(a)
Balance Sheet
This is a financial statement that shows the assets owned, and the liabilities owed to the creditors and the owners (
To Prepare: The
(a)
Explanation of Solution
Figure (1)
Description:
- Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $2,500.
- Cash is a current asset, and decreased. Therefore, credit cash account for $2,500.
Figure (2)
Description:
- Inventory is a current asset, and increased. Therefore, debit inventory account for $241,100.
- Accounts payable is a current liability, and increased. Therefore, credit accounts payable account for $241,100.
Figure (3)
Description:
- Cash is a current asset, and increased. Therefore, debit cash is a current asset account for $508,800.
- Sales taxes payable is a current liability, and increased. Therefore, credit sales taxes payable account for $28,800.
- Sales revenue is a component of stockholders’ equity, and increased it. Therefore, credit sales revenue account for $480,000.
Figure (4)
Description:
- Cost of goods sold is a component of stockholders’ equity, and decreased it. Therefore, debit cost of goods sold account for $265,000.
- Inventory is a current asset, and decreased. Therefore, credit inventory account for $265,000.
Figure (5)
Description:
- Accounts payable is a current liability, and decreased. Therefore, debit accounts payable account for $230,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $230,000.
Figure (6)
Description:
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $2,500.
- Cash is a current asset, and decreased. Therefore, credit cash account for $2,500.
Figure (7)
Description:
- Insurance expense is a component of stockholders’ equity, and decreased it. Therefore, debit insurance expense account for $5,600.
- Cash is a current asset, and decreased. Therefore, credit cash account for $5,600.
Figure (8)
Description:
- Prepaid insurance is a current asset, and increased. Therefore, debit prepaid insurance account for $10,200.
- Cash is a current asset, and decreased. Therefore, credit cash account for $10,200.
Figure (9)
Description:
- Sales taxes payable is a current liability, and decreased. Therefore, debit sales taxes payable account for $17,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $17,000.
Figure (10)
Description:
- Other operating expenses are a component of stockholders’ equity, and decreased it. Therefore, debit other operating expenses account for $91,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $91,000.
Figure (11)
Description:
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $2,500.
- Cash is a current asset, and decreased. Therefore, credit cash account for $2,500.
Figure (12)
Description:
- Bonds payable is a liability, and decreased. Therefore, debit bonds payable account for $50,000.
- Gain on redemption of bonds is a component of stockholders’ equity, and increased it. Therefore, credit gain on redemption of bonds account for $2,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $48,000.
Figure (13)
Description:
- Cash is a current asset, and increased. Therefore, debit cash account for $92,700.
- Premium on bonds payable is a contra liability, and increased. Therefore, credit premium on bonds payable for $2,700.
- Bonds payable is a long-term liability, and increased. Therefore, credit bonds payable account for $90,000.
To Prepare: The
Explanation of Solution
Prepare the adjustment entries of Corporation as shown below:
Figure (14)
Working note:
Calculate interest expense as shown below:
Description:
Insurance expense is a component of stockholders’ equity, and decreased it. Therefore, debit insurance expense account for $4,250.
Prepaid insurance is a current asset, and decreased. Therefore, credit cash account for $4,250.
Figure (15)
Description:
Depreciation expense is a component of stockholders’ equity, and decreased it. Therefore, debit depreciation expense account for $7,000.Accumulated depreciation – equipment is a contra asset, and increased. Therefore, credit accumulated depreciation - equipment account for $7,000.
Figure (16)
Working note:
Calculate income tax expense as shown below:
Description:
- Income tax expense is a component of stockholders’ equity, and decreased it. Therefore, debit income tax expense account for $31,245.
- Income taxes payable is a current liability, and increased. Therefore, credit income taxes payable account for $31,245.
To Prepare: The T-Accounts of Corporation A.
