Question

164 #10 Bond Homework Problem 1* A Challenging Cash Flow Problem- The following balances are from the beginning of the year for Sam's Town Compary as of December 31, 2018: Cash Accounts Receivable Allowance for Doubtful Accts Inventory Prepaid Rent Equipment Accumulated Depreciation Security Deposit Accounts Payable Wages Payable 120,000 40,000 2,000 60,000 (3 junkets) 3,000 200,000 60,000 10,000 5,000 5,000 8,000 100,000 Interest Payable Taxes Payable Payable k (51 cc)101,000 Common Stock ($1 each) Retained Earnings 60,000 For 2019: Received all beginning accounts receivable and paid all beginning accounts payable Bought five Junkets at $25,000 each, 20% down, rest next year sold six Junkets, $50,000 each, 60% down, 40% next year Paid cash wages of $40,000 and at the end of the year owed employees $2,000 Paid utilities of $12,000 and advertising of $10,000. On June 30, they paid the annual payment of $10,000 principal plus interest on Payable. The note was taken out on June 30h of the previous year (Can you figure out the interest rate?) On August 1, purchased a new wagon for delivery of the junkets for $20,000 On December 1, they declared and paid a dividend of $5,000 On December 31, the company borrowed $75,000 from the bank and used the proceeds to purchase a piece of land. The note is payable in five years. The interest at 6% is payable annually on December 31 of each year starting in 2019. During the year they paid $8,000 in rent (rent is $1,000 per month) The company uses the FIFO inventory flow assumption The depreciation for the year was $40,000 The company estimates that 4% of its accounts receivable will never be collected. During the year the company wrote off $1,500 in bad accounts. The tax rate is 30%. During the year the company paid all of last year's taxes and 50% of 2019 taxes. Prepare Journal Entries, T-Accounts, and Financial Statements for the year 2019.

Answer 1

1. Journal entries

No	Particulars	Debit	Credit
1	Cash	40000
	Account Receivables		40000
2	Account payables	92000
	Cash		92000
3	Purchase	125000
	Cash		25000
	Account Payable		100000
4	Cash	180000
	Account Receivables	120000
	Sales		300000
5	Wages	37000
	Wages payables	3000
	Cash		40000
6	utilities	12000
	Advertisement	10000
	cash		22000
7	Notes payable	10000
	Interest payable(5000/100000*2=10%)	5000
	Interest(100000*10%/2) half year	5000
	Cash		20000
8	Wagon	20000
	cash		20000
9	Dividend	5000
	cash		5000
10	land	75000
	Note payable 2 (6%)		75000
11	Rent	12000
	cash		8000
	Prepaid rent		3000
	Rent payable		1000
12	Interest (90000*10%/2)	4500
	interest payable		4500
13	Depreciation	40000
	Accumulated depreciation		40000
14	Bad debt	1500
	Accounts receivables		1500
15	Provision for bad debt(4740(120000-1500)*5%-2000(old provision))	2740
	profit & loss		2740
17	Tax payable	14039
	cash		14039
16	Income tax expenses	12078
	Tax payable		12078

2. All T accounts are simple to prepare according to the information in Journal. I am preparing only cash account here

Particulars	Amount	Particulars	Amount
Opening	120000	Accounts payables	92000
Account receivable	40000	Dividend paid	5000
Sales	180000	Utility	12000
		Advertisement	10000
		rent	8000
		Wages	40000
		Interest	10000
		Note payable	10000
		Purchase	25000
		Wagon	20000
		Income tax	14039
		Closing balance	93961
Total	340000	Total	340000

3. Financial statements

Trading and Profit and Loss account

Particulars	Amount	Particulars	Amount
Op. Stock	60000	Sales	300000
Purchase	125000	Closing stock	50000
Gross profit	165000
Total	350000	Total	350000
Wages	37000	Gross profit	165000
Rent	12000
Utility	12000
Advertisement	10000
Depreciation	40000
Bad debt	1500
Provision for bad debt	2740
Interest	9500
Net profit	40260
total	165000	Total	165000
Income tax	12078	Net profit	40260
Dividend	5000
Retained earnings	23182
Total	40260	Total	40260

Balance sheet

Liabilities	Amount	Asset	Amount
Common stock	60000	Equipment	200000
Retained earnings	124182	Securities	10000
Accumulated depreciation	100000	land	75000
Notes payable 1	90000	Wagon	20000
Notes payable 2	75000	Accounts receivable	113760
Wages payable	2000	Closing stock	50000
Rent payable	1000	Cash	93961
Tax payable	6039
Interest payable	4500
Accounts payable	100000
total	562721	Total	562721