid	2600
	Warranty liability payable	4340
	Interest expense (18000 x 6% x 10/12)	900

Salaries Expense	$29,000
Less: FICA taxes withheld	$2,218.50
Federal income tax withheld	$5,000
Net salaries paid	$21,781.50