Answer to Problem 10.1CACR
Cash | |||
Bal. | $30,000 | $2,500 | |
$508,800 | $230,000 | ||
$92,700 | $2,500 | ||
$10,200 | |||
$17,000 | |||
$91,000 | |||
$2,500 | |||
$48,000 | |||
Bal. | $227,800 |
Table (1)
Inventory | |||
Bal. | $30,750 | $265,000 | |
$241,100 | |||
Bal. | $6,850 |
Table (2)
Prepaid Insurance | |||
Bal. | $5,600 | $5,600 | |
$10,200 | $4,250 | ||
Bal. | $5,950 |
Table (3)
Equipment | |||
Bal. | $38,000 |
Table (4)
Accumulated Depreciation - Equipment | |||
$7,000 |
Table (5)
Accounts Payable | |||
$230,000 | Bal. | $13,750 | |
$241,100 | |||
Bal. | $24,850 |
Table (6)
Other Operating Expenses | |||
$91,000 |
Table (7)
Interest Expense | |||
$2,500 | |||
$2,500 | |||
Bal. | $5,000 |
Table (8)
Income Tax Expense | |||
$31,245 |
Table (9)
Interest Payable | |||
$2,500 | Bal. | $2,500 | |
Bal. | $0 |
Table (10)
Sales Taxes Payable | |||
$17,000 | $28,800 | ||
Bal. | $11,800 |
Table (11)
Income Taxes Payable | |||
$31,245 |
Table (12)
Bonds Payable | |||
$50,000 | Bal. | $50,000 | |
$90,000 | |||
Bal. | $90,000 |
Table (13)
Premium on Bonds Payable | |||
$2,700 |
Table (14)
Common Stock | |||
Bal. | $25,000 |
Table (15)
Retained Earnings | |||
Bal. | $13,100 |
Table (16)
Sales Revenue | |||
$480,000 |
Table (17)
Cost of Goods sold | |||
$265,000 |
Table (18)
Depreciation Expense | |||
$7,000 |
Table (19)
Insurance Expense | |||
$5,600 | |||
$4,250 | |||
Bal. | $9,850 |
Table (20)
Gain on Redemption of Bonds | |||
Bal. | $2,000 |
Table (21)
Explanation of Solution
Normal balance of assets account, expenses, losses account is debit balance. Hence, a debit increases these accounts and credit decreases these accounts.
Normal balance of liabilities account, capital account, revenue account and gains is credit balance. Hence, a debit decreases these accounts and credit increases these accounts.
(b)
To Prepare: The adjusted trail balance of Corporation A on December 31, 2017.
(b)
Explanation of Solution
Prepare the adjusted trail balance of Corporation A on December 31, 2017 as shown below:
Figure (17)
(c)
To Prepare: The income statement of Corporation A on December 31, 2017.
(c)
Answer to Problem 10.1CACR
Prepare the income statement of Corporation A on December 31, 2017 as shown below:
Figure (18)
Explanation of Solution
Gross profit is calculated by deducting cost of goods sold from sales revenue. Total operating expenses are calculated by adding insurance expense, depreciation expense, and other operating expenses. Income from operations is calculated by deducting total operating expenses from gross profit. Income before taxes is calculated by deducting interest expenses and adding gain on redemption of bonds from income from operations. Income tax expense is calculated by multiplying income from operations with tax rate. Net income is calculated by deducting income tax expense from income before taxes.
To Prepare: The retained earnings statement of Corporation A on December 31, 2017.
Answer to Problem 10.1CACR
Prepare retained earnings statement of Corporation A on December 31, 2017 as shown below:
Figure (19)
Explanation of Solution
Ending retained earnings is calculated by adding opening retained earnings and net income and then deducting the dividends. Therefore, ending retained earnings is $86,005.
To Prepare: The classified balance sheet statement of Corporation A on December 31, 2017.
Explanation of Solution
Prepare classified balance sheet statement of Corporation A on December 31, 2017 as shown below:
Figure (20)
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Chapter 10 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- Limited Review of the Akins Income Statement shows 100,000 of Net Sales for the Year 2017 and Net Income of 12,000. The terms for Sales and Purchases are 2/10, n/30. Partial Comparative Balance Sheets for the Akins Corporation appear below: (In Thousands) (In Thousands) 2017 2016 $ 3,000 $15,000 5,000 Cash Marketable Securities 9,000 Accounts Receivable 25,000 15,000 23,000 17,000 Inventory Equipment (At Book Value) 60,000 55,000 Land 20,000 15,000 Patents 50.000 50,000 Total Assets $190,000 $172,000 Current Liabilities 10,000 30,000 Long Term Liabilities Total Liabilities 70.000 100,000 75,000 85,000 a) Compute the current ratio for 2017 b) Compute the accounts receivable turnover ratio for 2017 c) Compute the average days uncollected for 2017 and provide observation.arrow_forwardTyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. 2016 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n/30. Tyrell uses the perpetual inventory system. May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along with paying $5,250 in cash. July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day, 9% interest-bearing note with a face value of $80,000. ___?___ Paid the amount due on the note to Locust at the maturity date. ___?___ Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $42,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $42,000. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. 2017 __?__ Paid the amount due on the note to Fargo Bank at the maturity date. 3. Determine the…arrow_forwardTyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. 2016 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n/30. Tyrell uses the perpetual inventory system. May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along with paying $5,250 in cash. July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day, 9% interest-bearing note with a face value of $80,000. ___?___ Paid the amount due on the note to Locust at the maturity date. ___?___ Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $42,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $42,000. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. 2017 __?__ Paid the amount due on the note to Fargo Bank at the maturity date. 5.1 Prepare…arrow_forward
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