1.Prepare journal entries for the 18 transactions.

Required:

1.Prepare journal entries for the 18 transactions.

2.Prepare a trial balance showing what the ending ledger balances would be after the 18 transactions.

3.Prepare an income statement for the year.

4.Prepare a statement of stockholders’ equity for the year

5.Prepare a balance sheet at the end of the year 2016.

Best Company

January 1, 2016,

Balance Sheet

Cash                           20,000

Accounts receivable                   110,000

Less: Allowance for doubtful accounts       (10,000)

Inventory (500 units @ $20 each)           10,000

Equipment                       9,000

Less: Accumulated depreciation           ( 2,000)

—————–

Total assets               137,000

Accounts payable                   20,000

Long-term notes payable (5% interest, due in 2019)   100,000

Capital stock                       10,000

Retained earnings                      7,000

——————-

137,000

Transactions or events:

The company collected 98,000 of the accounts receivable in cash.

The company wrote off one $1,000 accounts receivable from J. Jones

On Jan. 1, the company bought a car for $30,000.

The company paid 19,000 of its accounts payable in cash.

The company bought 900 units of inventory for $21 each in cash.

The company bought a 1 year insurance policy for $2400 on October 1.

The company paid rent for the months January through December of $18,000

On July 1, the company bought rights to a patent for $20,000. The patent has ten more years of useful life.

On Dec 31, the company paid rent for Jan. 2017 for $1,500.

On Dec. 1, the company bought another 200 units of inventory for $22 on account.

On Dec. 15, the company sold 1,300 units for $30 each. 1000 were sold for cash, and 300 on account.[The company accounts for its inventory on the FIFO basis, so the first items bought are assumed to be the first ones sold.]

The company decided to record bad debt expense of $1,000.

The company recorded depreciation on the equipment. The equipment is one year old. It had a cost of $9,000, salvage value of $1,000, and an expected useful life of 4 years.

Expert Answer

 

1. Journal entries

No. Account Titles and Explanation Debit Credit
1 Cash 98000
Accounts receivable 98000
2 Allowance for doubtful accounts 1000
Accounts receivable – J. Jones 1000
3 Equipment (Car) 30000
Accounts payable 30000
4 Accounts payable 19000
Cash 19000
5 Inventory (900 x $21) 18900
Cash 18900
6 Prepaid insurance 2400
Cash 2400
7 Prepaid rent 18000
Cash 18000
8 Patent 20000
Cash 20000
9 Prepaid rent 1500
Cash 1500
10 Inventory (200 x $22) 4400
Accounts payable 4400
11 Cost of goods sold [(500 x $20)+(800 x $21)] 26800
Inventory 26800
12 Cash (1000 x $30) 30000
Accounts receivable (300 x $30) 9000
Sales revenue (1300 x $30) 39000
13 Bad debt expense 1000
Allowance for doubtful accounts 1000
14 Depreciation expense [(9000 – 1000)/4] 2000
Accumulated depreciation 2000
15 Rent expense 18000
Prepaid rent 18000
16 Insurance expense (2400 x 3/12) 600
Prepaid insurance 600
17 Amortization expense (20000/10 years x 6/12) 1000
Accumulated amortization 1000
18 Interest expense ($100000 x 5%) 5000
Interest payable 5000

2.

Best Company
Trial Balance
December 31, 2016
Account Title Debit Credit
Cash 68200
Accounts Receivable 20000
Prepaid rent 1500
Prepaid insurance 1800
Inventory 6500
Equipment 39000
Patent 20000
Allowance for doubtful accounts 10000
Accumulated depreciation 4000
Accumulated amortization 1000
Accounts Payable 35400
Interest payable 5000
Long-term notes payable 100000
Capital Stock 10000
Retained Earnings 7000
Sales revenue 39000
Cost of goods sold 26800
Rent Expense 18000
Insurance expense 600
Bad debt expense 1000
Depreciation expense 2000
Amortization expense 1000
Interest expense 5000
Totals 211400 211400

3.

Best Company
Income Statement
For the Year Ended December 31, 2016
Sales revenue 39000
Cost of goods sold 26800
Gross profit 12200
Operating expenses:
Rent Expense 18000
Insurance expense 600
Bad debt expense 1000
Depreciation expense 2000
Amortization expense 1000
Interest expense 5000
Total expenses 27600
Net loss -15400

4.

Best Company
Statement of Stockholders’ Equity
December 31, 2016
Capital Stock 10000
Retained earnings 7000
Less: Net loss for the year -15400 -8400
1600

5.

Best Company
Balance Sheet
December 31, 2016
Assets
Cash 68200
Accounts Receivable 20000
Allowance for doubtful accounts -10000 10000
Prepaid rent 1500
Prepaid insurance 1800
Inventory 6500
Equipment 39000
Accumulated depreciation -4000 35000
Patent 19000
Total Assets 142000
Liabilities and Stockholders’ Equity
Accounts Payable 35400
Interest payable 5000
Long-term notes payable 100000
Capital Stock 10000
Retained Earnings -8400
Total Liabilities and Stockholders’ Equity 142000
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