Question

NewCo sold 100,000 shares of stock (par value 1.00) for $800,000. Purchased machinery for $75,000 signing a long-term note on 3/1 with an interest rate of 5%. Depreciation for the year is $7,000. On 9/1 purchased a year’s worth of rent in advance for $24,000. On 9/1 purchased $20,000 worth of supplies with cash. At the end of the year it was determined that only $5,000 worth of supplies remained.   Newco sold and delivered services for $200,000 on account. Newco also sold and delivered services for cash for $300,000. NewCo received $95,000 at the beginning of December to perform services later, by year-end 20% of the services had been performed. The related bad debt rate is 2% on net total credit sales.   NewCo had paid salaries during the year at $50,000. The next payday is after the year ends. The amount of unpaid salaries for 2016 is $5,000. A utility bill just arrived at year-end for $2,000. We don’t plan on paying for the utilities until next year. We paid a cash dividend of $5,000. Tax rate is 30%.  

* Prepare a formal income statement and balance sheet for NewCo for the year 2016.

* Prepare ALL journal Entries including adjusting entries and Closing Entries

Answer 1

Journal Entries:
Date	Accounts Title	Debit $	Credit $
1-Jan	Cash	800000
	Common stock		100000
	Additional paid in capital		700000
	(being 100000 shares sold @ $1 par)
1-Mar	Machinery	75000
	Note Payable		75000
	(being machinery purchased signing note)
1-Sep	Prepaid rent	24000
	Cash		24000
	(being a year's worth of rent in advance purchased)
1-Sep	Supplies	20000
	Cash		20000
	(being supplies purchased)
1-Dec	Cash	95000
	Unearned revenue		95000
	(being cash received for future services)
31-Dec	Accounts Receivable	200000
	Services revenue		200000
	(being services sold on account)
31-Dec	Cash	300000
	Services revenue		300000
	(services sold in cash)
31-Dec	Depreciation exp.	7000
	Acc. Dep. - Machinery		7000
	(depreciation for the year booked)
31-Dec	Rent expense	8000
	Prepaid rent		8000
	(rent expense booked)
31-Dec	Supply expense	15000
	Supplies		15000
	(being supplies expense booked)
31-Dec	Unearned revenue	19000
	Service revenue		19000
	(being 20% earned revenue of Unearned revenues booked)
31-Dec	Bad Debts expense	4000		(200000*2%)
	Accounts Receivable		4000
	(being bad debts expenses booked)
31-Dec	Salaries expense	50000
	Cash		50000
	(year's salary paid)
31-Dec	Salaries expense	5000
	Salaries payable		5000
	(being salaries payable booked)
31-Dec	Utilities expense	2000
	Accounts payable		2000
	(being utilities bills received and made payable)
31-Dec	Dividend	5000
	Cash		5000
	(dividend paid)
31-Dec	Interest expense	3125		(75000*5%*10/12)
	Interest payable		3125
	(being interest on note made payable)

Adjusted Trial Balance:
Accounts Title	Debit $	Credit $	Calculation
Cash	1096000		800000-24000-20000+95000+300000-50000-5000
CS		100000
APIC		700000
Machinery	75000
Note payable		75000
Prepaid rent	16000		24000-8000
supplies	5000		20000-15000
Unearne rev.		76000	95000-19000
AR	196000		200000-4000
service revenue		519000
Dep. Exp.	7000
Acc. Dep.		7000
Rent exp.	8000
supply exp.	15000
Bad debts exp	4000
salary exp.	55000		50000+5000
Salary payable		5000
Utilities exp.	2000
Dividend	5000
AP		2000
Interest exp.	3125
Interest payable		3125
Total	1487125	1487125
Income Statement:
	Amount $
Service rev.	519000
Less:Expenses:
Dep. Exp.	7000
Rent exp.	8000
supply exp.	15000
Bad debts exp	4000
salary exp.	55000
Utilities exp.	2000
Interest exp.	3125
Total expenses	94125
IBT	424875
Less:Taxes 30%	127462.5
Net Income	297412.5
Less:Dividend	5000
Income transf. to RE	292412.5
Balance Sheet:
Assets	Amount $
Cash	1096000
AR (net)	196000
Prepaid rent	16000
supplies	5000
Current assets	1313000
Machinery	75000
Acc. Dep.	-7000
Total Assets	1381000
Liabi. & Shareholders' Equity	Amount $
AP	2000
Unearned revenue	76000
Salary payable	5000
Interest payable	3125
Taxes payable	127462.5
Current Liabilities	213587.5
Long term liabilities:
Note payable	75000
Shareholders' Equity:
CS	100000
APIC	700000
RE	292412.5
Total Liab. & SH Eq.	1381000